Legislature(2013 - 2014)HOUSE FINANCE 519

04/05/2013 01:30 PM FINANCE


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

Document Name Date/Time Subjects
HB 136 Sectional Analysis.pdf HFIN 4/5/2013 1:30:00 PM
HB 136
HB 136 Supporting Document ISER Report January 2013.pdf HFIN 4/5/2013 1:30:00 PM
HB 136
HB 136 Sponsor Statement .pdf HFIN 4/5/2013 1:30:00 PM
HB 136
Ak History stand 06.pdf HFIN 4/5/2013 1:30:00 PM
HB 31
BILLS-108hr1078ih.pdf HFIN 4/5/2013 1:30:00 PM
HB 31
AS 14.03.075.pdf HFIN 4/5/2013 1:30:00 PM
HB 31
BILLS-108s504rfh.pdf HFIN 4/5/2013 1:30:00 PM
HB 31
Chief Justice Walter Carpeneti.pdf HFIN 4/5/2013 1:30:00 PM
HB 31
Civic's dunces Natl.pdf HFIN 4/5/2013 1:30:00 PM
HB 31
Handouts, Morality and Common Sense - Opinion - PatriotPost.US.pdf HFIN 4/5/2013 1:30:00 PM
HB 31
HB 31 ACLU Support.pdf HFIN 4/5/2013 1:30:00 PM
HB 31
HB 31 4 AAC 04.pdf HFIN 4/5/2013 1:30:00 PM
HB 31
HB 31 AK Content History 06.pdf HFIN 4/5/2013 1:30:00 PM
HB 31
HB 31 AK ED PLAN 14 pages.pdf HFIN 4/5/2013 1:30:00 PM
HB 31
HB 31 Hb 5 Haines Support ltr.pdf HFIN 4/5/2013 1:30:00 PM
HB 5
HB 31
HB 31 HB 5 support 1.pdf HFIN 4/5/2013 1:30:00 PM
HB 5
HB 31
HB 31 HB 5 support.pdf HFIN 4/5/2013 1:30:00 PM
HB 5
HB 31
Hb 31 pricepaid.pdf HFIN 4/5/2013 1:30:00 PM
HB 31
HB 31 Sectional.pdf HFIN 4/5/2013 1:30:00 PM
HB 31
HB 31 sponsor.pdf HFIN 4/5/2013 1:30:00 PM
HB 31
HB 31 unconstitutional laws 44 pages.pdf HFIN 4/5/2013 1:30:00 PM
HB 31
HB136-NEW FN OOG-OMB-03-29-13.pdf HFIN 4/5/2013 1:30:00 PM
HB 136
HB 136 Supporting Document Powerpoint Presentation.pdf HFIN 4/5/2013 1:30:00 PM
HB 136
HB 136 CS Workdraft Supporting Document.pdf HFIN 4/5/2013 1:30:00 PM
HB 136
HB 31 Additional Support.pdf HFIN 4/5/2013 1:30:00 PM
HB 31