Legislature(2003 - 2004)

06/23/2004 03:43 PM House FIN

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
                  HOUSE FINANCE COMMITTEE                                                                                       
                       June 23, 2004                                                                                            
                         3:43 P.M.                                                                                              
                                                                                                                                
TAPE HFC 04 - 1, Side A                                                                                                         
TAPE HFC 04 - 1, Side B                                                                                                         
                                                                                                                                
CALL TO ORDER                                                                                                                 
                                                                                                                                
Co-Chair Williams called the House Finance Committee meeting                                                                    
to order at 3:43 P.M.                                                                                                           
                                                                                                                                
MEMBERS PRESENT                                                                                                               
                                                                                                                                
Representative John Harris, Co-Chair                                                                                            
Representative Bill Williams, Co-Chair                                                                                          
Representative Kevin Meyer, Vice-Chair                                                                                          
Representative Mike Chenault                                                                                                    
Representative Eric Croft                                                                                                       
Representative Hugh Fate                                                                                                        
Representative Richard Foster                                                                                                   
Representative Mike Hawker                                                                                                      
Representative Reggie Joule                                                                                                     
Representative Carl Moses                                                                                                       
Representative Bill Stoltze                                                                                                     
                                                                                                                                
MEMBERS ABSENT                                                                                                                
                                                                                                                                
None                                                                                                                            
                                                                                                                                
ALSO PRESENT                                                                                                                  
                                                                                                                                
Representative    Ethan   Berkowitz,   Representative    Nick                                                                   
Stepovich; Cheryl Frasca, Director,  Division of Management &                                                                   
Budget, Office  of the Governor; Robert D.  Storer, Executive                                                                   
Director,  Alaska Permanent Fund  Corporation, Department  of                                                                   
Revenue;                                                                                                                        
                                                                                                                                
PRESENT VIA TELECONFERENCE                                                                                                    
                                                                                                                                
There were no teleconference testifiers.                                                                                        
                                                                                                                                
SUMMARY                                                                                                                       
                                                                                                                                
HJR 101   Proposing amendments to the Constitution of the                                                                       
          State   of   Alaska   relating  to   and   limiting                                                                   
          appropriations  from   the  Alaska  permanent  fund                                                                   
          based  on an  averaged percent  of the fund  market                                                                   
          value.                                                                                                                
                                                                                                                                
          HJR 101 was reported out of Committee with a "no                                                                      
          recommendation" and a fiscal impact note by the                                                                       
          Office of Lieutenant Governor.                                                                                        
HJR 102   Proposing  amendments  to the  Constitution of  the                                                                   
          State   of   Alaska   relating  to   and   limiting                                                                   
          appropriations  from   the  Alaska  permanent  fund                                                                   
          based  on an  averaged percent  of the fund  market                                                                   
          value  and  relating  to  permanent  fund  dividend                                                                   
          payments.                                                                                                             
                                                                                                                                
          HJR 102  was REPORTED out  of Committee with  a "do                                                                   
          not  pass" recommendation  and with  a zero  fiscal                                                                   
          note  by the  Department  of Revenue  and a  fiscal                                                                   
          impact  note  by  the   Office  of  the  Lieutenant                                                                   
          Governor.                                                                                                             
                                                                                                                                
HJR 103   Proposing  amendments  to the  Constitution of  the                                                                   
          State  of  Alaska  relating   to  an  appropriation                                                                   
          limit.                                                                                                                
                                                                                                                                
          HJR 103 was reported out of Committee with a "no                                                                      
          recommendation"  and a  fiscal impact  note by  the                                                                   
          Office of the Lieutenant Governor.                                                                                    
                                                                                                                                
HB 1003   An   Act   relating    to   the   income   of   and                                                                   
          appropriations  from   the  Alaska  permanent  fund                                                                   
          under  art.  IX, sec.  15(b),  Constitution of  the                                                                   
          State of Alaska, and  making conforming amendments;                                                                   
          relating to permanent  fund dividend payments of at                                                                   
          least $1,000; relating  to the determination of net                                                                   
          income  of  the  mental   health  trust  fund;  and                                                                   
          providing for an effective date.                                                                                      
                                                                                                                                
          HB 1003 was REPORTED out of Committee with a "do                                                                      
          not  pass" recommendation  and with  a zero  fiscal                                                                   
          note by the Department of Revenue.                                                                                    
HOUSE JOINT RESOLUTION NO. 101                                                                                                
                                                                                                                                
     Proposing  amendments to the  Constitution of  the State                                                                   
     of Alaska  relating to and limiting  appropriations from                                                                   
     the Alaska  permanent fund based on an  averaged percent                                                                   
     of the fund market value.                                                                                                  
                                                                                                                                
Co-Chair  Williams  noted  that   the  identical  legislation                                                                   
[HJR26]  had come  before the  Committee  during the  regular                                                                   
session and asked if members would  like to ask questions. No                                                                   
questions were asked.                                                                                                           
                                                                                                                                
Representative  Foster  MOVED   to  report  HJR  101  out  of                                                                   
Committee  with  individual  recommendations   and  with  the                                                                   
accompanying fiscal note.                                                                                                       
                                                                                                                                
There being NO OBJECTION, it was so ordered.                                                                                    
                                                                                                                                
HJR  101   was  reported   out  of   Committee  with   a  "no                                                                   
recommendation"  and   a  fiscal  impact  note   by  the  Lt.                                                                   
Governor's Office.                                                                                                              
HOUSE JOINT RESOLUTION NO. 103                                                                                                
                                                                                                                                
     Proposing amendments to the Constitution of the State                                                                      
     of Alaska relating to an appropriation limit.                                                                              
                                                                                                                                
Co-Chair  Williams  noted  that   the  identical  legislation                                                                   
[HJR9]  had come  before  the  Committee during  the  regular                                                                   
session and asked if members would  like to ask questions. No                                                                   
questions were asked.                                                                                                           
                                                                                                                                
Representative  Foster  MOVED   to  report  HJR  103  out  of                                                                   
Committee  with  individual  recommendations   and  with  the                                                                   
accompanying fiscal note.                                                                                                       
                                                                                                                                
Representative Croft OBJECTED.  He felt that a spending limit                                                                   
would be a major  mistake. He spoke in support  of a tax cap.                                                                   
"The best  spending cap  is not  letting government  get into                                                                   
the  dividend."   He  observed   that  future  growth   could                                                                   
necessitate additional  state spending and concluded  that it                                                                   
would be inappropriate to constraint future legislatures.                                                                       
                                                                                                                                
Representative Stoltze spoke in support of the legislation.                                                                     
                                                                                                                                
A roll call vote was taken on the motion.                                                                                       
                                                                                                                                
IN FAVOR: Chenault, Foster, Hawker,  Meyer, Stoltze, Williams                                                                   
OPPOSED: Croft, Fate, Joule                                                                                                     
                                                                                                                                
Co-Chair Harris and Moses were absent from the vote.                                                                            
                                                                                                                                
The MOTION PASSED (6-3).                                                                                                        
                                                                                                                                
HJR  103   was  reported   out  of   Committee  with   a  "no                                                                   
recommendation"  and a fiscal  impact note  by the  Office of                                                                   
the Lieutenant Governor.                                                                                                        
HOUSE JOINT RESOLUTION NO. 102                                                                                                
                                                                                                                                
     Proposing  amendments to the  Constitution of  the State                                                                   
     of Alaska  relating to and limiting  appropriations from                                                                   
     the Alaska  permanent fund based on an  averaged percent                                                                   
     of the fund market value  and relating to permanent fund                                                                   
     dividend payments.                                                                                                         
                                                                                                                                
Representative  Foster  MOVED   to  report  HJR  102  out  of                                                                   
Committee  with  individual  recommendations   and  with  the                                                                   
accompanying  fiscal notes. There  was objection  for purpose                                                                   
of discussion.                                                                                                                  
                                                                                                                                
CHERYL  FRASCA, DIRECTOR,  DIVISION OF  MANAGEMENT &  BUDGET,                                                                   
OFFICE  OF THE  GOVERNOR,  explained  the bill,  which  would                                                                   
provide  a constitutional  distribution of  5 Percent  of the                                                                   
Market Value (POMV) of the Permanent  Fund: 50% to dividends,                                                                   
45% to education and 5% as a community  dividend. There would                                                                   
be a ten-year  sunset provision. Ms. Frasca  noted, "it would                                                                   
be up to  a legislature a decade  from now to decide  what it                                                                   
wanted to bring back to the voters."                                                                                            
                                                                                                                                
Representative Stoltze  stated that he had a  problem putting                                                                   
a  sunset provision  into the  Alaska  Constitution. He  felt                                                                   
that it  would erode public  confidence and pointed  out that                                                                   
any  Committee Chair  could "obliterate"  all  the plans  and                                                                   
protections  [provided  under  the legislation]  through  the                                                                   
legislative process.                                                                                                            
                                                                                                                                
Representative  Joule MOVED to  ADOPT a conceptual  amendment                                                                   
changing  the distribution  to:  60% to  dividends, 32.5%  to                                                                   
state  functions,  and  7.5%  to  municipalities.    Co-Chair                                                                   
Williams OBJECTED.                                                                                                              
                                                                                                                                
Co-Chair  Williams referred  to  the constitutional  approach                                                                   
and noted  that it would take  two years to implement  due to                                                                   
voting requirement.                                                                                                             
                                                                                                                                
In  response  to  a question  by  Representative  Croft,  Ms.                                                                   
Frasca  clarified that  the legislation  was  drafted with  a                                                                   
sunset.  A future  legislature  would have  to  place on  the                                                                   
ballot either the same proposal  or a new proposal. "The idea                                                                   
was, is  that, when  we look  forward over  a decade,  in ten                                                                   
years we don't know what Alaska  is going to be like." Future                                                                   
revenues  are  anticipated  from  resource  development.  The                                                                   
Administration  felt  it  was  important  to  give  a  future                                                                   
legislature the  latitude to determine  what is the  best fit                                                                   
for the circumstances  at that time. A  ratification approach                                                                   
would only allow the continuation  of the process that was in                                                                   
place in 2004.                                                                                                                  
                                                                                                                                
Representative  Croft  concluded  that the  entire  committee                                                                   
process  would  have to  [be  repeated]  in 2014  [under  the                                                                   
constitutional approach].                                                                                                       
                                                                                                                                
Representative Hawker pointed  out that the ballot initiative                                                                   
to establish the Permanent Fund  stressed that the Fund would                                                                   
be used  to establish stable state  funding when oil  and gas                                                                   
revenues were gone. He observed  that the proposal would take                                                                   
50% of these funds off the table for dividends.                                                                                 
                                                                                                                                
Ms.  Frasca  responded  that the  creation  of  the  dividend                                                                   
expanded the use  of the Fund. The interpretation  that a use                                                                   
of  the Fund  should be  for dividends  is  supported by  the                                                                   
statutory actions  of the legislature. The  legislation would                                                                   
put into the  Constitution what has become practice  in terms                                                                   
of dividends and education.                                                                                                     
                                                                                                                                
Representative  Hawker questioned  if the Administration  was                                                                   
comfortable  in  placing dividends  as  the  top priority  of                                                                   
state funding.                                                                                                                  
                                                                                                                                
Ms. Frasca noted that the Administration  is comfortable with                                                                   
the use of funds  for dividends and education.  The 5 percent                                                                   
payout for municipalities establishes a new program.                                                                            
                                                                                                                                
REPRESENTATIVE  ETHAN  BERKOWITZ  questioned  if  anyone  had                                                                   
looked at increasing  the 25 percent [deposit  into the Fund]                                                                   
from mineral leases to 50 to 100 percent.                                                                                       
                                                                                                                                
ROBERT D. STORER,  EXECUTIVE DIRECTOR, ALASKA  PERMANENT FUND                                                                   
CORPORATION,  DEPARTMENT  OF REVENUE,  stated  that he  could                                                                   
provide the  information, but  speculated that the  Fund size                                                                   
and income from the Fund would increase.                                                                                        
                                                                                                                                
In response  to a question  by Representative  Berkowitz, Ms.                                                                   
Frasca was not  aware of any proposals by  the Administration                                                                   
to increase  the deposit  amount [from  mineral leases].  She                                                                   
questioned  if  the suggestion  by  Representative  Berkowitz                                                                   
would  be for all  revenues to  go into  the Permanent  Fund.                                                                   
Representative Berkowitz stated  that he wanted to consider a                                                                   
change  and  asked  for  additional  information,  which  Mr.                                                                   
Storer promised to provide.                                                                                                     
                                                                                                                                
Representative Joule reiterated  his conceptual amendment for                                                                   
distribution of a 5 percent POMV:  60 personal dividend, 35.2                                                                   
percent to state spending, and 7.5 for municipalities.                                                                          
                                                                                                                                
Representative Hawker stated that  he would be in favor of an                                                                   
increased  municipal  dividend  with a  50  percent  dividend                                                                   
payout.                                                                                                                         
                                                                                                                                
Representative Joule noted that  constituents seem to favor a                                                                   
distribution of 60 percent to  dividends. He spoke in support                                                                   
of the amendment.                                                                                                               
                                                                                                                                
Vice-Chair Meyer  spoke in support  of a 50 percent  dividend                                                                   
and a 10 percent municipal dividend.                                                                                            
                                                                                                                                
Representative  Croft spoke in  support of the  amendment. He                                                                   
noted that  a third of  the payout would  be upwards  of $425                                                                   
million  dollars  [for  state  spending].  Communities  would                                                                   
receive approximately  $105 million  dollars, which  is close                                                                   
to  the  amount  paid by  the  municipal  assistance  program                                                                   
before reductions.                                                                                                              
                                                                                                                                
A roll  call vote was taken  on the motion  by Representative                                                                   
Joule to change the distribution amounts.                                                                                       
                                                                                                                                
IN FAVOR: Croft, Foster, Joule, Moses, Stotlze                                                                                  
OPPOSED: Fate, Hawker, Meyer, Chenault, Williams                                                                                
                                                                                                                                
Co-Chair Harris was absent from the vote.                                                                                       
                                                                                                                                
The MOTION FAILED (5-5).                                                                                                        
                                                                                                                                
Representative  Foster  MOVED   to  report  HJR  102  out  of                                                                   
Committee with the accompanying  fiscal notes. Representative                                                                   
Fate  OBJECTED. He  spoke against  eroding the  power of  the                                                                   
legislature.                                                                                                                    
                                                                                                                                
Vice-Chair  Meyer   stressed  the  importance   of  the  POMV                                                                   
approach.  He felt  that  it merited  further  debate on  the                                                                   
House Floor.                                                                                                                    
                                                                                                                                
Representative Stoltze and Representative  Hawker agreed with                                                                   
the remarks of Vice-Chair Meyer.                                                                                                
                                                                                                                                
Representative  Joule  noted  that  the public  needs  to  be                                                                   
convinced of the importance of the POMV.                                                                                        
                                                                                                                                
REPRESENTATIVE NICK STEPOVICH  pointed out that the public is                                                                   
wary of the way the legislature spends its money.                                                                               
                                                                                                                                
A roll  call vote was  taken on the  motion to move  the bill                                                                   
from Committee.                                                                                                                 
                                                                                                                                
IN FAVOR: Foster, Hawker, Joule, Meyer, Stoltze, Williams                                                                       
OPPOSED: Fate, Chenault, Croft, Moses                                                                                           
                                                                                                                                
Co-Chair Harris was absent from the vote.                                                                                       
                                                                                                                                
The MOTION PASSED (6-4).                                                                                                        
                                                                                                                                
HJR 102  was REPORTED out of  Committee with a "do  not pass"                                                                   
recommendation and with a zero  fiscal note by the Department                                                                   
of Revenue  and a  fiscal impact  note by  the Office  of the                                                                   
Lieutenant Governor.                                                                                                            
HOUSE BILL NO. 1003                                                                                                           
                                                                                                                                
     An  Act relating  to the  income  of and  appropriations                                                                   
     from  the  Alaska permanent  fund  under  art. IX,  sec.                                                                   
     15(b), Constitution  of the State of Alaska,  and making                                                                   
     conforming  amendments;   relating  to   permanent  fund                                                                   
     dividend payments  of at  least $1,000; relating  to the                                                                   
     determination of  net income of the mental  health trust                                                                   
     fund; and providing for an effective date.                                                                                 
                                                                                                                                
CHERYL  FRASCA, DIRECTOR,  DIVISION OF  MANAGEMENT &  BUDGET,                                                                   
OFFICE OF THE  GOVERNOR, observed that the  legislation would                                                                   
provide for  a dividend that  is equal  to 50% of  the annual                                                                   
POMV  income  or  a  $1,000  dollar  dividend,  whichever  is                                                                   
greater.                                                                                                                        
                                                                                                                                
ROBERT D. STORER,  EXECUTIVE DIRECTOR, ALASKA  PERMANENT FUND                                                                   
CORPORATION,  DEPARTMENT  OF   REVENUE,  explained  that  the                                                                   
income  from   the  Amerada  Hess   settlement  may   not  be                                                                   
distributed as a dividend under  current law. Income from the                                                                   
settlement can only go into the  principal of the Fund. These                                                                   
funds are  a component within  the Fund, which  has continued                                                                   
to grow. The  legislation would change this  status and allow                                                                   
the funds to  be considered in the calculation  of dividends.                                                                   
In  response  to  a question  by  Representative  Croft,  Mr.                                                                   
Storer felt that  the change could be made  within the limits                                                                   
of  the  settlement. He  did  not  have  a legal  opinion  to                                                                   
substantiate this  opinion [Mr.  Storer later notes  that the                                                                   
legislation would not include this change.]                                                                                     
                                                                                                                                
Representative  Hawker corrected  the previous statements  by                                                                   
Mr.  Storer and  pointed out  that language  in the  original                                                                   
version (HB 298) made the income  available. He observed that                                                                   
HB 1003  would hold the status  quo and the income  would not                                                                   
be available for distribution.                                                                                                  
                                                                                                                                
Mr.  Storer acknowledged  that the  distinction would  remain                                                                   
the same as under current statute.                                                                                              
                                                                                                                                
Representative Joule  MOVED to ADOPT conceptual  Amendment #1                                                                   
for the  distribution: 7.5  percent for municipalities,  32.5                                                                   
percent to public education and 60 percent to dividends.                                                                        
                                                                                                                                
Co-Chair Williams OBJECTED.                                                                                                     
                                                                                                                                
Representative  Hawker  suggested  that the  amendment  would                                                                   
place   dividends  at   a  higher   priority  to   education.                                                                   
Representative Joule disagreed  and pointed out that there is                                                                   
a formula  for education, regardless  of the funding  source.                                                                   
The amendment is a switch in the fund source.                                                                                   
                                                                                                                                
Representative  Hawker asked  if  Representative Joule  would                                                                   
support  a   reduction  of  the   dividend  payout   to  50%.                                                                   
Representative Joule did not support the change.                                                                                
                                                                                                                                
A roll call vote was taken on the motion.                                                                                       
                                                                                                                                
IN FAVOR: Foster, Joule, Moses, Stoltze, Croft                                                                                  
OPPOSED: Hawker, Meyer, Chenault, Fate, Williams                                                                                
                                                                                                                                
Co-Chair Harris was absent from the vote.                                                                                       
                                                                                                                                
The MOTION FAILED (5-5).                                                                                                        
                                                                                                                                
Representative  Chenault  asked  what  would  happen  if  the                                                                   
Permanent  Fund did not  have a  market gain  in a period  of                                                                   
time.                                                                                                                           
                                                                                                                                
Ms.  Frasca  pointed  to  page  3, line  26:  if  funds  were                                                                   
insufficient  to  meet  the $1,000  [dividend]  minimum,  the                                                                   
other  percentages  would  be reduced  accordingly  with  the                                                                   
anticipation that  the legislature  would back fill  to fully                                                                   
fund  the  45  and  5  percent   payouts  [to  education  and                                                                   
municipalities.]                                                                                                                
                                                                                                                                
Mr.  Storer  explained that  the  POMV  approach allows  a  5                                                                   
percent payout  with any distribution.  Under the  proposal a                                                                   
$1,000  dividend  would  be  given priority;  as  long  as  5                                                                   
percent of  the average  of the Fund  equal to $1,000  [times                                                                   
the  number   of  dividend  recipients]  is   available,  the                                                                   
dividend would be  paid. The Fund size would  have to average                                                                   
around $14  billion to [pay  a $1,000 dividend].  He observed                                                                   
that during the  past three year's bear market  the Fund went                                                                   
from  $28 billion  to $21  billion, which  still allowed  for                                                                   
inflation  proofing   and  full  funding  of   the  dividend.                                                                   
Statistically  there is  a small possibility  [that  the Fund                                                                   
would  drop  below   the  level  needed  to   fund  a  $1,000                                                                   
dividend]. There  would have to  be an extremely  severe bear                                                                   
market in the stock market.                                                                                                     
                                                                                                                                
Ms. Frasca pointed  out that the legislation  would provide a                                                                   
statutory change. The legislature  would have the latitude to                                                                   
amend the statute.                                                                                                              
                                                                                                                                
In response  to a  question by  Vice-Chair Meyer, Ms.  Frasca                                                                   
reiterated  that the $1,000  minimum provision  was added  by                                                                   
the Governor and  was not in the version passed  by the House                                                                   
[HB 298].                                                                                                                       
                                                                                                                                
TAPE HFC 04 - 1, Side B                                                                                                       
                                                                                                                                
Representative  Foster  MOVED   to  report  HB  1003  out  of                                                                   
Committee with  the accompanying fiscal note.  There being NO                                                                   
OBJECTION, it was so ordered.                                                                                                   
                                                                                                                                
HB 1003  was REPORTED out of  Committee with a "do  not pass"                                                                   
recommendation and with a zero  fiscal note by the Department                                                                   
of Revenue.                                                                                                                     
ADJOURNMENT                                                                                                                   
                                                                                                                                
The meeting was adjourned at 4:32 PM                                                                                            

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