Legislature(2013 - 2014)HOUSE FINANCE 519
04/05/2013 01:30 PM House FINANCE
| Audio | Topic |
|---|---|
| Start | |
| HB31 | |
| HB136 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| *+ | HB 136 | TELECONFERENCED | |
| + | HB 31 | TELECONFERENCED | |
| + | TELECONFERENCED |
HOUSE FINANCE COMMITTEE
April 5, 2013
1:34 p.m.
1:34:05 PM
CALL TO ORDER
Co-Chair Austerman called the House Finance Committee
meeting to order at 1:34 p.m.
MEMBERS PRESENT
Representative Alan Austerman, Co-Chair
Representative Bill Stoltze, Co-Chair
Representative Mark Neuman, Vice-Chair
Representative Mia Costello
Representative Bryce Edgmon
Representative Les Gara
Representative Lindsey Holmes
Representative Scott Kawasaki, Alternate
Representative Cathy Munoz
Representative Steve Thompson
Representative Tammie Wilson
MEMBERS ABSENT
Representative David Guttenberg
ALSO PRESENT
Representative Wes Keller, Sponsor; Representative Charisse
Millet, Sponsor; Dr. Scott Goldsmith, Institute of Social
and Economic Research, University of Alaska Anchorage;
Bradford Keithley, Attorney, Oil and Gas Group, Perkins
Coie LLP; Representative Beth Kerttula.
PRESENT VIA TELECONFERENCE
Stuart Thompson, Self, Mat-Su.
SUMMARY
HB 31 CONSTITUTIONAL HISTORY CURRICULUM
HB 31 was HEARD and HELD in committee for further
consideration.
HB 136 SUSTAINABLE BUDGET REPORTING
HB 136 was HEARD and HELD and referred to a
subcommittee for further consideration consisting
of the following members: Representative Costello
(Chair), Representative Austerman, Representative
Holmes, Representative Thompson, and
Representative Gara.
CSSB 21(FIN) am(efd fld)
OIL AND GAS PRODUCTION TAX
CSSB 21(FIN) am(efd fld) was SCHEDULED but not
HEARD.
HOUSE BILL NO. 31
"An Act requiring school districts to develop and
require completion of a history of American
constitutionalism curriculum segment; and providing
for an effective date."
1:35:06 PM
REPRESENTATIVE WES KELLER, SPONSOR, introduced the
legislation. The bill would require school districts to
create a curriculum segment on the history of American
constitutionalism and would require students to complete
the course prior to graduation. He acknowledged the
potential challenge of voting for an unfunded curriculum
mandate. He asserted that the bill represented a special
case and would tweak the current American history course
curriculum. He believed many schools were already in
compliance with the proposed bill and that its
implementation would not impose a significant burden on
school districts.
Representative Keller explained that the curriculum
pertained to the values and documents that had been
instrumental in forming the U.S. Constitution; the bill
would require the course work to look at American
constitutionalism as portrayed in the Declaration of
Independence, first state constitutions, Article of
Confederation, U.S. Constitution, federalist papers, and
the Bill of Rights; the course requirements under the bill
recognized the significance of the documents. He believed
the documents were a great gift to mankind; American
constitutionalism was a statement on human rights that had
been used globally. He referred to the statement that all
men are created equal and discussed rights including the
freedom of speech. He noted that the rights tended to be
taken for granted.
Representative Keller continued that he had introduced the
bill in 2011 shortly before the Egyptian president Hosni
Mubarak had been removed from office. He recalled that
multiple constitutions had been created in Egypt in recent
years; he pointed to riots in the streets and the ongoing
struggle. He stated that the values of American
constitutionalism provided the ability to make decisions
related to events occurring in other countries. He pointed
to the contrast between a country such as Egypt where
rights were determined by the military and the U.S. where
rights were inherent.
1:39:18 PM
Representative Keller continued to discuss rights under the
U.S. constitution. He pointed to differences between the
U.S. Constitution and the rights in other countries such as
China. He elaborated that the people were in charge in the
U.S. and authorized government authority. He discussed
freedom of religion and expression in the U.S. compared to
other countries. He communicated that the intent was not to
speak against districts that were not currently teaching
the curriculum. He read a quote by Thomas Jefferson:
As we work together to advance cost-effective justice,
we must remember that the greatest guarantee of a
strong future for all three branches of government is
a citizenry that understands and embraces the
fundamental principles of democracy.
Representative Keller referred to a past State of the
Judiciary speech by Chief Justice Walter Carpeneti. He
noted that Chief Justice Carpeneti spent a significant
amount of time increasing student awareness. He discussed
an online program created by Chief Justice O'Connor. He
provided a quote by Chief Justice Carpeneti: "Join me in
the effort to instill in our young people the same
knowledge and respect for our laws and institutions of our
country that we are all privileged to share."
1:43:02 PM
STUART THOMPSON, SELF, MAT-SU (via teleconference), spoke
in support of the legislation. He read a statement (copy on
file):
Per legislative rules, your committee's responsibility
is to evaluate the fiscal efficacy of HB 31. The
Education Committee has already evaluated and verified
its educational efficacy. So is the American
Constitutionalism History Literacy Act financially
worth making law? I testify as follows that it is.
The Legislature is charged with competently directing
payment of Alaska government bills, and intelligently
investing public money in constitutionally established
avenues like education. Education is an investment
because it can return many times the value of what's
put into it. One of the greatest returns education
delivers is the individual and cooperative ability to
resolve problems that hinder quality of life. This
bill addresses chronically unresolved problems of our
state and nation by targeting the constitutional
illiteracy and the lack of discipline at using our
political heritage that propagates them.
These problems include national bankruptcy; runaway
national unemployment; national economic addiction to
defense spending that makes military adventurism a
necessity; a pathetic loss of ability to harness
science to stimulate economic diversity; vulnerability
to super-corporation bullying and blackmail because
they are too big to truly enforce law on or to do
without (like the oil companies in Alaska); mediocre
skill development of America's people-making
corporate, business and individual welfare a
necessity; etc. , etc.
Constitutionalism the multi-partisan discipline it
engenders and our political heritage represent an
overflowing vault of problem-solving riches. Yet this
treasure is being treated by our state and nation-
using Christ's analogy-like pearls cast before swine.
Passing this bill will help create citizens and
leaders who are truly capable of ensuring government
of the People, by the People, and for the People shall
not perish from this earth from the awful terrorism of
ignorance.
Thank you for your attention. On request, I can
testify further about constitutional illiteracy and
repudiation of our political heritage. Good luck on
your deliberations.
1:46:23 PM
Co-Chair Stoltze CLOSED public testimony.
Representative Gara asked for verification that the
curriculum would include every amendment to the
Constitution that came subsequent to the original Bill of
Rights. He mentioned women's suffrage and the right for 18
year-olds to vote.
Representative Keller replied that all amendments under the
Constitution would be covered.
Representative Wilson asked which schools currently had the
curriculum and which did not. Representative Keller did not
know whether the information had been gathered. He pointed
to page 2, line 17 specifying that superintendents would
bring the proposal forward for approval by each school
board. School boards would set the criteria used to
determine whether a student had successfully completed the
curriculum. He noted that the bill placed trust and respect
in each district's abilities.
Representative Wilson supported the concept, but believed
it was important to know which schools were currently
teaching the subject; she wanted to ensure the bill was
necessary. She asked why the bill did not add the subject
to the high school graduation test.
Representative Keller replied that his intent was to leave
the standards up to the individual school districts.
1:50:30 PM
Representative Wilson agreed with leaving the standards up
to districts if the bill only mandated adding the
curriculum; however, the bill was tied to graduation and
she believed there should be consistency. She asked for a
walk through of the implementation including what tests
would look like and the approval process.
Representative Keller replied that each school district
would have approval authority over the curriculum
implementation; the Department of Education and Early
Development was not required to monitor the standards. The
bill placed trust in history teachers. He was not aware of
any other legislative mandated curriculum segments that
were a part of the graduation exam.
Representative Costello expressed appreciation for the
sponsor's attention to the subject. She communicated a
concern related to content standards and read from a copy
of the standards "A student who meets the content standard
should understand the ideals of this nation as expressed in
the Declaration of Independence, the United States
Constitution, and the Bill of Rights". She detailed that
the standards mentioned various forms of government.
She discussed that the subjects could be introduced to
students at any age; some students had the opportunity to
go to Washington D.C. to experience the governmental
process first-hand. She observed that current content
standards allowed teachers to teach at different stages
based on the makeup of their classroom. She wondered if
making the course a graduation requirement would cause
teachers at earlier grade levels to discontinue any
teachings on the subject, which would be the opposite of
the bill's intention.
Representative Keller answered that there was nothing in
the bill that restricted when the course was taught; the
superintendent or the school district had to be satisfied
that a student had completed a curriculum segment as
defined by each district. He believed the bill was
complimentary to the current standards.
1:55:12 PM
Representative Costello relayed that the current system was
based on a Carnegie unit (students received Carnegie units
for seat time). She wondered how the bill would affect
students in high school. She believed that the high school
exit exam should be addressed if districts were required to
write and teach the material. Additionally, she believed
teaching the material was currently required.
Representative Keller responded that he had wanted the
maximum amount of flexibility for local school boards. He
did not see the necessary connection to the exit exam.
Representative Costello believed the bill would affect
schedules in high schools because class requirements would
be added. She wondered whether the sponsor had spoken with
high school administrators about the issue. Representative
Keller answered that the intent was not to add additional
time requirements to classes. The segment would be approved
by the local school boards; if extra seat time was added it
would be the school district's choice.
Representative Costello asked if the sponsor had considered
asking DEED to create the curriculum. She believed that
requiring districts to create the curriculum could be
inefficient and costly. She stated that the curriculum
could be created or purchased and was an involved process.
She provided an example of the replacement of the math
program in Anchorage.
Representative Keller understood the amount of work
creating curriculum entailed. He believed some of the
districts had adequate curriculum segments in place. He
elaborated that the bill had been on the books since 2011
and he had received positive feedback from the school
districts. He reminded the committee that there was a
significant amount of curriculum that was already complete
including the material promoted by Chief Justice Carpeneti
and other.
1:59:21 PM
Representative Kawasaki asked for the definition of
curriculum segment. Representative Keller believed the key
word was "syllabus," which included a measurement of a
student's success. He detailed that the curriculum segments
would be packages assembled by teachers to accomplish
certain goals; teachers would build lesson plans based on
their goals for students.
Representative Kawasaki wondered whether the language in
the bill was superfluous if schools already taught on the
subject. Representative Keller replied that he had met
numerous students who had not been educated on the subject.
He noted that some students had not been taught the three
branches of government. He believed the bill would raise
attention to the importance of the values included in the
founding documents. He clarified that Alaska's schools were
not all teaching the subject; however, many of the engaged
and good schools were.
Representative Kawasaki asked if the sponsor knew of any
specific school districts that did not teach the Articles
of Confederation, the state constitution, Constitutional
Congress, Declaration of Independence, and other.
Representative Keller answered that his personal experience
with students who had not received an education on the
subject implied that some schools were not teaching the
material.
Representative Kawasaki discussed that the Fairbanks North
Star Borough School District currently included
constitutionalism in its content standards. He detailed
that the standards highlighted the Articles of
Confederation and writing and ratifying the new
constitution. He added that the National Center for History
in Schools specified that children were exposed to the
Articles of Confederation in the fifth grade and how to
assess accomplishments and failures of the first
continental congress in seventh grade, etc. He believed
much of the required material listed in the bill was
included in current content standards. He added that the
one problem was linking the teachings to the graduation
requirement.
2:03:46 PM
Representative Keller was not trying to rewrite content
standards. He believed the bill was complimentary and would
enhance the teaching of the values included in the founding
documents.
Co-Chair Austerman liked the idea of including something on
the books that would guarantee the teaching of the U.S.
Constitution; however, he was concerned that the bill only
dealt with districts. He referred to the Kodiak school
system and shared that in the past high school students had
been allowed to turn in homework until the end of each
quarter even though it had been required earlier in the
quarter; he noted that the student would have failed in
Anchorage or Mat-Su if they had not turned the homework in
on time. He was concerned that without a set standard
throughout the state students transferring from one
community to another may not be adequately prepared. Apart
from the concern he was supportive of the bill.
Additionally, he wondered whether the subjects should be
taught in conjunction with Alaska history.
Representative Keller answered that including the subject
requirement in statute would provide the opportunity to
examine progress in the future. He asked Co-Chair Austerman
to repeat the second question.
Co-Chair Austerman reiterated his questions.
Representative Keller replied that the bill did not address
students moving from one community to another. He had
considered including Alaska history in the requirement, but
had elected to leave the language broad. He had not wanted
to impose too many mandates.
2:07:27 PM
Representative Gara asked for assurance that the bill would
not prevent teachers from teaching "less proud" moments in
U.S. history. He provided an example related to a time when
the First Amendment had been interpreted to allow a person
to be sent to jail for protesting World War I.
Representative Wes Keller replied that the bill would not
[prevent teachers from teaching all aspects of the
country's constitutional history]. He stated that the
values included in the constitution would provide students
with guidelines for critical thinking on what was right and
wrong in human government.
Representative Gara pointed to page 2, line 25. He surmised
that the subject would be taught in an American history or
other similar course. He wondered how to measure whether a
student completed the curriculum segment described in
Section (a) on page 2 if they received a B grade in the
overall course. He asked whether completion of the course
would be sufficient. He asked whether there would be a
separate disqualifying parameter from graduation based on
the specific portion of the course.
Representative Keller replied in the negative. He relayed
that the implementation would be up to local school
districts; the districts would make a determination on
criteria defining a successful completion of the segment.
He did not want the legislature to write the standards.
Representative Gara asked whether the sponsor would have a
problem with the addition of clarifying language specifying
that a student had to complete the course in which the
curriculum was contained.
Representative Keller was opposed to the potential change
in language. He believed that the language "completing a
course" sounded like seat time; he believed that
satisfactorily completing a curriculum was completely
different.
2:11:28 PM
Vice-Chair Neuman mentioned his shared fight for the rights
of home school parents. He discussed that some programs
allowed parents to choose their curriculum. He detailed
that curriculum was bought based on the fact that it met
certain grade level standards; however, parents had the
right to choose the books they use. He thought the bill may
require parents to have curriculum approved by school
districts.
Representative Keller answered that curriculum for the Home
School Support program had to be approved by the local
school board, which had been established in regulation.
Vice-Chair Neuman stated that the IDEA [Interior Distance
Education of Alaska] program was different than the Mat-Su
program. He stated that the IDEA program was one of the
largest home school programs in the state because it
allowed parents to choose the curriculum; he did not
believe that the school board approved the curriculum or
books. He opined that the task would be time consuming.
2:14:39 PM
Representative Keller replied that the task was large and
believed the school boards did approve the home schooling
curriculum. He shared that his grandchildren were currently
enrolled in the IDEA program; the approval of curriculum
was a process that was imposed on the local school
districts. He recalled that in recent years there had been
debate on the issue focused on how the school boards could
approve curriculum that included religious books. He was
confident there was currently a process in place that
required school boards to approve home school curriculum.
Co-Chair Stoltze relayed that members wanted to examine
some issues related to the legislation. He asked members to
work with his office on the bill. He was an advocate of
better knowledge curriculums, but he understood that the
legislature did not set curriculum; he felt strongly that
it was the role of the school boards. He believed the
concept would have passed easily if it had been a
resolution to the State Board of Education. He believed the
legislature had a shoddy record related to setting
curriculum and micromanagement of the school boards.
Representative Wilson asked the sponsor to look into which
districts already had the curriculum.
Co-Chair Stoltze reiterated his request for members to work
with his office on anything related to the legislation.
Representative Keller thanked the committee for its time.
HB 31 was HEARD and HELD in committee for further
consideration.
2:19:08 PM
AT EASE
2:23:05 PM
RECONVENED
HOUSE BILL NO. 136
"An Act requiring the governor's fiscal plan to
include certain information."
2:23:27 PM
Co-Chair Stoltze noted that the committee had a strong
interest in fiscal policy.
REPRESENTATIVE CHARISSE MILLET, SPONSOR, communicated that
the bill addressed that the state would be in deficit
spending in the current year. She relayed that the Office
of Management and Budget (OMB) 10-year fiscal plan
indicated that the state would go into deficit spending in
2020; the plan did not take SB 21 (oil tax reduction
legislation) into account. She credited Dr. Scott Goldsmith
with the Institute of Social and Economic Research for
developing the legislation. She had worked with others on
determining the fiscal health of the state in the past
year. She remarked that budgets were based off of revenues
and not what was necessarily responsible spending for the
state. She communicated that the bill looked more
holistically at the budgets; she hoped the legislature
would not always base budgets on the amount of incoming and
outgoing revenues. She believed there would be a
substantial change in revenue due to the decline in the
Trans-Alaska Pipeline System (TAPS), which did not account
for a potential oil tax change that she supported. She
relayed that the bill was not a mandate on spending, but
was a recommendation from the governor's office on a
sustainable long-term spending plan.
2:26:51 PM
Co-Chair Stoltze remarked that the spring revenue forecast
was not as "rosy" as the fall revenue forecast had been.
DR. SCOTT GOLDSMITH, INSTITUTE OF SOCIAL AND ECONOMIC
RESEARCH, UNIVERSITY OF ALASKA ANCHORAGE, provided a
PowerPoint presentation titled "Implementing a State Fiscal
Plan: Step 1 Tracking Maximum Sustainable Yield" (copy on
file). He relayed that the presentation was based on a more
detailed report he had provided at a joint House and Senate
Finance Committees meeting a couple of weeks earlier. He
equated the state fiscal plan to a road map for the future
that would help the state to live within its means and to
have the necessary resources to provide expected public
goods and services for the long-term. The current problem
facing the state was its unsustainable spending growth
path; the presentation looked at the problem via the state
general fund (GF) into the future.
Dr. Goldsmith addressed slide 1 titled "The Problem:
Unsustainable Spending Growth." The black line represented
the growth in state GF spending; the green [aqua] area
represented the state's oil revenues, which made up 95
percent of its GF revenue. The chart highlighted that
spending continued to increase whereas oil revenues would
continue to decline. The red area reflected the state's
cash reserve (Constitutional Budget Reserve (CBR) and
Statutory Budget Reserve (SBR)), which was preventing a gap
between revenue and spending in the short-term; growing
expenditures would be funded by reserves for a limited
number of years. He emphasized that without forward
thinking the depletion of the state's reserves would come
as potentially a $4 billion to $5 billion shock to the
budget in a single year. He noted that the state had been
unable to identify other sources of revenue to take the
place of declining petroleum revenues in the long-term; the
graph showed revenues from new oil and gas, which were not
sufficient to offset the decline in the face of continued
state spending growth.
Mr. Goldsmith continued that when the fiscal gap opened up
the state's ability to fund public expenditures would be
constrained and additional strain would be placed on the
economy. He expounded that the setback was not likely to be
temporary in nature in contrast to a 1980s recession; in
the absence of other revenue sources the state would be
riding the oil decline curve down into the future.
2:31:38 PM
Dr. Goldsmith turned to slide 2 titled "The Solution." He
suggested that the problem could be addressed by changing
how the state thought about oil revenues. He believed it
was important to recognize and manage the state's petroleum
wealth like a depletable asset owned by all Alaskans.
Subsequently, the way to manage the asset was
straightforward and relatively simple. He stated that it
would be necessary to determine the value of the asset, how
much could be spent, and how to invest it for a maximum
return.
Dr. Goldsmith moved to slide 3 titled "Petroleum Wealth of
the "Owner State"." He discussed that the value of the
state's petroleum asset was composed of current money in
the bank and remaining oil in the ground, which he
estimated at approximately $150 billion. He elaborated that
the money in the bank represented money already collected
from petroleum; depending on the market the value could
fluctuate, which he estimated to be slightly over $60
billion (the money was comprised of the Permanent Fund
Dividend balance, CBR, and SBR). The second asset was the
value of the revenues from oil and gas remaining in the
ground that would be collected in future years. He
estimated the remaining oil and gas was worth approximately
$89 billion; the amount reflected the net present value of
future revenues and was a combination of known conventional
oil ($67 billion) and other oil and gas ($22 billion).
2:36:09 PM
Representative Edgmon asked for clarity related to the
presentation. He referred to a past presentation by Dr.
Goldsmith reflecting that one-third of Alaska's spending
came from the government; the fact was not included in the
presentation. Dr. Goldsmith replied that the goal was to
provide background on a rationale for HB 136.
Representative Edgmon hoped the information would be
factored into the overall picture. He remarked that the
state was also facing an uncertain future related to
federal funding.
Dr. Goldsmith agreed. He explained that the presentation
looked at the state's ability to fund the GF. He remarked
that any problems that may arise with declines in federal
grant assistance was an additional issue.
2:38:11 PM
Dr. Goldsmith continued on slide 4 titled "How Much Can We
Spend Today: GF Maximum Sustainable Yield." He drew
attention to his estimated $149 billion petroleum asset
"nest egg" for FY 14. He addressed how much could be drawn
from the asset (while maintaining value for future
generations) if it was managed for maximum return. The
calculation used the value of the nest egg at $149 billion
multiplied by an annual real draw rate of 4 percent (a 5
percent real rate of return minus 1 percent reinvested).
The 5 percent rate of return was a Permanent Fund
Corporation target; the 1 percent reinvested recognized
that the number of Alaskans was growing at approximately 1
percent per year. Using the calculation the maximum
sustainable yield (MSY) draw equaled $6 billion. To
determine the annual sustainable GF expenditure it was
necessary to subtract the Permanent Fund Dividend account
(estimated at $1 billion in FY 14) and add the share of GF
spending financed from non-petroleum revenues (estimated at
$0.5 billion in FY 14); the GF MSY equaled $5.5 billion. He
explained that the figure represented the amount that could
be spent under current conditions out of the GF in FY 14
without passing a fiscal burden on to future generations.
He elaborated that the fiscal burden would be a reduction
in the nest egg size and a tax burden or a reduction in the
ability of future generations to spend public revenues at
the current rate.
2:42:09 PM
Dr. Goldsmith moved to slide 5 titled "Maximum Sustainable
Yield: Nest Egg Growth." He explained that over time the
value of oil and gas in the ground would decline because
the supply would continue to diminish; however, financial
assets would offset the decline due to a reinvestment of
the funds. The chart showed that the financial asset would
increase at a rate of 1 percent per year, which coincided
with the population growth rate; therefore, the value of
the nest egg would remain constant over the long-term.
Additionally, there would be an increasing ability to fund
the GF over time.
Dr. Goldsmith turned to slide 6 titled "Maximum Sustainable
Yield: General Fund Growth." He pointed to the chart on the
left and explained that petroleum revenues were shown in
black, financial earnings were displayed in blue, and the
red represented non-petroleum revenues. The size of the
draw available to fund the GF would grow at the same rate
as the nest egg growth. The chart on the right showed that
the nest egg would grow at an annual rate of 4 percent,
which would slightly offset inflation and population
increases. He noted that the chart suggested a target or
spending cap from the nest egg (petroleum asset). He
pointed to the non-petroleum revenues (red line on the left
graph), which represented 5 percent of the total GF
revenues at present; there was no reason the revenues could
not be expanded through taxation or another means. The
graph showed no fiscal gap; the projection would remain
viable into the future indefinitely.
2:47:07 PM
Dr. Goldsmith pointed to four basic components of MSY
implementation on slide 7:
· Manage financial assets for maximum long term
return
· Establish monitoring system to track Nest Egg
value, set MSY target, and track progress towards
sustainability
· Gradually transition to GF Maximum Sustainable
Yield level
· Proactively participate in management of
petroleum in the ground for maximum return
Dr. Goldsmith elaborated that the state was currently
managing its financial assets for long-term return. The
establishment of a monitoring system was proposed in HB
136. He turned the presentation over to his colleague.
2:48:53 PM
BRADFORD KEITHLEY, ATTORNEY, OIL AND GAS GROUP, PERKINS
COIE LLP, shared his intent to explain the legislation. He
provided detailed information about his work background; he
had worked on oil related issues for 35 years.
2:53:43 PM
Mr. Keithley pointed to slide 1 and saw a problem related
to future generations of Alaskans; the revenue stream would
be much smaller and it would be necessary to increase taxes
or live with a reduced state government role in order to
maintain the current quality of life. He discussed that the
oil and gas industry looked at a state's fiscal system and
potential problems going forward when deciding to invest.
He was troubled by the chart because oil and gas investors
looked out 10 to 20 years for the life of a revenue stream.
He elaborated that the fiscal cliff shown on slide 1
occurred in the middle of major investments the state
wanted to attract. He was concerned about the state's
attractiveness to long-term, large scale investment due the
current fiscal system.
Mr. Keithley responded to a question from Co-Chair Stoltze.
He detailed that investors looked at where the state
derived revenue currently and in the future. He did not
believe there were many places to derive revenue from in
Alaska. He remarked that Dr. Goldsmith had done other
studies on the amount of tax that would have to be put on
fish or gold. He stressed that there were not sources of
revenue that would sustain the type of spending and state
government that had been created. He stated that the
sustainable budget approach on slide 6 was essentially a
retirement account. The approach recognized that the
current oil revenue stream needed to benefit the present
and future generations; it was necessary for the income to
sustain the state for the short and long-term, which could
be accomplished by setting money aside in a revenue
producing "retirement" account. The approach allowed the
state to put a portion of its current revenue stream in a
retirement account, which would provide a revenue stream
for a viable standard of living in the future.
Mr. Keithley remarked on the necessity of putting savings
aside while income was coming in. The approach shown on the
chart showed the state beginning to draw on the earnings
from the account in FY 19. He noted that the approach would
build a sustainable long-term fiscal environment for
Alaska. He stated that in order to successfully accomplish
the strategy it would be necessary to reduce the state's
current level of take. He compared a reduction in take to a
fisherman's take of fish in Bristol Bay in order to ensure
sufficient fish in the future. He detailed that HB 136
would start an information stream that would allow the
legislature to evaluate the state's effort towards
developing a sustainable budget; the bill did not mandate
and did not instruct on spending levels. He stated that the
bill was a first try at making the calculation; however,
modifications were recommended. He believed the committee
had a CS for the bill.
3:01:52 PM
Mr. Keithley spoke to a CS [the committee did not have the
CS at present] and explained that it went through Dr.
Goldsmith's calculation; it resulted in an annual MSY
figure. The bill would insert a new section in statute to
include the calculation of a MSY budget in the governor's
annual 10-year fiscal plan. He detailed that the figure for
FY 14 was $5.5 billion.
Co-Chair Stoltze handed the gavel to Co-Chair Austerman.
Mr. Keithley addressed slide 8 titled "Track Nest Egg and
GF MSY." The calculation added the CBR and SBR balance to
the Permanent Fund Dividend balance to equal the financial
assets. The value of the petroleum in the ground (net
present value of future earnings stream off of oil) was
added to the financial assets to reach the nest egg
(revenue producing retirement account). The nest egg was
multiplied by 4 percent (the yield off of the retirement
account to obtain the MSY). Non-petroleum GF revenues were
added and the Permanent Fund Dividend was subtracted to
reach the GF MSY ($5.5 billion if calculated for the
current year). The MSY was the amount that could be spent
on an annual basis in perpetuity (with the remaining funds
put into savings). He reiterated that the bill would insert
a new section in statute to include the calculation of a
MSY budget in the governor's annual 10-year fiscal plan;
expenditures exceeding the sustainable yield meant that
funds were taken away from future generations.
3:06:44 PM
Mr. Keithley expounded that the bill would provide the
legislature with a sustainable yield number to use when
discussing budgets in the future.
Co-Chair Austerman pointed to the current TAPS decline and
an increase in natural gas in the Lower 48. He stated that
in the worst case scenario a natural gasline would not be
built in Alaska. He wondered how the absence of a gasline
would impact the calculations. He asked if the state would
live off of its savings.
Dr. Goldsmith replied that his calculation for the value of
the oil and gas remaining in the ground included a
component for marketing the state's natural gas; his built
in assumptions were that it would not occur for many years
and that it would not be the fiscal jackpot that some may
expect. As a result, the discounted net present value was
relatively modest. He expounded that conditions in oil and
gas markets would continue to evolve, which would impact
the value placed on revenues for remaining oil and gas; the
changes had a relatively modest impact on the calculation
of the GF MSY spending level at present. He guessed that if
any revenues were netted from the commercialization of gas
from the calculation it would drop the MSY calculation to
$5 billion in FY 14. He furthered that the MSY was not that
sensitive to assumptions made about future oil and gas
revenues. He elaborated that the calculation forced the
state to think critically and consistently about what
future oil and gas revenues the state was likely to collect
in future years rather than relying on speculations beyond
the Department of Revenue's 10-year forecasts; 10-years was
about the time the state would be running out of financial
reserves in the CBR and SBR.
3:11:36 PM
Representative Millet added that OMB did not factor gas
into its 10-year projections; the forecasts were based on
oil price and production.
Representative Holmes spoke in support of the legislation.
She noted that the bill did not mention oil revenue. She
wondered if oil revenue was calculated into the net present
value calculation. Dr. Goldsmith replied that oil revenue
was included in the first year of revenues in the net
present value calculation.
Representative Holmes pointed to page 2, lines 22 and 23
related to the SBR. She understood that the state
constitution clearly separated principal versus interest
for the Permanent Fund Dividend and the budget reserve
fund. She wondered if there was a clear distinction on
principal for the SBR. Mr. Keithley replied that the number
was intended to be the balance of the SBR, the Permanent
Fund Dividend, and the CBR. He expounded that the funds
were viewed as retirement accounts that would produce
revenue in the future.
Representative Holmes reiterated her support for the
legislation. She did not believe the state was currently in
a sustainable financial position. She pointed to slide 6
and remarked that she supported the idea of sustainable
services in the future; however, she was concerned about
creating a "trust fund society."
Dr. Goldsmith believed the consideration was important. He
stated that managing the assets to address the needs of
future generations would become increasingly challenging in
the future as revenues were progressively derived from
financial assets. He addressed the trust fund concern.
Representative Holmes clarified that she did not believe
the sponsor or presenters were advocating a trust fund as
an economic plan. Dr. Goldsmith pointed to Alaska's fiscal
past and noted that the state already had a trust fund
society that had been living for 35 years off of the
petroleum generated assets with no taxes.
Mr. Keithley added that the purpose of the legislation was
to treat future generations the same as the current
population. Additionally, the goal was to ensure that a
portion of the oil asset was available for future
generations to enjoy the same quality of life as current
residents. The oil available currently would be converted
into a financial asset that would generate a revenue stream
into the future. Future generations would not be treated
any differently than the current population.
Representative Holmes believed the shared goal was to
continue to work on diversifying the state's revenue
sources given that oil and gas would not be available
forever. She observed that the bill provided a way to
continue the oil and gas revenue into the future. She
pointed to discussions related to other economic
development including mining, fisheries, value-added,
intellectual, and more.
3:19:36 PM
Representative Kawasaki wondered how the calculation for
oil in the ground had been made on slide 3. He asked if the
calculation was based on the current tax structure.
Dr. Goldsmith replied that the calculation came from two
sources. The known conventional oil was based on a
Department of Revenue forecast, which covered anticipated
petroleum revenues 10 years into the future. He had used an
assumption to account for production occurring after 10
years for known oil sources primarily on the North Slope
between the Canning and Colville Rivers on state lands. He
had created the assumption for other oil and gas based on
the kind of unconventional oil and gas it may be and the
location it may be found; assumptions included Alaska
National Wildlife Refuge (ANWR), the National Petroleum
Reserve Alaska (NPRA), and the Outer Continental Shelf
(OCS). Other assumptions included shale, viscous, and heavy
oils and gas estimates. He stated that revenue would not be
seen from the other oil and gas sources for at least 10
years. He noted that revenues from OCS may not be seen for
20 years. He explained that the net present value was
relatively modest for a revenue stream 10 years into the
future with a reasonable discount rate.
3:23:09 PM
Dr. Goldsmith relayed that he had created many assumptions
that did not currently exist elsewhere. He hoped DOR and
OMB would also develop their own estimations.
Representative Kawasaki asked how the value for oil in the
ground had been derived on slide 3. He wondered what tax
regime had been used to set the net present value. Dr.
Goldsmith replied that he had used DOR projections for
production revenues on state lands. He relayed that the tax
system was different on non-state land particularly on OCS;
the state did not share in the production, property, and
income tax or royalties; therefore, under current law the
state received minimal revenue from the areas. He had used
the current fiscal regime and had applied straight forward
assumptions on take per barrel (knowing the current take
per barrel). He recognized that non-conventional oil would
be more expensive to produce and potentially at a lower
quality; therefore, the take per barrel would most likely
be less.
Representative Kawasaki asked for verification that DOR
figures and the current tax structure had been used to
arrive at the $90 billion net present value shown on slide
3. Dr. Goldsmith answered that DOR figures had been used to
determine the $67 billion known conventional oil figure. He
had compiled the $22 billion figure (related to other oil
and gas that fell beyond DOR's 10-year projection) on his
own.
Representative Kawasaki noted that the committee was
currently considering other legislation that would change
the tax system, which would significantly alter the amounts
shown on slide 3. Dr. Goldsmith replied that a change in
the tax system could alter the figures. He relayed that the
calculation looked at revenues over the long-term. He
elaborated that the future revenue stream forecast would
need to be redone if the impact of a tax change was
incorporated into the analysis. He noted that a change may
or may not result in enhanced revenues in the future. He
stated that factoring in a change in tax structure would
not only look at how much would be lost in the short-term.
Co-Chair Austerman handed the gavel to Co-Chair Stoltze.
Representative Kawasaki pointed to the $67 billion figure
(slide 3) and asked whether the number for the [10-year]
period would decrease significantly if the current tax
structure was changed. Dr. Goldsmith replied that the
number could be less or more depending on how the change
impacted long-term revenues from future production. He
agreed that the savings would be smaller if the assumption
was that future revenue would not change.
3:28:01 PM
Representative Millet interjected that Representative
Kawasaki's scenario assumed production would never
increase. She relayed that it was necessary to assume that
the changes in the tax structure would increase production
and that oil prices would not increase or decrease. She
stated that there could be increased investment on the
North Slope if less tax was collected [from producers].
Representative Kawasaki noted that the revenue could be
lower [under a new tax system]. He stated that the proposal
dealing with oil and gas tax revenues was to use a portion
of the "In the Bank" fund (slide 3) at present. He surmised
that using a portion of the funds would erode the $149
billion asset.
Dr. Goldsmith responded that any spending of money in the
bank or petroleum revenues above the $5.5 billion would
erode the nest egg. He added that erosion to the nest egg
would occur if the spending exceeded $6 billion.
3:30:00 PM
Representative Gara pointed to slide 1. He referenced an
article where ConocoPhillips stated that its legacy fields
(Prudhoe Bay and Kuparuk) were likely facing a 3 percent
decline curve as opposed to a 6 percent decline into the
future. He wondered whether the presentation had used a 3
percent decline curve or the 6 percent decline used in the
DOR fall 2012 revenue forecast.
Dr. Goldsmith replied that the diagram on slide 2 reflected
DOR's fall 2012 forecast.
Co-Chair Stoltze stated that the tax debate would be held
at a later time.
Representative Gara communicated that he had numerous
questions related to the presentation.
3:31:01 PM
AT EASE
3:31:10 PM
RECONVENED
Representative Munoz asked whether $1.5 billion would be
put into savings if spending stayed within the $5.5 billion
MSY for FY 14. She surmised that some serious changes would
be required.
Mr. Keithley replied that the savings would be the
difference in revenues above the $5.5 billion figure.
Representative Munoz asked what the savings would need to
be in order to contribute sufficient revenue to the $5.5
billion given the current decline in oil revenues. Dr.
Goldsmith replied that it was necessary to determine how
much the state could afford to spend; anything above that
amount needed to go into savings. He stated that the issue
was complicated because the saved amount varied each year
based upon the amount of petroleum revenue taken in and how
large the financial asset had become.
3:34:06 PM
Mr. Keithley added that any revenues above $5.5 billion
would need to go into savings to achieve the sustainable
nest egg.
Representative Munoz asked how a value could be placed on
the petroleum in the ground when there was significant
uncertainty about when the asset would be extracted. Dr.
Goldsmith replied that uncertainty was apparent every time
the calculation was made because a slightly different
answer was generated. He detailed that he had used a
process that was used by the business world to value assets
for potential purchase.
Mr. Keithley asked the committee to think of the state as a
producer. He relayed that producers routinely calculated
the net present value of their estimated future revenue
stream; the Securities Exchange Commission (SEC) reports
the values provided by producers. The process used in the
presentation estimated the value [of petroleum in the
ground] on the net present value of the state's future
revenue stream. He added that the calculation used the DOR
projections for the first 10 years.
3:35:54 PM
Representative Costello appreciated the bill. She asked for
the assumptions used in calculating some of the figures
used in the presentation. Dr. Goldsmith answered that many
of the assumptions were outlined in a document titled
"Maximum Sustainable Yield FY 2014 Update" (copy on file).
Representative Costello understood that the bill would not
place limits on the legislature's ability to appropriate
funds. She surmised that the bill would require that
information specifying funds at the state's disposal would
be provided to the legislature, with a percentage of the
funds designated for spending. She asked for verification
that the information would be fluid and updated annually.
Dr. Goldsmith replied in the affirmative. He compared it to
the value of personal assets fluctuating over time for a
variety of reasons. The value of the nest egg would vary
over time; the bill provided a method for keeping track of
the value.
Representative Holmes pointed to page 2, line 15, which
related to the amount projected to be available for
spending from the GF. She wondered whether the bill should
specify that the amount was available for spending from
state assets from the following fiscal year.
3:38:52 PM
Mr. Keithley replied that the language related to the
amount of unrestricted general fund spending that would
result in the sustainable number long-term.
Representative Holmes surmised it did not matter which fund
source the money would come from. She observed that there
could be years where there were not sufficient unrestricted
general funds. She wondered whether it would be more
appropriate to use less specific language such as "state
assets" or "state funds."
Mr. Keithley agreed and would take the consideration into
account.
Representative Gara requested to ask some questions. Co-
Chair Stoltze replied that the questions would need to wait
for another time.
3:40:27 PM
AT EASE
3:41:47 PM
RECONVENED
Co-Chair Stoltze relayed his intent to refer the bill to a
fiscal policy subcommittee for the interim consisting of
members: Representative Costello (Chair), Representative
Austerman, Representative Holmes, Representative Thompson,
and Representative Gara. He relayed that all House Finance
Committee members were invited to participate.
Representative Gara asked to be removed from the
subcommittee. Co-Chair Stoltze acknowledged Representative
Gara.
Representative Millet thanked the committee for hearing the
legislation.
HB 136 was HEARD and HELD and referred to a subcommittee
consisting of the following members: Representative
Costello (Chair), Representative Austerman, Representative
Holmes, Representative Thompson, and Representative Gara.
CS FOR SENATE BILL NO. 21(FIN) am(efd fld)
"An Act relating to the interest rate applicable to
certain amounts due for fees, taxes, and payments made
and property delivered to the Department of Revenue;
providing a tax credit against the corporation income
tax for qualified oil and gas service industry
expenditures; relating to the oil and gas production
tax rate; relating to gas used in the state; relating
to monthly installment payments of the oil and gas
production tax; relating to oil and gas production tax
credits for certain losses and expenditures; relating
to oil and gas production tax credit certificates;
relating to nontransferable tax credits based on
production; relating to the oil and gas tax credit
fund; relating to annual statements by producers and
explorers; establishing the Oil and Gas
Competitiveness Review Board; and making conforming
amendments."
CSSB 21(FIN) am(efd fld) was SCHEDULED but not HEARD.
ADJOURNMENT
3:45:37 PM
The meeting was adjourned at 3:45 p.m.
| Document Name | Date/Time | Subjects |
|---|---|---|
| HB 136 Sectional Analysis.pdf |
HFIN 4/5/2013 1:30:00 PM |
HB 136 |
| HB 136 Supporting Document ISER Report January 2013.pdf |
HFIN 4/5/2013 1:30:00 PM |
HB 136 |
| HB 136 Sponsor Statement .pdf |
HFIN 4/5/2013 1:30:00 PM |
HB 136 |
| Ak History stand 06.pdf |
HFIN 4/5/2013 1:30:00 PM |
HB 31 |
| BILLS-108hr1078ih.pdf |
HFIN 4/5/2013 1:30:00 PM |
HB 31 |
| AS 14.03.075.pdf |
HFIN 4/5/2013 1:30:00 PM |
HB 31 |
| BILLS-108s504rfh.pdf |
HFIN 4/5/2013 1:30:00 PM |
HB 31 |
| Chief Justice Walter Carpeneti.pdf |
HFIN 4/5/2013 1:30:00 PM |
HB 31 |
| Civic's dunces Natl.pdf |
HFIN 4/5/2013 1:30:00 PM |
HB 31 |
| Handouts, Morality and Common Sense - Opinion - PatriotPost.US.pdf |
HFIN 4/5/2013 1:30:00 PM |
HB 31 |
| HB 31 ACLU Support.pdf |
HFIN 4/5/2013 1:30:00 PM |
HB 31 |
| HB 31 4 AAC 04.pdf |
HFIN 4/5/2013 1:30:00 PM |
HB 31 |
| HB 31 AK Content History 06.pdf |
HFIN 4/5/2013 1:30:00 PM |
HB 31 |
| HB 31 AK ED PLAN 14 pages.pdf |
HFIN 4/5/2013 1:30:00 PM |
HB 31 |
| HB 31 Hb 5 Haines Support ltr.pdf |
HFIN 4/5/2013 1:30:00 PM |
HB 5 HB 31 |
| HB 31 HB 5 support 1.pdf |
HFIN 4/5/2013 1:30:00 PM |
HB 5 HB 31 |
| HB 31 HB 5 support.pdf |
HFIN 4/5/2013 1:30:00 PM |
HB 5 HB 31 |
| Hb 31 pricepaid.pdf |
HFIN 4/5/2013 1:30:00 PM |
HB 31 |
| HB 31 Sectional.pdf |
HFIN 4/5/2013 1:30:00 PM |
HB 31 |
| HB 31 sponsor.pdf |
HFIN 4/5/2013 1:30:00 PM |
HB 31 |
| HB 31 unconstitutional laws 44 pages.pdf |
HFIN 4/5/2013 1:30:00 PM |
HB 31 |
| HB136-NEW FN OOG-OMB-03-29-13.pdf |
HFIN 4/5/2013 1:30:00 PM |
HB 136 |
| HB 136 Supporting Document Powerpoint Presentation.pdf |
HFIN 4/5/2013 1:30:00 PM |
HB 136 |
| HB 136 CS Workdraft Supporting Document.pdf |
HFIN 4/5/2013 1:30:00 PM |
HB 136 |
| HB 31 Additional Support.pdf |
HFIN 4/5/2013 1:30:00 PM |
HB 31 |