Legislature(2015 - 2016)HOUSE FINANCE 519

02/16/2016 01:30 PM FINANCE

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Audio Topic
01:33:40 PM Start
01:40:29 PM HB303
03:32:51 PM Adjourn
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
*+ HB 303 PERM FUND: EARNINGS, DEPOSITS, ACCOUNTS TELECONFERENCED
Heard & Held
+ Bills Previously Heard/Scheduled TELECONFERENCED
                  HOUSE FINANCE COMMITTEE                                                                                       
                     February 16, 2016                                                                                          
                         1:33 p.m.                                                                                              
                                                                                                                                
1:33:40 PM                                                                                                                    
                                                                                                                                
CALL TO ORDER                                                                                                                 
                                                                                                                                
Co-Chair Thompson called the House Finance Committee                                                                            
meeting to order at 1:33 p.m.                                                                                                   
                                                                                                                                
MEMBERS PRESENT                                                                                                               
                                                                                                                                
Representative Mark Neuman, Co-Chair                                                                                            
Representative Steve Thompson, Co-Chair                                                                                         
Representative Dan Saddler, Vice-Chair                                                                                          
Representative Bryce Edgmon                                                                                                     
Representative Les Gara                                                                                                         
Representative Lynn Gattis                                                                                                      
Representative David Guttenberg                                                                                                 
Representative Scott Kawasaki                                                                                                   
Representative Cathy Munoz                                                                                                      
Representative Lance Pruitt                                                                                                     
Representative Tammie Wilson                                                                                                    
                                                                                                                                
MEMBERS ABSENT                                                                                                                
                                                                                                                                
None                                                                                                                            
                                                                                                                                
ALSO PRESENT                                                                                                                  
                                                                                                                                
Representative Charisse Millett, Sponsor; Senator Lesil                                                                         
McGuire, Sponsor; Jesse Logan, Staff, Senator Lesil                                                                             
McGuire.                                                                                                                        
                                                                                                                                
SUMMARY                                                                                                                       
                                                                                                                                
HB 303    PERM FUND: EARNINGS, DEPOSITS, ACCOUNTS                                                                               
                                                                                                                                
          HB 303 was HEARD and HELD in committee for                                                                            
          further consideration.                                                                                                
                                                                                                                                
Co-Chair Thompson discussed the meeting agenda.                                                                                 
                                                                                                                                
HOUSE BILL NO. 303                                                                                                            
                                                                                                                                
     "An  Act   relating  to   the  Alaska   Permanent  Fund                                                                    
     Corporation,  the  earnings  of  the  Alaska  permanent                                                                    
     fund,  and the  earnings reserve  account; relating  to                                                                    
     the  mental health  trust  fund;  relating to  deposits                                                                    
     into the dividend fund; and  providing for an effective                                                                    
     date."                                                                                                                     
                                                                                                                              
REPRESENTATIVE   CHARISSE  MILLETT,   SPONSOR,  shared   her                                                                    
viewpoints regarding  the concept  of the bill.  She related                                                                    
that  the companion  bill was  SB 114 (Perm Fund:  Earnings,                                                                    
Deposits,  Accounts) introduced  by  Senator Lesil  McGuire.                                                                    
She pointed to Representative  Mike Hawker's point of market                                                                    
value  legislation [HB  224 State  Planning  & Budget;  Perm                                                                    
Fund;   PFD],  Governor   Walker's  Sovereign   Wealth  Fund                                                                    
discussion and  fiscal plan legislation and  her and Senator                                                                    
McGuire's  legislation, all  dealing with  restructuring the                                                                    
Permanent  Fund  Dividend  (PFD)   and  declared  that  each                                                                    
concept had merit.  She felt that the ideas  were worthy and                                                                    
important  discussions for  Alaskans. She  acknowledged that                                                                    
conversations concerning the  Permanent Fund were sensitive.                                                                    
She commended Governor Walker  for introducing the Sovereign                                                                    
Wealth  Fund  concept and  for  starting  the dialogue.  She                                                                    
offered  that  the  companion   Senate  bill  introduced  by                                                                    
Senator  Lesil   McGuire  contained  innovative   ideas  and                                                                    
confronted the  fact that the  state's budget  was predicted                                                                    
on the  price of oil  and the projected pipeline  flow rate.                                                                    
The bill viewed Alaska's resources  in a much different way.                                                                    
She  understood that  the bill  may  not be  the one  chosen                                                                    
through  the legislative  process  but  maintained that  the                                                                    
legislation furthered  the dialogue  and contributed  to the                                                                    
process.  She believed  that the  PFD provided  Alaskans the                                                                    
opportunity to participate in the  owner state and they came                                                                    
to rely on  their portion of the natural  resource wealth as                                                                    
part of their  income. Consequently, the concept  was not an                                                                    
easy conversation to engage in.  She shared that she thought                                                                    
"a  lot  about  what  the solution  would  look  like."  She                                                                    
reasoned that  at some  point, all of  the ideas  would make                                                                    
sense  to the  legislature  and worried  more  that no  plan                                                                    
would  be adopted.  Her fear  of doing  nothing was  greater                                                                    
than  her  fear  of  engaging in  a  conversation  regarding                                                                    
restructuring the  Permanent Fund. She had  taken a tempered                                                                    
and measured approach  to all three plans  introduced on the                                                                    
topic in the current session.                                                                                                   
                                                                                                                                
1:40:29 PM                                                                                                                    
                                                                                                                                
Representative Millett  reiterated that the PFD  concept was                                                                    
a difficult  conversation, but she believed  the legislature                                                                    
was on  the path to  "righting the  ship." She spoke  to the                                                                    
great  opportunity in  Alaska and  her desire  for continued                                                                    
prosperity   for  future   generations.  She   believed  the                                                                    
dialogue was  appropriate given the  gravity of  the current                                                                    
financial situation facing the  state. She stated that doing                                                                    
nothing  would  be  incredibly  dangerous  and  thanked  the                                                                    
committee for the opportunity to address the bill.                                                                              
                                                                                                                                
1:42:11 PM                                                                                                                    
                                                                                                                                
SENATOR  LESIL  MCGUIRE, SPONSOR,  commended  Representative                                                                    
Millett  for her  leadership  on the  bill.  She shared  her                                                                    
thoughts regarding  the House of Representatives.  She spoke                                                                    
to the  risk of putting  the legislation forward due  to the                                                                    
sensitivity  of the  topic. She  stressed that  discussing a                                                                    
different  approach for  use of  the Permanent  Fund brought                                                                    
forth  significant emotional  responses  from Alaskans.  She                                                                    
spoke to the  importance of working on the issue  of how the                                                                    
state managed  its budget. She  related her  past experience                                                                    
as a new legislator and  her surprise that the "entire state                                                                    
budget"  was  so dependent  on  the  oil commodity  and  the                                                                    
direct  correlation  between the  price  of  oil, amount  of                                                                    
throughput  and the  size of  the budget.  She learned  that                                                                    
other lawmakers had considered the  budget dependency on oil                                                                    
and  put forth  similar bills  that were  considered in  the                                                                    
past.  She  presented   a  PowerPoint  presentation  titled:                                                                    
Reducing   the  Deficit:   Investing   Alaska's  Vast   Cash                                                                    
Reserves."                                                                                                                      
                                                                                                                                
1:47:07 PM                                                                                                                    
                                                                                                                                
Senator McGuire addressed slide 2 of the legislation:                                                                           
                                                                                                                                
The Permanent Fund and the Dividend                                                                                             
                                                                                                                                
   · November 1976-Voter Approved Constitutional Amendment                                                                      
     Creating the Permanent Fund                                                                                                
   · 2/21/1977-9thLegislature                                                                                                   
     Created Permanent Fund thru CS to SS to HJR 39                                                                             
   · -to convert a part of the depleting petroleum asset                                                                        
     into a permanent and sustainable financial asset-                                                                          
     (Goldsmith, 2002)                                                                                                          
   · Zobelv.    Williams   (Argued:    10/7/1981,   Decided:                                                                    
     6/14/1982) US Supreme Court                                                                                                
     HELD: The Alaska Dividend distribution plan violates                                                                       
     the guarantees of the Equal Protection Clause of the                                                                       
     14th Amendment                                                                                                             
   · 1982 The first Permanent Fund Dividend                                                                                     
     Created by a statutory overlay on the constitution                                                                         
     (signed into law 4/16/1980)                                                                                                
                                                                                                                                
Senator  McGuire expounded  that  approximately $50  billion                                                                    
was currently in  the Permanent Fund and no  provision in HB                                                                    
303  removed the  constitutional  protection  of the  fund's                                                                    
corpus. She  mentioned thoughts  around why  the legislature                                                                    
created the Earnings Reserve Account  (ERA). She voiced that                                                                    
the  intent was  to deliver  dividends to  certain Alaskans.                                                                    
The goal  had been to reward  long-term, pioneering Alaskans                                                                    
so  they would  become  more intimately  connected with  the                                                                    
value of the  fund and share in the value  of its subsurface                                                                    
rights.  Subsequent to  the  Supreme  Court decision,  every                                                                    
citizen  of  Alaska  was  subject  to  a  minimal  residency                                                                    
requirement of two years or more in order to receive a PFD.                                                                     
                                                                                                                                
1:52:33 PM                                                                                                                    
                                                                                                                                
Senator McGuire addressed slide 3:                                                                                              
                                                                                                                                
     Is there a Problem?                                                                                                        
                                                                                                                                
     A $3.5 - $4 billion deficit                                                                                                
                                                                                                                                
   · The legislature has enacted heavy spending cuts over                                                                       
     the last 2 years                                                                                                           
   · The state has several savings accounts, but                                                                                
   · We cannot wait and hope for high oil prices                                                                                
   · The price of inaction now could be disastrous for the                                                                      
     state's future                                                                                                             
                                                                                                                                
Senator  McGuire   believed  that   "it  was   important  to                                                                    
manifestly change  the volatility of the  state's dependence                                                                    
on oil  and structurally  reflect that in  statutory changes                                                                    
to the Permanent Fund." She  stated that contrary to popular                                                                    
opinion the  legislature recently enacted heavy  budget cuts                                                                    
of almost  $1 billion that impacted  important programs. The                                                                    
cuts facing the  state during the current  session were much                                                                    
more  serious and  would affect  individual Alaskans  in all                                                                    
areas of  public services. She  stressed that  state savings                                                                    
would be gone in two years.                                                                                                     
                                                                                                                                
Senator McGuire  turned to a  graph titled  "Alaska's Fiscal                                                                    
Situation This  Year (FY  16)" on  slide 4.  She appreciated                                                                    
the simplicity  the slide  brought to  a complex  issue. The                                                                    
blue  bar depicted  the state's  total expenditure  level of                                                                    
$5.2 billion. The black bar  represented the state's revenue                                                                    
of $1.062 billion. She referred  to the state's $3.6 billion                                                                    
from savings shown  in the red as necessary to  help pay for                                                                    
expenditures. She moved to slide 5:                                                                                             
                                                                                                                                
    "The Five Stages of Grief":                                                                                                 
                                                                                                                                
     · Denial                                                                                                                   
     · Anger                                                                                                                    
     ·  Bargaining                                                                                                              
     ·  Depression                                                                                                              
     ·  Acceptance                                                                                                              
                                                                                                                                
Senator  McGuire   relayed  personal  experience   with  the                                                                    
stages. She discussed  the experience of each  of the stages                                                                    
as a  legislator in relation  to the state's  fiscal crisis.                                                                    
She highlighted slides  7 and 8 both titled  "Status Quo" in                                                                    
relation  to the  cost of  inaction.  On slide  7 the  graph                                                                    
depicted  a  large  fiscal deficit  extended  out  into  the                                                                    
future without  taking action and voiced  that doing nothing                                                                    
was "dangerous."  She addressed  slide 8 and  cautioned that                                                                    
without  adopting  any of  the  proposed  fiscal plans,  the                                                                    
graph  depicted the  end of  the dividend  program in  FY 22                                                                    
under the status  quo. She pointed to the  delineation of FY                                                                    
19, FY 20,  and FY 21 and communicated that  in those fiscal                                                                    
years the  state would spend down  the Constitutional Budget                                                                    
Reserve  (CBR) and  other  funds and  arrived  at the  point                                                                    
where only the PFD ERA  was left. The legislature would have                                                                    
to choose between funding government and paying a dividend.                                                                     
                                                                                                                                
2:01:38 PM                                                                                                                    
                                                                                                                                
Representative Wilson contended  that every presentation she                                                                    
attended on  the fiscal crisis  based information  on "doing                                                                    
nothing." She offered  that the plan of action  needed to be                                                                    
determined  and  that  the  legislature  was  aware  of  the                                                                    
situation. Senator  McGuire agreed  with the  statement. She                                                                    
believed that  the issue  may have gotten  lost in  the news                                                                    
cycle.  She noted  that the  House was  taking the  historic                                                                    
step to only  focus on the budget issue.  She was attempting                                                                    
to provide a  baseline for comparison about  where the state                                                                    
would  be if  nothing was  done. She  pointed out  that some                                                                    
people  still believed  that it  was possible  to receive  a                                                                    
dividend  and not  make a  structural change  and wanted  to                                                                    
relay the opposite message to the public.                                                                                       
                                                                                                                                
Representative Edgmon pointed to slide  5. He shared that he                                                                    
had also been  using the same talking points  in his office.                                                                    
He believed  most legislators vacillated  between depression                                                                    
and  acceptance;  whereas, constituents  vacillated  between                                                                    
denial and anger. He felt  that legislators were tasked with                                                                    
"bridging  the gap"  and  help  constituents understand  the                                                                    
issue.  He applauded  the sponsors  for coming  forward with                                                                    
the legislation.                                                                                                                
                                                                                                                                
Representative  Gara believed  that Senator  McGuire's views                                                                    
on doing  nothing were "fair."  He stated that if  the state                                                                    
did  not  also  raise  revenues the  deficit  would  not  be                                                                    
solved. He stressed that it  was necessary to consider every                                                                    
option.  He   understood  the  frustrations   regarding  the                                                                    
publics' lack of knowledge of  the $1 billion in budget cuts                                                                    
that  were   already  enacted  and  felt   that  action  was                                                                    
imperative.                                                                                                                     
                                                                                                                                
2:06:22 PM                                                                                                                    
                                                                                                                                
Senator McGuire turned to slide  9 also titled "Status Quo."                                                                    
She  relayed that  she would  begin using  the term  "status                                                                    
quo"  as opposed  to  "doing nothing,"  which  she felt  was                                                                    
"vernacularly  charged."  She  pointed   to  the  bar  chart                                                                    
showing the CBR  and General Fund (GF) revenues  in blue and                                                                    
the ERA  in green, both  equaled about $7 billion  each. She                                                                    
explained  that  both  of  the   funds  were  available  for                                                                    
spending by  the legislature without a  constitutional vote.                                                                    
The CBR required a three-quarters  vote and the ERA required                                                                    
a simple majority  vote. If the status quo  continued, by FY                                                                    
18 the CBR  would be drained and the  legislature arrived at                                                                    
the  point  of deciding  whether  to  issue  a PFD  or  fund                                                                    
government.                                                                                                                     
                                                                                                                                
2:09:22 PM                                                                                                                    
                                                                                                                                
Senator McGuire addressed slide 10:                                                                                             
                                                                                                                                
A Path Forward                                                                                                                  
We need a plan to address the problem.                                                                                          
     In crafting this plan I had these principles in mind:                                                                      
     The solution needed to:                                                                                                    
                                                                                                                                
        1. Retain a dividend                                                                                                    
        2. Reduce the volatility in the state budget                                                                            
        3. To clearly expose the size and cost of government                                                                    
          -so that downward pressure would ensure that                                                                          
          Alaskans could begin an honest assessment of                                                                          
          needs vs. wants                                                                                                       
        4. Be enduring to allow maximum use of our wealth                                                                       
          over generations so that benefits and burdens are                                                                     
          shared                                                                                                                
        5. Be Simple and Easy to implement                                                                                      
                                                                                                                                
Senator  McGuire  announced  that the  bill  was  completely                                                                    
created  by   her  and  her  staff,   with  assistance  from                                                                    
economists,  reviews of  previous  similar legislation,  the                                                                    
Legislative Finance  Division (LFD), and  specifically David                                                                    
Teal,  Director, LFD.  She stressed  that "no  outside group                                                                    
that is  not elected  created this plan."  She spoke  of the                                                                    
various elements she focused on  when formulating the fiscal                                                                    
plan. She felt  that it was imperative that  a plan retained                                                                    
a  dividend  and  her  bill   offered  the  only  plan  that                                                                    
guaranteed a $1,000 dividend. She  believed it was important                                                                    
to retain  the dividend because  the program was  created by                                                                    
the ninth  Alaskan legislature to "hand  out dividend checks                                                                    
to share the  wealth of our subsurface rights  that are non-                                                                    
renewable  resources  with  Alaskans…" and  to  connect  the                                                                    
public to  the Permanent  Fund and  its value.  In addition,                                                                    
she  remarked on  the economic  disparity between  rural and                                                                    
urban Alaska and noted that  the "dividend had been factored                                                                    
in as people's income,"  which affected people's livelihood.                                                                    
She  related  personal  experience regarding  receiving  her                                                                    
first  permanent  fund  dividend   check  and  her  family's                                                                    
decision to save  the checks for each  sibling's future. She                                                                    
shared her father's feelings about  the creation of the PFD.                                                                    
He  believed the  decision to  pay dividends  was the  worst                                                                    
thing that  had ever  happened to the  state because  of the                                                                    
dependency it  would create. However, she  strongly believed                                                                    
the dividend program must be maintained.                                                                                        
                                                                                                                                
2:16:34 PM                                                                                                                    
                                                                                                                                
Senator McGuire continued to address  slide 10. She declared                                                                    
that a  plan had to  address reducing the volatility  in the                                                                    
state's  budget.  She  delineated that  commodities  by  its                                                                    
nature  were   volatile  and   value  was   created  through                                                                    
"perception"  and that  oil cartels  like Oil  Producing and                                                                    
Exporting  Countries (OPEC)  played  a role  in driving  the                                                                    
price  of oil.  She stated  that planning  a state's  budget                                                                    
based on a  commodity price was a "terrible  way" to balance                                                                    
a  budget. She  revealed that  the bill  was not  a complete                                                                    
solution;  it dealt  with one  part of  the state's  largest                                                                    
asset but  did not define  the adequate size  of government.                                                                    
She  believed  that  point  4  on the  slide  was  the  most                                                                    
important  of all  of her  stated  principles. She  reasoned                                                                    
that  in  order to  keep  building  the state  and  preserve                                                                    
wealth  over generations  the ERA  should be  taken off  the                                                                    
table and  shared into  the future  instead of  being spent.                                                                    
She  warned  that  if  the legislature  did  not  adopt  the                                                                    
legislation  or something  similar the  principle in  item 4                                                                    
was not  attainable. She  shared that she  voted for  a POMV                                                                    
bill  as part  of a  bipartisan  coalition in  the House  in                                                                    
2004, which the Senate failed  to adopt and that if adopted,                                                                    
the  state would  be financially  stable today  and the  PFD                                                                    
would have  been relatively unaffected.  She read  the quote                                                                    
on  the slide  by Albert  Einstein, "If  I had  one hour  to                                                                    
solve a  problem, I  would spend  55 minutes  thinking about                                                                    
the problem and 5 minutes thinking about the solution."                                                                         
                                                                                                                                
2:20:05 PM                                                                                                                    
                                                                                                                                
Representative Kawasaki thanked  the sponsors for presenting                                                                    
the  bill. He  addressed Senator  McGuire's comment  that no                                                                    
one else was responsible  for the legislation. He referenced                                                                    
a talking  points memo on  SB 114 distributed by  Ben Sparks                                                                    
on behalf of  the American Federation of  Labor and Congress                                                                    
of  Industrial   Organizations  (AFL-CIO)   president  Vince                                                                    
Beltrami  and  General   Communications  Incorporated  (GCI)                                                                    
President Ron Duncan  and wondered why it  was available [in                                                                    
the backup packet for SB  114 - available on BASIS]. Senator                                                                    
McGuire explained  that she  had introduced  the legislation                                                                    
the  past April  prior to  interim  to allow  a dialogue  to                                                                    
develop  around  SB 114.  During  the  interim the  Governor                                                                    
assembled  a 35  member  panel of  Alaskans  to address  the                                                                    
fiscal crisis. She  was contacted by Mr.  Duncan last August                                                                    
and relayed that he had  been a constituent years ago. After                                                                    
finding her bill  in a packet of  fiscal options distributed                                                                    
by  the  governor, Mr.  Duncan  requested  meeting with  the                                                                    
Senator and  offered his assistance. She  weighed whether to                                                                    
enlist  his  help  launching  a  public  relations  campaign                                                                    
promoting the  legislation. She could not  remember a single                                                                    
major issue in  Alaska that was not  decided without private                                                                    
sector groups weighing  in. She thought it  would be helpful                                                                    
to  hear from  a  diverse group  of  Alaskans and  suggested                                                                    
picking a  politically neutral  woman to  lead a  group. She                                                                    
continued that  in the  meantime, GCI  and AFL-CIO  formed a                                                                    
group  to  promote  the  idea of  solving  the  deficit  and                                                                    
examined all of the fiscal plans.                                                                                               
                                                                                                                                
2:25:27 PM                                                                                                                    
                                                                                                                                
Senator  McGuire  continued  that the  talking  points  were                                                                    
widely   distributed  by   the  group   as  part   of  their                                                                    
educational  campaign  and she  was  not  associated in  its                                                                    
authorship. She was  not sure how the  document received its                                                                    
title listing  the specific names.  She suggested  that many                                                                    
private  entities   typically  weighed  in  and   wanted  to                                                                    
influence the  dialogue on legislation. She  emphasized that                                                                    
"the  bill was  home  grown." She  welcomed  that the  group                                                                    
promoted dialogue and disseminated  information about SB 114                                                                    
and the other fiscal plan bills.                                                                                                
                                                                                                                                
Representative  Kawasaki  thought  that  the  title  created                                                                    
perception  that  SB 114  and  HB  303  was their  bill.  He                                                                    
understood that  many lobbyists  were being  hired regarding                                                                    
the issue. He wanted the  public to understand that his vote                                                                    
would not be influenced by a lobbyist.                                                                                          
                                                                                                                                
Representative  Millett  declared  that   a  bill  that  she                                                                    
sponsored or  supported "rose to  the top" on the  merits of                                                                    
the  bill  and she  wanted  to  have  her statement  on  the                                                                    
record. She  restated that  she sponsored  HB 303  solely on                                                                    
the bill's merit.                                                                                                               
                                                                                                                                
Senator McGuire  shared that her staffer  Jesse Logan worked                                                                    
arduously with  her on the bill  and was a resource  for any                                                                    
legislator with questions.                                                                                                      
                                                                                                                                
2:31:50 PM                                                                                                                    
                                                                                                                                
Representative  Gattis voiced  that she  remained undecided,                                                                    
but  she  appreciated  the conversation.  She  thought  that                                                                    
"everything should be  on the table." She  looked forward to                                                                    
hearing more about the bill.                                                                                                    
                                                                                                                                
Vice-Chair Saddler appreciated the  passion and the solution                                                                    
Senator McGuire  was offering and  for placing the  issue in                                                                    
"context." He requested more details about the legislation.                                                                     
                                                                                                                                
Senator McGuire briefly mentioned slide 11:                                                                                     
                                                                                                                                
What HB303 IS NOT                                                                                                               
                                                                                                                                
     It is NOT                                                                                                                  
                                                                                                                                
     •A Raid on the Permanent Fund                                                                                              
                                                                                                                                
          constitutional amendment                                                                                              
                                                                                                                                
          Reserve Account                                                                                                       
     •A way for Government to increase the Budget                                                                               
     •A Dividend Killer                                                                                                         
                                                                                                                                
Senator McGuire briefly addressed slide 12:                                                                                     
                                                                                                                                
What HB303 IS                                                                                                                   
                                                                                                                                
It IS                                                                                                                           
                                                                                                                                
     •A way to connect Alaskans directly to their share of                                                                      
     the Natural Resources                                                                                                      
     •A way to protect your dividend into the future                                                                            
     •Without a structural change, the dividend will go                                                                         
     away in a few short years                                                                                                  
     •A way to ensure that services you enjoy continue to                                                                       
     be provided                                                                                                                
     •Police (public Safety)                                                                                                    
     •Firefighters                                                                                                              
     •Roads                                                                                                                     
     •Education                                                                                                                 
     •Health and Human Services                                                                                                 
     •The Marine Highway                                                                                                        
     •Parks and Recreation                                                                                                      
     •Fish and Game management                                                                                                  
                                                                                                                                
Senator McGuire voiced that the  slide emphasized that every                                                                    
Alaskan depended on government  in some way. She highlighted                                                                    
slide 13  titled "Impacts of  Selected Options  for Reducing                                                                    
the Deficit  by $100  million Job  Loss" authored  by Gunnar                                                                    
Knapp, Director, University  of Alaska Anchorage's Institute                                                                    
of Social and Economic  Research (ISER) for the publication,                                                                    
Alaska Business Monthly 2016. She  summarized that the graph                                                                    
depicted that every  job had a value associated  with it and                                                                    
job loss impacted the economy.                                                                                                  
                                                                                                                                
Vice-Chair  Saddler pointed  to  slide 13  and endorsed  the                                                                    
information on the  graph as the best metric  to measure the                                                                    
impacts  from  the  various  deficit  reducing  options  and                                                                    
encouraged everyone to read the article.                                                                                        
                                                                                                                                
2:34:09 PM                                                                                                                    
                                                                                                                                
Senator McGuire agreed with Vice-Chair Saddler. She skipped                                                                     
slide 14. She underlined slide 15:                                                                                              
                                                                                                                                
HB 303 Spending Limitations? Volatility in Commodity Prices                                                                     
                                                                                                                                
     •The Legislature could consider some of the following                                                                      
     to reduce volatility:                                                                                                      
                                                                                                                                
          o Language that says "FY(x) appropriation cannot                                                                      
             exceed 110% or 120% of previous years draw" -                                                                      
             can pick a number.                                                                                                 
          o POMV could be a range of % depending on                                                                             
             returns, oil tax revenue, cash flow needs,                                                                         
             capital project outlays, etc…                                                                                      
          o i.e.-POMV could equal 2%-8% to fill the budget                                                                      
             deficit, "whichever is less"                                                                                       
                                                                                                                                
        · Can create an overall spending cap                                                                                    
                                                                                                                                
Senator McGuire related that she welcomed ideas and                                                                             
amendments regarding a spending limit and felt one was                                                                          
necessary.                                                                                                                      
                                                                                                                                
Senator McGuire moved to slide 16:                                                                                              
                                                                                                                                
A $3.5-4Billion Deficit-volatility in Commodity Prices                                                                          
                                                                                                                                
     We have seen this before for decades                                                                                       
     Oil Price x Volume = State Budget                                                                                          
                                                                                                                                
     This has been Volatile and Unstable                                                                                        
                                                                                                                                
     We have been saved in the past by rebounding oil                                                                           
     prices                                                                                                                     
     What is different today is:                                                                                                
          We no longer have the volume                                                                                          
          (oil would need to be over $108bbl to balance the                                                                     
          budget)                                                                                                               
                                                                                                                                
     Einstein said "We cannot solve our problems with the                                                                       
     same level of thinking that created them."                                                                                 
                                                                                                                                
Senator McGuire  skipped slide  17. She  turned to  slide 18                                                                    
that depicted 2  graphs that were a mixture of  a variety of                                                                    
graphs  that illustrated  the actual  price of  oil and  the                                                                    
forecasted price  of oil for  West Texas  Intermediary (WTI)                                                                    
and  Brent   oil  prices.  She  reported   that  the  graphs                                                                    
demonstrated that  predictions were  "always wrong"  and the                                                                    
difficulty in forecasting commodity prices.                                                                                     
                                                                                                                                
2:37:44 PM                                                                                                                    
                                                                                                                                
Senator McGuire  briefly moved to  slide 19  which portrayed                                                                    
another  graph  showing  the  actual   price  of  crude  oil                                                                    
provided   by   the   United   States   Energy   Information                                                                    
Administration (USEIA).                                                                                                         
                                                                                                                                
Co-Chair  Neuman  asked what  the  oil  price the  bill  was                                                                    
predicated on  was. Senator McGuire  replied that  the price                                                                    
of  oil  was  an  "amalgamation" of  approximately  $30  per                                                                    
barrel. She stated that she  could consider a model based on                                                                    
$50   per   barrel.  She   explained   that   there  was   a                                                                    
"probabilistic"  method  and   an  "actualistic"  method  to                                                                    
employ  in the  calculation  and she  chose the  actualistic                                                                    
way. A model  of the plan developed by a  private group made                                                                    
calculations based  on different variables.  Co-Chair Neuman                                                                    
asked what numbers the presentation was based on.                                                                               
                                                                                                                                
JESSE LOGAN, STAFF, SENATOR LESIL  MCGUIRE, replied that the                                                                    
models  in the  slide deck  were  produced by  LFD based  on                                                                    
Department of Revenue (DOR), Revenue Source book data.                                                                          
                                                                                                                                
Co-Chair  Neuman asked  whether  the DOR  data  was $50  per                                                                    
barrel.  Senator   McGuire  deferred   to  Mr.   Logan.  She                                                                    
clarified  that when  she began  modeling for  the bill  the                                                                    
price  of oil  slid  from $52  to $30.  She  added that  the                                                                    
governor  employed a  probabilistic model  and she  chose to                                                                    
use the actual based on the Revenue Source book.                                                                                
                                                                                                                                
Mr. Logan  expounded that the governor's  model employed the                                                                    
probabilistic  economic  model  that  provided  a  range  of                                                                    
probable  outcomes   and  a   variable  percentage   on  the                                                                    
likelihood  of the  outcome happening.  He  stated that  the                                                                    
bill  employed the  "deterministic"  model used  by LFD  for                                                                    
budgeting  purposes. Ultimately,  the numbers  in the  model                                                                    
presented at  the end  of the slide  deck were  derived from                                                                    
the  Revenue Source  Book. Co-Chair  Neuman  wanted to  know                                                                    
what  value for  the price  was used  because the  price was                                                                    
directly connected to the evaluation  of the "effects of the                                                                    
budget  deficit"  employed  in  the  bill's  model.  Senator                                                                    
McGuire   stated  that   the  model   had  been   a  "moving                                                                    
conversation" and  when in comparison  to other  fiscal plan                                                                    
legislation a similar price should  be used to get "the full                                                                    
impact" of each plan.                                                                                                           
                                                                                                                                
2:41:34 PM                                                                                                                    
                                                                                                                                
Senator McGuire skipped slide 20. She addressed slide 21:                                                                       
                                                                                                                                
A $3.5-4Billion Deficit                                                                                                         
                                                                                                                                
     •Oil Price Projections have been inaccurate                                                                                
     •Is the International Oil Market fundamentally                                                                             
     different now?                                                                                                             
          •Perhaps                                                                                                              
                                                                                                                                
     •Should we bet on oil prices to save us in the future?                                                                     
          •A better question:                                                                                                   
               Should we bet our future on oil prices?                                                                          
                                                                                                                                
Senator McGuire  skipped slide  22. She  turned to  slide 23                                                                    
which   contained  a   graph   depicting,"  Historical   and                                                                    
Projected  End-of-Year Balances  of  State  Reserve Funds  -                                                                    
(excluding Permanent  Fund)." She detailed that  in 2008 and                                                                    
2009  the price  of  oil was  up to  $147  per barrel  under                                                                    
Alaska's Clear and Equitable Share  (ACES). The cream colors                                                                    
on  top  of  the  blue   bars  depicted  deposits  into  the                                                                    
Statutory Budget  Reserve Fund  (SBR). She pointed  out that                                                                    
the state  had saved  money but in  2015 began  spending CBR                                                                    
funds. She pointed  to slide 24 titled "How  We Are Spending                                                                    
$5.2  billion in  FY  16." The  chart  depicted spending  by                                                                    
department  and  she  noted that  the  two  largest  budgets                                                                    
belonged  to the  Department of  Health and  Social Services                                                                    
(DHSS)  and Department  of Education  and Early  Development                                                                    
(DEED). She  voiced that even  if the legislature  cut every                                                                    
single  government   job  and   service  provided   by  both                                                                    
departments  there would  still be  a deficit.  She examined                                                                    
slide  25 titled  "Potential  New  Revenue From  Sustainable                                                                    
Alaska  Plan." She  reported that  the graph's  numbers were                                                                    
based on the  governor's probabilistic model and  on his tax                                                                    
rates which showed generating $457  million in revenue and a                                                                    
remaining deficit of $3.6 billion.  She ascertained from the                                                                    
slide  that  revenue  generating devices  did  not  generate                                                                    
enough  revenue   to  close  the  deficit,   which  was  why                                                                    
Permanent Fund restructuring was necessary.                                                                                     
                                                                                                                                
2:44:18 PM                                                                                                                    
                                                                                                                                
Senator McGuire addressed slide 26:                                                                                             
     We cannot close the gap with cuts or new broad-based                                                                   
     revenue ALONE.                                                                                                           
                                                                                                                                
     A sound fiscal solution will necessarily involve using                                                                     
     the Permanent Fund.                                                                                                        
                                                                                                                                
Senator  McGuire briefly  addressed  the graph  on slide  27                                                                    
titled "FY  16 Agency Share  of Total Agency  Operations and                                                                    
the  Appropriation   for  Permanent  Fund   Dividends."  She                                                                    
indicated  that the  single largest  budget item  was paying                                                                    
out the  PFD dividends  from the ERA.  She pointed  out that                                                                    
the fund  was inflation proofed by  approximately $1 billion                                                                    
and  the total  for FY  16 was  $2.4 billion.  She addressed                                                                    
slide 28  which compared  HB 303  with the  governor's bill.                                                                    
Slide 28:                                                                                                                       
                                                                                                                                
SB 128 (APFPA) vs HB 303 Key Elements                                                                                           
                                                                                                                                
   · Royalties go to Dividend under both plans                                                                                  
        o PFPA = 50% of Royalties (~$1,000 dividend and                                                                         
          falling)                                                                                                              
        o HB303= 74.5% of Royalties (nearly 50% Higher                                                                          
          Dividend)                                                                                                             
   · $1,000 minimum                                                                                                             
   · PFPA plan moves CBR and Oil tax revenue into Earnings                                                                      
     Reserve Account                                                                                                            
        o There are possible legal issues regarding the CBR                                                                     
          sweep                                                                                                                 
   · PFPA plan is NOT a POMV                                                                                                    
        o Targets a set number ($3.3B) for withdrawal and                                                                       
          spending                                                                                                              
        o This is telling the legislature you have "x"                                                                          
          amount to spend every year                                                                                            
   · Does not adjust to market returns and actual earning                                                                       
     of the ERA                                                                                                                 
   · HB303 does not change oil tax revenue (still straight                                                                      
     to GF)                                                                                                                     
   · AFPA is designed as an annuity-looks 25 years into the                                                                     
     future: Foresight                                                                                                          
   · POMV is based on actual values-Looks 5 years into the                                                                      
     past: Hindsight                                                                                                            
                                                                                                                                
2:48:30 PM                                                                                                                    
                                                                                                                                
Senator McGuire  delineated that  the governor's plan  set a                                                                    
dollar amount  target based on  25 years into the  future of                                                                    
actuarial  evidence. She  emphasized  that a  POMV plan  was                                                                    
based  on actual  values, which  she  strongly favored.  She                                                                    
commented  that  POMV was  a  tested  method of  managing  a                                                                    
corpus of  money allowing  a certain  amount of  earnings to                                                                    
spin off  as usable  funds and kept  the corpus  viable into                                                                    
the  future. She  moved  to slide  30  titled "Current  Cash                                                                    
Flow" which she  considered the "plumbing" of  the plan. She                                                                    
addressed  the current  cash  flow chart  on  slide 30.  She                                                                    
explained  that  .05 percent  of  the  royalties went  to  a                                                                    
Public School Trust Fund, roughly  30 percent were deposited                                                                    
into  the Permanent  Fund Principal  and approximately  69.5                                                                    
percent was moved into the  GF. She noted the representation                                                                    
of the  CBR that was outside  of the GF and  used in deficit                                                                    
spending needed  a three-quarter  vote to access  the funds.                                                                    
She identified  slide 31  titled "HB  303 Change  1. Royalty                                                                    
Percentage."  She  revealed  that the  legislation  proposed                                                                    
changing the  royalty percentages.  She referenced  slide 32                                                                    
titled "HB  303 Change 2.  Add POMV Payout."  She elaborated                                                                    
that  25  percent  was deposited  into  the  Permanent  Fund                                                                    
principal and 74.5  percent was deposited into the  GF and 5                                                                    
percent of the total was  deposited into the GF. She skipped                                                                    
slide 33.  She moved to  slide 34  titled "HB 303  Change 4.                                                                    
Dividend Source  and Calculation."  She elucidated  that the                                                                    
25  percent deposit  into the  Permanent Fund  principal was                                                                    
permanent and  designed to grow  the fund. However  the bill                                                                    
included  a new  way to  pay out  the dividend.  She offered                                                                    
that currently  the ERA  payed out  dividend checks.  HB 303                                                                    
created  a new  dividend fund  utilizing 75  percent of  the                                                                    
royalty  stream.  The earnings  from  the  principal of  the                                                                    
Permanent Fund were  distributed into the ERA  and 5 percent                                                                    
of the POMV draw was deposited  into the GF. The GF remained                                                                    
the  same. She  emphasized that  the "major  shift" was  the                                                                    
creation  of a  new dividend  fund using  75 percent  of the                                                                    
prior year's royalties to pay the dividend.                                                                                     
                                                                                                                                
2:53:43 PM                                                                                                                    
                                                                                                                                
Senator McGuire reviewed slide 35:                                                                                              
                                                                                                                                
HB 303: The SWAP-Rents and Royalties                                                                                            
                                                                                                                                
     •Currently,                                                                                                                
          •30% of all Royalties and Rents from                                                                                  
          •Oil, Gas and Federal Mining revenue                                                                                  
         •Deposited into the Permanent Fund corpus                                                                              
          •0.5% to School Trust Fund                                                                                            
          •69.5% deposited to General Fund                                                                                      
Senator McGuire read slide 36:                                                                                                  
                                                                                                                                
HB 303: Rents and Royalties to Dividend                                                                                         
                                                                                                                                
     •74.5% of all R&R would be deposited into the Dividend                                                                     
      Fund                                                                                                                      
     •No Permanent Fund Earnings would be used for Dividend                                                                     
     •SB 114: puts a floor (guarantee) of $1,000 Dividends                                                                      
                                                                                                                                
Senator  McGuire warned  that maintaining  a $1000  dividend                                                                    
might involve a policy  decision regarding withdrawing funds                                                                    
from savings depending on the price of oil.                                                                                     
                                                                                                                                
Senator McGuire underlined slide 37:                                                                                            
                                                                                                                                
 HB 303: PF Reserve Earnings Account and the General Fund                                                                       
                                                                                                                                
   · The exchange for R&R to Dividend Fund:                                                                                     
   · 5% of the total value of the Permanent Fund (Corpus +                                                                      
     ERA)                                                                                                                       
          Withdrawn from ERA Deposited into General Fund                                                                        
                                                                                                                                
   · This is often called a Percent of Market Value (POMV)                                                                      
     concept                                                                                                                    
   · Returns on PF investments average more than 5%                                                                             
             o Thus you inflation proof the PF plus the 25%                                                                     
               R&R deposit                                                                                                      
               The PF continues to grow                                                                                         
                                                                                                                                
Senator McGuire  informed the committee that  the net effect                                                                    
of the  ERA withdraw was  roughly $2 billion.  She indicated                                                                    
that  currently  the  Senate  State  Affairs  Committee  was                                                                    
discussing  SB  114 and  the  unresolved  issues regarded  a                                                                    
spending  cap, inflation  proofing,  and whether  or not  to                                                                    
hold a constitutional vote. She illuminated slide 38:                                                                           
                                                                                                                                
HB 303:  PF Reserve  Earnings Account  and the  General Fund                                                                    
Inflation Proofing?                                                                                                             
                                                                                                                                
Callan's Est. Return on Permanent Fund Investments = 6.9%                                                                       
                                         POMV Draw = 5%                                                                         
                   To the Earnings Reserve Account = 1.9%                                                                       
                                                                                                                                
To the Corpus of the Permanent Fund = 25% of Royalties                                                                          
                    Total Royalties $961M * 25%= $240M                                                                          
                                                                                                                                
Senator McGuire  indicated that the  only way to  maintain a                                                                    
healthy Permanent Fund corpus  was by inflation proofing the                                                                    
fund. She  relayed that  Angela Rodell,  Executive Director,                                                                    
Alaska  Permanent Fund  Corporation reported  that over  the                                                                    
life  of the  fund the  legislature "injected  an additional                                                                    
$16 billion to inflation proof  the corpus of the fund." She                                                                    
announced that the  yearly budget line item  of between $703                                                                    
million to  $1 billion to  inflation proof the fund  was "in                                                                    
effect, a direct injection of  new capital into the corpus."                                                                    
She  noted that  roughly 80  percent  of all  of the  funds'                                                                    
assets self-inflation proof.                                                                                                    
                                                                                                                                
2:57:43 PM                                                                                                                    
                                                                                                                                
Co-Chair  Thompson  turned  the  gavel  over  to  Vice-Chair                                                                    
Saddler.                                                                                                                        
                                                                                                                                
Representative Gara  pointed to  slide 34.  He spoke  to the                                                                    
ERA.   He  stated   that  the   current   ERA  balance   was                                                                    
approximately $7 billion and wondered  how the POMV approach                                                                    
would  work in  a  "sub-par  year." He  stated  that a  $2.5                                                                    
billion  yearly  withdrawal  may  or  may  not  deplete  the                                                                    
earnings  reserve. He  wondered  about the  chances of  "bad                                                                    
market  returns" emptying  out the  reserve making  the $2.5                                                                    
billion  unavailable for  spending. Senator  McGuire replied                                                                    
that the bill was a  conversation starter and the mechanisms                                                                    
could  be altered.  She encouraged  the committee  to invite                                                                    
Angela Rodell,  to speak to  the issue before  the committee                                                                    
due to  her fact based historical  perspective. She answered                                                                    
that the  5 percent POMV draw  could be changed in  a number                                                                    
of ways.  She elucidated that  changes could be  a different                                                                    
exact percentage  or range  of percentages.  She highlighted                                                                    
one possibility that  was a POMV of 5 percent  over the past                                                                    
5 years.  She stated the  approach was more  stable. Another                                                                    
option was  to hold  an election to  open up  the principal.                                                                    
She relayed  that Director Rodell offered  the suggestion so                                                                    
in a bad  year money would be withdrawn  from the principal.                                                                    
She offered that  in an underperforming year  under the bill                                                                    
funds  were drawn  from  the  CBR. She  warned  that if  the                                                                    
legislature waited two  years to act the CBR  would be empty                                                                    
and only  the ERA  funds remained, which  left "a  much more                                                                    
narrow set  of circumstances" to operate  under. She pointed                                                                    
to  revenue  generation or  oil  tax  credit adjustments  as                                                                    
options. She agreed  that the 5 percent POMV  was an average                                                                    
that may  recoup $3  or $4  billion in  high years  and $1.2                                                                    
billion in low  years and that considering  outcomes and the                                                                    
"full construct" was necessary.  She recommended the POMV of                                                                    
5  percent over  the past  5  years as  a relatively  stable                                                                    
approach.                                                                                                                       
                                                                                                                                
3:03:18 PM                                                                                                                    
                                                                                                                                
Representative    Pruitt     appreciated    the    Senator's                                                                    
presentation.  He relayed  Commissioner Hoffbeck's,  Randall                                                                    
Hoffbeck,   Commissioner,   Department  of   Revenue   (DOR)                                                                    
comments  regarding the  difficulty to  maintain the  $1,000                                                                    
dividend  under  her  plan.   He  asked  for  the  Senator's                                                                    
thoughts.  Senator McGuire  responded  that  she had  spoken                                                                    
with   Commissioner  Hoffbeck.   She   mentioned  that   the                                                                    
governor's  plan  was  entirely  different.  The  governor's                                                                    
approach embraced a variety of  measures under a high degree                                                                    
of certainty  to fill  the budget  deficit. His  plan needed                                                                    
the  formula to  equal  roughly $2.5  billion and  addressed                                                                    
volatility by  decreasing or  not paying  out a  dividend in                                                                    
favor of  a guaranteed  amount for government  spending. She                                                                    
explained that  her bill proposed to  change the fundamental                                                                    
structure  of  the fund  to  provide  "more stability."  She                                                                    
reiterated  that government  jobs had  value and  government                                                                    
services  had  value  and  eliminating  volatility  signaled                                                                    
stability  to  the  "tight nexus…  between  the  public  and                                                                    
private sectors." She  believed that was the  reason for the                                                                    
interest from  the private  sector groups  in adoption  of a                                                                    
fiscal  plan.  She  discussed the  policy  decision  HB  303                                                                    
induced regarding  using money  from savings to  guarantee a                                                                    
$1,000 dividend.                                                                                                                
                                                                                                                                
3:07:29 PM                                                                                                                    
                                                                                                                                
Representative  Kawasaki asked  how  structurally sound  the                                                                    
plan  would  be  going  forward especially  in  the  5  year                                                                    
average scenario.  He stated that in  9 out of 30  years the                                                                    
earnings  reserve  yields  were  negative.  Senator  McGuire                                                                    
responded that  she would provide  a slide to  the committee                                                                    
that  contained the  data  on the  ERA  percentages and  the                                                                    
yields  over  the  years   and  agreed  with  Representative                                                                    
Kawasaki  regarding the  variable returns  for the  ERA. She                                                                    
explained  that "some  volatility  was contained  in a  POMV                                                                    
approach."  She  thought the  plan  was  still "light  years                                                                    
ahead" when compared to current  budgeting. She did not know                                                                    
the  exact  amount  the POMV  returns  would  generate.  She                                                                    
reiterated  that it  would  be helpful  to  have Ms.  Rodell                                                                    
offer a  factual perspective  regarding the  Permanent Fund.                                                                    
She recommended  discussions involving  all of  the possible                                                                    
options.                                                                                                                        
Mr. Logan added  that when averaging the last  five years of                                                                    
ERA returns the  real draw was roughly 3.87  to 4.81 percent                                                                    
depending  on  the range  of  volatility  and with  targeted                                                                    
returns at  6.9 percent  and real returns  at 5  percent the                                                                    
actual  draw was  less than  what  the ERA  was earning.  He                                                                    
agreed with Representative  Kawasaki's point. Representative                                                                    
Kawasaki remarked that 2010 netted  poor returns for the ERA                                                                    
and the state was barely able to pay out dividend checks.                                                                       
                                                                                                                                
Senator McGuire  returned to slide  23 and pointed  out that                                                                    
in 2010 because  oil had been so high, under  ACES the state                                                                    
was  doing  quite well  and  had  put  $1.2 billion  in  its                                                                    
statutory  savings  account.  She   felt  that  it  was  "so                                                                    
disconnected there were absurdities in both ways."                                                                              
                                                                                                                                
3:12:39 PM                                                                                                                    
                                                                                                                                
Representative  Kawasaki clarified  that  the targeted  draw                                                                    
from  the ERA  was between  $2.7 billion  and $4.1  billion.                                                                    
Senator McGuire answered  in the affirmative. Representative                                                                    
Kawasaki  relayed  that  the   governor's  bill  proposed  a                                                                    
statutory draw  and he  believed some  people may  favor the                                                                    
more stable  approach. He  thought the  draw proposed  in HB                                                                    
303  was  more  volatile  and wondered  why  the  governor's                                                                    
approach  was "not  a  better way  to  go." Senator  McGuire                                                                    
replied   that  the   governor's   plan   had  a   different                                                                    
philosophical  approach. She  declared that  she "was  happy                                                                    
with  the  solution"  [in  HB 303].  However,  she  did  not                                                                    
believe she was more right  than anyone else. If through the                                                                    
deliberative  process, the  legislature decided  the annuity                                                                    
based direct  payment model was  the best option,  she would                                                                    
support it. She  furthered that her goal was  to address the                                                                    
largest singular  budget issue, which  she felt was  the PF.                                                                    
She  agreed that  the POMV  was a  little more  volatile but                                                                    
thought  that it  offered much  more  budget stability.  The                                                                    
approach  was  recognized over  decades  of  review and  use                                                                    
globally, and  maintained a structure  that was  defined and                                                                    
upheld in  state statute. She  discussed the  possible legal                                                                    
contests with restructuring  established state accounts. She                                                                    
reiterated that she favored the  POMV approach and liked the                                                                    
idea  of  creating a  dividend  directly  from royalties  to                                                                    
connect Alaskans to its resource.  She shared her discomfort                                                                    
with some elements of the governor's plan.                                                                                      
                                                                                                                                
3:17:34 PM                                                                                                                    
                                                                                                                                
Vice-Chair  Saddler  appreciated  the  overall  context  the                                                                    
sponsors had  provided. He  observed that  the plan  did not                                                                    
incorporate an allowance for capital  projects. He noted the                                                                    
POMV  model included  inflation  proofing and  a 25  percent                                                                    
deposit  from royalties  into the  corpus  of the  Permanent                                                                    
Fund. He asked whether  the proposal "over inflation proofed                                                                    
the model." Senator McGuire  responded that the constitution                                                                    
mandated  a minimum  of  25 percent  of  the royalties.  She                                                                    
contended that  the state had  been over  inflation proofing                                                                    
the fund. She believed that  the amount acted as a safeguard                                                                    
in lean years  and did not feel growing the  corpus was over                                                                    
inflation   proofing.   Vice-Chair   Saddler   stated   that                                                                    
currently permanent  fund dividends  were predicated  on the                                                                    
stock market.  He asked what  effect attaching  dividends to                                                                    
royalties  would have  on the  psyche  of Alaskans.  Senator                                                                    
McGuire  replied  that she  had  skipped  over a  couple  of                                                                    
slides  on the  topic due  to the  meeting's timeframe.  She                                                                    
believed  great things  would  happen.  She elaborated  that                                                                    
whatever  side of  the debate  a person  was on  regarding a                                                                    
repeal of  SB 21  (Oil And Gas  Production Tax)  [CHAPTER 10                                                                    
SLA  13  - Enacted  05/21/2013],  she  discovered that  most                                                                    
people did not understand that  oil was the single source of                                                                    
revenue for  state spending.  She voiced  that Alaska  was a                                                                    
resource based  state and  that restructuring  would connect                                                                    
the  public to  the resource  and spark  more education  and                                                                    
involvement  in  the  process. She  felt  that  more  public                                                                    
awareness of the relationship between  the federal and state                                                                    
government would also occur.                                                                                                    
                                                                                                                                
3:24:33 PM                                                                                                                    
                                                                                                                                
Representative  Gara   understood  that  at  the   price  of                                                                    
approximately  $42   per  barrel  the  Permanent   Fund  was                                                                    
automatically   inflation   proofed.   He   requested   more                                                                    
testimony regarding inflation proofing the fund.                                                                                
                                                                                                                                
Vice-Chair Saddler  stated that he questioned  whether long-                                                                    
term inflation proofing was the  most important issue facing                                                                    
the  state. Senator  McGuire  stated  that the  conversation                                                                    
regarding   HB   303   "pulled   together   all   types   of                                                                    
conversations for the  public to hear." She  related to both                                                                    
sides of  the argument. She reiterated  some facts regarding                                                                    
inflation proofing the  fund. She referred to  slide 27 that                                                                    
included the  depiction of the  permanent fund deposit  as a                                                                    
budget item, which was the  largest budget item. She thought                                                                    
that over inflation proofing was "a very real question."                                                                        
                                                                                                                                
Representative   Millett    stated   that    the   meeting's                                                                    
conversation   solidified  her   view   that  changes   were                                                                    
necessary.  She acknowledged  that  the fiscal  gap was  not                                                                    
remedied  through cuts  and  revenue  generation alone.  She                                                                    
agreed  that the  public was  not  aware of  the amount  the                                                                    
budget was  already cut and of  how much was saved  over the                                                                    
years.  She voiced  that the  discussion would  be long  and                                                                    
arduous and she was open to new ideas.                                                                                          
                                                                                                                                
3:29:41 PM                                                                                                                    
                                                                                                                                
Representative  Gara  asked  whether  statutory  change  was                                                                    
required  for  altering  the  way  the  fund  was  inflation                                                                    
proofed. Senator  McGuire answered  that "enough  law makers                                                                    
believed that  a statutory change" was  necessary because of                                                                    
the continued deposit into the  fund each year. She reminded                                                                    
the committee that  former Representative Rokeburg attempted                                                                    
to  change   inflation  proofing   in  2005.   She  believed                                                                    
statutory change  was necessary.  She encouraged  members to                                                                    
maintain statutory  oversight of  the fund. She  opposed the                                                                    
idea of a constitutional vote.                                                                                                  
                                                                                                                                
Representative  Gara  noted that  he  did  not suggest  "not                                                                    
inflation proofing the fund."                                                                                                   
                                                                                                                                
Vice-Chair Saddler discussed the  schedule for the following                                                                    
day.                                                                                                                            
                                                                                                                                
ADJOURNMENT                                                                                                                   
                                                                                                                                
3:32:51 PM                                                                                                                    
                                                                                                                                
The meeting was adjourned at 3:32 p.m.                                                                                          

Document Name Date/Time Subjects
HB303 Sponsor Statement.pdf HFIN 2/16/2016 1:30:00 PM
HB 303
HB303 Sectional Analysis.pdf HFIN 2/16/2016 1:30:00 PM
HB 303
HB 303-DOR-PFD-2-12-2016 .pdf HFIN 2/16/2016 1:30:00 PM
HB 303
HB303 for HFIN 2-16-16 PP.pdf HFIN 2/16/2016 1:30:00 PM
HB 303
HB 303 NEW FN DOA VCCB 2-15-16.pdf HFIN 2/16/2016 1:30:00 PM
HB 303
HB 303 NEW FN DOR PFD 2-15-16.pdf HFIN 2/16/2016 1:30:00 PM
HB 303