Legislature(2003 - 2004)

03/25/2004 01:50 PM FIN

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
                  HOUSE FINANCE COMMITTEE                                                                                       
                       March 25, 2004                                                                                           
                         1:50 P.M.                                                                                              
                                                                                                                                
TAPE HFC 04 - 67, Side A                                                                                                        
TAPE HFC 04 - 67, Side B                                                                                                        
TAPE HFC 04 - 68, Side A                                                                                                        
                                                                                                                                
CALL TO ORDER                                                                                                                 
                                                                                                                                
Co-Chair Williams called the House  Finance Committee meeting                                                                   
to order at 1:50 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                                                                                                                  
                                                                                                                                
Pete  Ecklund,  Staff,  Representative   Bill  Williams;  Bob                                                                   
Bartholomew, Chief  Operating Officer, Alaska  Permanent Fund                                                                   
Corporation,  Department   of  Revenue;  Robert   D.  Storer,                                                                   
Executive  Director,   Alaska  Permanent  Fund   Corporation,                                                                   
Department  of Revenue;  Tamara  Cook, Director,  Legislative                                                                   
Legal and Research Services, Legislative  Affairs Agency; Joe                                                                   
Balash, Staff, Senator Gene Therriault                                                                                          
                                                                                                                                
PRESENT VIA TELECONFERENCE                                                                                                    
                                                                                                                                
Mike   Williams,  Tax   Division,   Department  of   Revenue,                                                                   
Anchorage                                                                                                                       
                                                                                                                                
                                                                                                                                
SUMMARY                                                                                                                       
                                                                                                                                
HB 236    An Act imposing a tax  on employment; and providing                                                                   
          for an effective date.                                                                                                
                                                                                                                                
          CS HB 236 (FIN) was  reported out of Committee with                                                                   
          "individual recommendations"  and with a new fiscal                                                                   
          note   by    the   Department   of    Revenue   and                                                                   
          indeterminate note #1  by the Department of Labor &                                                                   
          Workforce Development.                                                                                                
                                                                                                                                
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.                                                                                                        
                                                                                                                                
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.                                                                                                        
                                                                                                                                
SB 291    An   Act  extending   the  transition  period   for                                                                   
          activities  involving   unstamped  cigarettes;  and                                                                   
          providing for an effective date.                                                                                      
                                                                                                                                
          SB 291 was reported out of Committee with a "do                                                                       
          pass"  recommendation and  with fiscal  note #1  by                                                                   
          the Department of Revenue.                                                                                            
                                                                                                                                
SENATE BILL NO. 291                                                                                                           
                                                                                                                                
     An Act extending the transition period for activities                                                                      
     involving unstamped cigarettes; and providing for an                                                                       
     effective date.                                                                                                            
                                                                                                                                
Vice  Chair  Meyer  commented  that his  questions  had  been                                                                   
answered  on the  bill.   He MOVED to  report  SB 291 out  of                                                                   
Committee  with  individual  recommendations   and  with  the                                                                   
accompanying fiscal  note.  There being NO  OBJECTION, it was                                                                   
so ordered.                                                                                                                     
                                                                                                                                
SB  291  was reported  out  of  Committee  with a  "do  pass"                                                                   
recommendation and  with fiscal note #1 by  the Department of                                                                   
Revenue.                                                                                                                        
                                                                                                                                
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  introduced  Amendment  #3,  #23-LS1006\V,                                                                   
Cook, 3/22/04.  (Copy on File).   He noted that the amendment                                                                   
would completely  change the  bill.  His  intent was  to take                                                                   
testimony  on  Amendment  #3  and  take  no  action  at  this                                                                   
meeting.                                                                                                                        
                                                                                                                                
Representative Hawker  MOVED to DIVIDE the  question proposed                                                                   
in  Amendment  #3,  pointing   out  there  are  two  distinct                                                                   
considerations proposed in the amendment.                                                                                       
                                                                                                                                
Co-Chair Williams  reiterated that  no official action  would                                                                   
be taken on Amendment #3 at this time.                                                                                          
                                                                                                                                
ROBERT D. STORER,  EXECUTIVE DIRECTOR, ALASKA  PERMANENT FUND                                                                   
CORPORATION, DEPARTMENT  OF REVENUE, acknowledged  that there                                                                   
are two components  to the amendment.  He offered  to address                                                                   
the first  component, which would  in effect memorialize  the                                                                   
principal  in  the Alaska  Constitution  by  identifying  the                                                                   
Earnings Reserve Account.                                                                                                       
                                                                                                                                
Mr. Storer provided a "history  lesson" on how the Board came                                                                   
to  the conclusion  that  a Percent  of  Market Value  (POMV)                                                                   
without principal  would be a  better approach.  There  is no                                                                   
question that  the Board recognizes  the merit and  would not                                                                   
be opposed  to the proposed  amendment, which  puts principal                                                                   
into the Constitution.  Three  years ago when identified, the                                                                   
Board did  opt to  leave the principal  in the  Constitution.                                                                   
He  emphasized  that  the  key  is  the  5%  spending  limit.                                                                   
Principal  puts  a  floor  on  what  might  be  appropriated.                                                                   
Following a lengthy discussion  with the Permanent Fund Board                                                                   
of Trustees,  discussing the  merits of continuing  principal                                                                   
versus  the 5% limitation,  the Board  concluded that  having                                                                   
the percentage of market value  payout with 5%, the principal                                                                   
would be their  preferred approach.  The Board  believes that                                                                   
the   5%  does   memorialize   inflation   proofing  in   the                                                                   
Constitution and would not need  a floor.  It recognizes that                                                                   
on some  occasions, there  will be up  and down markets,  but                                                                   
over the  long term, the purchasing  power of the  fund would                                                                   
be maintained.   He noted  that there is companion  language,                                                                   
which gives the  Legislature direction of when  they would be                                                                   
moving below the 5% real rate of return.                                                                                        
                                                                                                                                
                                                                                                                                
Mr. Storer continued, if that  language was maintained, there                                                                   
is a  limited chance that  there could be  a small or  no pay                                                                   
out at all, in  a bear market.  That could  potentially limit                                                                   
how much is available  for payout.  At this time,  there is a                                                                   
cushion  in the fund.   The  principal is  about $23  billion                                                                   
dollars and the  Permanent Fund is approximately  $27 billion                                                                   
dollars.   As the market  progress and the appreciation  fund                                                                   
grows significantly  greater than this concept  of principal,                                                                   
then that would  become less of an issue because  the cushion                                                                   
would become greater  over time.  He observed  that including                                                                   
the  principal,  will  give decision  makers  a  little  more                                                                   
latitude in  terms of  the pay  out, no more  than 5%  in the                                                                   
down markets.   Also,  by paying  out the 5%  in down  & high                                                                   
markets, will treat all generations equally.                                                                                    
                                                                                                                                
Mr. Storer concluded, it is important  to note, but not as it                                                                   
applies  to the proposed  statute, there  are proposals  that                                                                   
would  memorialize  the dividend  in  the Constitution  at  a                                                                   
fixed  rate.   If the  Legislature  is contemplating  putting                                                                   
principal back  into the Permanent  Fund that would  create a                                                                   
limit on how much could be paid  out.  If there is a proposal                                                                   
for a fixed  payout, there would then be  competing formulas.                                                                   
He commented  that could be  worked with, however,  it should                                                                   
be evaluated with other proposals.                                                                                              
                                                                                                                                
BOB BARTHOLOMEW,  CHIEF OPERATING  OFFICER, ALASKA  PERMANENT                                                                   
FUND CORPORATION,  DEPARTMENT OF REVENUE, added,  that he did                                                                   
not  have  anything  additional  to add  to  the  concept  of                                                                   
leaving  in   the  principal   and  the  protection   of  the                                                                   
principal.    He  observed  that   another  change  that  the                                                                   
amendment  proposes  is  to  Section  2,  where  it  actually                                                                   
provides for the dividend and  public education as two of the                                                                   
uses for the money from the Permanent  Fund.  That was not in                                                                   
the previous version.                                                                                                           
                                                                                                                                
Co-Chair   Harris   clarified   that  Section   1   basically                                                                   
establishes  an Earnings  Reserve Account  in the corpus  and                                                                   
under the umbrella of the Constitution.   It also establishes                                                                   
the fact that  the only pot of  money that can be  used under                                                                   
constitutional  protection is  the Earnings Reserve  Account.                                                                   
The second section then would establish in Constitution:                                                                        
                                                                                                                                
   ·    The 5%,                                                                                                                 
   ·    A dividend, and                                                                                                         
   ·    Allows the use of that 5% for public education and                                                                      
        the administration process.                                                                                             
                                                                                                                                
Co-Chair Harris added that if  the public was asking for some                                                                   
sort  of  protection  for a  dividend,  the  amendment  would                                                                   
provide that  and protects it  from going into  the principal                                                                   
of  the  fund.    He  knew  that  was  the  public's  highest                                                                   
priorities.                                                                                                                     
                                                                                                                                
Mr. Storer agreed  that there is interest in  those subjects.                                                                   
He pointed out that it would also  memorialize the concept of                                                                   
the dividend.  The public definitely  understands the concept                                                                   
of principal protection,  which he thought was  a good thing.                                                                   
He urged  members to keep  in mind the  concept of  the worse                                                                   
case  scenario  and  that  the   amendment  memorializes  the                                                                   
concept  of the dividend  but  does not say  that a  dividend                                                                   
would not  be paid, but if  the market value was  eroded, the                                                                   
floor  would disappear.    He  emphasized that  the  language                                                                   
creates both  a discipline and a  floor.  There is  a limited                                                                   
chance that there could be a small or no dividend.                                                                              
                                                                                                                                
Mr.  Bartholomew  added  that  under the  Board  of  Trustees                                                                   
proposal,  they merged  principal and  Earnings Reserve  into                                                                   
one account.   From the  administrative perspective,  part of                                                                   
the benefit from  that action would be only  the records from                                                                   
the generally  accepted accounting principals would  tell the                                                                   
Legislature the size  of the fund and the market  value times                                                                   
5%.   Into the future, the  Permanent Fund Corporation  would                                                                   
continue to report  as they are at this time.   There are two                                                                   
sets  of  accounting  records used,  the  generally  accepted                                                                   
accounting  principal  and the  accounting  for the  realized                                                                   
income.     He  assumed  that   was  a  difficult   piece  to                                                                   
understand.  The existing process  will remain in place.  The                                                                   
protection  of principal  is out-weighing  some of the  other                                                                   
benefits.                                                                                                                       
                                                                                                                                
Co-Chair Williams  agreed that it is difficult  to understand                                                                   
these concepts.   He asked if the proposed  legislation would                                                                   
put that  language into  the Constitution.   Mr.  Bartholomew                                                                   
acknowledged  that  it  would   and  that  the  principal  is                                                                   
included  in  the  Constitution   at  this  time.    Co-Chair                                                                   
Williams questioned  why the Legislature would  want to place                                                                   
that language into the Constitution.                                                                                            
                                                                                                                                
JOE  BALASH,  STAFF,  SENATOR GENE  THERRIAULT,  presented  a                                                                   
history on the  proposal, which dates back to 2001.   At that                                                                   
time,  Senator Therriault  was  Chairman  of the  Legislative                                                                   
Budget and Audit (LBA) Committee,  which has oversight of the                                                                   
Permanent  Fund,  and  was responsible  for  introducing  the                                                                   
first proposal  by the Trustees  to switch to the  percent of                                                                   
market  value  (POMV)  methodology.   Then  Senate  President                                                                   
Halford rewarded Senator Therriault  for that introduction by                                                                   
referring  it  to  his Committee  in  Senate  State  Affairs.                                                                   
During the  next fourteen months,  public hearings  were held                                                                   
statewide.   During subsequent and current  legislatures have                                                                   
spent much of the interim taking  public testimony on current                                                                   
POMV language.  The concept of  principal keeps coming around                                                                   
to "haunt" the notion of POMV  and why it is not the public's                                                                   
first choice  as a  way to preserve  the fund.   In  order to                                                                   
preserve the notion  of principal, the rest of  the fund must                                                                   
be accounted for  in some manner.  By doing  so, the decision                                                                   
was to create an Earnings Reserve  Account similar to what is                                                                   
around  today.   He  added  that realized  versus  unrealized                                                                   
income has not been distinguished in the bill.                                                                                  
                                                                                                                                
Co-Chair  Williams  recommended  that Senator  Therriault  be                                                                   
                                                            th                                                                  
present at the  next scheduled meeting for Monday,  March 29                                                                    
at 9 a.m.  Mr. Balash indicated that he could arrange that.                                                                     
                                                                                                                                
Representative Hawker  asked if the amendment  was attempting                                                                   
to create  two buckets  of money  within the Permanent  Fund.                                                                   
Mr. Bartholomew  responded  that there  have been many  legal                                                                   
discussions  over  how  many  buckets  of  money  there  are.                                                                   
Currently,  the  Permanent Fund  is  accounted  for in  three                                                                   
separate  pools.     The   principal  pool,  the   unrealized                                                                   
earnings, and  the realized earnings.   Language on  Line 13,                                                                   
of the proposed amendment addresses  depositing earnings into                                                                   
the reserve.  He understood that  language would require them                                                                   
to continue as  presently done and account for  the Permanent                                                                   
Fund in  the three buckets.   The spending is driven  by what                                                                   
is available in the realized earnings account.                                                                                  
                                                                                                                                
Representative  Hawker inquired why  new language  was needed                                                                   
to accomplish something already  being done.  Mr. Bartholomew                                                                   
stated that the constitutional  amendment does achieve the 5%                                                                   
spending limit,  which is the  most significant  action being                                                                   
taken  by  using  the  5%  spending   limit,  which  protects                                                                   
purchasing  power into the  future.   However, the  manner in                                                                   
which it is accounted for will change.                                                                                          
                                                                                                                                
Representative Hawker voiced his  confusion regarding placing                                                                   
the 5% limit  into constitutional language.   Mr. Bartholomew                                                                   
reiterated that it  was in original bill.   He explained that                                                                   
on Line 10,  leaves the word "principal" in  the Constitution                                                                   
and requires  that the  principal not be  spent.   Mr. Storer                                                                   
added that it was true that the  5% limit existed before.  It                                                                   
is consistent with the Permanent  Fund's objective, putting a                                                                   
limit on  how much could be  appropriated at any  given time.                                                                   
The amendment creates  a floor, and if the value  of the fund                                                                   
falls  below that  floor, no money  could be  used below  the                                                                   
principal floor.  Over time, as  the profits of the fund grow                                                                   
and the  difference  between the  value of  the fund and  the                                                                   
principal  become   wider  and  wider,  then   the  point  of                                                                   
principal becomes less important  because the cushion becomes                                                                   
greater.                                                                                                                        
                                                                                                                                
Representative Hawker understood  that the 5% does not change                                                                   
and would only  apply to a portion of the money  in the fund.                                                                   
Mr.  Storer replied  that the  5%  limit would  apply to  the                                                                   
entire  fund.   The definition  of  how much  could be  used,                                                                   
would be 5% of the 5-year moving  average of the entire fund.                                                                   
The next step would be how much  would be available above the                                                                   
floor, which  is the second  message clarifying if  there are                                                                   
sufficient  funds in  order to  reach the  5% requirement  in                                                                   
excess of  that floor.   If not, then  they cannot  take more                                                                   
than the floor.                                                                                                                 
                                                                                                                                
Representative Hawker  thought that the policy  call would be                                                                   
the 5%  of the  entire value of  the fund  but only  making a                                                                   
portion available to draw the  5%.  He believed that language                                                                   
was inconsistent.   Mr.  Bartholomew agreed.   Representative                                                                   
Hawker  questioned limiting  the source  of that  fund.   Mr.                                                                   
Storer advised  there are  ways to  provide insight  when the                                                                   
fund  does  not  earn  the  5%.   He  pointed  out  that  the                                                                   
Permanent  Fund has  been working  with a  number of  elected                                                                   
officials,  who could  evaluate  whether or  not  to use  the                                                                   
entire 5% or instead make less of a policy decision.                                                                            
                                                                                                                                
Representative Hawker  thought if there was  inadequate money                                                                   
in the  bucket, then nothing could  be drawn.   He questioned                                                                   
if that  would be  the same  effect as  using the  "sidebar".                                                                   
Mr. Bartholomew explained that  if the sidebars or guardrails                                                                   
were placed  into statute, there  would always be  the option                                                                   
of  the  Legislature  to  not  follow them.    If  the  extra                                                                   
protection  were placed  into the  Constitution, there  would                                                                   
never be the option of not following it.                                                                                        
                                                                                                                                
Representative  Hawker suggested  that was  an "all  or none"                                                                   
attitude.  Mr. Bartholomew attempted  to clarify, noting that                                                                   
had been the debate the Board  went through when making their                                                                   
decision.   As the Constitution  is written today,  there are                                                                   
market scenarios,  where there can be short-term  declines in                                                                   
the  financial  markets,  which   reduce  the  value  of  the                                                                   
earnings reserve.   If  that scenario  was to repeat  itself,                                                                   
when  there is  a  principal limitation,  which  is hard  and                                                                   
fast, there  is a line  or value of  the Permanent  Fund that                                                                   
can not be spent below, and is  how it currently is and would                                                                   
continue with the  amendment.  He reiterated that  there is a                                                                   
hard  and  fast  line, which  the  Legislature  cannot  spend                                                                   
below.    When  the  Trustees  evaluated  whether  to  remove                                                                   
principal or not, they recommended  that the benefits must be                                                                   
evaluated  from having  a  predictable,  sustainable pay  out                                                                   
from the  Permanent Fund  versus the  risk taken by  removing                                                                   
the principal protection and saying  that there are near turn                                                                   
down markets, spending down into  the Permanent Fund with the                                                                   
intention  that it  would be  paid  back in  the future  good                                                                   
years.   That was the  discussion.  From  the sponsor  of the                                                                   
amendment   and  what   the  public  wants,   the  Board   is                                                                   
comfortable using  the word principal. The experience  of the                                                                   
Permanent Fund  is that  with time to  educate and  work with                                                                   
the public, the  public then tends to support  the concept of                                                                   
a sustainable and predictable payout.                                                                                           
                                                                                                                                
Representative  Hawker understood  that the  amendment was  a                                                                   
trade off and would provide some  inherent predictability and                                                                   
stability   to  the  previous   version   of  the  bill   for                                                                   
preservation of the  notion of principal.  He  commented that                                                                   
the word  "notion"  troubled him  and that  he did not  think                                                                   
that  the State  really wanted  to  trade predictability  and                                                                   
sustainability for such a vague thought.                                                                                        
                                                                                                                                
Co-Chair  Harris  stressed  that  the  reality  is  that  the                                                                   
amendment would  protect a  value of the  principal set  at a                                                                   
certain  period of  time when  it is  voted on.   That  value                                                                   
could never  be taken  away.  Any  earnings of the  Permanent                                                                   
Fund above and  beyond that time would be deposited  into the                                                                   
second account  called the Earnings Reserve Account.   Today,                                                                   
that account is  not protected at all.  Under  the amendment,                                                                   
it would be  entirely protected under the Constitution.   The                                                                   
Earnings Reserve  Account is the  only pot of money  that the                                                                   
5% could be  taken from.  If  there were a down market  for a                                                                   
considerable period of time, it  would not prohibit taking 5%                                                                   
of the  fund.  However, if  the Earnings Reserve  Account was                                                                   
depleted,  then no  more could  be drawn  from the  Permanent                                                                   
Fund,  as  it would  be  constitutionally  protected  as  the                                                                   
principal.  He emphasized that  there is no "notion" involved                                                                   
at all in the proposed language  and emphasized that there is                                                                   
absolute value protected.  He  asked Mr. Storer if that was a                                                                   
correct interpretation.   Mr. Storer responded  that the only                                                                   
distinction  would be when  that point is  hit, and  then the                                                                   
citizens of Alaska would have to vote.                                                                                          
                                                                                                                                
Co-Chair  Harris pointed  out that  they would  only have  to                                                                   
vote  on the  constitutional  question,  which would  require                                                                   
two-thirds of  both Bodies's in  order to place  the question                                                                   
before the voters.                                                                                                              
                                                                                                                                
Co-Chair   Harris  noted   that  two   concerns  were   being                                                                   
addressed.   One  is  the  constitutional protection  of  the                                                                   
corpus or principal value at a  certain point.  The Permanent                                                                   
Fund will have  to determine whatever that number  is at that                                                                   
point in time.  Any amount above  and beyond that is Earnings                                                                   
Reserve Account  money.  Mr.  Bartholomew indicated  that the                                                                   
question  needing  to  be  answered is  how  to  address  the                                                                   
State's  on-going receipt  of  oil deposits.   The  Permanent                                                                   
Fund understands  that the principal would have  to grow from                                                                   
the on-going oil  deposits; however, all the  earnings of the                                                                   
fund  would  be what  is  placed  into the  Earnings  Reserve                                                                   
Account.                                                                                                                        
                                                                                                                                
Co-Chair  Harris  pointed  out  that  that  the  Constitution                                                                   
already clarifies  that 25%  goes into  the principal  of the                                                                   
fund.  That value  is what is created by the  investments and                                                                   
would become part  of the Earnings Reserve Account.   That is                                                                   
the pot  of money that is  constitutionally protected  by the                                                                   
5%.   Mr.  Storer  stated that  there  is approximately  $4.7                                                                   
billion  dollars  of realized  and  unrealized  money in  the                                                                   
account at this time.                                                                                                           
                                                                                                                                
Co-Chair  Harris  added  that   the  Legislature  still  must                                                                   
determine  how much  of that  5%  comes out  of the  Earnings                                                                   
Reserve  Account that  could be used  for dividends,  general                                                                   
operations  of the  departments  and education.   Mr.  Storer                                                                   
agreed.   Co-Chair Harris  added that  the Legislature  could                                                                   
adopt 100% for  dividends and could be changed  at any period                                                                   
in time  by the  Legislature if  they wanted  to face  public                                                                   
scrutiny.   He noted that the  public is concerned  about the                                                                   
erosion  of the  principal.   They  need  assurance that  the                                                                   
principal is  not going away.   The  only way that  they will                                                                   
get that  assurance is if  it is constitutionally  protected.                                                                   
Under the proposed  amendment, the Legislature  would have no                                                                   
power,  only  the public  would  have  that authority.    Mr.                                                                   
Storer agreed.                                                                                                                  
                                                                                                                                
Vice Chair Meyer  asked the highest and lowest  amount earned                                                                   
by the  fund over  the past  twenty-five years.   Mr.  Storer                                                                   
stated that  in March 2000, the  principal was between  $19 &                                                                   
$20  billion dollars  and now  the principal  is $23  billion                                                                   
dollars.   Mr. Bartholomew responded  that there is  a return                                                                   
that  the  fund  has  earned  under  the  generally  accepted                                                                   
accounting principals.  It is  important to consider what the                                                                   
fund has earned under the realized earnings approach.                                                                           
                                                                                                                                
Vice Chair  Meyer thought that  8% had been the  average over                                                                   
that period.   Mr.  Storer commented that  the fund  has been                                                                   
through a  substantial bull market  for about  fifteen years.                                                                   
The real  rate of return for  nineteen years is 6.9%,  and is                                                                   
not sustainable.  In the last  ten years, there has been both                                                                   
bull markets and  a severe down market.  Over  that period of                                                                   
time,  the fund earned  a return  of 7.8%  with inflation  at                                                                   
2.5%, which makes a 5.3% real rate of return.                                                                                   
                                                                                                                                
Vice  Chair Meyer  understood  Co-Chair  Harris' concerns  of                                                                   
eroding into the principal, however,  pointed out that it had                                                                   
gone up  to 5%.  With  inclusion of the proposed  safeguards,                                                                   
it would not go  up to the full 5%.  Given  the POMV concept,                                                                   
it is anticipated  that during the next 50 to  100 years, the                                                                   
average earnings would be 8%.   Mr. Storer interjected that a                                                                   
5% real  rate of return  could be anticipated.   That  is how                                                                   
the 5% has been determined on what should be appropriated.                                                                      
                                                                                                                                
Vice Chair  Meyer asked  if the  Permanent Fund supports  the                                                                   
amendment.    Mr. Storer  responded  that  historically,  the                                                                   
Permanent  Fund supported the  constitutional amendment  with                                                                   
principal  remaining  in.    After   a  long  study,  it  was                                                                   
determined that there  could be a better way  to approach it.                                                                   
The Board has  concluded that the percentage  of market value                                                                   
pay out, as it  now stands, is the recommended  way, and will                                                                   
allow the  Legislature to determine  whether or not it  is in                                                                   
the best  interest to  sustain the  full 5%  pay out  or less                                                                   
depending on the market.  At no  time, has the Permanent Fund                                                                   
claimed  that leaving  the principal in  would be  inherently                                                                   
bad.  That  approach is considered  to be second best  and is                                                                   
viable.                                                                                                                         
                                                                                                                                
Representative  Hawker commented  on the statement  regarding                                                                   
the  principal in  as being  the  second best  approach.   He                                                                   
asked if  that was  a decision made  from a financial  policy                                                                   
point  of  view  or a  political  perspective.    Mr.  Storer                                                                   
responded  that he  hoped it  was  a decision  made from  his                                                                   
financial  hat  perspective so  as  to insure  the  long-term                                                                   
viability.  Discipline  must be created to provide  a cushion                                                                   
for both  the good and bad  times, which has  been consistent                                                                   
for the Permanent Fund.  They  do recognize the importance of                                                                   
the principal to the citizens of Alaska.                                                                                        
                                                                                                                                
Representative  Hawker  heard  that the  bill  as  originally                                                                   
presented  was   the  first   best  approach,  however,   the                                                                   
Legislature wears a more political  hat first.  The political                                                                   
debate is one of preserving the  notion of the principal.  He                                                                   
recommended exploring  how to manage it, while  continuing to                                                                   
accomplish distribution  of the wealth  to all Alaskans.   He                                                                   
asked if the  Permanent Fund considered using  the old three-                                                                   
column trust account system.                                                                                                    
                                                                                                                                
                                                                                                                                
TAPE HFC 04 - 67, Side B                                                                                                      
                                                                                                                                
                                                                                                                                
Representative  Hawker  continued,  that system  consists  of                                                                   
three  columns,  principal,  earnings   and  expenses.    The                                                                   
realized  earnings   would  be  shifted  between   the  three                                                                   
columns.   He  acknowledged that  the  methods of  accounting                                                                   
have evolved and  changed.  He pointed out that  the fund has                                                                   
gone from the  notion of principal to an  accounting standard                                                                   
that  measures funds  by  value instead  of  principal.   Mr.                                                                   
Bartholomew explained that in  1997, the accounting standards                                                                   
that  oversee all  generally accepted  accounting  principals                                                                   
require  the Permanent  Fund to  mark  all of  its assets  to                                                                   
current daily price  to guarantee knowing if  value was being                                                                   
gained or lost.   At the end of each month,  a report is made                                                                   
available to the Legislature from the Permanent Fund.                                                                           
                                                                                                                                
Representative  Hawker  knew  that  accounting  changes  have                                                                   
evolved during the 1990's.  In  1997, pronouncements mandated                                                                   
to take  a new approach  to the fund.   He asked if  that was                                                                   
the  basis  of the  first  best  value  based approach.    He                                                                   
thought  that the  second best  approach appears  to be  more                                                                   
outdated  and  does  not  reflect  these  flucuations.    Mr.                                                                   
Bartholomew  agreed.   He  added that  under  the concept  of                                                                   
principal,  the  Permanent Fund  will  maintain  two sets  of                                                                   
accounting  records.   That  is  what is  done  today.   That                                                                   
methodology  would  have  gone   away  under  a  pure  market                                                                   
approach.   Representative  Hawker commented  that would  put                                                                   
the burden back on the Legislature.                                                                                             
                                                                                                                                
Co-Chair  Williams  stated  that  HJR  26 would  be  HELD  in                                                                   
Committee.                                                                                                                      
                                                                                                                                
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.                                                                                                                      
                                                                                                                                
Representative   Hawker  explained  that   HB  298   was  the                                                                   
companion legislation to HJR 26.   He requested that the bill                                                                   
be  HELD in  Committee until  the final  form of  HJR 26  was                                                                   
determined.                                                                                                                     
                                                                                                                                
Co-Chair  Williams  stated  that  HJR  26 would  be  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\E,                                                                   
Cook, 3/25/04, as  the version of the legislation  before the                                                                   
Committee.  There being NO OBJECTION, it was adopted.                                                                           
                                                                                                                                
PETE ECKLUND, STAFF, REPRESENTATIVE  BILL WILLIAMS, explained                                                                   
the  changes made  to  the  work draft.    Page  2, Line  19,                                                                   
incorporates  Amendment  #1, passed  at  a previous  hearing.                                                                   
Page 2, Line  23, the previous version had  the appropriation                                                                   
going to  the Constitutional Budget  Reserve (CBR)  and being                                                                   
exempt, whereas,  the current version places it  in a reserve                                                                   
fund established by law.  Mr.  Ecklund pointed out that there                                                                   
is a legislative obligation to  repay $5.5 billion dollars to                                                                   
the  Constitutional  Budget  Reserve  (CBR),  and  cannot  be                                                                   
satisfied  through direct appropriations  but rather  through                                                                   
sweeps.   If  the  Legislature  chooses to  appropriate  that                                                                   
amount at  this time, it will  not go to satisfying  the debt                                                                   
obligation.    New language  would be  in place for  a future                                                                   
date  at which  time  the legislature  would  repay the  CBR.                                                                   
There are  on-going revenue  surpluses to  the State  and any                                                                   
appropriations  to  the  CBR  would  not  be  subject  to  an                                                                   
appropriation limit.                                                                                                            
                                                                                                                                
Co-Chair Harris asked  if it was constitutional,  not be able                                                                   
to place money from the general  fund back into the CBR.  Mr.                                                                   
Ecklund responded that an appropriation  to the CBR would not                                                                   
count as  a repayment of that  obligation.  If the  money was                                                                   
left in  the CBR and was  swept, that would count  toward the                                                                   
debt.   Co-Chair  Harris  inquired  why  it would  not  count                                                                   
toward repayment.  Mr. Ecklund  explained that was the manner                                                                   
in which the constitutional provision had been constructed.                                                                     
                                                                                                                                
TAMARA  COOK,   DIRECTOR,  LEGISLATIVE  LEGAL   AND  RESEARCH                                                                   
SERVICES,  LEGISLATIVE AFFAIRS  AGENCY, advised that  Section                                                                   
17, Article  9, establishes  the amount  available should  be                                                                   
deposited  into the  general reserve  fund.   Subsection  (D)                                                                   
contains that  sweep language.   If an appropriation  is made                                                                   
from the Budget  Reserve Fund, until the  amount appropriated                                                                   
is  repaid, the  amount  in the  general  fund available  for                                                                   
appropriation  at  the end  of  each  fiscal year,  shall  be                                                                   
deposited  into the  General  Reserve Fund.    She noted  the                                                                   
language  used:  "Until  the  amount is  repaid".    It  does                                                                   
stipulate   that  the   repayment  comes   from  a   separate                                                                   
appropriation or whether the source  of money coming into the                                                                   
sweep  may be  construed as  a growing  Budget Reserve  Fund.                                                                   
None of  Section 17 was  drafted in contemplation  that there                                                                   
would  be appropriations  into  the Budget  Reserve Fund  nor                                                                   
does that  section specifically prohibit  appropriations into                                                                   
that fund.                                                                                                                      
                                                                                                                                
Ms.  Cook   advised  that   the  question   is  whether   the                                                                   
appropriation  is considered to  be a  repayment or  simply a                                                                   
decision made  by the  Legislature to add  more money  to the                                                                   
Budget Reserve  Fund.  The repayment structure  suggests that                                                                   
a  Court might  find  that  the  repayment occurs  through  a                                                                   
sweep.   There  is  no obligation  to  repay  it and  becomes                                                                   
automatic.   If money is  appropriated out, then  money flows                                                                   
back in as it is available.                                                                                                     
                                                                                                                                
Co-Chair Williams  understood that is why there  is a reverse                                                                   
sweep.                                                                                                                          
                                                                                                                                
Co-Chair  Harris pointed  out  the information  indicates  it                                                                   
would be until  the amount was repaid, but  does not indicate                                                                   
how.    If the  amount  is  repaid and  satisfied,  then  the                                                                   
Legislature  would  not  have  to  do  a  sweep.    Ms.  Cook                                                                   
responded  that was  plausible but  she did  not know if  the                                                                   
Court would accept that.                                                                                                        
                                                                                                                                
Co-Chair Harris  questioned the point  made by Ms.  Cook that                                                                   
the Legislature  would not  be allowed  to replenish  the CBR                                                                   
with general  funds.  Ms.  Cook replied that  the Legislature                                                                   
certainly  would be allowed  to if  there were general  funds                                                                   
sitting there.   There is no  question that anything  left in                                                                   
the general  fund on the last  day of the fiscal  year, could                                                                   
be swept.   The legal  question is,  if the Legislature  does                                                                   
appropriate  it,   would  the  Court  find  that   to  be  an                                                                   
independent task  that the Legislature did to  grow the fund,                                                                   
but not  eliminating the obligation  under Section "D".   She                                                                   
agreed that could be a possible argument.                                                                                       
                                                                                                                                
Co-Chair Harris  asked what would  happen if the  Legislature                                                                   
placed  language into  the budget  to  appropriate a  certain                                                                   
amount  of money  to  the  Constitutional Budget  Reserve  to                                                                   
satisfy  the  terms  and  conditions  in  the  constitutional                                                                   
language  under Section  17(D).   That is the  intent of  the                                                                   
Legislature.  Ms. Cook thought  that would be a good argument                                                                   
to put before the Court.  If you  could clearly indicate that                                                                   
it is  the intent  of the  Legislature to  satisfy the  17(D)                                                                   
requirement, it would make a good case.                                                                                         
                                                                                                                                
Co-Chair Harris  presented a hypothetical situation  in which                                                                   
the State had a natural gas pipeline  and the amount of money                                                                   
coming  into  the  State  coffers was  more  than  enough  to                                                                   
satisfy the needs  of the government and then  that money was                                                                   
placed into  a savings or  placed into  the CBR to  cover the                                                                   
amount  taken out  over the years.   That  could satisfy  the                                                                   
terms that  the Constitution  requires to  sweep and  the CBR                                                                   
could be repaid.   Ms. Cook noted that she  would be inclined                                                                   
to agree because  she would assume that the  Legislature also                                                                   
has the  power to make the  choice to make  the appropriation                                                                   
to the CBR or to hold that fund,  saying that it is not going                                                                   
to eliminate  the sweeping obligation  of the  general funds.                                                                   
It could create a clear expression  of legislative intent, in                                                                   
the particular appropriation act.                                                                                               
                                                                                                                                
Representative Stoltze referenced  Page 2, Section 19, asking                                                                   
the  implications of  that language  in the  amendment.   Ms.                                                                   
Cook    acknowledged   the    concerns   regarding    dueling                                                                   
constitutional  provisions.   She  suspected  that the  Court                                                                   
would  not construe  it  that way.   If  there  were no  POMV                                                                   
amendment, and Section  15 kept the same language,  the Court                                                                   
would find that  section to be clear, only  income available.                                                                   
The enactment  of the  proposed language  could not  convince                                                                   
the Court  that the  Legislature could  appropriate  from the                                                                   
Permanent Fund  for   dividends  for anything other  than the                                                                   
income.                                                                                                                         
                                                                                                                                
Representative  Stoltze requested Ms.  Cook to research  that                                                                   
further.  He noted  that he did not have the  same confidence                                                                   
in the five  members of the  Supreme Court.  He  thought that                                                                   
the decisions  may be  different than  what was conceived  in                                                                   
1990.   Ms. Cook concurred  that the  Supreme Court  has many                                                                   
facets that change rapidly. She  did not ever want to attempt                                                                   
to second-guess how  they would face any problems.   With the                                                                   
current  language,  the  principal  could only  be  used  for                                                                   
investment and  the income shall  be put in the  general fund                                                                   
unless provided  otherwise by  law.   The Legislature  has in                                                                   
fact, elected  to provide  that the  income of the  Permanent                                                                   
Fund  go into  a separate  account located  in the  Permanent                                                                   
Fund.   However,  the Legislature  could  provide by  statute                                                                   
that  the  income  go  to  an account  that  is  not  in  the                                                                   
Permanent Fund, which  would only take a statute  change.  If                                                                   
confronted  with that  language,  an appropriation  from  the                                                                   
Permanent  Fund provides  payment of the  dividends to  State                                                                   
residents.   At that  point, you  could not appropriate  from                                                                   
the Permanent Fund  because it does not permit that.   If the                                                                   
Legislature   appropriated  from   the  general  fund,   that                                                                   
appropriation might  not be exempt  under that  exemption and                                                                   
the limit might  not apply.  The problem is the  fact that it                                                                   
might undo the spending limit itself.                                                                                           
                                                                                                                                
Representative  Stoltze  cautioned that  future  legislatures                                                                   
could play  chicken with the courts  with regards to  the use                                                                   
of the  permanent fund  earnings.   Ms. Cook understood  that                                                                   
Representative Stoltze  feared that the language  might allow                                                                   
an appropriation  from the principal  of the Permanent  Fund.                                                                   
She  did not  think a  Court would  reach that  decision.   A                                                                   
Court might  find that  an appropriation  from the  Permanent                                                                   
Fund from a different source is  not exempt from the spending                                                                   
limit.  Ms. Cook  did not see that the Court  would find that                                                                   
if an  appropriation occurred,  the purposes of  the spending                                                                   
limit  would   have  any  authority  to  actually   make  the                                                                   
appropriation.   That  is not  what the language  does.   The                                                                   
language only says  how to calculate an amount  available for                                                                   
an expenditure for a succeeding  fiscal year.  The worst case                                                                   
scenario that  could occur is  that the State would  elect to                                                                   
set up some program of Permanent  Fund payments funded from a                                                                   
different source  and be included  within the  spending limit                                                                   
calculation.                                                                                                                    
                                                                                                                                
Representative Stoltze MOVED conceptual  Amendment #3 to Page                                                                   
2, Line 19, deleting "from the"  and inserting "of", to read:                                                                   
"An appropriation  of the Alaska permanent fund  for payments                                                                   
of   permanent   fund   dividends    to   State   residents."                                                                   
Representative Hawker OBJECTED.                                                                                                 
                                                                                                                                
In response to a question by Representative  Hawker, Ms. Cook                                                                   
advised  that  most  likely,  a Court  would  still  find  it                                                                   
subject to  exclusion if  moved to  a POMV.   If it  could be                                                                   
demonstrated particularly  to a  specific year that  the POMV                                                                   
formula actually invaded some  of the principal, then someone                                                                   
might be able to present a case to the Court.                                                                                   
                                                                                                                                
Representative   Hawker   spoke    against   the   amendment,                                                                   
suggesting   that  it   was   more  generic   verbiage   that                                                                   
encompassed to wide of possible latitudes.                                                                                      
                                                                                                                                
Mr. Ecklund  offered alternative  language: Page 2,  Line 19,                                                                   
deleting:  "From the Alaska Permanent  Fund".  Representative                                                                   
Stoltze WITHDREW Amendment #3.                                                                                                  
                                                                                                                                
Vice Chair  Meyer MOVED  to ADOPT new  Amendment #3:  Page 2,                                                                   
Line 19,  deleting "from the  Alaska Permanent Fund".   There                                                                   
being NO OBJECTION, the new Amendment #3 was adopted.                                                                           
                                                                                                                                
Mr. Ecklund spoke to the next  change in the work draft, Page                                                                   
3, Line  10, Subparagraph  (13), adding  an exemption  to the                                                                   
limit.  That  language would describe the reverse  sweep, and                                                                   
would not  count against the  appropriation limit.   He asked                                                                   
Representative Hawker to describe  the change made to Page 1.                                                                   
                                                                                                                                
Representative  Hawker referenced the  graph "CS HJR  9 (FIN)                                                                   
Spending Limit; Base Year of 3  prior year average and 3 year                                                                   
floating  average  for  variables".    (Copy on  File).    He                                                                   
discussed  the basis for  the accommodation  of the  spending                                                                   
limit and how much spending increase  showed being allowed on                                                                   
an annual basis.                                                                                                                
                                                                                                                                
Representative Hawker stated that  in the previous version of                                                                   
the bill,  the index was created  from a combination  of what                                                                   
the average rate  of change is in the State's  population and                                                                   
personal  income.    The  personal   income  line  has  risen                                                                   
substantially, which  has pulled up the spending  level line,                                                                   
if the  spending limit was  based on  the cost of  living and                                                                   
population  increase.   The committee  substitute adopts  the                                                                   
base spending  inflator, the  average rate  in the  growth of                                                                   
the  population  and  the  consumer  price  index  and  would                                                                   
provide a slower growth curve.   He emphasized the importance                                                                   
of the personal income line, inflation  and that the proposed                                                                   
limit recognizes  the  importance of  that information.   The                                                                   
work draft  proposes to  use the  base inflation factor;  the                                                                   
average  population  and  the  consumer  price  index  (CPI).                                                                   
However, the  manner in which  the language is  written makes                                                                   
it limited to the percent of change in personal income.                                                                         
                                                                                                                                
Representative  Croft  suggested   that  would  be  the  most                                                                   
restrictive  approach that  could be  taken.   Representative                                                                   
Hawker replied  that under the economic conditions  that have                                                                   
existed in  the past few  years, it would  not result  in the                                                                   
lowest  increment.  He  had extracted  that methodology  from                                                                   
the  legislative   exchange   council's  recommendation   for                                                                   
standardized language.                                                                                                          
                                                                                                                                
Representative  Croft   countered,  it  indicates   that  the                                                                   
language  was used  because  we  have a  tax  system that  is                                                                   
generally based  on a personal  income and we would  not want                                                                   
spending to go  up higher than that.  Alaska is  not based on                                                                   
that,  but  instead  based on  oil.    It  will be  based  on                                                                   
something  totally independent  from personal  income in  the                                                                   
future.   He  reiterated  that  other states  have  radically                                                                   
different fiscal systems.                                                                                                       
                                                                                                                                
Representative Hawker  stressed that there is a  need to look                                                                   
to other  sources of revenue in  the future.  Interest  is to                                                                   
provide the  greatest assurance and possible  protection with                                                                   
a practiced  spending limit.   The intent  is to not  let the                                                                   
government grow faster than the personal income does.                                                                           
                                                                                                                                
In response  to Representative Croft's query,  Representative                                                                   
Hawker explained that  you would need to average  the rate of                                                                   
change  in the Consumer  Price  Index (CPI)  and the rate  of                                                                   
change in population.                                                                                                           
                                                                                                                                
Representative  Croft commented  that the  reason to  tie the                                                                   
spending limit to personal income  is that it would limit the                                                                   
amount taken from statewide residents.   He agreed that there                                                                   
must be  some limit in running  government services.   He did                                                                   
not think  it would limit,  cap, stop  or defer any  tax, any                                                                   
use of Permanent Fund earnings  or any change in the dividend                                                                   
structure.   It caps what government  can do.   He emphasized                                                                   
that he  would rather limit the  growth of government  by how                                                                   
much is  taken from  his pocket.   Government  is limited  in                                                                   
what it  can spend,  but not  in taxation,  which limits  the                                                                   
amount that can be put into schools and other services.                                                                         
                                                                                                                                
Representative   Hawker  asked   if  Representative   Croft's                                                                   
concern is the  surrender of taxation.  He  stressed that the                                                                   
intent is to  maintain a growth rate without  tying the hands                                                                   
of future legislatures from appropriation or taxation.                                                                          
                                                                                                                                
Representative  Croft interjected  that the  hands of  future                                                                   
legislatures are  not tied on  taxation, but they  should be.                                                                   
Instead, we are  binding the hands of future  legislatures to                                                                   
appropriate for schools and public  safety.  He stressed that                                                                   
the wrong things would be protected.                                                                                            
                                                                                                                                
Representative Hawker shared Representative  Croft's concern.                                                                   
He voiced  concern that there is  no way to know  the future.                                                                   
He  stressed that  nothing  should be  done  to restrict  the                                                                   
future and  noted that a forced  renewal by the  people would                                                                   
force a review of these issues.                                                                                                 
                                                                                                                                
HJR  9   was  HEARD  and   HELD  in  Committee   for  further                                                                   
consideration.                                                                                                                  
                                                                                                                                
                                                                                                                                
TAPE HFC 04 - 68, Side A                                                                                                      
                                                                                                                              
HOUSE BILL NO. 236                                                                                                            
                                                                                                                                
     An Act imposing a tax on employment; and providing for                                                                     
     an effective date.                                                                                                         
                                                                                                                                
Representative Hawker recommended  that the bill was ready to                                                                   
move to the House Rules Committee.                                                                                              
                                                                                                                                
Co-Chair  Harris asked  the amount  of money  a person  would                                                                   
have to earn  before they were assessed the  $100 dollar tax.                                                                   
Representative Hawker replied  $600 dollars.  Co-Chair Harris                                                                   
voiced concern that  a person would have to  pay $100 dollars                                                                   
out  of  $600  dollars  earned.     He  thought  that  was  a                                                                   
substantial amount  for a person to  have to pay with  such a                                                                   
small  income.   He  recommended that  the  earned amount  be                                                                   
raised,  having a  dramatic effect  on  someone earning  only                                                                   
$600 dollars.                                                                                                                   
                                                                                                                                
Representative Hawker  advised that at $600  dollars, the tax                                                                   
would be zero;  at $610 dollars, the tax would  be $1 dollar.                                                                   
After that,  it would  be a 10%  incremental increase  on the                                                                   
next $1,000 dollars earned.  An  aggregate earnings of $1,600                                                                   
dollars, the  tax is  zero for the  rest of the  individual's                                                                   
earnings.   He clarified that  in order to pay  $100 dollars,                                                                   
the person would have had to make $1,600 dollars.                                                                               
                                                                                                                                
Discussion    continued   between    Co-Chair   Harris    and                                                                   
Representative   Hawker.       Co-Chair   Harris   asked   if                                                                   
Representative  Hawker would  support raising  the amount  to                                                                   
$1000 dollars.   Representative Hawker replied  that they had                                                                   
discussed that  with the  sponsor of the  bill and  that $600                                                                   
dollars was  agreed upon,  and that it  is the federal  level                                                                   
for recording of self-employment  earnings.  He stated it was                                                                   
not  the substantive  issue  of the  bill.   Co-Chair  Harris                                                                   
pointed  out  that the  employer  would  have to  deduct  the                                                                   
amount from the person's check.                                                                                                 
                                                                                                                                
Co-Chair Harris  MOVED to  increase the  amount from  $600 to                                                                   
$1000 dollars.  Co-Chair Williams OBJECTED.                                                                                     
                                                                                                                                
Vice Chair Meyer  voiced concern with the amount  of overhead                                                                   
costs needed to generate such  a small amount.  He questioned                                                                   
how much the change would impact  the total amount generated.                                                                   
                                                                                                                                
MIKE WILLIAMS, (TESFITIED VIA  TELECONFERENCE), TAX DIVISION,                                                                   
DEPARTMENT OF  REVENUE, ANCHORAGE,  advised that  the revenue                                                                   
would remain  constant whether it  comes in at $600  or $1000                                                                   
dollars because  it is a  flat tax.   The tax would  generate                                                                   
approximately $43 million dollars.                                                                                              
                                                                                                                                
Co-Chair  Harris  asked  at  $1000  dollars,  would  the  Tax                                                                   
Division still  need to hire  13 full  time and 10  part time                                                                   
employees to  administer the program.   Mr. Williams  replied                                                                   
they would.   Regardless  of the  amount, the  administrative                                                                   
structure would remain the same.                                                                                                
                                                                                                                                
Co-Chair  Harris maintained  his motion  on the amendment  in                                                                   
order that low  paid workers would be able to  keep all their                                                                   
money.                                                                                                                          
                                                                                                                                
Representative  Croft  sympathized  with  the intent  of  the                                                                   
amendment.   He  pointed out  that the  amendment would  only                                                                   
help those  people earning between  $600 and $1000  dollars a                                                                   
year.   He  did not  think that  it would  be helping  anyone                                                                   
except unless there  income was very low.  He  stated that he                                                                   
was most  concerned with the  person making $12,000  dollars.                                                                   
Representative  Croft elaborated  that the  effort would  not                                                                   
have much  of an effect on the  real people who will  be hurt                                                                   
by the bill.                                                                                                                    
                                                                                                                                
A roll call vote was taken on the motion.                                                                                       
                                                                                                                                
IN FAVOR:      Stoltze, Joule, Meyer, Harris                                                                                    
OPPOSED:       Chenault, Croft, Foster, Hawker, Moses,                                                                          
               Williams                                                                                                         
                                                                                                                                
Representative Fate was not present for the vote                                                                                
                                                                                                                                
The MOTION FAILED (4-6).                                                                                                        
                                                                                                                                
Vice Chair  Meyer inquired  how the  person who has  multiple                                                                   
jobs would be handled.  Representative  Hawker responded that                                                                   
the duty  to collect is imposed  upon the employer  until the                                                                   
employee can demonstrate  to that employer that  they had the                                                                   
full amount withheld  from their wages for that  year.  There                                                                   
could  be  simultaneous  multiple   employers  or  sequential                                                                   
multiple employers.   Complete  latitude has been  given that                                                                   
as soon  as an employee can  demonstrate that they  have paid                                                                   
the  $100 dollars,  they would  have  no more  withheld.   He                                                                   
added that  there is  a provision  that in  any case  that an                                                                   
employee should  overpay the $100  dollars, they  could apply                                                                   
for a refund at the end of the year for that overpayment.                                                                       
                                                                                                                                
Vice Chair Meyer voiced concern  with that, pointing out that                                                                   
many people  have multiple jobs  throughout the year.   There                                                                   
will  be  an   extra  burden  placed  on  the   employees  to                                                                   
contribute and  for them  to keep track  of that amount.   He                                                                   
thought that  the bill  would create  extra work, burden  and                                                                   
bureaucracy on the employee.                                                                                                    
                                                                                                                                
Co-Chair  Williams reminisced  that he  had worked for  three                                                                   
employers  when the  last education  tax  was in  place.   He                                                                   
stressed  how  difficult  that  had been  not  receiving  the                                                                   
overpaid amount until  the end of the year.  If  he knew that                                                                   
if  he  could  track  of  the  amount  as  proposed  in  this                                                                   
legislation, he would have done that.                                                                                           
                                                                                                                                
Vice Chair Meyer worried that  many of these workers will not                                                                   
keep track of the amount they have paid in.                                                                                     
                                                                                                                                
Co-Chair Harris  asked if  it would take  the same  number of                                                                   
employees  to implement  a full-blown  graduated income  tax.                                                                   
Mr. Williams said  it would require a larger  number of staff                                                                   
for the  income tax,  with a  full time  staff of 80  people.                                                                   
The amount generated  would depend on the particular  bill in                                                                   
place.     Under  Governor   Knowles'  version,   the  amount                                                                   
generated   would  have  been   approximately  $350   million                                                                   
dollars.                                                                                                                        
                                                                                                                                
Representative Foster commented  on the jobs that he had when                                                                   
he was sixteen years old and the  implications of paying that                                                                   
tax had on him.                                                                                                                 
                                                                                                                                
Representative Foster MOVED to  report CS HB 236 (FIN) out of                                                                   
Committee  with  individual  recommendations   and  with  the                                                                   
accompanying fiscal notes.  There  being NO OBJECTION, it was                                                                   
so ordered.                                                                                                                     
                                                                                                                                
CS  HB  236   (FIN)  was  reported  out  of   Committee  with                                                                   
"individual recommendations"  and with  a new fiscal  note by                                                                   
the Department  of Revenue and  indeterminate note #1  by the                                                                   
Department of Labor & Workforce Development.                                                                                    
                                                                                                                                
ADJOURNMENT                                                                                                                   
                                                                                                                                
The meeting was adjourned at 3:47 P.M.                                                                                          

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