Legislature(2003 - 2004)

03/22/2004 01:42 PM FIN

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
                                  HOUSE FINANCE COMMITTEE                                                                       
                                       March 22, 2004                                                                           
                                         1:42 P.M.                                                                              
                                                                                                                                
 TAPE    HFC   04   -  62,   Side    A                                                                                          
 TAPE    HFC   04   -  62,   Side    B                                                                                          
 TAPE    HFC   04   -  63,   Side    A                                                                                          
 TAPE    HFC   04   -  63,   Side    B                                                                                          
                                                                                                                                
 CALL TO ORDER                                                                                                                
                                                                                                                                
 Co-Chair Williams called the House Finance Committee meeting                                                                   
 to order at 1:42 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                                                                                                                 
                                                                                                                                
Bob    Bartholomew,         Chief     Operating       Officer,      Alaska      Permanent                                       
Fund     Corporation,         Department         of   Revenue;        Bruce     Tangeman,                                       
Fiscal     Analyst,      Legislative        Finance     Division;       Cheryl     Frasca,                                      
Director,       Division       of    Management        &   Budget,      Office      of   the                                    
Governor;       Pete     Ecklund,       Staff     to    Representative          Williams;                                       
Tom    Wright,       Staff     to    Representative          Harris;      Kim     Garnero,                                      
Director,       Division      Of   Finance,      Department       Of   Administration;                                          
Sue    Stancliff,        Staff      to   Representative           Pete    Kott;      Tamara                                     
Cook,    Director,       Legislative        Legal    and    Research      Services;      Mr.                                    
Bill     Sherrill,       Transportation           &   Infrastructure           Committee,                                       
U.S. Congress.                                                                                                                  
                                                                                                                                
 PRESENT VIA TELECONFERENCE                                                                                                   
                                                                                                                                
 Billie Jo Han, Wasilla                                                                                                         
                                                                                                                                
 SUMMARY                                                                                                                      
                                                                                                                                
 HB 494         An Act relating to the disbursement of money by                                                                 
                the state, including employment compensation,                                                                   
                unemployment            payments,          and       permanent          fund                                    
                dividends,        and   to  bank    investments        and   deposits      by                                   
                the state; and providing for an effective date.                                                                 
                                                                                                                                
                CSHB 494(FIN) was REPORTED out of Committee with a                                                              
                "do     pass"      recommendation          and     seven     new     fiscal                                     
                impact notes.                                                                                                   
                                                                                                                                
 HJR   26       Proposing        amendments        to   the    Constitution         of   the                                    
                State       of      Alaska       relating         to     and      limiting                                      
                appropriations           from     and    inflation        proofing       the                                    
                Alaska     permanent       fund    by  establishing        a  percent      of                                   
                market value spending limit.                                                                                    
                                                                                                                                
                HJR 26 was heard and HELD in Committee for further                                                              
                consideration.                                                                                                  
                                                                                                                                
 HB   298       An      Act       relating         to     the       distribution           of                                   
                appropriations           from      the    Alaska       permanent        fund                                    
                under      art.    IX,    sec.     15(b),      Constitution         of   the                                    
                State     of  Alaska,      and   making     conforming       amendments;                                        
                and providing for an effective date.                                                                            
                                                                                                                                
                HB 298 was heard and HELD in Committee for further                                                              
                consideration.                                                                                                  
                                                                                                                                
 HJR 9          Proposing amendments to the Constitution of the                                                                 
                State     of  Alaska     relating      to   an   appropriation        limit                                     
                and a spending limit                                                                                            
                                                                                                                                
                HJR 9 was heard and HELD in Committee for further                                                               
                consideration.                                                                                                  
                                                                                                                                
 HB   236       An   Act   imposing      a  tax    on  employment;        and   providing                                       
                for an effective date.                                                                                          
                                                                                                                                
                HB 236 was heard and HELD in Committee for further                                                              
                consideration.                                                                                                  
                                                                                                                                
 HOUSE BILL NO. 494                                                                                                           
                                                                                                                                
         An   Act    relating       to   the    disbursement         of   money     by   the                                    
         state,     including       employment       compensation,         unemployment                                         
         payments,       and    permanent        fund    dividends,        and    to    bank                                    
         investments        and    deposits      by    the    state;     and    providing                                       
         for an effective date.                                                                                                 
                                                                                                                                
 Co-Chair      Harris      MOVED    to    ADOPT    Work     Draft    Version      Q   of   HB                                   
 494    dated    3-17-04.       Co-Chair      Williams       OBJECTED      for    purposes                                      
 of discussion.                                                                                                                 
                                                                                                                                
 MS.     SUE    STANCLIFF,         STAFF      TO    REPRESENTATIVE           PETE     KOTT,                                     
 explained       the    changes     in    Version     Q.      She   noted     that    there                                     
 was    discussion       during     the    last    hearing     of   the    provision       in                                   
 Section      19   that     required      the    departments        to   do    electronic                                       
 disbursements.          This    version      makes    it    optional      and    suggests                                      
 that    the   departments        use   electronic       disbursement.        The    change                                     
 in   Section     14   relates     to   stale    dating     and   unclaimed       property                                      
 and it was recommended by the Department of Administration.                                                                    
                                                                                                                                
 Ms.   Stancliff       continued,       Version      Q  deletes      the   section      that                                    
 repealed       the   word     "warrant"       and    inserts      "warrant"       because                                      
 warrants      would     be  issued     and    should     be   kept   in   statute.      The                                    
 Alaska     Railroad       recommended        the   last     change.     She    explained                                       
 that      the     Railroad        is    not     required        to     do    electronic                                        
 disbursements         because      it   is   exempt     under     current      statutes,                                       
 so   the   work    draft    removed     the   Railroad      to   avoid    changing      two                                    
 other parts of the bill.                                                                                                       
                                                                                                                                
 Co-Chair       Harris     noted     that     every     year    at   budget      time    the                                    
 Legislature        takes    up   the   stale     dated    warrants,       and   he   asked                                     
 if   the   bill    addresses      that    issue.      Ms.   Stancliff       deferred      to                                   
 the Department of Administration.                                                                                              
                                                                                                                                
 MS.    KIM   GARNERO,       DIRECTOR,       DIVISION      OF   FINANCE,      DEPARTMENT                                        
 OF    ADMINISTRATION,          stated      that     last    year     the    Legislature                                        
 amended      Title     37.05.180      that     affects      stale    dated     warrants.                                       
 She    explained       that    starting       last    year    the    warrants       became                                     
 part    of   unclaimed       property.       The    unclaimed       property      program                                      
 holds    the    money    until     the   claim     has   come    forward     instead      of                                   
 letting      it  lapse     into    the   General      Fund   and    waiting     to   get   a                                   
 new    appropriation         in   the   stale     date    process.      She    said    that                                    
 it   works      well,     and    that    there      wouldn't      be    further      stale                                     
 dated warrant legislation.                                                                                                     
                                                                                                                                
 Ms.     Garnero      also     noted      that     last     year     the     Legislature                                        
 amended      the    miscellaneous         claims     portion      that     is   the    two-                                    
 year-old       bills.      She    said     that    these      currently       only     come                                    
 before      the    Legislature        if    they    are    large      and    the    agency                                     
 couldn't pay for them out of the current budget.                                                                               
                                                                                                                                
 Representative           Foster      MOVED     to    report       CSHB     494    out     of                                   
 Committee          with       individual           recommendations             and      the                                    
 accompanying        fiscal     notes.      There     being    NO   OBJECTION,       it  was                                    
 so ordered.                                                                                                                    
                                                                                                                                
 CSHB    494(FIN)      was   REPORTED      out   of   Committee      with    a  "do   pass"                                     
 recommendation and seven new fiscal impact notes.                                                                              
                                                                                                                                
 HOUSE JOINT RESOLUTION NO. 26                                                                                                
                                                                                                                                
         Proposing       amendments       to   the    Constitution         of   the   State                                     
         of   Alaska     relating      to   and   limiting      appropriations          from                                    
         and    inflation       proofing       the    Alaska      permanent       fund     by                                   
         establishing a percent of market value spending limit.                                                                 
                                                                                                                                
                                                                                                                                
 Co-Chair      Harris     MOVED     to   ADOPT     Work    Draft    Version      U  of   HJR                                    
 26    dated     3/19/04.       There      being      NO   OBJECTION,         it   was     so                                   
 ordered.                                                                                                                       
                                                                                                                                
 PETE     ECKLUND,      STAFF     TO    REPRESENTATIVE          WILLIAMS,       explained                                       
 the    incorporation         of   Representative          Stoltze's       Amendment       #1                                   
 in   Version     U.     He   said   that    it   simply     shortened       and   amended                                      
 the title of the resolution.                                                                                                   
                                                                                                                                
 In   response      to   a  question      by   Co-Chair      Williams,       Mr.   Ecklund                                      
 commented that Amendment #2 is not in Version U.                                                                               
                                                                                                                                
 Co-Chair      Williams      announced      that    he   would    move    HJR   26   to  the                                    
 bottom     of  the    agenda     until    Representative         Stoltze     arrived      to                                   
 address it.                                                                                                                    
                                                                                                                                
 HOUSE BILL NO. 298                                                                                                           
                                                                                                                                
         An   Act   relating       to   the    distribution        of   appropriations                                          
         from    the     Alaska     permanent        fund     under     art.     IX,    sec.                                    
         15(b),     Constitution        of   the   State     of   Alaska,     and    making                                     
         conforming       amendments;        and    providing       for    an   effective                                       
         date.                                                                                                                  
                                                                                                                                
 Co-Chair      Harris     MOVED     to   ADOPT     Work    Draft    Version      V  for    HB                                   
 298    dated      3/19/04.       There     being     NO    OBJECTION,        it    was    so                                   
 ordered.                                                                                                                       
                                                                                                                                
 MR.     PETER       ECKLUND,        STAFF      TO     REPRESENTATIVE           WILLIAMS,                                       
 explained        the    changes       by    comparing        Version       V   with     the                                    
 previous       version,      House     Special      Committee       on   Ways     &  Means                                     
 Version     U.     In  Version      U,  on   page    3,  lines     5  and   8,   the   word                                    
 "average"      was    changed     to   "annualized,"        at   the   request      of  the                                    
 Permanent       Fund    Corporation.        On   page    3,  line    6,   "10    calendar                                      
 years"     was    changed     to   "10    fiscal     years"     to   match     the   other                                     
 calculations based on fiscal years.                                                                                            
                                                                                                                                
 On   page   3,   line    21,   after    the   word    "inflation"        the   remainder                                       
 of   that    subsection        (1)   and    (2)    is   deleted      after     the   words                                     
 "for     a   specific       fiscal      year     by,"     The     new    language       was                                    
 inserted       in   Version      V,   page    3,   lines     20-    26   was    a   change                                     
 requested by the Permanent Fund Corporation.                                                                                   
                                                                                                                                
 MR     BOB     BARTHOLOMEW,           CHIEF       OPERATING        OFFICER,         ALASKA                                     
 PERMANENT        FUND     CORPORATION         (PFC),      DEPARTMENT        OF    REVENUE                                      
 explained       the   change     in   Version     V   starts    on   line    24   of   page                                    
 3.     The   PFC    has   recommended        a  simpler      way    to   calculate      the                                    
 annual     inflation      rate,     using    the   Consumer      Price    Index     (CPI).                                     
 The   Corporation        has   always     used    the    CPI,    and   would    now    look                                    
 at   the   change      in   one   12-month      period      instead     of   from    month                                     
 to month.  It is a technical simplification.                                                                                   
                                                                                                                                
 Mr.   Ecklund      addressed       Representative         Croft's      questions       from                                    
 the   last    hearing     on   the   bill,    referring       to   page   3,   lines    17-                                    
 18   of   the   Ways    &  Means    Version      U.    The    language      states,     "50                                    
 percent      may    be   appropriated         to   the    general      fund"     and    "50                                    
 percent      may   be   appropriated        to   the   dividend      fund".       The   new                                    
 Version     V  states:       "not    more    than    50%   may   be   appropriated        to                                   
 the   general      fund"    and   "not    more    than   50%    may   be  appropriated                                         
 to   the   dividend       fund."       He   explained      it   was    in   response      to                                   
 questions       of   whether      "may    be   appropriated,"          meant    that    60%                                    
 or   40%   could     be  appropriated.         The    new   language      sets    more    of                                   
 an     upper      cap.     The     way      it    is     written       allows       future                                     
 legislatures         to   decide     a  cap    of   zero    to   50%    on   either     the                                    
 general fund or the dividend.                                                                                                  
                                                                                                                                
 Mr.    Ecklund       referred       to    page    3,    line     14,    Work     Draft     V                                   
 subsection        (b),    "The     legislature        may    appropriate        from    the                                    
 fund     for    each     fiscal      year     the    amount      for    costs      of   the                                    
 corporation         associated        with     operating        and     investing       the                                    
 fund."     The    current     costs     of   operating       the   Fund     are   between                                      
 $45    and   $50    million     annually.         Those     operating       costs    would                                     
 be   taken     off   the   top,     and   then    50%    would    be   distributed        to                                   
 dividends, and 50% to the General Fund.                                                                                        
                                                                                                                                
 Mr.    Ecklund      referred       to    page    3,    line    22,    subsection        (d)                                    
 noting      that    the    previous       version      was    silent      on    when    the                                    
 transfer      of   money    would    occur    from    the   Permanent       Fund    to  the                                    
 dividend      fund    and   the   General     Fund.      The    new   language      states                                     
 that     the    transfer      would      occur     "within      14    days    after     the                                    
 effective date of the appropriation."                                                                                          
                                                                                                                                
 Mr.    Ecklund      referred      to   a   change      in   Version      V  on    page    4,                                   
 Sec.     5,   which      now    states,      "The     operating        budget      of   the                                    
 corporation         shall      be    included       in    the    state's       operating                               
 budget     under    AS   37.07     (Executive       Budget     Act)."       He  said    the                                    
 Corporation is agreeable to the language change.                                                                               
                                                                                                                                
 Representative          Chenault       asked     if    the    Corporation        has    any                                    
 problem with the change to 14 days.                                                                                            
                                                                                                                                
 Mr.      Bartholomew           commented          on     the       timing        of     the                                    
 distributions.         The   dividend      distribution         historically        ranges                                     
 from    a     $500     million      to   $1   billion      lump     sum   distribution                                         
 that    is    needed     within     the    first     week    of    October.      It   is   a                                   
 policy     call    if   the   money    resides      in   the   General      Fund    or  the                                    
 Permanent       Fund    for   that     period.     It   has    been    transferred        in                                   
 July,     so   this     change     is   in    line    with    how    the    Corporation                                        
 handled      the   dividend       this    year.     The   new    language      providing                                       
 an   allocation       for   state    services      would    require      discussion       on                                   
 whether      to   pay    a   lump    sum    at   the    beginning       of   the    fiscal                                     
 year,    or   on   a  quarterly      or   monthly     basis.       He  said    that    when                                    
 there     is   a  steady     cash     flow,    it   is   easier      for   the    Fund    to                                   
 plan    to    do   a  recurring       payment      rather      than    a   lump    sum.    A                                   
 lump    sum   requires      determining       how    many   securities       to   sell    or                                   
 how   to   raise     the    cash.      However,      Mr.    Bartholomew        said    that                                    
 the   Fund    could     make    it   work    as   written     for    a    $1.2    billion                                      
 transfer      on    that    date.     He   asked     the   committee       to    consider                                      
 approaching         the    state     services       portion      from     a   cash     flow                                    
 standpoint       with    either     a   quarterly      or   monthly      distribution.                                         
 He said it would work as written.                                                                                              
                                                                                                                                
 In   response       to   a  question       by   Co-Chair      Harris,      Mr.    Ecklund                                      
 explained       that    language      was    removed      from    Section     10   of   the                                    
 previous       Version       U,    and     confirmed        it    now    provides       one                                    
 effective       date     of   January       1,   2005     if   voters      approve      the                                    
 constitutional amendment.                                                                                                      
                                                                                                                                
 Co-Chair      Harris      MOVED     to   amend     Amendment       #1   by   adding     the                                    
 words    "not    more    than"     before     (1)   and   (2)    to   incorporate       the                                    
 change in Version V. Co-Chair Williams OBJECTED.                                                                               
                                                                                                                                
 Co-Chair      Harris     explained      that    his   Amendment       #1  would     change                                     
 the   50-50    allocations        to   the   General     Fund    to   not   more    than   a                                   
 40%    appropriation         to   public     education,       and    not   more    than    a                                   
 60%     appropriation          to    the    dividend.           He    said     that     his                                    
 reasoning       is    to   ensure      that     the    public     would      accept     the                                    
 measure,      and    would    understand       that    the    Legislature        wouldn't                                      
 take    any    more    of   the    dividend      money     than    is   necessary       for                                    
 the    operation       of    the    public     education        portion      of   general                                      
 government.          He   remarked      that    education       is   the    most    highly                                     
 supported      service      by   the   public.       He  submitted       the   amendment                                       
 hoping      that      it    would      help     to    pass      the    bill      and    the                                    
 constitutional amendment.                                                                                                      
                                                                                                                                
 The amendment to Amendment #1 reads:                                                                                           
                                                                                                                                
 Page 3, lines 19-20:                                                                                                           
                                                                                                                                
         Delete all material and insert:                                                                                        
         "(1) not more than 40 percent may be appropriated for                                                                  
                public education;                                                                                               
         (2)  not more than 60 percent may be appropriated to                                                                   
                the dividend fund"                                                                                              
                                                                                                                                
 Vice-Chair       Meyer    commented       that    the   60-40    split    is   closer     to                                   
 what    the   "Conference        of   55"   had    recommended.        He   agreed     that                                    
 40%    is    appropriate         for     public      education,        but     expressed                                       
 concern     that    50%   could     also   be   appropriated        for   education       in                                   
 the     50-50     split.         He     thought      that     50%     would      get    the                                    
 Legislature        closer     to   the    amount     needed     for    education.         He                                   
 thought      the    discussion       would     center     on    the   40-60     split     or                                   
 50-50    split.       He  indicated       that    he's   inclined      to   leave    it   at                                   
 50-50     but   would     agree    to   change     public      education      to   50%    in                                   
 (1) of Amendment #1.                                                                                                           
                                                                                                                                
 Representative            Hawker       agreed       with       Vice-Chair         Meyer's                                      
 thinking.        He   drew   attention       to   the   new   fiscal     note    from   the                                    
 Department        of    Revenue,        dated     3/22/04       at    12:30      pm.    The                                    
 analysis        gives       current        projections          of     appropriations                                          
 available      to   the   Legislature's         discretion       under    the    adoption                                      
 of   the   5%   POMV    in   a  constitutional         amendment.        He  noted     that                                    
 in   FY   2006,     the   50-50     split    breaks     out    Public     Services      and                                    
 Per    Capita      Dividend      at    $641    million      each.        It   climbs      to                                   
 about     $800     million       each     in    FY    2011.     Combining        the    two                                    
 figures      totals     about    $1.2    billion     in   FY   06   and   $1.6    billion                                      
 in   FY   11.   Looking      at  immediate       need,     the   proposed      amendment                                       
 would     increase      the    amount     appropriated         by   10%    from    50%    to                                   
 60%     for     an     approximate          additional         $120     million        into                                    
 dividends        and     away      from     public       services,        and     perhaps                                      
 education.                                                                                                                     
                                                                                                                                
 Representative           Hawker      discussed       the     attempt       to    increase                                      
 education      funding      by   about    $90   million     a   year   for   all    future                                     
 years,     asking     where    it   will    come    from.      He   doubted     that    the                                    
 current     $30    per   barrel     oil   price    would    be   sustained.       As   that                                    
 price    declines,       he  said    the   state     would    have    to  "scratch"       to                                   
 meet    the   recurring      budget     requirements.         He   voiced    reluctance                                        
 to   designate        that    extra     10%    or   $120     million      to   dividends                                       
 when    it   is   needed      for   schools.         He   noted    that     the   schools                                      
 need    an   additional       $30   million      to   $40   million      above    the   $90                                    
 million      each   year.     He   calculated       that    $120    million     in   a  per                                    
 capita     dividend       for    600,000     residents       has    a   net    effect     of                                   
 $200     each.         He    noted     that      public      testimony        this     year                                    
 predominantly         asked    the   Legislature        to  pay    for   schools     first                                     
 and   expressed       support     for   using     some   of   the   state    wealth     for                                    
 state      programs.           He    was     not     inclined       to    support       the                                    
 amendment.                                                                                                                     
                                                                                                                                
 Representative            Croft      spoke       against        Amendment        #1     for                                    
 different       reasons.      He    said    that    it   would     amend     a   statute,                                      
 and    it   doesn't      matter     what    those     two    sections      are    because                                      
 they    give    a   false     perception       to   the    public     as   long    as   the                                    
 words    "may    be   appropriated"         are   used.     It's    a  statement       that                                    
 these     percentages         could     be    used    for     public     education        or                                   
 dividends       or   for   anything,       and   different       numbers     could     also                                    
 be     used.       The     language         doesn't        put     any      substantive                                        
 restrictions         on    what    the     Legislature        can    and     cannot     do.                                    
 Different        percentages         wouldn't       guarantee        the    result,       or                                   
 restrict      the    power     of   appropriation.            He   doubted      that    the                                    
 amendment       makes      the    difference        the    sponsor      intended,       and                                    
 said that it gives a false impression.                                                                                         
                                                                                                                                
 Co-Chair      Williams       asked    how    the   change     from    50%    to   40%   for                                    
 state    services,       amounting      to   about    a  $200    million     reduction,                                        
 would affect the cash flow for payout.                                                                                         
                                                                                                                                
 CHERYL      FRASCA,      DIRECTOR,       DIVISION      OF    MANAGEMENT       &   BUDGET,                                      
 OFFICE     OF   THE   GOVERNOR      replied      that    she   perceived       the   issue                                     
 to   be   the    amount     of   shortfall       over    the    next    5  to   6   years.                                     
 She    said    if    the    assumption       is    flat    spending,       it    averages                                      
 between      $700    and    $800    million      in   each    of    the   next     5  or   6                                   
 fiscal      years      based      on    the     fall     forecast.        The     pending                                      
 increase      in   K-12    funding      raises     it   by   another      $85    million.                                      
 She    said    that    50%   helps     a   lot   in   filling      the    gap,    and   40%                                    
 helps "not quite as much."                                                                                                     
                                                                                                                                
 Co-Chair      Harris     agreed      with    Ms.   Frasca     if   the    intention       is                                   
 to    fill    the    gap     only    with     Permanent       Fund     earnings.          He                                   
 argued     that    40%   plus    other     revenues      from   the    gas   line    or   an                                   
 income     tax   would    achieve      the   goal.       The    budget    could     easily                                     
 be   balanced      on  100%    of   the   earnings      of  the    Fund.     Ms.    Frasca                                     
 responded      that    is   correct     but   she    said   that    she   "based     it   on                                   
 what has been passed so far."                                                                                                  
                                                                                                                                
 Co-Chair      Williams      agreed     with    Representative          Croft    that    the                                    
 split     can    be   "dressed,"        but    he   observed       that    spending       on                                   
 education       is   a  selling      point    for    the    public.       He   expressed                                       
 that    the   state     can't    afford     a  "wish     list"    of   a  gas   line,     an                                   
 income     tax   or   high    oil   prices     with    a  fiscal     gap    of   $600-700                                      
 million      a  year.      He   said,    the   Permanent       Fund    is   a  rainy    day                                    
 fund,     and   "It's     raining     out    there,     and   I   don't    want    to   get                                    
 wet."      He   spoke    for    taking     care    of  state     services,      and    said                                    
 that he strongly opposed the amendment.                                                                                        
                                                                                                                                
 Co-Chair      Harris     questioned        adding     "shall"     rather     than    "may"                                     
 and asked if it would cause a legal problem.                                                                                   
                                                                                                                                
 MS.    TAMARA     COOK,     DIRECTOR,        LEGISLATIVE        LEGAL     AND    RESEARCH                                      
 SERVICES,      explained       that    fundamentally        it   wouldn't      matter     in                                   
 the   context      of   the   two   provisions.          The   lead-in      language      is                                   
 mandatory,         which     states       "appropriations           for     a    specific                                      
 fiscal     year    are    limited      as   follows."      With    the    insertion       of                                   
 the   language,       "not    more    than,"     some    discretion       is   built    in,                                    
 whether      "shall"      or   "may"     is   used.        The   language       says    the                                    
 Legislature        can   go   up   to   a  certain     percentage        for   a  certain                                      
 purpose.       In   any    case,      statutorily        the    Legislature         cannot                                     
 dedicate      revenue.      Ms.   Cook    said,    from    that    point    of   view,    it                                   
 may     be    that     this      provision        would     not     be    enforceable,                                         
 depending       on   the   form     of   the   constitutional          amendment       when                                    
 it's    adopted.      She   hastened       to  remind     the    committee      that    the                                    
 current      allocation       in   AS  37.13.145       repealed      in   this    bill    is                                   
 also    not   enforceable        as   a  dedication.        She   expressed       that    it                                   
 has    been     very     potent      in   explaining        the     behavior       of   the                                    
 Legislature         with     respect       to    the    use     of    Permanent        Fund                                    
 income.     To   that    extent,     she   concluded,       there     is  no   reason     to                                   
 suspect      that    the    new    provision       143    [Sec.     37.13.143]       would                                     
 have less political force.                                                                                                     
                                                                                                                                
 Co-Chair      Williams      asked    for   clarification         that    currently      the                                    
 Legislature        may   use   the   Permanent       Fund   in   any   way   it   wishes.                                      
 Ms.   Cook    affirmed,      saying     that    the   Legislature        is  restricted                                        
 to   the    use    of   the    Fund    income,      but    there     is   currently       no                                   
 restriction        in    the   Constitution         regarding       how    that     income                                     
 can    be   used.       The    Legislature         statutorily        has    elected      to                                   
 distribute        it   under     a  formula      providing       for    dividends       and                                    
 inflation      proofing.         She   said   it   has   mathematically          resulted                                      
 over    the   years    in   an   accumulation        of  additional       money     in  the                                    
 earnings      reserve      account.      She    noted     that    that    statute      also                                    
 could     not    be    enforced       as   a   dedication,         and    it    has    been                                    
 adhered      to   by   the   Legislature        because      of   the   public      policy                                     
 decision it makes every year.                                                                                                  
                                                                                                                                
 Co-Chair      Williams      asked    if   the   Legislature        has   ever    used   any                                    
 part    of  the    Permanent      Fund    earnings      for   state    services.        Ms.                                    
 Cook     thought      that     once     or   twice      small     amounts       from    the                                    
 earnings       reserve      or   income     account      were     used    to   reimburse                                       
 litigation       expenditures        of   the   Department       of   Law   when    it  was                                    
 at   fault    in   litigation.       She   said    there    might     have   been    other                                     
 isolated instances involving very small amounts.                                                                               
                                                                                                                                
 Representative         Hawker     noted    that    over    the   last    8  years    since                                     
 1996,     the    Legislature         has    appropriated         over     $238    million                                      
 from       Permanent         Fund       earnings         for       other       purposes.                                       
 Appropriations           to   the     Department        of    Corrections         through                                      
 provisions       in   statute      allow    taking     dividends       from    felons     to                                   
 use    for    the     department's         operations.        Supplemental          social                                     
 service      benefits       are    paid    to    recipients        who    also    receive                                      
 dividends.        The    Legislature        has    also     funded     administrative                                          
 costs    of   the   Departments        of  Revenue,      Public     Safety,      and   Law.                                    
                                                                                                                                
 In    response        to     a   question        by     Representative           Stoltze,                                      
 Representative          Hawker      affirmed       that     it    is    money     already                                      
 appropriated for dividends that has been redirected.                                                                           
                                                                                                                                
 Ms.   Cook    agreed     that    Representative          Hawker     is   correct.       She                                    
 cited    AS   37.13.145,       the    distribution        system     that    puts    a  set                                    
 formula      amount     into    the    dividend      fund.      She    clarified       that                                    
 in     the     dividend        fund     statutes,         the     Legislature          also                                    
 identified        some    appropriations          that     are    taken     out    of   the                                    
 dividend       fund,      not     for     the     distribution,          but     for    the                                    
 purposes      Representative          Hawker     has   itemized.        It   is   part    of                                   
 the dividend program.                                                                                                          
                                                                                                                                
 Co-Chair      Harris     commented       that    constitutionally,           25%   of   oil                                    
 royalties       go   into     the   Permanent        Fund    automatically,          so   it                                   
 was   felt     that    25%   or   more    can   toward      the   operations       of   oil                                    
 and gas to help perpetuate and build up the Fund.                                                                              
                                                                                                                                
 Co-Chair      Williams      noted    that    the   Legislature        hasn't     used   the                                    
 Permanent       Fund    earnings       since     enactment.          Ms.   Cook     agreed                                     
 that     it     is    fundamentally           true.      As    the     earnings        have                                    
 accumulated,          the     Legislature         has     swept      the     additional                                        
 earnings       back     into     the    principal        of    the    Permanent        Fund                                    
 through a special act of appropriation.                                                                                        
                                                                                                                                
 Co-Chair       Williams       commented        that     if   this     measure       passed                                     
 right    now,    it   would    be   difficult      to   change     the   numbers     up   or                                   
 down.       He   recommended        that    the    Legislature        can    always     pay                                    
 more    to   the    dividend       distribution,         but    it   can't     lower    the                                    
 dividend amount.                                                                                                               
                                                                                                                                
 A   roll     call     vote    was    taken      on   the     motion     to    adopt     the                                    
 amendment to Amendment #1.                                                                                                     
                                                                                                                                
 IN FAVOR: Chenault, Foster, Harris                                                                                             
 OPPOSED:       Stoltze,      Croft,     Fate,     Hawker,     Joule,     Meyer,     Moses,                                     
           Williams                                                                                                             
                                                                                                                                
 The MOTION FAILED (3-8).  Amendment #1 was not adopted.                                                                        
                                                                                                                                
 Vice-Chair       Meyer     agreed     with     Co-Chair      Harris     in    dedicating                                       
 money     to    education       in    statute.       He    proposed      a    conceptual                                       
 Amendment       #2   using     the    50-50     split    that     would    state,      "50%                                    
 may be appropriated for public education."                                                                                     
                                                                                                                                
 Amendment #2 reads:                                                                                                            
                                                                                                                                
         Page 3, line 19:                                                                                                       
                                                                                                                                
         (1) not more than 50 percent may be appropriated for                                                                   
         public education;                                                                                                      
                                                                                                                                
 Amendment #2 was adopted without objection.                                                                                    
                                                                                                                                
 HB    298     was     heard      and     HELD      in    Committee        for     further                                      
 consideration.                                                                                                                 
                                                                                                                                
 HOUSE JOINT RESOLUTION NO. 9                                                                                                 
                                                                                                                                
         Proposing amendments to the Constitution of the State                                                                  
         of Alaska relating to an appropriation limit and a                                                                     
         spending limit.                                                                                                        
                                                                                                                                
 Co-Chair      Harris     MOVED    to   ADOPT    Work    Draft    23-LS0435,       Version                                      
 Z   dated      3/19/04.       There      being      NO    OBJECTION,        it    was     so                                   
 ordered.                                                                                                                       
                                                                                                                                
 MR.    PETER     ECKLUND,       STAFF     TO    CO-CHAIR       WILLIAMS,       explained                                       
 that    line   7   in  Section      16,   would    change     the   average      to  three                                     
 of   four    fiscal     years     from    an   average     of   two    of   four    fiscal                                     
 years     in    the    previous       version.         He    said     that     it   is    an                                   
 attempt      to    smooth      out    the    starting       point     between       fiscal                                     
 years,     which     Mr.    Tangeman      could     explain,       and   he    noted    the                                    
 chart (copy on file) showing it in visual format.                                                                              
                                                                                                                                
 MR.    BRUCE      TANGEMAN,        FISCAL      ANALYST,       LEGISLATIVE         FINANCE                                      
 DIVISION      stated     that    the    previous      version     included      one    base                                    
 year    two   years     prior    in   order    to   get   an   accurate      base    year.                                     
 He   explained       that    it   was   because      last    year,     or   our   current                                      
 FY    04,    does    not    yet    include       supplemental         appropriations.                                          
 The    problem      was    that     it   could     allow     a   stair-step        of   the                                    
 appropriation:          if   the    Legislature         doesn't      appropriate        the                                    
 full     limit     one    year,     but    does     the    following       year,     there                                     
 would be a gap causing a stair step in future years.                                                                           
                                                                                                                                
 TAPE HFC 04 - 62, SIDE B                                                                                                     
                                                                                                                                
 Mr.   Tangeman       continued      stating      that    the   change     smoothes      out                                    
 the   low   years     when   less    than    the   full    limit    is   appropriated.                                         
                                                                                                                                
 Mr.    Ecklund     continued       discussing        the   changes      in   Work    Draft                                     
 Version      Z.    The   change     to   Section      16(b)    on   page    1,  line    16,                                    
 would    provide      that   if   a  future     Legislature        desired     to   exceed                                     
 the     spending        limit,      it     could      do    so    by     two     methods.                                      
 Exceeding      by   2%   would    require     a   2/3   vote    of  both    houses,     and                                    
 exceeding       by  a   further     2%,    for   a  total     of  4%,    would    require                                      
 a ¾ vote of both houses.                                                                                                       
                                                                                                                                
 Mr.   Ecklund      explained      that    the    change     on  page    2,   line    7,   in                                   
 the   last    part    of   (b)   states     that    any   exceeding       of   the   limit                                     
 must    be    done    in   a   separate       appropriation         bill.       A   future                                     
 Legislature        wishing      to   exceed     the   spending       limit    by,    or   up                                   
 to,    2%   or   4%   would     have    to   introduce       separate       legislation                                        
 and get a 2/3 vote for 2%, and a ¾ vote for 4% increases.                                                                      
                                                                                                                                
 Representative         Croft     questioned       whether     the   change     on   page   1                                   
 would    recreate       the   supplemental        problem      in   the   new   draft     by                                   
 using     the   earliest      3   of   the   4  preceding       fiscal     years.       Mr.                                    
 Tangeman      clarified       that    FY   04   would     be   skipped,      and   FY   01,                                    
 FY 02 and FY 03 would be averaged.                                                                                             
                                                                                                                                
 Representative           Croft     asked      how    the        "anti-log        rolling"                                      
 section     would     work   if   the   operating       and   capital     budgets      both                                    
 passed      but   exceed      the    limit     by   4%,    and    which     of   the    two                                    
 would    require      the   2/3    vote.    He   asked    if   it   would    be   similar                                      
 to     the       Constitutional            Budget       Reserve         special        vote                                    
 provisions.         Mr.   Ecklund      replied,      with   a   limit    that    used   the                                    
 prior     three    fiscal     years     averaged      and    adjusted      for    half    of                                   
 the    population       and    the    income     increase,       that    would     be   the                                    
 limit    for    the   operating       and   capital      budgets.      To   exceed     that                                    
 limit-     to  go   over    3.5%-    for   capital      or  operating       spending,      a                                   
 separate       piece    of    legislation        would     have    to   be   introduced                                        
 and voted on.                                                                                                                  
                                                                                                                                
 Representative          Croft      continued        discussing        a   hypothetical                                         
 situation      and    reiterated       his   question      of   which    appropriation                                         
 would     stand     alone.       Mr.    Ecklund      clarified       through      example                                      
 that    if  the    cap   were    $3.5   million,      the   operating       and   capital                                      
 budgets      could    not   exceed     it.    As   the   budgets      were   developed,                                        
 if   it   appeared      that    they    would     exceed     the    cap,    items    would                                     
 be   pulled     and    put   in   a  separate       piece    of   legislation.          The                                    
 intent     was    to   highlight       and    separate      the    exceeding       of   the                                    
 limit     instead      of   burying      it    in   the    operating       and    capital                                      
 budgets     requiring       a  lot   of   successive       votes.      The   intent     was                                    
 to make it less confusing.                                                                                                     
                                                                                                                                
 Representative           Croft      questioned         how     it    would      work      in                                   
 practical       effect,     if   the   budgets      run   up   to   the   cap   in   every                                     
 fiscal     year.    He   said    that    a  separate       appropriation        might     be                                   
 needed     each    year    to   assure     the    gap   in   the    operating       budget                                     
 would     be   filled.        Mr.    Ecklund      replied      that    it   is    hard    to                                   
 anticipate       future     events,     but   the    concept     is   based    on   a  hard                                    
 limit     that    can't    be   exceeded.         The   intent     is   to   build     in  a                                   
 safety     valve     to  highlight       what    the   percentage        exceeding      the                                    
 limit     is,   and    to   conduct     separate       votes    on   separate       pieces                                     
 of legislation.                                                                                                                
                                                                                                                                
 Co-Chair       Williams       commented        that     he    and     Representatives                                          
 Stoltze      and   Hawker,      and    Mr.   Ecklund      worked     with    Ms.    Frasca                                     
 to draft the changes.                                                                                                          
                                                                                                                                
 Mr.    Ecklund      continued       discussing       the    changes.        On    page    2,                                   
 line    21,    the   debt    service      of   General      Obligation       (GO)    Bonds                                     
 was   added    to   the   exemptions       from    the   limit.       On  page    3,   line                                    
 1,   (12)    the    new   language      mirrors      that    in   statute,      in   order                                     
 to   include     an   exception       such    as   the   Kodiak     Launch     Facility.                                       
 He   explained       this    is   intended      not    to   penalize      the    Facility                                      
 for   getting      more    business       income.     In   Section      30   on   page    3,                                   
 the    language      stating      the    ballot      proposition        would     come    up                                   
 again     in   2010     wasn't     changed.         He   explained       that     a  "yes"                                     
 vote    means    the   voter     wants    to  keep    the   spending      limit,     and   a                                   
 "no" vote means the voter rejects it.                                                                                          
                                                                                                                                
 Representative          Hawker     commented        that    the    base    indexing       is                                   
 the     average        annual      percentage         rate      change       for     state                                     
 population        and   personal       income.      One   factor      that    is   not    in                                   
 the    index     is   the   inflation       factor      or   Consumer      Price     Index                                     
 (CPI).       He   asked     the   sponsor's       and    committee's        thoughts      on                                   
 whether      the     CPI    ought     to    be   in    the    base     indexing.          He                                   
 referred      to    a  chart     by   Legislative        Finance      (copy     on   file)                                     
 which     shows     that    population        and    income     projected       from    the                                    
 base     year      of    1996     is    a    higher      number       than     combining                                       
 population and the CPI.                                                                                                        
                                                                                                                                
 Representative         Stoltze      offered      that    his   original      intent     was                                    
 not    to   have     any    indexing       at   all.       He   agreed      to   use    the                                    
 Governor's       Office      formula     of   personal       income.       He   was    open                                    
 to hearing the committee's thoughts.                                                                                           
                                                                                                                                
 Representative         Hawker     MOVED    to   ADOPT    Amendment       #1.     Co-Chair                                      
 Williams OBJECTED for purposes of discussion.                                                                                  
                                                                                                                                
         Amendment #1 reads:                                                                                                    
                                                                                                                                
         Page 2, line 12:                                                                                                       
                                                                                                                                
                          Delete "of Alaska permanent fund income"                                                              
                Insert "from the Alaska permanent fund"                                                                         
                                                                                                                                
 Representative         Hawker      explained      that    the    amendment       involves                                      
 an   addition       to   the   exemptions        not    subject      to   the    spending                                      
 limit.      The     Permanent        Fund     money     dedicated        to    dividends                                       
 should      be    exempted.        On    page     2,    line     12,     the     language                                      
 reflects       the    current      statute      in   which      dividends       are    paid                                    
 from    Permanent       Fund   income,      and   Amendment       #1   would    make    the                                    
 language       more      encompassing:          to    appropriations           from     the                                    
 Permanent       Fund    for    payments      of   dividends.       He   believed       that                                    
 the   language      would     accommodate        either     a  POMV    or   the   current                                      
 statute, depending on what the public decides.                                                                                 
                                                                                                                                
 Representative          Stoltze      asked      if   the    spending       limit     would                                     
 allow    for    money    to   come    out   of   the   Permanent       Fund    principal                                       
 by   the   nature     of   this    language.        He   asked    for    guidance      from                                    
 legal counsel.                                                                                                                 
                                                                                                                                
 Ms.    Cook    did    not    think      it   would     create      the    concern      that                                    
 Representative           Stoltze       articulated.             She     did     not     see                                    
 subsection       (c)    as  granting       authority      to   make    any    particular                                       
 type       of     appropriation.            It      simply        states       that       an                                   
 appropriation          would      not    be    counted       toward      the     spending                                      
 limit.         She    said     that     the    extent      of    the    power      of   the                                    
 Legislature        to   make    an   appropriation         will    be   handled      under                                     
 the    constitutional           provision        for    the     Permanent        Fund     in                                   
 Section      15,   whether      it   is   amended      or   not.    Ms.   Cook    pointed                                      
 out    that    if    it   is    not    amended,      and    HJR    9   were     to   pass,                                     
 obviously       any   appropriation         from     the   Fund    would     have    to   be                                   
 from    income.        She    continued,        if   it   is   amended,       and    HJR   9                                   
 were     to    pass,      obviously        there     would      be    no    distinction                                        
 between      income      and    principal,        but    any    appropriation          made                                    
 would     be    subject      to    a   limit     based     on    Percent      of    Market                                     
 Value.                                                                                                                         
                                                                                                                                
 Representative         Stoltze      expressed      that    if   HJR   9  were    to  pass,                                     
 the   legislative        record     would    be   very   important.       He   asked    Ms.                                    
 Cook     to   provide       her    comments       as   a   legal     opinion       to   the                                    
 committee. Ms. Cook replied that she would.                                                                                    
                                                                                                                                
 There being NO further OBJECTION, Amendment #1 was adopted.                                                                    
                                                                                                                                
 Co-Chair          Williams         MOVED        to      adopt        Amendment          #2.                                    
 Representative            Stoltze       OBJECTED         for     the      purposes        of                                   
 discussion.                                                                                                                    
                                                                                                                                
 Amendment #2 reads:                                                                                                            
                                                                                                                                
 Page 3, line 7, following "Section 30.":                                                                                     
                Insert "Contingent Effect and Effective Date;"                                                                
                                                                                                                                
 Page 3, line 7:                                                                                                                
                Delete "(a) The"                                                                                                
                Insert "(a) The 2004 amendment relating to an                                                                   
 appropriation         limit    (art.     IX,   sec.    16)   takes     effect     only    if                                   
 a   2004     amendment       relating       to   and    limiting       appropriations                                          
 from    the   Alaska     permanent       fund    based    on   an   averaged      percent                                      
 of   the   fund    market      value    (art.     IX,   sec.    15)    is   approved      by                                   
 the   voters     and   takes     effect.      If   the   2004    amendment       relating                                      
 to   an    appropriation          limit     (art.     IX,    sec.     16)    under     this                                    
 subsection        takes     effect,      it   takes     effect     on   the    effective                                       
 date     of     the     2004     amendment         relating       to     and     limiting                                      
 appropriations          from    the    Alaska     permanent       fund     based     on   an                                   
 averaged       percent      of   the    fund    market      value     (art.     IX,    sec.                                    
 15).                                                                                                                           
                      (b) If the"                                                                                               
                                                                                                                                
 Page 3, line 8, following "(art. IX, sec. 16)":                                                                                
                Insert "takes effect under (a) of this section,                                                                 
 it"                                                                                                                            
                                                                                                                                
 Page 3, line 10:                                                                                                               
                Delete "(b) Notwithstanding Section 1 of Article                                                                
 XIII,"                                                                                                                         
                Insert "(c) If it takes effect under                                                                            
 (a) of this section,"                                                                                                          
                                                                                                                                
 Page 3, following line 15:                                                                                                     
                Insert "(d) To the extent this section conflicts                                                                
 with Section 1 of Article XIII, this section prevails."                                                                        
                                                                                                                                
                                                                                                                                
 Co-Chair       Williams       explained        that     Amendment        #2    basically                                       
 states     that    if   the    POMV    doesn't      pass,    this    measure      doesn't                                      
 pass.                                                                                                                          
                                                                                                                                
 Representative          Joule    commented       that    it   would     be   asking     the                                    
 voters       to     approve       two     constitutional            amendments,         but                                    
 Amendment      #2   would    link    one   to   the   other.     He   questioned       what                                    
 would     happen     if   the   voters     chose     only    one,    and   he   asked     if                                   
 their votes don't count.                                                                                                       
                                                                                                                                
 Vice-Chair         Meyer      agreed       with     Representative           Joule.       He                                   
 suggested        that     the     spending        limit     should       move     forward                                      
 because      if    some    new    sources       of   revenue      were     passed,      the                                    
 Legislature        would    want    to   guarantee       a  limit    to   spending.       If                                   
 the    voters     were    to    approve      HJR   9,    that    is   also    what     they                                    
 would    want,     regardless       of   passage     of   the    POMV.      He   objected                                      
 to the amendment.                                                                                                              
                                                                                                                                
 Representative           Hawker       agreed       that      the     spending        limit                                     
 amendment       would     stand     on   its    own   merits.      The    real    impetus                                      
 for    the   sponsorship         of   HJR   9   was    to   avail     of   some    of   the                                    
 Permanent       Fund    earnings      for    general      government       so   that    the                                    
 public     would     have    confidence       that    future     legislatures        would                                     
 not    spend    the    money     frivolously.        He    stated     that    HJR    9  was                                    
 originally        brought      forth     as   part     of   a   fiscal      legislation                                        
 package,      and    he   felt    that     there    is   strong      merit     to   having                                     
 them    linked.      Representative         Hawker     said    that    he   didn't     feel                                    
 this    disrespects         the    individual       voter     who    might     adamantly                                       
 prefer     one    to   the    other.        He   has    listened      to   the    counsel                                      
 from     the    Minority       Leadership       who     require      a   comprehensive                                         
 fiscal      package       that      will     work     for     future      years.          He                                   
 concluded that he supports Amendment #2.                                                                                       
                                                                                                                                
 Representative          Stoltze      expressed       that     passage      of   the    POMV                                    
 will    require      building      the   trust     of   the   voters.        He   did   not                                    
 think    that    tying    HJR    9  with   the    POMV   would     build    that    public                                     
 confidence.        He   thought     that    both    measures      should     prevail      or                                   
 fall    on   their    own    merits.      He  did    not   want    to   lose    votes     on                                   
 his   measure.      He   stated     that    he   did   not    support     Amendment       #2                                   
 although he respected the motivations of its sponsor.                                                                          
                                                                                                                                
 Representative           Croft       commented        that      it     prohibits        the                                    
 dividend       protection       as    a   spending      cap.     He   thought      that    a                                   
 logical      approach       would    be    to   spend     no   more     money     than    is                                   
 available       and    not    touch     the    revenue      source,      which     is   the                                    
 type     of   limit      that    individuals         impose      on   themselves.         He                                   
 voiced     concern      with    the    proposed      approach       while    commending                                        
 the    process      presented        by   Representative          Stoltze.       He    said                                    
 that     Amendment       #2   precludes       the    people      from     choosing      the                                    
 alternative        form     of   spending      cap.       He   stated      that    if   the                                    
 public       rejects       dividend        protection,         they     don't      get     a                                   
 spending      cap,    and    the   public     will     get   neither      if   they    vote                                    
 down the POMV.                                                                                                                 
                                                                                                                                
 Representative          Croft    pointed      out    the   tenor     in   Amendment       #2                                   
 is    that     the     Legislature         can    be    trusted       to    manage      the                                    
 Permanent       Fund,     but     it   cannot      be   trusted       on   spending       in                                   
 future     years.        He   expressed       concern      that    the   POMV     and   the                                    
 spending       cap    should      not    be    tied     together.       He    felt     that                                    
 constitutional           amendments        must     be    done     thoughtfully         and                                    
 carefully       because     they    remain     in   effect     for   a   long   time.     He                                   
 worried      that    it   is   inappropriate         to   say,    "if   you    don't    let                                    
 us   take   half    your    dividend,      we   won't    promise      to  be   good    with                                    
 your money."                                                                                                                   
                                                                                                                                
 Co-Chair      Williams      commented       that    he   has   heard     talk   that    the                                    
 only    way   he   would    support      the   POMV    is   if   a  spending      cap   was                                    
 put   on   it.     He  stated     he   has   been,    and   remains,      opposed      to  a                                   
 spending       cap     because       he    believes        it    goes     against       the                                    
 Constitution          to     give      up     the     Legislature's           right       to                                   
 appropriate.          He   expressed      concern      that    the   way    the   bill    is                                   
 currently       written,      a  2%   increase      requires      27   votes,     and   a  ¾                                   
 vote    on   4%   would     put    the    Legislature        in   the   same     position                                      
 that    it's    in   at   the    end    of   session     with    the    ¾   vote    [CBR].                                     
 He   expressed      that    he   does   not   distrust      the    electorate       and   he                                   
 supports the amendment,                                                                                                        
                                                                                                                                
 A  roll    call    vote    was   taken     on  the    motion     to   adopt    Amendment                                       
 #2.                                                                                                                            
                                                                                                                                
 IN FAVOR: Fate, Foster, Hawker, Williams                                                                                       
 OPPOSED: Chenault, Croft, Joule, Meyer, Moses, Stoltze,                                                                        
 Harris                                                                                                                         
                                                                                                                                
 The MOTION FAILED (4-7).  Amendment #2 was not adopted.                                                                        
                                                                                                                                
 HJR 9 was heard and HELD in Committee for further                                                                              
 consideration.                                                                                                                 
                                                                                                                                
 HOUSE BILL NO. 236                                                                                                           
                                                                                                                                
         An Act imposing a tax on employment; and providing for                                                                 
         an effective date.                                                                                                     
                                                                                                                                
Co-Chair      Harris     MOVED    to   ADOPT     Work    Draft    23-LS0921,       Version                                      
X    dated     3/19/04.        There      being     NO     OBJECTION,        it    was     so                                   
ordered.                                                                                                                        
                                                                                                                                
Representative          Hawker      announced       that     Representative          Wilson                                     
was   unable      to  attend      the   hearing      and   that    Mr.    Ecklund     would                                     
explain the changes in the proposed committee substitute.                                                                       
                                                                                                                                
MR.    PETER     ECKLUND,      STAFF     TO   REPRESENTATIVE          WILLIAMS,       noted                                     
that    Version       X  deletes       from    Version      W   the    lines     13-28     on                                   
page    2,   subsection        (d).    He   explained       that    this     deletes     two                                    
triggers:       one   where     the   tax    would    go   into    effect     if   the   CBR                                    
is   less     than    $1    billion,      and    the    other     where     the    trigger                                      
goes off when the CBR goes higher than $2.5 billion.                                                                            
                                                                                                                                
Mr.   Ecklund      noted     a  change     adding     new    language      requested       by                                   
the   Department       of   Revenue      on  page    2,   lines    30-31.       It   states                                     
"The    Department        of   Revenue      may,    if    it   will    result      in   cost                                    
savings      for   the    state    in   the   administration          of   the   tax,    for                                    
employers       in   the    administration          of   the    tax,     or   for    both."                                     
Mr.    Ecklund     explained       that    the    Department       of   Labor     receives                                      
federal      funds     with     restrictions         on   how    the    monies      can    be                                   
used,      and      the     department         wanted       to     ensure      that      the                                    
Legislature        would     not   require      it   to    cooperate       in   ways    that                                    
didn't make sense.                                                                                                              
                                                                                                                                
Representative             Hawker        expressed          that        the       sponsor,                                      
Representative          Wilson,      is   in   concurrence        with     the    proposed                                      
changes.                                                                                                                        
                                                                                                                                
Representative          Croft     asked     what     difference        the    word    "may"                                     
makes     when     the    department        can    do    whatever       it    wants.     Mr.                                    
Ecklund      affirmed       that    the    Department        of   Revenue      asked     for                                    
the     language.        Representative           Croft      also      questioned        the                                    
meaning of the words, "or for both."                                                                                            
                                                                                                                                
Representative          Croft    asked     why   the    trigger      was   removed      from                                    
Version      X.    He   noted     that    the   billion      dollar     minimum      amount                                     
in   the    Constitutional          Budget     Reserve      has    been    important       in                                   
the      discussions          of     both      Governor        Murkowski         and     the                                    
Conference of 55.                                                                                                               
                                                                                                                                
Co-Chair       Williams        replied       that     this     would      generate       $42                                    
million      a  year,     and   to   start     up   a  process      and    then    stop    it                                   
would    cost    more.     The   people     of   the   state    are    asking    for    this                                    
type of tax.                                                                                                                    
                                                                                                                                
Representative          Croft     MOVED     to   ADOPT     Amendment       #1.    Co-Chair                                      
Harris OBJECTED.                                                                                                                
                                                                                                                                
Representative         Croft     explained      that    his    office     talked     to  the                                    
National      Conference       of   State    Legislatures         (NCSL)     about    every                                     
state's     income     tax    structure.          He   noted    that    35   states     have                                    
some    kind     of   income      tax    that    is    graduated,       but    none     have                                    
graduated       it    downward,       or   charged      a   higher      percentage       for                                    
poorer      people.      These      35    states     adopted       the    concept       that                                    
wealthier       people      should      pay    a   higher      percentage        of   their                                     
income     on   an   income     tax.      If  each    person     was    taxed    $100,     as                                   
you   go   up   in   income     level,     it   becomes      a  smaller      and   smaller                                      
percentage       of   that    income.     If   a  person     is   extremely       wealthy,                                      
it    is   a    miniscule       percentage        of    that     income.      He    is   not                                    
proposing       any    substantive        amendments       to    the   bill     but   feels                                     
it   should     be   titled     correctly.          He   said    it   should     be   known                                     
as the only regressive income tax in the nation.                                                                                
                                                                                                                                
Representative          Hawker     stated      that    this     bill    is   known     as   a                                   
head     tax,     and    he   asked      the    sponsor      of    the    amendment        to                                   
consider      changing      his   proposed      language      to     "We've     All   Got   a                                   
Stake     in    the    Future     of    Alaska     Act."        He   said     that's     the                                    
point     of   this    bill.      It   is   not    designed      as   a   comprehensive                                         
income      tax,     but    as    an   ante     up    for    participating          in   the                                    
bounty of Alaska.                                                                                                               
                                                                                                                                
Co-Chair       Harris     asked      Representative          Croft     when    the    state                                     
passed     a  school     tax    and   if   it   was   $10    per   year    for    everyone                                      
regardless        of    income     level.      Representative          Croft      affirmed                                      
that    it    was   $10    for    everyone.       Co-Chair      Harris      asked     if   he                                   
thought      this    is   different.          Representative          Croft     said    that                                    
at   the   time,    there     was   a  progressive        income     tax   included,       so                                   
this is an alternative minimum.                                                                                                 
                                                                                                                                
Co-Chair       Williams       commented       that     he   had    suggested        a   $100                                    
school tax last year when this was introduced.                                                                                  
                                                                                                                                
Representative          Croft      commented       on    "class      responsibility."                                           
He   felt    that   there     is   nothing     fundamentally         unfair     about    the                                    
idea      of      upper       incomes        paying        proportionately            more.                                     
Conservatives         make     the   argument       for    a  flat     tax.      He   noted                                     
that    only    regressive       ideas     are    on   the   table--proposals           that                                    
would     take    from     the    poorest      members      of   society.         He    said                                    
that     this    title     is    at   least      honest     about      what    this     bill                                    
does.      He   didn't     want    this    measure      to   be  a   "trick"     for    some                                    
later     tax.     He   thought      that    this    is   the   only    regressive       tax                                    
in the nation and it deserves further discussion.                                                                               
                                                                                                                                
Co-Chair      Harris      agreed     that    there's      no   doubt     that    the    bill                                    
is   based     on   people      who   earn     income.        He   discussed       current                                      
user    fees     and   taxes,      noting     that     poor    people     pay    the    same                                    
amount     as   do   rich    people.      Everyone      benefits      from    education;                                        
he   expressed      concern      that    the   Legislature        can't    mandate      that                                    
this    will     go   to    education,       just     as   it    can't     dedicate      the                                    
Permanent       Fund    to   education.        It   can    be   called     an   education                                       
fund    but    Co-Chair      Harris      said    that    it   doesn't      guarantee       it                                   
will be appropriated to education.  It's a user fee.                                                                            
                                                                                                                                
Representative         Hawker     commented       that    the   characterization           of                                   
this    as   a   regressive       device     intrigued       him.      He    pointed     out                                    
that    the    bill     was    crafted      to   create      a   huge    exemption       for                                    
folks     who    have    no   jobs    and    exist     purely     by    subsistence        or                                   
public     welfare     or   retirement       income.      The   State     is  looking      at                                   
a  basis     to  generate      earnings       to  support      public     institutions,                                         
and in this case, the base is the people who are working.                                                                       
                                                                                                                                
                                                                                                                                
TAPE HFC 04 - 63, Side A                                                                                                      
                                                                                                                                
Representative           Hawker      continued,         in     aggregate        it    is    a                                   
substantial        contribution        to   education.       It   seems    a  reasonable                                        
approach       and    looks      at    value     for    value.      It    asks     working                                      
people to give a small amount back to the state.                                                                                
                                                                                                                                
A  roll    call    vote    was    taken    on   the    motion     to   adopt    Amendment                                       
#1.                                                                                                                             
                                                                                                                                
IN FAVOR: Croft                                                                                                                 
 OPPOSED: Fate, Foster, Hawker, Joule, Meyer, Moses, Stoltze,                                                                   
          Chenault, Williams, Harris                                                                                            
                                                                                                                                
The MOTION FAILED (1-10).  Amendment #1 was not adopted.                                                                        
                                                                                                                                
Vice-Chair       Meyer     said   he   would     not   make    an   amendment      without                                      
the   bill    sponsor      being    present.        He   noted     on   page    5,  line    6                                   
where      it     says,       "the      legislature         may      appropriate         the                                    
estimated       amounts      to   be    collected       and   separately        accounted                                       
for"    under     this    section      for    education.       He    appreciated        that                                    
this     would     go    to   education.           The    Legislature         has    talked                                     
about     inflation        proofing      education        for    some     time,     and    he                                   
spoke     in   favor    of    a  source     of   money     to   inflation-proof          the                                    
Foundation        Formula.         He   said     he   would     like    to    change     the                                    
word    "may"     to  "shall"      because      it   is   a  little     stronger,       even                                    
though     money     can't     be   dedicated.         He   would     wait    to   discuss                                      
it with the sponsor.                                                                                                            
                                                                                                                                
Discussion        ensued       regarding        whether       the    language        change                                     
would carry any weight.                                                                                                         
                                                                                                                                
Vice-Chair        Meyer     stated     his    understanding         that    there     would                                     
be   legal    concerns      in   charging      out-of-state        workers      twice    the                                    
amount charged to in-state workers, or $200.                                                                                    
                                                                                                                                
Representative          Stoltze       introduced        Mr.     Bill     Sherrill,       who                                    
works     for    the   Transportation          &   Infrastructure          Committee       in                                   
the U.S. Congress.                                                                                                              
                                                                                                                                
BILLIE      JO    HANSEN,      REPRESENTING          SELF,     VIA     TELECONFERENCE,                                          
WASILLA,      voiced     opposition       to   the   bill    because      she   felt    that                                    
it   would    penalize      the    retired     person     who   moves     off   of   social                                     
security      to   work    part-time      to   make    ends    meet.    She   thought      it                                   
would    also    penalize      motivated       youth    in   the   workforce       who   may                                    
work    only    one    day    a  week     for   eight     hours.       She    felt    there                                     
are   other     ways   to   do   this,    and    it  is   not   appropriate        to   call                                    
it   an  education       tax.      She   suggested      calling      it   a  work    permit                                     
tax    and   setting      it   on    a  percentage        rate    of   income      for   the                                    
year.     She   would     rather     give    $100    to   a   school     for    her   son's                                     
education         than      to     the      General        Fund      when      it's      not                                    
specifically appropriated to education.                                                                                         
                                                                                                                                
 HB    236     was     heard      and     HELD      in    Committee        for     further                                      
 consideration.                                                                                                                 
                                                                                                                                
 HOUSE JOINT RESOLUTION NO. 26                                                                                                
                                                                                                                                
                Proposing        amendments        to   the    Constitution         of   the                                    
                State       of      Alaska       relating         to     and      limiting                                      
                appropriations           from     and    inflation        proofing       the                                    
                Alaska     permanent       fund    by  establishing        a  percent      of                                   
                market value spending limit.                                                                                    
                                                                                                                                
 Co-Chair      Williams      again     brought     HJR    26   before     the   committee                                       
 to   discuss     Work    Draft     Version     U   that   was    adopted     earlier      in                                   
 the    meeting.        He   noted    that    Amendment       #1   by   Representative                                          
 Stoltze was adopted and incorporated into Version U.                                                                           
                                                                                                                                
 Representative            Stoltze       MOVED       to     ADOPT       Amendment        #2.                                    
 Representative Hawker OBJECTED.                                                                                                
                                                                                                                                
 Representative         Stoltze      explained       the   amendment       reflects      his                                    
 concern      about    protecting       the    principal      from    invasion       in  the                                    
 event    a  POMV    is   implemented       in   the   Constitution.          He   had   the                                    
 amendment        drafted      after      listening       to    testimony       from     the                                    
 Mental Health Trust and Permanent Fund Corporation staff.                                                                      
                                                                                                                                
 Amendment #2 reads:                                                                                                            
                                                                                                                                
         Page 2, line 3:                                                                                                        
                Delete "five"                                                                                                   
                Insert "four"                                                                                                   
                                                                                                                                
 In      response         to      a      question         by      Co-Chair         Harris,                                      
 Representative         Stoltze      explained       that    the   amendment       changes                                      
 the    percentage,        on   line    2,    page    3   of   the    new   version.       It                                   
 proposes to make it 4% of the value.                                                                                           
                                                                                                                                
 Representative           Hawker       agreed       with      the     intent       of    the                                    
 amendment      to   ensure     protection       of   the   value    of   the   Permanent                                       
 Fund    over    time.       The   issue     has    been    given     a  great     deal    of                                   
 technical       analysis      and   consideration,          but   he   was    personally                                       
 convinced      that    5%   would    protect      Fund   over    time.    He   discussed                                       
 the    ten-year      rolling      real    rate    of   return     for   the    Permanent                                       
 Fund    and    why   5%   is   appropriate.          He   reminded       the   committee                                       
 of   statutory      enabling       language      in   HB  298    that    provides      that                                    
 if    the    10-year      real     rate    of    return      drops     below     5%,    the                                    
 Legislature        would    be   limited     to   that   lower     number    for    draws.                                     
 He   concluded      that    there     is   a  compelling       argument      to   keep    it                                   
 at   5%.      He   noted     that    the    constitutional          amendment       states                                     
 "up to 5%."  He could not support Amendment #2.                                                                                
                                                                                                                                
 Vice-Chair       Meyer    commented       that    in  the   community       meetings      on                                   
 POMV,      people       constantly          returned        to    the      5%.     He     is                                   
 comfortable        with    5%    and   up    to   the    5%.      He   expressed       that                                    
 adequate safeguards are already in place.                                                                                      
                                                                                                                                
 Representative          Croft     commented       that     4%   is    a   more    prudent                                      
 number.      He    supported        erring      on   the    side     of    caution      and                                    
 conserving       more    for   Alaska's      children      and   grandchildren.           He                                   
 said    5%   is   defensible,        but   "on    the   outer     edge    of   what    most                                    
 endowments take."                                                                                                              
                                                                                                                                
 Co-Chair Harris expressed support for Amendment #2.                                                                            
                                                                                                                                
 Co-Chair       Williams      stated      that    he   objected       to   Amendment       #2                                   
 for    the    reasons      that     Vice-Chair        Meyer     and    Representative                                          
 Croft     expressed.        After      working      on    the    Percent      of    Market                                     
 Value    for    the   past    six   years,     he   believes      that    5%   is   a  good                                    
 and proven payout.  He would vote against the amendment.                                                                       
                                                                                                                                
 A roll call vote was taken on the motion.                                                                                      
                                                                                                                                
 IN FAVOR: Joule, Stoltze, Chenault, Croft, Harris                                                                              
 OPPOSED: Fate, Foster, Hawker, Meyer, Williams                                                                                 
                                                                                                                                
 Representative Moses was absent.                                                                                               
 The MOTION FAILED (5-5) and Amendment #2 was not adopted.                                                                      
                                                                                                                                
                                                                                                                                
 Co-Chair       Harris       MOVED      to    ADOPT      Amendment        #3.     Co-Chair                                      
 Williams OBJECTED for purposes of discussion.                                                                                  
                                                                                                                                
 TOM    WRIGHT,     STAFF     TO   REPRESENTATIVE          HARRIS,      explained       that                                    
 Amendment       #3   would    establish       an   earnings      reserve     account      to                                   
 ensure     that    the   corpus     of   the   Fund    would     not   be   touched     and                                    
 would     be   a  separate      entity.        Language      was    inserted      on   page                                    
 2,   beginning       on   line    4,   to   provide     a   mechanism       within     this                                    
 amendment       to    appropriate         funds     for    the    operation        of   the                                    
 Permanent      Fund    Corporation.        There     is  also    language      providing                                       
 to    distribute        a   program       of    dividend       payments       for    state                                     
 residents       and    public      education       after     paying      the    costs     of                                   
 operation.        Conforming       language       on   page     2,   subsection        (b),                                    
 line    19,    provides      that    after     the   effective       date,     the   costs                                     
 up   to   June    30,   2004    prior     to   the   passage      of   this    amendment                                       
 will be appropriated.                                                                                                          
                                                                                                                                
 Co-Chair        Harris      asked       if    this      constitutional           language                                      
 protecting        the    corpus      of    the    Fund     provides       that     if   the                                    
 earnings      are   less    than    5%,    the   payout     would    be   less    than    5%                                   
 for     the    first      five     of    six     fiscal      years.         Mr.     Wright                                     
 affirmed.                                                                                                                      
                                                                                                                                
 Amendment #3 reads:                                                                                                            
                                                                                                                                
 23-LS1006\V                                                                                                                    
 Cook                                                                                                                           
 3/22/04                                                                                                                        
                                                                                                                                
 CS FOR HOUSE JOINT RESOLUTION NO. 26(   )                                                                                    
                                                                                                                                
 IN THE LEGISLATURE OF THE STATE OF ALASKA                                                                                      
                                                                                                                                
 TWENTY-THIRD LEGISLATURE - SECOND SESSION                                                                                      
                                                                                                                              
 BY                                                                                                                           
                                                                                                                              
 Offered:                                                                                                                     
 Referred:                                                                                                                    
                                                                                                                              
 Sponsor(s):     HOUSE   RULES  COMMITTEE   BY  REQUEST   OF  THE  LEGISLATIVE    BUDGET  AND                                 
 AUDIT COMMITTEE                                                                                                              
 A RESOLUTION                                                                                                                 
                                                                                                                              
 Proposing       amendments        to    the   Constitution         of    the    State     of                                 
 Alaska     relating       to   the   Alaska      permanent       fund,    establishing                                       
 the    earnings       reserve      account,       and    permitting       distribution                                       
 from    the   account     only    for   permanent       fund    dividends,       costs    of                                 
 administering the permanent fund, and public education.                                                                      
                                                                                                                                
 BE IT RESOLVED BY THE LEGISLATURE OF THE STATE OF ALASKA:                                                                    
                                                                                                                                
                                                                                                                                
      *  Section      1.      Article IX, sec.  15, Constitution  of the  State of Alaska,  is                                
 amended to read:                                                                                                               
                Section 15.  Alaska Permanent Fund.  (a)  At least twenty-five per cent                                   
         of all mineral lease rentals, royalties, royalty sale proceeds, federal mineral                                        
         revenue sharing payments and bonuses received by the State shall be placed in a                                        
         permanent fund, the principal of which shall be used only for those income-                                            
         producing  investments   specifically designated  by law  as eligible for permanent                                    
         fund investments.   The  earnings   reserve  account  is established  as a  separate                               
         account  in the fund.   All income  from  the permanent   fund shall be deposited  in                              
         the earnings  reserve  account   as soon  as it is received.  Appropriations    may                                
         only be  made   from   the earnings   reserve  account  as  provided  in  (b) of this                              
         section [GENERAL FUND UNLESS OTHERWISE PROVIDED BY LAW].                                                           
    * Sec. 2.  Article IX, sec. 15, Constitution of the State of Alaska, is amended by adding                                 
 a new subsection to read:                                                                                                      
                (b)  Appropriations from the earnings reserve account for a fiscal year may                                     
         not exceed  five percent of the average of the market values  of the fund on June 30                                   
         for the first five of the six fiscal years immediately   preceding  that fiscal year.                                  
         Appropriations   from  the earnings  reserve  account  may   be  made   only  for the                                  
         following purposes:                                                                                                    
                        (1)  costs of administering the permanent fund;                                                         
                        (2)  a program of dividend payments for State residents established                                     
         by law together with costs of administering that program; and                                                          
                        (3)  public education.                                                                                  
      * Sec. 3.  Article XV,  Constitution  of the State of Alaska,  is amended  by  adding  a                                
 new section to read:                                                                                                           
                Section 30.  Transition.  (a)  On the effective date of the 2004                                              
         amendments    relating  to the  Alaska   permanent   fund   (art. IX,  sec. 15),  the                                  
         unencumbered,     unappropriated    balance   of   the  earnings   reserve   account                                   
         established  under  AS  37.13.145(a)   is added   to the  earnings  reserve  account                                   
         established in the Alaska permanent fund.                                                                              
                (b)  Section 15(b) of Article IX first applies to appropriations for fiscal                                     
         year 2006.    Appropriations  from   the permanent   fund  for fiscal year 2005   are                                  
         subject to Section 15 of Article IX as that section read on June 30, 2004.                                             
      * Sec. 4.  The  amendments    proposed   by this resolution shall be  placed before  the                                
 voters  of the state at the  next  general  election in conformity   with  art. XIII, sec. 1,                                  
 Constitution of the State of Alaska, and the election laws of the state.                                                       
                                                                                                                                
 Representative         Croft     asked    if   the    language      on   page   2,   lines                                     
 9-10     protects      the    current      dividend       structure       in    law.    Mr.                                    
 Wright      clarified        that     it    states      a    program       of    dividend                                      
 payments       for    state     residents,        and    it   doesn't      prescribe       a                                   
 percentage        or    an    amount.       In   response        to   a    question       by                                   
 Representative         Croft,     Mr.    Wright     said    it   would    apply     to  the                                    
 current statute.                                                                                                               
                                                                                                                                
 Representative          Croft    asked     if   the    Legislature        could     change                                     
 the    current       statute      on    the     dividend       program      under      this                                    
 language.          Mr.     Wright      pointed      out     that     the    Legislature                                        
 always has the authority to change the dividend program.                                                                       
                                                                                                                                
 Co-Chair      Harris     explained       that    Amendment       #3   would    establish                                       
 in   the   Constitution        three    things     that    the   Legislature        can   do                                   
 with    the    earnings      of   the   Permanent       Fund:      pay    the   costs     of                                   
 administering         the    Fund,     pay    the    dividend,       and    appropriate                                        
 for public education.  It doesn't give percentages.                                                                            
                                                                                                                                
 Representative          Croft     commented       that    the    amendment       language                                      
 looks     like    a   dividend      protection        but   it    could    be    anything                                      
 established by law.                                                                                                            
                                                                                                                                
 Co-Chair       Harris     observed       that    the    Legislature        could     spend                                     
 all   the    earnings      of   the    Permanent      Fund    if   it   so   chose,     but                                    
 this      amendment        provides        some     small      protection         to    the                                    
 dividend.                                                                                                                      
                                                                                                                                
 Co-Chair      Williams       asked    if    Amendment       #3   changes      everything                                       
 and   gives    a   new   direction      to   HJR   26.   Co-Chair      Harris     replied                                      
 that     it's    not     a   complete       change,      but    it    is   a    lot    more                                    
 specific.                                                                                                                      
                                                                                                                                
 Co-Chair      Williams       requested       that    the   committee       not    vote    on                                   
 Amendment      #3   at   this    time   in   order    to   have    time   to   review     it                                   
 before the next hearing.                                                                                                       
                                                                                                                                
 Representative           Hawker      asked     Co-Chair       Harris       to    consider                                      
 dividing      Amendment       #3   into    the   two   distinct       issues     embodied                                      
 in Section 1 and Section 2 of the amendment.                                                                                   
                                                                                                                                
 Representative          Joule     commented       that    there     is    currently       an                                   
 earnings       reserve      account      and    he    asked     how    this     would     be                                   
 different.        Mr.    Wright     pointed       out    the    only    difference        is                                   
 that     this    amendment        states      there     is    a   separate       earnings                                      
 reserve account and places it in the Constitution.                                                                             
                                                                                                                                
 Representative          Fate    MOVED    to   ADOPT     Amendment       #4.      Co-Chair                                      
 Williams OBJECTED for purposes of discussion.                                                                                  
                                                                                                                                
 Representative          Fate    expressed       concern       over    the    ability      of                                   
 the      Legislature           to     fulfill        its      prime        purpose        of                                   
 appropriating         money.        He   expressed       that     any   percentage        is                                   
 subject      to    a   warranted        change,      and    the    ten-year       rolling                                      
 average      has   been    well    researched.         He   said    he  is   one    of  the                                    
 few   members      who   can    recall     the   Great     Depression       that    lasted                                     
 12   years,     with    double-digit         inflation.         He   reiterated        that                                    
 the      prime      responsibility            of     the      Legislature          is     to                                   
 appropriate, and if it can't, its function has been eroded.                                                                    
                                                                                                                                
 Representative         Fate    explained       that    Amendment       #4   changes     six                                    
 words.       On  line    2,   instead      of  saying     a   percentage       of   5%,   it                                   
 codifies      in   the   Constitution        that    there    will    be  a  percentage                                        
 determined by law.                                                                                                             
                                                                                                                                
 Amendment #4 reads:                                                                                                            
                                                                                                                                
 *Sec.2.      Article      IX,    sec.    15,    Constitution        of   the    State     of                                   
 Alaska, is amended by adding a 01 new subsection to read:                                                                      
                                                                                                                                
           02(b)Appropriations from the permanent fund for a fiscal year shall be                                           
 03  a percentage     of[on  may   not  exceed   five  percent    of]  the  average   of  the                               
 04  market   values    of  the  fund   on  June   30  for  the   first   five   of  the  six                                   
 fiscal years                                                                                                                   
 05 immediately preceding that fiscal year as determine[d] by law.                                                          
                                                                                                                                
 MR.     BOB      BARTHOLOMEW,          CHIEF      OPERATING         OFFICER,        ALASKA                                     
 PERMANENT       FUND    CORPORATION,        DEPARTMENT       OF   REVENUE,       compared                                      
 Amendment      #4   to   Work    Draft    U.  The    proposed      work   draft     puts   a                                   
 spending      limit     on   the   Permanent       Fund    equal     to   the   Board     of                                   
 Trustees'       recommendation         of   no   more    than     5%.     The    proposed                                      
 amendment       maintains      the    concept     of   basing     appropriations          on                                   
 market     value,      but   states      that    the    spending      limit     would     be                                   
 put    into    statute     instead      of   the    Constitution,         on   an   annual                                     
 basis.                                                                                                                         
                                                                                                                                
 Representative         Croft     noted    previous      discussions       of   the   limit                                     
 of    5%,     which     would      allow      lower     appropriations           but    not                                    
 higher.        This    amendment       would     allow    higher      appropriations.                                          
 The    trade-off      for    POMV    is   the    spending      limit    discipline        of                                   
 5%    in   good     years     in    order     to   reserve       for    the    bad.       He                                   
 expressed       concern      that    in    a  year     when    oil    prices      and   the                                    
 market     are    up,    the   inclination        to   ignore      an   income     tax    or                                   
 oil    tax   and    the   pressure       to   spend    up   to   6%   or   7%   might     be                                   
 irresistible.           This     amendment         gets      rid     of    the      needed                                     
 discipline.                                                                                                                    
                                                                                                                                
 Representative          Hawker     agreed     with     Representative          Croft    and                                    
 expressed         concern        that      Amendment         #4      clearly        allows                                     
 overspending         in    the    good     years.      He   pointed       out    that     it                                   
 violates       three      of    the     five     reasons      the     Permanent        Fund                                    
 Corporation        argues     for   Percent      of   Market     Value:     maintaining                                        
 the   purchasing       power     of  the   Fund,     preventing       overspending        in                                   
 good    years,     and   making     payout     amounts      more    stable     from    year                                    
 to    year.     He    observed       that     the    purpose      of    the    POMV     set                                    
 percentage       is   to   stabilize       the   amount     of   appropriation         from                                    
 the   Fund    and    give    absolute      guarantee      of   the    long-term      value                                     
 of    the     Fund.     He    respectfully          did    not     concur      with     the                                    
 amendment.                                                                                                                     
                                                                                                                                
 Representative            Fate      informed        the     committee         that      his                                    
 amendment      was    drafted     in   concurrence       with    the   spending      limit                                     
 bill    [HJR     9]   before     the    Committee.          For    him,    it   does    not                                    
 come    down    to   a  short,      or   even    a  25-year      term    consideration                                         
 of   the   growth     of   corpus     of   the   Fund.      In   his   view,     although                                      
 he   agreed    with    the   concept      of  the    measure,      passage     of   HJR   26                                   
 would       erode       the      prerogative           and      responsibility            to                                   
 appropriate         by    the     Legislature.         It    is    not     his    concern                                      
 whether      the   Fund    even    grows,     but   putting     from    zero    to   5%   in                                   
 the   Constitution        establishes        an   appropriation.         He  introduced                                        
 the   amendment       because     of   the   basic    question      of   the   functions                                       
 and    responsibilities           of    the   Legislature,         not    in    order     to                                   
 allow 7% or 8% in the future.                                                                                                  
                                                                                                                                
 Co-Chair      Harris     asked     if   the    fiscal     note    for   $700     thousand                                      
 dated      3-16-04       is    still      in    effect      with      the    bill.      Mr.                                    
 Bartholomew         affirmed,        and    explained        that     there      are    two                                    
 additions      to   the   FY   05   budget    that    the   Board     of  Trustees      and                                    
 Permanent       Fund     staff     is    requesting.        Once     the    Legislature                                        
 adopts     the    constitutional          amendment,       the    Corporation        would                                     
 fall     under     the    restrictions        of    the    Alaska      Public     Offices                                      
 Commission       (APOC)     on   the   authority      to   advocate.      The    requests                                      
 in    the    operating       budget      are    for    additional        authority        to                                   
 educate     and    advocate      for   Percent     of   Market     Value;    and    if  the                                    
 Legislature        supported       that     request,      to   be    able    use    radio,                                     
 television and print media to carry out those functions.                                                                       
                                                                                                                                
 A  roll    call    vote    was   taken     on  the    motion     to   adopt    Amendment                                       
 #4.                                                                                                                            
                                                                                                                                
 IN FAVOR: Foster, Fate                                                                                                         
 OPPOSED: Hawker, Joule, Meyer, Stoltze, Chenault, Croft,                                                                       
           Williams, Harris                                                                                                     
                                                                                                                                
 Representative Moses was absent.                                                                                               
                                                                                                                                
 The MOTION to adopt Amendment #4 FAILED (2-8).                                                                                 
                                                                                                                                
 Representative         Croft     questioned       if  the   Fund    would    educate      in                                   
 a  non-partisan        manner     or   advocate      for   POMV.      He  asked     how   it                                   
 would    be   found    in   a  fiscal     note.    Mr.   Bartholomew        stated     that                                    
 in   talking      with    the   APOC,     the    definitions       of   education       and                                    
 advocacy      are    unclear.       He   said    that    if   there     were     specific                                      
 lines    to   draw,     the   PFC   would     work    with    legal    counsel      on  the                                    
 authority       to  comply,      as   well    as   the   authority       language.        He                                   
 noted     that    if   the   language      in   the    operating       budget     did   not                                    
 pass, the PFC couldn't spend the $700 thousand.                                                                                
                                                                                                                                
 Co-Chair       Harris     thought       that    it   would      be   a   "slap     in   the                                    
 face"     to    the    public      for    the    Permanent        Fund    Corporation,                                         
 which     is   entrusted      with     the   dividend      to   advocate       for   POMV.                                     
 He   questioned       using     $700    thousand       dollars     of   the    Permanent                                       
 Fund    on  advocacy      when    another     entity     could     assume    that    role.                                     
 Mr.    Bartholomew       agreed      that    it   would    be   the    preferred       way.                                    
 He   explained        that    the    "feed-back"        from     the   public      on   the                                    
 Percent      of    Market      Value     approach       indicates       that     a   broad                                     
 segment     of   the   public     does    not   understand       it.     The   public     is                                   
 educated       through      mass    media.     The    Permanent       Fund    needs     the                                    
 authority       to   speak    publicly.       To   reach     the   public,      you    must                                    
 go after them, he said.                                                                                                        
                                                                                                                                
 Co-Chair      Harris     voiced     concern     that    the   Just    Say   No   campaign                                      
 gets     the    message       out    to    many     Alaskans        who    may    not     be                                   
 educated      on   the   issue    but   are   hearing      the   message.        He  asked                                     
 if   people     would    be   "turned      off"   by   the    use   of   $700    thousand                                      
 of   Permanent       Fund    money    to   tell    Alaskans       what    they    need    to                                   
 do.  He asked if that had been considered.                                                                                     
                                                                                                                                
 Mr.   Bartholomew        replied     that    even    as  the    request     was   written                                      
 up, the Board discussed a negative public reaction.                                                                            
                                                                                                                                
                                                                                                                                
 TAPE HFC 04 - 63, Side B                                                                                                     
                                                                                                                              
 Mr.   Bartholomew        continued       discussing       the    use   of   state    money                                     
 for    advocating       for    the    POMV,     expressing       that    the    Board     of                                   
 Trustees       believes      there      is   the    obligation        to   educate      and                                    
 that the benefits outweigh the risks.                                                                                          
                                                                                                                                
 Vice-Chair        Meyer    pointed      out    that    $300     thousand      is   in   the                                    
 Supplemental          Budget      and    asked      if    the     $700     thousand       is                                   
 additional.         Mr.     Bartholomew         addressed        the     $1.4     million                                      
 advocacy,       pointing      out    that    the    amount     could    be   determined                                        
 by   campaign      parameters.        Costs    would     be  split     between      FY  04-                                    
 FY   05,   with    $900   thousand      in   FY   05  and   $700    thousand      derived                                      
 from    the   fiscal     note.     He   said   that    $200    thousand      would     come                                    
 from    other    parts     of   the   budget.      He  expressed       that    the   Board                                     
 was   very    sensitive      to   the   potential       negative      reaction      and   it                                   
 urged     the    Corporation         not    to   proceed       without      legislative                                        
 guidance.                                                                                                                      
                                                                                                                                
 Vice-Chair       Meyer     asked     if   there    would     be   other     than    public                                     
 sources     of   funding     available       if   there    were    only   General      Fund                                    
 money.     Mr.   Bartholomew        answered      that   the    Corporation       had   not                                    
 pursued      other    sources,      and    private     groups     had    not   contacted                                       
 it.    The    Board     would      not    seek     private      funding,       and    as   a                                   
 public entity, it wouldn't want to have "strings attached."                                                                    
                                                                                                                                
 Vice-Chair         Meyer     noted      that      there     are     opposing        groups                                     
 raising      private      money.     He   suggested       a  grassroots        effort     to                                   
 be   a  "Just    Say   Yes"    group,     but   he   acknowledged        that    it  would                                     
 be a challenge.                                                                                                                
                                                                                                                                
 Representative           Hawker      referred        to    the     fiscal      note.      He                                   
 thought      that   the    opposition       groups     would    not    be   held    to  the                                    
 same     standard        of    truthfulness          and    impartiality          of    the                                    
 Permanent      Fund    Corporation,        and    he  commented       that   it   is   easy                                    
 to   tell     people     what    they     want    to   hear.     He    voiced     concern                                      
 over    the    Legislature's         leadership        role    and    responsibility,                                          
 and    said    that     if   the    Legislature         lacks     faith     in   its    own                                    
 convictions        on    the    POMV    being     the    right     thing     to    do,    an                                   
 inappropriate          message       could     be    sent      to    the    public.       He                                   
 expressed       that     the    dialogue       before      the    public      should      be                                   
 objective, factual and truthful.                                                                                               
                                                                                                                                
 Representative          Stoltze       felt     that     there     is    no    legitimate                                       
 reason      to   use    government       money     and    it    would     erode     public                                     
 confidence.          He   recommended        looking      at    it   from    a   strategy                                      
 point     of   view,    and    he   lauded     all    the    effort     that    has    been                                    
 expended.                                                                                                                      
                                                                                                                                
 Co-Chair       Williams      noted     that    he    agreed     with    the    Permanent                                       
 Fund    Corporation's         approach.          He   stressed      that    this     is   an                                   
 important issue for the State of Alaska, and the public                                                                        
 needs to make an informed decision.                                                                                            
                                                                                                                                
 Co-Chair Williams stated that HJR 26 would be HELD in                                                                          
 Committee for further consideration.                                                                                           
                                                                                                                                
 ADJOURNMENT                                                                                                                  
                                                                                                                                
 The meeting was adjourned at 4:15 P.M.                                                                                         
                                                                                                                                

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