Legislature(1995 - 1996)
01/23/1996 01:40 PM House FIN
| Audio | Topic |
|---|
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
HOUSE FINANCE COMMITTEE
JANUARY 23, 1996
1:40 P.M.
TAPE HFC 96 - 17, Side 1, #000 - end.
TAPE HFC 96 - 17, Side 2, #000 - end.
TAPE HFC 96 - 18, Side 1, #000 - #298.
CALL TO ORDER
Co-Chair Mark Hanley called the House Finance Committee
meeting to order at 1:40 P.M.
PRESENT
Co-Chair Hanley Representative Martin
Co-Chair Foster Representative Mulder
Representative Kohring Representative Navarre
Representative Grussendorf Representative Therriault
Representative Kelly
Representative Brown and Parnell were not present for the
meeting.
ALSO PRESENT
Senator Rick Halford; Representative Con Bunde;
Representative John Davies; Brooke Miles, Juneau Branch
Administrator, Regulations of Lobbying, Public Offices
Commission, Department of Administration; Peter Bushre,
Chief Financial Officer, Alaska Permanent Fund Corporation,
Department of Revenue; Jim Kelly, Research & Liaison
Officer, Alaska Permanent Fund Corporation, Department of
Revenue; Tamara Cook, Director, Office of the Director,
Legislative Legal Services; Randy Welker, Legislative
Auditor, Legislative Audit Division; Mike Greany, Director,
Legislative Finance Division; Fred Fisher, Fiscal Analyst,
Legislative Finance Division; Annalee McConnell, Director,
Office of Management and Budget, Office of the Governor.
SUMMARY
SB 84 An Act making a special appropriation to the
principal of the permanent fund; and providing for
an effective date.
HCS CS SB 84 (FIN) was reported out of Committee
with a "do pass" recommendation and with a zero
fiscal note by the House Finance Committee.
HB 241 An Act relating to the use of a candidate's
1
campaign account.
CS HB 241 (STA) was reported out of Committee with
a "do pass" recommendation and with a fiscal note
by the House Finance Committee.
HOUSE BILL 241
"An Act relating to the use of a candidate's campaign
account."
REPRESENTATIVE CON BUNDE testified in support of HB 241. He
explained that the national trend to increase legislator and
candidate accountability was becoming more prominent. He
noted that citizens who contribute to campaigns, non-profit
organizations, and other causes want to know how that money
was expended. Representative Bunde felt that HB 241 would
increase candidates accountability and facilitate increased
public trust. The bill would provide new choices to
candidates for the disposal of surplus campaign funds.
Representative Bunde added that contributions given to
candidates before, during and after campaigns are given by
people who chose that candidate's representation.
Currently, surplus funds can be used in future campaigns or
taken as personal income. When a person decides to
deactivate a campaign, the disposal of surplus funds is of
interest to the public, especially those who have
contributed. Representative Bunde noted that HB 241 would
provide for surplus funds to be given to charity, repaid to
the contributors, contributed to another candidate,
political party or a group supporting a ballot proposition
or question, or contributed to the general fund. He urged
the Committee to support the proposed legislation.
Representative Grussendorf asked the penalty for violation
of the proposed legislation. Representative Bunde responded
that disposal of funds would fall under jurisdiction of the
Alaska Public Office Commission (APOC).
BROOKE MILES, JUNEAU BRANCH ADMINISTRATOR, REGULATIONS OF
LOBBYING, PUBLIC OFFICES COMMISSION, DEPARTMENT OF
ADMINISTRATION, informed the Committee that violation could
be punishable either as a criminal or civil case. If there
was a reporting violation, it would be subject to civil
penalties in the amount of $10 dollars per day for failure
to report dispensation of the surplus funds. Ms. Miles
added, if the intent was to circumvent the requirements of
the law, it would be subject to criminal penalties.
Representative Therriault noted his support of the
legislation. He questioned if the remaining money could
2
legally be used to set up a legislator's office allowance
and the system used to account for those funds.
Representative Bunde referenced Section E, HB 241, which
addresses disposition of funds. Those funds could not be
used as personal income. Discussion followed regarding
purchase expenses made by public candidates. Representative
Bunde stated that any purchased item which exceeds $5
thousand dollars should be reported. Representative
Therriault agreed that a carry forward should not be allowed
in a campaign. Representative Bunde pointed out that the
proposed limitation would not affect federal offices; only
the State.
Representative Kohring asked what prompted the proposed
legislation. Representative Bunde replied constituent
concerns which resulted last year from sixteen accounts
finishing with more than $20 thousand dollars in each. The
public has confidence that their contributions will be used
for the public service purpose in which it was donated.
Representative Kohring MOVED to report CS HB 241 (STA) out
of Committee with individual recommendations and with the
accompanying fiscal note. There being NO OBJECTION, it was
so ordered.
CS HB 241 (STA) was reported out of Committee with a "do
pass" recommendation and with a fiscal note by the House
Finance Committee.
SENATE BILL 84
"An Act making a special appropriation to the principal
of the permanent fund; and providing for an effective
date."
Representative Martin MOVED that work draft #9-LS0639\Z
dated 1/23/96, be the version before the Committee. There
being NO OBJECTION, it was so ordered.
SENATOR RICK HALFORD spoke in support of the legislation.
He noted that the bill had been sponsored last year and that
it had failed to pass through the entire Legislative Body.
Since that time, the Long Range Planning Commission's Report
advised an appropriation be made of the amount recommended
in the bill.
Senator Halford repeated that the legislation would provide
no access to the Constitutional Budget Reserve (CBR). He
continued, the legislation was first sponsored by Oral
Freeman - Ketchikan, a major defender of the Permanent Fund
for years. Senator Halford stressed that the money in
discussion belongs to future generations; the ones who will
3
deal with problems that exist with less resources than
currently available. He encouraged the Committee's
bipartisan support.
Representative Navarre advised that long range planning
would include consideration of the Permanent Fund. He noted
that he was a member of the Long Range Planning Commission
and that the recommendation made by that group was not to
make the deposit "piece meal". Representative Navarre
stressed that the proposed legislation, absent a long range
plan for the State would be premature. The Governor's plan
would call for the transfer after November, 1996, in order
that the voters would have a voice in determining a change
of usage within the Permanent Fund.
Senator Halford pointed out that every action which the
Legislature makes would be incremental. The Legislature can
not adopt a plan. Representative Navarre suggested that all
plans will have some "overlap" and that the Legislature
should reach consensus on the "overlap" aspects of those
plans.
Representative Grussendorf voiced concern with removing
funds from the Earnings Reserve Account to offset inflation.
He noted that he does not oppose the intention of the
legislation, although would not support the timing proposed.
Senator Halford explained that if the money was placed in
the principle, it could not be appropriated as easily as it
could be in the Reserve Account. He suggested "taking it
off the table" to avoid consideration of spending those
funds in order to preserve it for the future.
Representative Martin interjected that it was never too late
for the State to save money for future generations. He
advised that the action would be a way to renew an
unrenewable resource.
Representative Navarre asked Senator Halford if the Senate
Finance Committee intended to spend money from the Permanent
Fund Earnings this year. Senator Halford stated that he
would oppose that action. Representative Navarre clarified
that the Permanent Fund Earnings Reserve had been invested
as part of the Permanent Fund and emphasized that fund was
currently well protected. He continued, half the money in
the Permanent Fund resulted from Legislative action placing
the excess of constitutionally mandated amounts.
Representative Navarre stressed that there is no threat that
money will be spent. He added, discussion to date addresses
a comprehensive plan which could be developed to include
that money as a tool.
Senator Halford interjected that twice the House had passed
4
legislation with the intent to draw on earnings from the
Permanent Fund Reserve. The first time was to "back up" the
budget, and the next was to create an education endowment.
Representative Kohring voiced his support of the
legislation, noting that it would remove the incentive by
taking the money "off the table". He stated his support to
create a fiscally conservative government, spending minimal
for essential programs. Representative Kohring indicated
that he would like to co-sponsor the legislation.
Co-Chair Hanley asked for further information regarding the
Legislative appropriations to the dividend and how inflation
proofing would occur to protect it.
PETER BUSHRE, CHIEF FINANCIAL OFFICER, ALASKA PERMANENT FUND
CORPORATION, DEPARTMENT OF REVENUE, explained on June 30th,
the Alaska Permanent Fund Corporation (APFC) would compute
the amount due under the dividend and move that money out of
the Earnings Reserve Account and into a liability in the
revenue fund. The appropriation references AS 87:13:145.
The appropriation has always stated that an amount is
appropriated in accordance with that statute. Following
that computation, the amount for inflation proofing is
computed, based upon the balance of the principle of the
Permanent Fund on June 30th. The year-end report then
reflects the actions of the Legislature from the previous
session.
Co-Chair Hanley pointed out that $100 million dollars was
left in the Earnings Reserve Account, inquiring why the
funds over that amount were left in that account. Mr.
Bushre explained that the dividend was based upon "income
available for distribution", computed according to a
statutory clause which includes a proviso that the amount
calculated for the dividend can not exceed the balance in
the Earnings Reserve Account plus the earnings for the
current fiscal year. The dividend is based upon an average
of five years income of the Permanent Fund or 21% of total
five year's income.
Mr. Bushre advised that this particular fiscal year has been
an exceptionally profitable year for the Permanent Fund.
This year will raise the average of the five year projection
considerably. He noted that it would be possible that the
amount available for distribution could exceed the amount of
next year's income if the balance of the Earnings Reserve
Account was zero.
Co-Chair Hanley understood that a $100 million dollar
balance should address those concerns. He asked if the
Earnings Reserve Account was invested differently than the
5
principle. Mr. Bushre stated that both were invested the
same and that the funds were co-mingled together.
Mr. Bushre explained to Representative Therriault that
inflation proofing was calculated on the principle of the
bill, noting that the Earnings Reserve Account is not
inflation proofed. Representative Therriault spoke to his
concern that there could be a time when there was not enough
money in the account to inflation proof. He asked the impact
of that action. Mr. Bushre explained that it would be
possible someday to not have sufficient funds if inflation
rates, earning rates and dividends were high. The law does
not require any carry forward under the inflation proofing
statute.
JIM KELLY, RESEARCH & LIAISON OFFICER, ALASKA PERMANENT FUND
CORPORATION, DEPARTMENT OF REVENUE, added that in future
projections of the Permanent Fund, the Corporation uses the
same inflation rate that the Department of Revenue uses.
For future years, a realized "real" rate of return would be
used. Under that scenario, the corporation would be paying
dividends, inflation proofing and have additional revenue
left over.
(Tape Change, HFC 96-17, Side 2).
Representative Therriault asked if the proposed action could
be detrimental to the future action of the fund. He
understood that money would be available for inflation
proofing. Representative Navarre stressed that once a
deposit was made into the fund, it becomes part of the
corpus and without inflation proofing it, the corpus of the
fund becomes eroded. He asked if taking the earnings from
the fund would change the amounts required for inflation
proofing. He thought that could someday "eat" into the
value of the corpus of the Permanent Fund.
Mr. Kelly advised that the appropriation would add $1.2
billion dollars to the principle which will require
additional inflation proofing. Representative Navarre
suggested placing the amount of earnings into the Permanent
Fund, and then have the options remain open for the duration
of this legislative session in order to plan a long term
scenario.
Representative Grussendorf asked if these funds were placed
into the account and revenue was short in the Earnings
Reserve Account following inflation proofing, would affect
the size of the Permanent Fund Dividend check. Mr. Bushre
replied that the statutes specifically limit the amount of
income that can be used in calculation for distribution to
the balance of the Earnings Reserve Account plus the current
6
year's income. The formula would not call for an amount
greater than the balance of the Earnings Reserve Account
plus the current years income. Representative Grussendorf
concluded that a risk would be taken by passage of the
legislation.
Mr. Bushre noted that a deposit made on June 30th would not
be inflation proofed. In past years, when the Legislature
appropriated money, APFC would not inflation proof that
amount at the time of deposit, but rather the following
fiscal year.
Co-Chair Hanley clarified that once the amount was
deposited, it would then be calculated for inflation
proofing when it became part of the principle. Mr. Bushre
projected the amount needed for dividends next year, FY97,
was $600 million dollars. Income of over $1 billion dollars
is projected by the Department for each of the following
years.
Representative Navarre asked if lack of a long range fiscal
plan would be the greatest threat to dividends and the
Permanent Fund. Mr. Kelly advised Committee members that
the Board of Trustees does not take a position on matters
which relate to the earnings of the fund.
TAMARA COOK, DIRECTOR, OFFICE OF THE DIRECTOR, LEGISLATIVE
LEGAL SERVICES, responded to Representative Navarre's query
regarding usage of other funds for appropriation purposes.
She explained that to get an appropriation from the
Constitutional Budget Reserve Fund would require a majority
vote. The formula requires that all funding available be
calculated with respect to what was spent.
MIKE GREANY, DIRECTOR, LEGISLATIVE FINANCE DIVISION,
commented that the calculation before the Committee was
based on the November, 1995, financial report from the
Permanent Fund. The calculations change with the additional
information on December, 1995. Co-Chair Hanley clarified
that the amount available for appropriation next year would
be $1.5 billion dollars more than that available in FY96.
Mr. Greany stated that the bill version before the Committee
would place the FY96 balance of $1.13 billion less the $100
million cushion, and then transfer that amount. The
transfer would affect the calculation, leaving $385 million
dollars as the difference between the FY96 calculations and
the amount available.
RANDY WELKER, LEGISLATIVE AUDITOR, LEGISLATIVE AUDIT
DIVISION, pointed out that there is no effective date on the
legislative version before the Committee. After July 1st,
1996, the calculation would not be affected.
7
ANNALEE MCCONNELL, DIRECTOR, OFFICE OF MANAGEMENT AND
BUDGET, OFFICE OF THE GOVERNOR, clarified the
Administration's position on the proposed legislation.
Governor Knowles supports a $1.2 billion dollar deposit into
the Permanent Fund if it is part of the State's long range
plan to close the budget gap. The Governor feels that it is
important to protect and enlarge the Permanent Fund. Ms.
McConnell added that the deposit is part of the FY97 budget,
although, the timing is to come after the deliberations for
a long range plan and would take effect after a
constitutional amendment vote of the people at the upcoming
election in November, 1996.
A plan must be developed to deal with considerations of
ongoing spending and the possibility of another oil price
crash.
Representative Martin asked if the Governor would veto this
legislation if it were presented to him for signature. Ms.
McConnell stressed that a long range plan is needed in order
that there be a transfer. She reiterated that a resolution
defining how to close the budget gap is needed.
Representative Mulder asked the amount that the Long Range
Planning Commission's recommended for budget reductions this
year. Ms. McConnell replied a recommendation in the amount
of $40 million dollars was suggested. She added, the
Governor's budget recommended $35 million dollars in
expenditure reductions from the general fund and $5 million
dollars in shift from general fund support to fee support.
Representative Mulder argued the figures presented and
stated that the Governor had adopted a "piece meal"
approach. He stressed that the Governor was focused on
"spending" on the tax side of the equation.
Ms. McConnell responded that the impact of $1.2 billion
dollar deposit would be different than a $5 million dollar
reduction. She advised that expenditure reductions of $35
million dollars had been shifted from general fund oil
support to user support and were not hidden. Ms. McConnell
acknowledged that some legislators state that shifting
dollars is not an appropriate budget cut, yet she stressed
that government should not be so bound by numbers that the
impact of the reductions is forgotten. She advised that
this was an important part of the legislative process. Ms.
McConnell reminded members that there has not been a public
hearing on the long range financial plan since the
inception.
Representative Mulder referenced a press release from
Governor Knowles in December, 1995, stating that he would
seek a $1.2 billion dollar Permanent Fund deposit. Ms.
McConnell explained that the press releases did not place
8
that information in context. She stated that the speech
referenced by Representative Mulder, outlined the need for a
plan and then outlined the deposit he was proposing as a
part of the plan. On the following day, Governor Knowles,
in a speech to Commonwealth North, spoke of protecting and
enlarging the Permanent Fund as part of a plan to close the
budget gap. Ms. McConnell noted that the Governor has been
consistent on his position for a long range plan.
Representative Navarre remarked that the Governor was
willing to work with both Houses to establish a bipartisan
plan for the State. He observed that the Legislative body
does not spend enough time focusing on policy; he stressed
that creating a comprehensive plan would be the responsible
action.
(Tape Change, HFC 96-18, Side 1).
Co-Chair Hanley commented that he supported the legislation
and felt that it would force the Legislature into better
long range fiscal planning. The deposit would gain $80 -
$100 million dollars in spin-off earnings in the future.
Representative Navarre reiterated that the money in the
Earnings Reserve was part of the Permanent Fund and whether
it was in the corpus or the Earnings Reserve, it will still
earn money every year at approximately the same rate and
that those earnings would continue to be available to the
Legislature for appropriation. He stressed that there was
no threat to the fund.
Representative Grussendorf accentuated that there has never
been a draw on those funds to date. He supported keeping
the funds as they currently are until a long range plan has
been agreed upon.
Co-Chair Hanley commented that if the money was left in the
current spot, would make that money available for spending.
Representative Therriault pointed out that a future
Legislature can not be bound by decisions made at this time
unless the principle under consideration is deposited.
Representative Navarre summarized that a bipartisan plan
should be implemented which includes both economics and
intellect, not just politics. Representative Grussendorf
felt that the proposed legislation could "hamstring" future
legislators. Representative Martin and Representative
Kohring summarized their support of the bill.
Representative Mulder MOVED to report HCS CS SB 84 (FIN) out
of Committee with individual recommendations and with the
accompanying fiscal note. There being NO OBJECTIONS, it was
9
so ordered.
HCS CS SB 84 (FIN) was MOVED from Committee with a "do pass"
recommendation and with a zero fiscal note by the House
Finance Committee dated 1/23/96.
ADJOURNMENT
The meeting adjourned at 3:20 P.M.
HOUSE FINANCE COMMITTEE
JANUARY 23, 1996
1:40 P.M.
TAPE HFC 96 - 17, Side 1, #000 - end.
TAPE HFC 96 - 17, Side 2, #000 - end.
TAPE HFC 96 - 18, Side 1, #000 - #298.
CALL TO ORDER
Co-Chair Mark Hanley called the House Finance Committee
meeting to order at 1:40 P.M.
PRESENT
Co-Chair Hanley Representative Martin
Co-Chair Foster Representative Mulder
Representative Kohring Representative Navarre
Representative Grussendorf Representative Therriault
Representative Kelly
Representative Brown and Parnell were not present for the
meeting.
ALSO PRESENT
Senator Rick Halford; Representative Con Bunde;
Representative John Davies; Brooke Miles, Juneau Branch
Administrator, Regulations of Lobbying, Public Offices
Commission, Department of Administration; Peter Bushre,
Chief Financial Officer, Alaska Permanent Fund Corporation,
Department of Revenue; Jim Kelly, Research & Liaison
Officer, Alaska Permanent Fund Corporation, Department of
Revenue; Tamara Cook, Director, Office of the Director,
Legislative Legal Services; Randy Welker, Legislative
Auditor, Legislative Audit Division; Mike Greany, Director,
Legislative Finance Division; Fred Fisher, Fiscal Analyst,
Legislative Finance Division; Annalee McConnell, Director,
Office of Management and Budget, Office of the Governor.
SUMMARY
10
SB 84 An Act making a special appropriation to the
principal of the permanent fund; and providing for
an effective date.
HCS CS SB 84 (FIN) was reported out of Committee
with a "do pass" recommendation and with a zero
fiscal note by the House Finance Committee.
HB 241 An Act relating to the use of a candidate's
campaign account.
CS HB 241 (STA) was reported out of Committee with
a "do pass" recommendation and with a fiscal note
by the House Finance Committee.
HOUSE BILL 241
"An Act relating to the use of a candidate's campaign
account."
REPRESENTATIVE CON BUNDE testified in support of HB 241. He
explained that the national trend to increase legislator and
candidate accountability was becoming more prominent. He
noted that citizens who contribute to campaigns, non-profit
organizations, and other causes want to know how that money
was expended. Representative Bunde felt that HB 241 would
increase candidates accountability and facilitate increased
public trust. The bill would provide new choices to
candidates for the disposal of surplus campaign funds.
Representative Bunde added that contributions given to
candidates before, during and after campaigns are given by
people who chose that candidate's representation.
Currently, surplus funds can be used in future campaigns or
taken as personal income. When a person decides to
deactivate a campaign, the disposal of surplus funds is of
interest to the public, especially those who have
contributed. Representative Bunde noted that HB 241 would
provide for surplus funds to be given to charity, repaid to
the contributors, contributed to another candidate,
political party or a group supporting a ballot proposition
or question, or contributed to the general fund. He urged
the Committee to support the proposed legislation.
Representative Grussendorf asked the penalty for violation
of the proposed legislation. Representative Bunde responded
that disposal of funds would fall under jurisdiction of the
Alaska Public Office Commission (APOC).
BROOKE MILES, JUNEAU BRANCH ADMINISTRATOR, REGULATIONS OF
LOBBYING, PUBLIC OFFICES COMMISSION, DEPARTMENT OF
ADMINISTRATION, informed the Committee that violation could
11
be punishable either as a criminal or civil case. If there
was a reporting violation, it would be subject to civil
penalties in the amount of $10 dollars per day for failure
to report dispensation of the surplus funds. Ms. Miles
added, if the intent was to circumvent the requirements of
the law, it would be subject to criminal penalties.
Representative Therriault noted his support of the
legislation. He questioned if the remaining money could
legally be used to set up a legislator's office allowance
and the system used to account for those funds.
Representative Bunde referenced Section E, HB 241, which
addresses disposition of funds. Those funds could not be
used as personal income. Discussion followed regarding
purchase expenses made by public candidates. Representative
Bunde stated that any purchased item which exceeds $5
thousand dollars should be reported. Representative
Therriault agreed that a carry forward should not be allowed
in a campaign. Representative Bunde pointed out that the
proposed limitation would not affect federal offices; only
the State.
Representative Kohring asked what prompted the proposed
legislation. Representative Bunde replied constituent
concerns which resulted last year from sixteen accounts
finishing with more than $20 thousand dollars in each. The
public has confidence that their contributions will be used
for the public service purpose in which it was donated.
Representative Kohring MOVED to report CS HB 241 (STA) out
of Committee with individual recommendations and with the
accompanying fiscal note. There being NO OBJECTION, it was
so ordered.
CS HB 241 (STA) was reported out of Committee with a "do
pass" recommendation and with a fiscal note by the House
Finance Committee.
SENATE BILL 84
"An Act making a special appropriation to the principal
of the permanent fund; and providing for an effective
date."
Representative Martin MOVED that work draft #9-LS0639\Z
dated 1/23/96, be the version before the Committee. There
being NO OBJECTION, it was so ordered.
SENATOR RICK HALFORD spoke in support of the legislation.
He noted that the bill had been sponsored last year and that
it had failed to pass through the entire Legislative Body.
Since that time, the Long Range Planning Commission's Report
12
advised an appropriation be made of the amount recommended
in the bill.
Senator Halford repeated that the legislation would provide
no access to the Constitutional Budget Reserve (CBR). He
continued, the legislation was first sponsored by Oral
Freeman - Ketchikan, a major defender of the Permanent Fund
for years. Senator Halford stressed that the money in
discussion belongs to future generations; the ones who will
deal with problems that exist with less resources than
currently available. He encouraged the Committee's
bipartisan support.
Representative Navarre advised that long range planning
would include consideration of the Permanent Fund. He noted
that he was a member of the Long Range Planning Commission
and that the recommendation made by that group was not to
make the deposit "piece meal". Representative Navarre
stressed that the proposed legislation, absent a long range
plan for the State would be premature. The Governor's plan
would call for the transfer after November, 1996, in order
that the voters would have a voice in determining a change
of usage within the Permanent Fund.
Senator Halford pointed out that every action which the
Legislature makes would be incremental. The Legislature can
not adopt a plan. Representative Navarre suggested that all
plans will have some "overlap" and that the Legislature
should reach consensus on the "overlap" aspects of those
plans.
Representative Grussendorf voiced concern with removing
funds from the Earnings Reserve Account to offset inflation.
He noted that he does not oppose the intention of the
legislation, although would not support the timing proposed.
Senator Halford explained that if the money was placed in
the principle, it could not be appropriated as easily as it
could be in the Reserve Account. He suggested "taking it
off the table" to avoid consideration of spending those
funds in order to preserve it for the future.
Representative Martin interjected that it was never too late
for the State to save money for future generations. He
advised that the action would be a way to renew an
unrenewable resource.
Representative Navarre asked Senator Halford if the Senate
Finance Committee intended to spend money from the Permanent
Fund Earnings this year. Senator Halford stated that he
would oppose that action. Representative Navarre clarified
that the Permanent Fund Earnings Reserve had been invested
as part of the Permanent Fund and emphasized that fund was
13
currently well protected. He continued, half the money in
the Permanent Fund resulted from Legislative action placing
the excess of constitutionally mandated amounts.
Representative Navarre stressed that there is no threat that
money will be spent. He added, discussion to date addresses
a comprehensive plan which could be developed to include
that money as a tool.
Senator Halford interjected that twice the House had passed
legislation with the intent to draw on earnings from the
Permanent Fund Reserve. The first time was to "back up" the
budget, and the next was to create an education endowment.
Representative Kohring voiced his support of the
legislation, noting that it would remove the incentive by
taking the money "off the table". He stated his support to
create a fiscally conservative government, spending minimal
for essential programs. Representative Kohring indicated
that he would like to co-sponsor the legislation.
Co-Chair Hanley asked for further information regarding the
Legislative appropriations to the dividend and how inflation
proofing would occur to protect it.
PETER BUSHRE, CHIEF FINANCIAL OFFICER, ALASKA PERMANENT FUND
CORPORATION, DEPARTMENT OF REVENUE, explained on June 30th,
the Alaska Permanent Fund Corporation (APFC) would compute
the amount due under the dividend and move that money out of
the Earnings Reserve Account and into a liability in the
revenue fund. The appropriation references AS 87:13:145.
The appropriation has always stated that an amount is
appropriated in accordance with that statute. Following
that computation, the amount for inflation proofing is
computed, based upon the balance of the principle of the
Permanent Fund on June 30th. The year-end report then
reflects the actions of the Legislature from the previous
session.
Co-Chair Hanley pointed out that $100 million dollars was
left in the Earnings Reserve Account, inquiring why the
funds over that amount were left in that account. Mr.
Bushre explained that the dividend was based upon "income
available for distribution", computed according to a
statutory clause which includes a proviso that the amount
calculated for the dividend can not exceed the balance in
the Earnings Reserve Account plus the earnings for the
current fiscal year. The dividend is based upon an average
of five years income of the Permanent Fund or 21% of total
five year's income.
Mr. Bushre advised that this particular fiscal year has been
an exceptionally profitable year for the Permanent Fund.
14
This year will raise the average of the five year projection
considerably. He noted that it would be possible that the
amount available for distribution could exceed the amount of
next year's income if the balance of the Earnings Reserve
Account was zero.
Co-Chair Hanley understood that a $100 million dollar
balance should address those concerns. He asked if the
Earnings Reserve Account was invested differently than the
principle. Mr. Bushre stated that both were invested the
same and that the funds were co-mingled together.
Mr. Bushre explained to Representative Therriault that
inflation proofing was calculated on the principle of the
bill, noting that the Earnings Reserve Account is not
inflation proofed. Representative Therriault spoke to his
concern that there could be a time when there was not enough
money in the account to inflation proof. He asked the impact
of that action. Mr. Bushre explained that it would be
possible someday to not have sufficient funds if inflation
rates, earning rates and dividends were high. The law does
not require any carry forward under the inflation proofing
statute.
JIM KELLY, RESEARCH & LIAISON OFFICER, ALASKA PERMANENT FUND
CORPORATION, DEPARTMENT OF REVENUE, added that in future
projections of the Permanent Fund, the Corporation uses the
same inflation rate that the Department of Revenue uses.
For future years, a realized "real" rate of return would be
used. Under that scenario, the corporation would be paying
dividends, inflation proofing and have additional revenue
left over.
(Tape Change, HFC 96-17, Side 2).
Representative Therriault asked if the proposed action could
be detrimental to the future action of the fund. He
understood that money would be available for inflation
proofing. Representative Navarre stressed that once a
deposit was made into the fund, it becomes part of the
corpus and without inflation proofing it, the corpus of the
fund becomes eroded. He asked if taking the earnings from
the fund would change the amounts required for inflation
proofing. He thought that could someday "eat" into the
value of the corpus of the Permanent Fund.
Mr. Kelly advised that the appropriation would add $1.2
billion dollars to the principle which will require
additional inflation proofing. Representative Navarre
suggested placing the amount of earnings into the Permanent
Fund, and then have the options remain open for the duration
of this legislative session in order to plan a long term
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scenario.
Representative Grussendorf asked if these funds were placed
into the account and revenue was short in the Earnings
Reserve Account following inflation proofing, would affect
the size of the Permanent Fund Dividend check. Mr. Bushre
replied that the statutes specifically limit the amount of
income that can be used in calculation for distribution to
the balance of the Earnings Reserve Account plus the current
year's income. The formula would not call for an amount
greater than the balance of the Earnings Reserve Account
plus the current years income. Representative Grussendorf
concluded that a risk would be taken by passage of the
legislation.
Mr. Bushre noted that a deposit made on June 30th would not
be inflation proofed. In past years, when the Legislature
appropriated money, APFC would not inflation proof that
amount at the time of deposit, but rather the following
fiscal year.
Co-Chair Hanley clarified that once the amount was
deposited, it would then be calculated for inflation
proofing when it became part of the principle. Mr. Bushre
projected the amount needed for dividends next year, FY97,
was $600 million dollars. Income of over $1 billion dollars
is projected by the Department for each of the following
years.
Representative Navarre asked if lack of a long range fiscal
plan would be the greatest threat to dividends and the
Permanent Fund. Mr. Kelly advised Committee members that
the Board of Trustees does not take a position on matters
which relate to the earnings of the fund.
TAMARA COOK, DIRECTOR, OFFICE OF THE DIRECTOR, LEGISLATIVE
LEGAL SERVICES, responded to Representative Navarre's query
regarding usage of other funds for appropriation purposes.
She explained that to get an appropriation from the
Constitutional Budget Reserve Fund would require a majority
vote. The formula requires that all funding available be
calculated with respect to what was spent.
MIKE GREANY, DIRECTOR, LEGISLATIVE FINANCE DIVISION,
commented that the calculation before the Committee was
based on the November, 1995, financial report from the
Permanent Fund. The calculations change with the additional
information on December, 1995. Co-Chair Hanley clarified
that the amount available for appropriation next year would
be $1.5 billion dollars more than that available in FY96.
Mr. Greany stated that the bill version before the Committee
would place the FY96 balance of $1.13 billion less the $100
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million cushion, and then transfer that amount. The
transfer would affect the calculation, leaving $385 million
dollars as the difference between the FY96 calculations and
the amount available.
RANDY WELKER, LEGISLATIVE AUDITOR, LEGISLATIVE AUDIT
DIVISION, pointed out that there is no effective date on the
legislative version before the Committee. After July 1st,
1996, the calculation would not be affected.
ANNALEE MCCONNELL, DIRECTOR, OFFICE OF MANAGEMENT AND
BUDGET, OFFICE OF THE GOVERNOR, clarified the
Administration's position on the proposed legislation.
Governor Knowles supports a $1.2 billion dollar deposit into
the Permanent Fund if it is part of the State's long range
plan to close the budget gap. The Governor feels that it is
important to protect and enlarge the Permanent Fund. Ms.
McConnell added that the deposit is part of the FY97 budget,
although, the timing is to come after the deliberations for
a long range plan and would take effect after a
constitutional amendment vote of the people at the upcoming
election in November, 1996.
A plan must be developed to deal with considerations of
ongoing spending and the possibility of another oil price
crash.
Representative Martin asked if the Governor would veto this
legislation if it were presented to him for signature. Ms.
McConnell stressed that a long range plan is needed in order
that there be a transfer. She reiterated that a resolution
defining how to close the budget gap is needed.
Representative Mulder asked the amount that the Long Range
Planning Commission's recommended for budget reductions this
year. Ms. McConnell replied a recommendation in the amount
of $40 million dollars was suggested. She added, the
Governor's budget recommended $35 million dollars in
expenditure reductions from the general fund and $5 million
dollars in shift from general fund support to fee support.
Representative Mulder argued the figures presented and
stated that the Governor had adopted a "piece meal"
approach. He stressed that the Governor was focused on
"spending" on the tax side of the equation.
Ms. McConnell responded that the impact of $1.2 billion
dollar deposit would be different than a $5 million dollar
reduction. She advised that expenditure reductions of $35
million dollars had been shifted from general fund oil
support to user support and were not hidden. Ms. McConnell
acknowledged that some legislators state that shifting
dollars is not an appropriate budget cut, yet she stressed
that government should not be so bound by numbers that the
impact of the reductions is forgotten. She advised that
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this was an important part of the legislative process. Ms.
McConnell reminded members that there has not been a public
hearing on the long range financial plan since the
inception.
Representative Mulder referenced a press release from
Governor Knowles in December, 1995, stating that he would
seek a $1.2 billion dollar Permanent Fund deposit. Ms.
McConnell explained that the press releases did not place
that information in context. She stated that the speech
referenced by Representative Mulder, outlined the need for a
plan and then outlined the deposit he was proposing as a
part of the plan. On the following day, Governor Knowles,
in a speech to Commonwealth North, spoke of protecting and
enlarging the Permanent Fund as part of a plan to close the
budget gap. Ms. McConnell noted that the Governor has been
consistent on his position for a long range plan.
Representative Navarre remarked that the Governor was
willing to work with both Houses to establish a bipartisan
plan for the State. He observed that the Legislative body
does not spend enough time focusing on policy; he stressed
that creating a comprehensive plan would be the responsible
action.
(Tape Change, HFC 96-18, Side 1).
Co-Chair Hanley commented that he supported the legislation
and felt that it would force the Legislature into better
long range fiscal planning. The deposit would gain $80 -
$100 million dollars in spin-off earnings in the future.
Representative Navarre reiterated that the money in the
Earnings Reserve was part of the Permanent Fund and whether
it was in the corpus or the Earnings Reserve, it will still
earn money every year at approximately the same rate and
that those earnings would continue to be available to the
Legislature for appropriation. He stressed that there was
no threat to the fund.
Representative Grussendorf accentuated that there has never
been a draw on those funds to date. He supported keeping
the funds as they currently are until a long range plan has
been agreed upon.
Co-Chair Hanley commented that if the money was left in the
current spot, would make that money available for spending.
Representative Therriault pointed out that a future
Legislature can not be bound by decisions made at this time
unless the principle under consideration is deposited.
Representative Navarre summarized that a bipartisan plan
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should be implemented which includes both economics and
intellect, not just politics. Representative Grussendorf
felt that the proposed legislation could "hamstring" future
legislators. Representative Martin and Representative
Kohring summarized their support of the bill.
Representative Mulder MOVED to report HCS CS SB 84 (FIN) out
of Committee with individual recommendations and with the
accompanying fiscal note. There being NO OBJECTIONS, it was
so ordered.
HCS CS SB 84 (FIN) was MOVED from Committee with a "do pass"
recommendation and with a zero fiscal note by the House
Finance Committee dated 1/23/96.
ADJOURNMENT
The meeting adjourned at 3:20 P.M.
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