Legislature(2017 - 2018)HOUSE FINANCE 519

03/14/2017 08:30 AM FINANCE

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Audio Topic
03:29:53 PM Start
03:30:26 PM HB115
03:31:10 PM Amendments: Hb 115
05:18:51 PM Adjourn
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
-- Meeting Postponed to 3:00 PM --
-- Please Note Time Change --
+= HB 115 INCOME TAX; PFD CREDIT; PERM FUND INCOME TELECONFERENCED
Heard & Held
+ Bills Previously Heard/Scheduled TELECONFERENCED
                  HOUSE FINANCE COMMITTEE                                                                                       
                      March 14, 2017                                                                                            
                         3:29 p.m.                                                                                              
                                                                                                                                
                                                                                                                                
3:29:53 PM                                                                                                                    
                                                                                                                                
CALL TO ORDER                                                                                                                 
                                                                                                                                
Co-Chair Foster called the House Finance Committee meeting                                                                      
to order at 3:29 p.m.                                                                                                           
                                                                                                                                
MEMBERS PRESENT                                                                                                               
                                                                                                                                
Representative Neal Foster, Co-Chair                                                                                            
Representative Paul Seaton, Co-Chair                                                                                            
Representative Les Gara, Vice-Chair                                                                                             
Representative Jason Grenn                                                                                                      
Representative David Guttenberg                                                                                                 
Representative Scott Kawasaki                                                                                                   
Representative Dan Ortiz                                                                                                        
Representative Lance Pruitt                                                                                                     
Representative Steve Thompson                                                                                                   
Representative Cathy Tilton                                                                                                     
Representative Tammie Wilson                                                                                                    
                                                                                                                                
MEMBERS ABSENT                                                                                                                
                                                                                                                                
None                                                                                                                            
                                                                                                                                
ALSO PRESENT                                                                                                                  
                                                                                                                                
Taneeka Hansen,  Staff, Representative Paul  Seaton; Randall                                                                    
Hoffbeck, Commissioner,  Department of Revenue;  David Teal,                                                                    
Director, Legislative Finance  Division; Chris Poag, General                                                                    
Counsel, Alaska Permanent Fund Corporation.                                                                                     
                                                                                                                                
PRESENT VIA TELECONFERENCE                                                                                                    
                                                                                                                                
                                                                                                                                
SUMMARY                                                                                                                       
                                                                                                                                
HB 115    INCOME TAX; PFD CREDIT; PERM FUND INCOME                                                                              
                                                                                                                                
          HB 115 was HEARD and HELD in committee for                                                                            
          further consideration.                                                                                                
                                                                                                                                
Co-Chair Foster indicated the committee would be taking up                                                                      
amendments on the Permanent Fund portion of HB 115. He                                                                          
invited Ms. Hansen to the table.                                                                                                
                                                                                                                                
HOUSE BILL NO. 115                                                                                                            
                                                                                                                                
     "An  Act  relating  to  the  permanent  fund  dividend;                                                                    
     relating  to the  appropriation of  certain amounts  of                                                                    
     the earnings reserve account;  relating to the taxation                                                                    
     of  income  of  individuals;   relating  to  a  payment                                                                    
     against the  individual income  tax from  the permanent                                                                    
     fund  dividend  disbursement;   repealing  tax  credits                                                                    
     applied  against  the  tax  on  individuals  under  the                                                                    
     Alaska  Net  Income  Tax  Act;  and  providing  for  an                                                                    
     effective date."                                                                                                           
                                                                                                                                
3:30:26 PM                                                                                                                    
                                                                                                                                
^AMENDMENTS: HB 115                                                                                                           
                                                                                                                                
3:31:10 PM                                                                                                                    
                                                                                                                                
Vice-Chair Gara MOVED to ADOPT Amendment 1, 30-LS0125\E.20                                                                      
(Nauman, 3/9/17):                                                                                                               
                                                                                                                                
     Page 2, line 1 1:                                                                                                          
     Delete "4.75"                                                                                                              
     Insert "5.25"                                                                                                              
                                                                                                                                
     Page 2, line 12:                                                                                                           
     Delete "excluding"                                                                                                         
     Insert "including"                                                                                                         
                                                                                                                                
     Page 2, following line 18:                                                                                                 
     Insert a new bill section to read:                                                                                         
     "* Sec.  4. AS  37.13.140(b), added by  sec. 3  of this                                                                    
     Act, is amended to read:                                                                                                   
     (b)   The  corporation   shall  determine   the  amount                                                                    
     available  for  distribution   each  year.  The  amount                                                                    
     available for  distribution is  five [5.25)  percent of                                                                    
     the  average market  value of  the fund  for the  first                                                                    
     five of  the preceding six fiscal  years, including the                                                                    
     fiscal  year just  ended,  computed  annually for  each                                                                    
     fiscal  year  in  accordance  with  generally  accepted                                                                    
     accounting   principles.  In   this  subsection,   "the                                                                    
     average market value of the  fund" includes the balance                                                                    
     of the  earnings reserve  account established  under AS                                                                    
     37.13.145,  but does  not include  that portion  of the                                                                    
     principal attributed to the 19     settlement of State                                                                     
     v.  Amerada Hess,  et  al.,  IJU-77-847 Civ.  (Superior                                                                    
     Court, First Judicial District)."                                                                                          
                                                                                                                                
     Renumber the following bill sections accordingly.                                                                          
                                                                                                                                
                                                                                                                                
     Page 2, line 23, following "ill":                                                                                          
     Insert  "principal of  the fund,  0.25  percent of  the                                                                    
     average                                                                                                                    
     market  value of  the fund  for the  first five  of the                                                                    
     preceding six  fiscal years, including the  fiscal year                                                                    
     just  ended, computed  annually for  each   fiscal year                                                                    
     in  accordance with    generally   accepted  accounting                                                                    
     principles;  in this  paragraph, "average  market value                                                                    
     of the fund" has the meaning given in AS 37.13.140(b);                                                                     
     ill"                                                                                                                       
                                                                                                                                
     Page 2, line 24:                                                                                                           
     Delete "income"                                                                                                            
     Insert "amount [INCOME]"                                                                                                   
                                                                                                                                
     Page 2, line 25:                                                                                                           
     Delete "ill"                                                                                                               
     Insert "Ql"                                                                                                                
     Delete "income"                                                                                                            
     Insert "amount"                                                                                                            
                                                                                                                                
     Page 10, line 18:                                                                                                          
     Delete "sec. 11"                                                                                                           
     Insert "sec. 12"                                                                                                           
                                                                                                                                
     Page 10, line 19:                                                                                                          
     Delete "sec. 11"                                                                                                           
     Insert "sec. 12"                                                                                                           
                                                                                                                                
     Page 10, line 27:                                                                                                          
     Delete "secs. 2 - 9" in both places                                                                                        
     Insert "secs. 2, 3, and 5 - 10" in both places                                                                             
                                                                                                                                
     Page 10, line 29:                                                                                                          
     Delete "Sections I - 9, 1 5, and 16"                                                                                       
     Insert "Sections I - 3, 5 - I 0, 16, and 17"                                                                               
                                                                                                                                
     Page 10, following line 30:                                                                                                
     Insert a new bill section to read:                                                                                         
     "* Sec. 19. Section 4 of this Act takes effect July 1,                                                                     
     2019."                                                                                                                     
                                                                                                                                
     Renumber the following bill section accordingly.                                                                           
                                                                                                                                
     Page 10, line 31:                                                                                                          
     Delete "sec. 17"                                                                                                           
     Insert "secs. 18 and 19"                                                                                                   
                                                                                                                                
Representative Wilson OBJECTED.                                                                                                 
                                                                                                                                
Vice-Chair Gara  spoke to the  amendment. He  explained that                                                                    
the amendment allowed for a  higher dividend than previously                                                                    
and provided  funds for state  services in a way  that would                                                                    
help  to move  the state  forward. The  committee had  heard                                                                    
testimony from  the Legislative  Finance Division  (LFD) and                                                                    
from the  director of the Alaska  Permanent Fund Corporation                                                                    
(APFC)  that a  draw of  5.25 percent  of the  value of  the                                                                    
Permanent  Fund (PF),  which  was in  effect  of about  4.79                                                                    
percent,  was   a  safe   percentage  draw.   The  amendment                                                                    
stipulated that  the draw from the  earnings reserve account                                                                    
(ERA) should  be 5.25 percent for  the first 2 years,  and 5                                                                    
percent after  the 2-year mark.  The bill reflected  that 67                                                                    
percent  of  the  draw  would go  towards  services  and  33                                                                    
percent would  go towards paying the  dividend. He mentioned                                                                    
that  the following  amendment would  increase the  dividend                                                                    
amount  to $1250  dividend. He  would speak  to Amendment  2                                                                    
later.                                                                                                                          
                                                                                                                                
Vice-Chair Gara  explained the other part  of the amendment,                                                                    
which would assist  the state in catching  up with inflation                                                                    
proofing the fund.  There had been no  inflation proofing of                                                                    
the PF for the previous 2  years. His amendment would add to                                                                    
the inflation-proofing  portion of the bill.  Currently, the                                                                    
bill  indicated that  once the  earnings reached  four times                                                                    
the  distribution amount  the excess  amount would  transfer                                                                    
into  the  principle  of  the fund.  In  addition  the  bill                                                                    
included  .25  percent  in  the  first  year  regardless  of                                                                    
accumulating  the four  times amount  for distribution.  The                                                                    
amount would equal  a little over $100 million  in the first                                                                    
year for  inflation proofing. The  portion of the  bill that                                                                    
reflected the four times  waterfall would begin immediately.                                                                    
He reiterated that .25 percent  for inflation proofing would                                                                    
occur  right away  until the  state reached  the four  times                                                                    
amount.                                                                                                                         
                                                                                                                                
Representative  Thompson expressed  concerns about  the draw                                                                    
of  5.25 percent.  He thought  the percentage  was too  high                                                                    
even though it was only for  a period of 2 years. He thought                                                                    
a  draw limit  was imperative.  He believed  the legislature                                                                    
was heading in the wrong  direction. He noted that inflation                                                                    
proofing the fund  at a rate of $120 million.  He had spoken                                                                    
earlier about  the state  being behind  by $547  million for                                                                    
2017. If inflation proofing for  2016 was added in the state                                                                    
was behind  by $550  million. He  supposed $120  million for                                                                    
inflation  proofing  was  better  than  zero.  However,  the                                                                    
legislation would cause the state  to fall further behind in                                                                    
inflation proofing  the fund, thus,  depleting the  value of                                                                    
the  fund  as  defined  in  statute. He  did  not  like  the                                                                    
amendment.                                                                                                                      
                                                                                                                                
3:35:17 PM                                                                                                                    
                                                                                                                                
Co-Chair Seaton  referred to the  .25 percent  for inflation                                                                    
proofing.  He  reported  that APFC  recognized  the  quarter                                                                    
percent  being a  statutory way  of  assuring something  was                                                                    
added  for inflation  proofing rather  than waiting  for the                                                                    
four  times  the  distribution mechanism  that  might  occur                                                                    
randomly  at  different  times. The  Alaska  Permanent  Fund                                                                    
Corporation testified  that the  year before  last inflation                                                                    
proofing was only $47 million,  which was less than what was                                                                    
being  proposed. On  average inflation  had been  higher but                                                                    
inflation proofing would be made  up with the four times the                                                                    
draw mechanism  being proposed.  The question  was to  do as                                                                    
other  plans had  relying only  on the  four times  the draw                                                                    
provision  which may  or  may  not occur  often  or did  the                                                                    
legislature  want to  have a  combination. He  supported the                                                                    
amendment  due  to an  annual  amount  being contributed  as                                                                    
wells  as the  four times  the  draw provision  making up  a                                                                    
large amount to catch up inflation if it was necessary.                                                                         
                                                                                                                                
Representative  Pruitt thought  the  committee was  focusing                                                                    
too much  on the four  times the draw provision.  He thought                                                                    
the committee  should be focusing  more on what  was already                                                                    
in statute.  He thought that  what was currently  in statute                                                                    
worked.  The  budget  currently   being  debated  removed  a                                                                    
substantial amount  of money  from the  ERA, which  meant it                                                                    
would take a  considerable amount of time to  reach the four                                                                    
times draw.  He thought  the legislature  was starting  on a                                                                    
more difficult footing  to reach the goal  of the provision.                                                                    
He  suggested  .25 percent  was  a  much smaller  inflation-                                                                    
proofing amount.  He thought the  legislature was  trying to                                                                    
get around inflation proofing the  fund. He preferred to get                                                                    
rid  of the  idea  of  the four  times  draw  and return  to                                                                    
inflation  proofing  as  the  state  had  been  -  inflation                                                                    
proofing every year.  The truth was that  if the legislature                                                                    
wanted  to stay  away from  inflation proofing,  it had  the                                                                    
ability  to do  so  based  on the  legislation  in play.  He                                                                    
suggested the legislature stick with what had been working.                                                                     
                                                                                                                                
3:38:26 PM                                                                                                                    
                                                                                                                                
Representative Wilson  referred to  Section 3, page  2, line                                                                    
11. She relayed that in the  current bill the state would be                                                                    
taking  a  4.75 Percent  of  Market  Value (POMV),  whereas,                                                                    
Amendment 1 would increase the percentage to 5.25 percent.                                                                      
                                                                                                                                
Co-Chair Seaton responded in the affirmative.                                                                                   
                                                                                                                                
Representative  Wilson clarified  that  the amendment  would                                                                    
increase the percentage to 5.25 percent.                                                                                        
                                                                                                                                
Co-Chair Seaton  responded that  the amendment  would change                                                                    
the percentage to 5.25 percent for 2 years.                                                                                     
                                                                                                                                
Representative  Wilson asked  if following  the 2  years the                                                                    
percentage  would  drop  to 5  percent  indefinitely  unless                                                                    
another legislature changed it in the future.                                                                                   
                                                                                                                                
Co-Chair Seaton responded that the  5 percent would apply to                                                                    
FY 20 and  beyond. He reported that it would  be the first 5                                                                    
years  of the  previous 6  years. It  would turn  out to  be                                                                    
about  .5 percent  less than  that amount  because the  fund                                                                    
would  be  growing.  He continued  that  taking  the  5-year                                                                    
average  of  the  previous  5 years  it  equaled  about  4.7                                                                    
percent each year. He relayed  that representatives from LFD                                                                    
and  the  Department of  Revenue  (DOR)  were available  for                                                                    
questions.                                                                                                                      
                                                                                                                                
Representative Wilson  wanted to understand where  the state                                                                    
was  at presently.  Under  current  circumstances, the  draw                                                                    
would  be equal  to  4.75 percent.  The  amendment would  be                                                                    
increasing the  draw to 5.25  percent for the first  2 years                                                                    
and  5  percent after  that.  The  amendment would  actually                                                                    
increase the  draw. She understood the  numbers would change                                                                    
depending on  what was  in the fund  and what  happened with                                                                    
the  current operating  budget. She  was concerned  that the                                                                    
amendment  raised the  draw amount  substantially from  what                                                                    
was currently in the bill.                                                                                                      
                                                                                                                                
Co-Chair Seaton  responded that  it would  be a  larger draw                                                                    
but  not that  much larger.  He explained  that .25  percent                                                                    
would  equal $120  million, which  would  be the  inflation-                                                                    
proofing amount for the current year.                                                                                           
                                                                                                                                
Representative  Wilson  asked   for  additional  information                                                                    
regarding the percentages based on  the value of the PF. She                                                                    
wanted to be able to understand the numbers more clearly.                                                                       
                                                                                                                                
Vice-Chair Gara  explained that  a draw  of 5.25  percent of                                                                    
the value  of the PF  for the first years  would essentially                                                                    
equal about  4.6 percent because  the draw was  5.25 percent                                                                    
of the average of the average of  5 of the last 6 years. The                                                                    
effective rate  was about  4.6 percent. The  head of  LFD as                                                                    
well  as  the  director  of APFC  testified  that  it  [5.25                                                                    
percent]  was a  safe amount.  The amount  would be  reduced                                                                    
after the  first 2 years  of the plan. The  earnings reserve                                                                    
account would  be expected to  grow with that  percentage of                                                                    
draw.  The amendment  would equal  a  draw from  the ERA  of                                                                    
about $1.67  billion for public  services and a  dividend of                                                                    
slightly over $1200,  which he hoped to  increase in another                                                                    
amendment.                                                                                                                      
                                                                                                                                
Representative Wilson asked if the  amendment with a draw of                                                                    
approximately $1.68  billion and  a Permanent  Fund Dividend                                                                    
(PFD) of approximately $1200 was  based on taking $4 billion                                                                    
out of the  fund, or if it was based  on the assumption that                                                                    
the $4 billion remained in the fund.                                                                                            
                                                                                                                                
3:44:54 PM                                                                                                                    
                                                                                                                                
Co-Chair  Seaton indicated  in the  current fiscal  year the                                                                    
legislature would not be taking  out $4 billion. There would                                                                    
be a draw in FY 17 equal  to $1.6 billion and there would be                                                                    
a draw  equal to the  5.25 percent reduced by  the dividends                                                                    
that were paid in FY 17. In FY  18 and FY 19, there was only                                                                    
a single  draw in each of  the fiscal years. He  referred to                                                                    
the charts in the amendment  packet. The first chart was the                                                                    
status  quo  chart.  The  second   chart  reflected  a  draw                                                                    
percentage  of  4.75,   the  Constitutional  Budget  Reserve                                                                    
(CBR),   the  ERA,   and  other   items.  The   third  chart                                                                    
represented the POMV draw of  5.25 percent as amended for FY                                                                    
18  and FY  19 and  5 percent  after that  time with  a flat                                                                    
budget.  He highlighted  that between  the second  and third                                                                    
year it was  the dimension and the change  from 4.75 percent                                                                    
to 5.25 percent and then down  to 5 percent. He also pointed                                                                    
out in the  third chart the PF would be  growing faster than                                                                    
inflation. It  would start out  in FY  18 at 100  percent of                                                                    
inflation  and then  it would  grow  to 102  percent to  103                                                                    
percent all  the way out  through FY  26. He pointed  to the                                                                    
blue box that indicated the  percent of real value below the                                                                    
chart. Including  inflation the  PF was growing  faster than                                                                    
inflation  in   the  plan   under  consideration   with  the                                                                    
amendment included.                                                                                                             
                                                                                                                                
3:47:22 PM                                                                                                                    
                                                                                                                                
TANEEKA HANSEN,  STAFF, REPRESENTATIVE PAUL  SEATON, pointed                                                                    
out that all of the charts  had the draw year starting in FY                                                                    
17, which  was included  in the  budget. There  was a  FY 17                                                                    
draw  and  an  FY  18 draw.  The  charts  should  accurately                                                                    
reflect what was  in the budget. She offered  that LFD would                                                                    
have to speak to whether the dollar amounts were exact.                                                                         
                                                                                                                                
Vice-Chair Gara  thought the  answers he  was going  to give                                                                    
had been provided.                                                                                                              
                                                                                                                                
Co-Chair Foster  recognized Representative Grenn  had joined                                                                    
the meeting.                                                                                                                    
                                                                                                                                
Representative Grenn referred to the  PF chart on the right-                                                                    
hand  side of  the  slide. He  wondered  whether the  payout                                                                    
percentage for FY 19 should read 5.25 percent.                                                                                  
                                                                                                                                
Co-Chair  Seaton referred  to the  middle yellow  chart that                                                                    
read "payout" on the third chart  titled "HB 115 - POMV draw                                                                    
amended: 5.25 percent  in FY 18 and FY 19,  5 percent after.                                                                    
Flat  Budget." There  was a  POMV  payout of  5 percent.  In                                                                    
addition, a POMV  override would be in place  that would end                                                                    
after FY 18.                                                                                                                    
                                                                                                                                
Representative Grenn clarified that it would end in FY 18.                                                                      
                                                                                                                                
Co-Chair Seaton responded affirmatively.                                                                                        
                                                                                                                                
Representative Wilson  was concerned with the  new approach,                                                                    
as it  had never been  used before.  She was unsure  why the                                                                    
legislature would not use 4.5  percent to start with because                                                                    
there were so many unknowns. She opposed the amendment.                                                                         
                                                                                                                                
Representative Thompson reported that  several times DOR had                                                                    
indicated a 5.25 percent draw was  only safe if a draw limit                                                                    
accompanied it.  Based on conversations  in his  office with                                                                    
LFD, he thought  the maximum amount that could  be drawn was                                                                    
4.7 percent or 4.71 percent.                                                                                                    
                                                                                                                                
3:50:51 PM                                                                                                                    
                                                                                                                                
RANDALL  HOFFBECK,  COMMISSIONER,   DEPARTMENT  OF  REVENUE,                                                                    
reported the department had testified  that 5.25 percent was                                                                    
aggressive but do-able with a  turndown of $1.2 billion. The                                                                    
percentage would be  reduced from 5.25 percent  to 5 percent                                                                    
after  3 years,  which  seemed  intuitively sufficient  even                                                                    
though the  department had  not modeled  5 percent.  He also                                                                    
noted  that there  would be  a  3-year review  to check  for                                                                    
sustainability.  If  the percentage  did  not  appear to  be                                                                    
sustainable,  a  more  suitable  draw  percentage  would  be                                                                    
brought back to the legislature for consideration.                                                                              
                                                                                                                                
Representative Wilson MAINTAINED her OBJECTION.                                                                                 
                                                                                                                                
A roll call vote was taken on the motion.                                                                                       
                                                                                                                                
IN FAVOR: Gara, Grenn,  Guttenberg, Kawasaki, Ortiz, Foster,                                                                    
Seaton                                                                                                                          
OPPOSED: Pruitt, Thompson, Tilton, Wilson                                                                                       
                                                                                                                                
The MOTION to ADOPT Amendment 1 PASSED (7/4).                                                                                   
                                                                                                                                
3:52:54 PM                                                                                                                    
                                                                                                                                
Co-Chair Seaton  MOVED to ADOPT Amendment  2, 30-LS0125\E.13                                                                    
(Nauman, 2/27/17):                                                                                                              
                                                                                                                                
     Page 10, line 15:                                                                                                          
     Delete all material and insert:                                                                                            
    "• Sec.13.AS 37.13.145(c) is repealed July 1, 2017.                                                                         
     *  Sec.   14.  AS   43.05.085;  AS   43.20.012(b),  and                                                                    
     43.20.013 are repealed January 1, 2018.                                                                                    
     * Sec.  15. The uncodified  law of the State  of Alaska                                                                    
     is amended by adding a new section to read:                                                                                
                                                                                                                                
     FISCAL YEAR 2017.  Notwithstanding another provision of                                                                    
     law, the  legislature may appropriate from  the ERA for                                                                    
     fiscal year  2017 the amount  by which 5.25  percent of                                                                    
     the average market  value of the fund  for fiscal years                                                                    
     2011,  2012, 2013,  2014, and  2015, computed  annually                                                                    
     for  each  fiscal  year in  accordance  with  generally                                                                    
     accepted  accounting principles,  exceeds $695,650,000.                                                                    
     In  this section,  "average market  value of  the fund"                                                                    
     includes the  balance of  the earnings  reserve account                                                                    
     established under  AS 37.13.145,  but does  not include                                                                    
     that  portion  of  the   principal  attributed  to  the                                                                    
     settlement of  State v. Amerada  Hess, et  al., IJU-77-                                                                    
     847 Civ. (Superior Court, First Judicial District)."                                                                       
                                                                                                                                
     Renumber the following bill sections accordingly.                                                                          
                                                                                                                                
     Page 10, lines 27 - 28:                                                                                                    
            Delete "secs. 2 - 9 of this Act take effect                                                                         
     after  June 30,  2017,  secs. 2  - 9  of  this Act  are                                                                    
     retroactive to June 30"                                                                                                    
            Insert "sec. 15 of this Act takes effect after                                                                      
     June 29,  2017, sec. 15  of this Act is  retroactive to                                                                    
     June 29"                                                                                                                   
                                                                                                                                
     Page 10, line 29:                                                                                                          
     Delete "Sections 1 - 9, 15, and 16"                                                                                        
     Insert "Sections 15, 17, and 18"                                                                                           
                                                                                                                                
     Page 10, following line 30:                                                                                                
     Insert a new bill section to read:                                                                                         
     "* Sec.  19. Sections  1 -  9 and 13  of this  Act take                                                                    
     effect July 1, 2017."                                                                                                      
                                                                                                                                
     Renumber the following bill section accordingly.                                                                           
                                                                                                                                
     Page 10, line 31:                                                                                                          
     Delete "sec. I 7"                                                                                                          
     Insert "secs. 19 and 20"                                                                                                   
                                                                                                                                
Representative Wilson OBJECTED.                                                                                                 
                                                                                                                                
Co-Chair Seaton explained that the  amendment related to the                                                                    
POMV draw in  FY 17 of 5.25 percent of  the market value for                                                                    
the last 5  years of the preceding 6 years  minus the amount                                                                    
paid  out already  for  the dividend  in  FY 17  ($695,650).                                                                    
Since the dividend  had already been taken out  from the ERA                                                                    
and paid out  in FY 17, it did not  seem appropriate to draw                                                                    
the same amount  from the ERA for a second  time in the same                                                                    
year.  The amendment  conformed  to changes  in the  budget.                                                                    
Currently a  5.25 percent  draw existed  in addition  to the                                                                    
amount  paid out  in dividends.  The amendment  reversed the                                                                    
draw so  that the legislature  was not taking a  double draw                                                                    
of the dividend amount in FY 17.                                                                                                
                                                                                                                                
Representative Pruitt wondered  if the amendment represented                                                                    
the  legislation corresponding  with the  $1.6 billion  that                                                                    
was placed  into the  public education  fund in  the current                                                                    
budget.                                                                                                                         
                                                                                                                                
Co-Chair  Seaton confirmed  that  Representative Pruitt  was                                                                    
correct.                                                                                                                        
                                                                                                                                
Representative  Guttenberg asked  the commissioner  how long                                                                    
the legislature had to account  for and separate the Amerada                                                                    
Hess money outside  of the PF in order to  meet the required                                                                    
settlement  conditions. He  had  been  under the  impression                                                                    
there was  a period  of time in  which the  conditions would                                                                    
lapse or conclude.                                                                                                              
                                                                                                                                
Commissioner Hoffbeck  responded that if the  state began to                                                                    
pay the dividend from the  general fund (GF), as the current                                                                    
version of  the bill  envisioned, there  would likely  be no                                                                    
reason to keep the separation of the funds.                                                                                     
                                                                                                                                
Representative  Wilson   commented  that  the  bill   was  a                                                                    
retroactive bill,  which meant  that it would  be as  if the                                                                    
bill had been passed in the previous year.                                                                                      
                                                                                                                                
Co-Chair Seaton responded  that a draw could be  made for FY                                                                    
17. If the bill had been  passed in the prior year, it would                                                                    
have been the same except that  the draw would have been the                                                                    
full 5.25  percent. It  might have been  in addition  to the                                                                    
payout of the  dividend. He was not certain  and called upon                                                                    
Commissioner Hoffbeck for clarification.                                                                                        
                                                                                                                                
Commissioner  Hoffbeck asked  the representative  to restate                                                                    
her question.                                                                                                                   
                                                                                                                                
3:57:05 PM                                                                                                                    
                                                                                                                                
Representative  Wilson  was  confirming that  the  bill  was                                                                    
essentially retroactive as  if the bill had  been passed the                                                                    
previous year. She wondered about the calculation.                                                                              
                                                                                                                                
Commissioner  Hoffbeck  explained  that the  department  was                                                                    
comfortable with  the FY 17 draw  because it would be  as if                                                                    
the Alaska Permanent Fund Protection  Act (APFPA) had passed                                                                    
and the  draws had been made  in the prior year.  It did not                                                                    
impact  the long-term  modeling that  had been  presented in                                                                    
the prior  year. The  dividend amount of  $1022 paid  in the                                                                    
previous  year  was consistent  with  last  year's PF  bill,                                                                    
which would have been $1000. He was not sure if the                                                                             
dividend amount would be consistent with the current bill                                                                       
once all amendments were adopted.                                                                                               
                                                                                                                                
Representative Wilson MAINTAINED her OBJECTION.                                                                                 
                                                                                                                                
A roll call vote was taken on the motion.                                                                                       
                                                                                                                                
IN FAVOR: Grenn, Guttenberg, Kawasaki, Ortiz, Gara, Seaton.                                                                     
Foster                                                                                                                          
OPPOSED: Pruitt, Thompson, Tilton, Wilson                                                                                       
                                                                                                                                
The MOTION to ADOPT Amendment 2 PASSED (7/4).                                                                                   
                                                                                                                                
3:59:40 PM                                                                                                                    
AT EASE                                                                                                                         
                                                                                                                                
4:00:14 PM                                                                                                                    
RECONVENED                                                                                                                      
                                                                                                                                
Vice-Chair Gara MOVED to ADOPT Amendment 3, 30-LS0125\E.33                                                                      
(Nauman, 3/11/17):                                                                                                              
                                                                                                                                
     Page 3, line 6:                                                                                                            
     Delete "a new subsection"                                                                                                  
     Insert "new subsections"                                                                                                   
                                                                                                                                
     Page 3, line 7, following "(b)":                                                                                           
     Insert "and (f)"                                                                                                           
                                                                                                                                
     Page 3, line 10, following "(b)":                                                                                          
     Insert "and (f)"                                                                                                           
                                                                                                                                
     Page 3, following line 10:                                                                                                 
     Insert a new subsection to read:                                                                                           
            "(f)    After the appropriations under (b) of                                                                       
     this section,  but before  the appropriation  under (e)                                                                    
     of this  section, for fiscal  years 2018 and  2019, the                                                                    
     legislature may  appropriate from the  earnings reserve                                                                    
     account an additional amount,  if necessary, to provide                                                                    
    a dividend of at least $1,250 for each individual."                                                                         
                                                                                                                                
     Page 10, following line 8:                                                                                                 
     Insert a new bill section to read:                                                                                         
     "* Sec. 12. AS 43.23.025 is amended by adding a new                                                                        
     subsection to read:                                                                                                        
            (c) Notwithstanding (a) of this section, the                                                                        
     amount  of  each  permanent Fund  Dividend  for  fiscal                                                                    
     years 2018 and  2019 shall be $1,250. If  the amount of                                                                    
     appropriations  is   not  sufficient  to   provide  the                                                                    
     dividend  amount in  this subsection,  the commissioner                                                                    
     shall reduce the dividend  amount under this subsection                                                                    
     by an equal amount for each eligible individual."                                                                          
                                                                                                                                
     Renumber the following bill sections accordingly.                                                                          
                                                                                                                                
     Page 10, following line 15:                                                                                                
     Insert a new bill section to read:                                                                                         
     "*  Sec. 15.  AS 37.13.145(t)  and AS  43.23.025(c) are                                                                    
     repealed June 30, 2020."                                                                                                   
                                                                                                                                
     Renumber the following bill sections accordingly.                                                                          
                                                                                                                                
     Page 10, line 29:                                                                                                          
     Delete "l 5, and 16"                                                                                                       
     Insert "12, 14, 15, 17, and 18"                                                                                            
                                                                                                                                
     Page 10, line 31:                                                                                                          
     Delete "sec. I 7"                                                                                                          
     Insert "sec. 19"                                                                                                           
                                                                                                                                
Representative Wilson OBJECTED.                                                                                                 
                                                                                                                                
Co-Chair Seaton  asked that he  be added as a  co-sponsor of                                                                    
the amendment.                                                                                                                  
                                                                                                                                
Co-Chair Foster  asked that he  be added as a  co-sponsor to                                                                    
the amendment.                                                                                                                  
                                                                                                                                
Vice-Chair Gara  explained that  Amendment 3  incorporated a                                                                    
minimum  dividend  of  at  least $1250  the  first  2  years                                                                    
regardless of  the formula. The  projected formula  would be                                                                    
close to  the $1250  amount. The  Senate's plan  specified a                                                                    
dividend  of $1000  and the  current minority  leader's bill                                                                    
from  the  previous  year reflected  a  dividend  of  $1000.                                                                    
However,  he reported  hearing from  members  of the  public                                                                    
that they  would like  a higher  dividend, which  he thought                                                                    
was  affordable.  He  referred  to  page  6  of  the  charts                                                                    
attached  to  Amendment  1.  They   showed  the  balance  of                                                                    
revenues  to be  used  for schools  and  public services  at                                                                    
about  $1.66 billion  the  first  year up  to  more than  $2                                                                    
billion by  FY 25. It  was projected that the  numbers would                                                                    
rise with  a dividend  of $1250 guaranteed  for the  first 2                                                                    
years.  He hoped  members could  support  a higher  dividend                                                                    
amount.                                                                                                                         
                                                                                                                                
Representative Thompson  relayed that the amendment  was for                                                                    
only 2 years.  He wondered after 2 years  if the calculation                                                                    
for the PFD would return  to the statutory formula where the                                                                    
dividend  could reach  $2500. He  asked  Vice-Chair Gara  to                                                                    
explain what would happen after 2 years.                                                                                        
                                                                                                                                
Vice-Chair Gara directed the committee's  attention to the 6                                                                    
Legislative   Finance   Division  charts   associated   with                                                                    
Amendment 1. He highlighted that  the amount of the dividend                                                                    
would be  $1250 for the  first 2  years. After that,  it was                                                                    
projected  by LFD  and the  Permanent Fund  Corporation that                                                                    
the dividend  would rise  slightly in  later years  with the                                                                    
current formula. He  relayed the payouts: 33  percent of the                                                                    
POMV payout  would go  towards dividends  and 67  percent of                                                                    
the POMV payout would be  used for services. The state would                                                                    
no  longer use  the  current formula,  which  jumped up  and                                                                    
down, but would use the new POMV formula.                                                                                       
                                                                                                                                
Representative   Wilson   noted   that   affordability   was                                                                    
mentioned but  thought it was  in the context  of government                                                                    
rather than the people. She  could only speak about what the                                                                    
constituents  in her  district wanted  - they  did not  want                                                                    
more  but wanted  what belonged  to  them. Her  constituents                                                                    
voiced concerns  about the calculation  of the  dividend and                                                                    
about how it  could change without their input.  She did not                                                                    
feel the amount was enough. It  was not up to the government                                                                    
to decide how much it paid  the people of Alaska. There were                                                                    
several moving  parts to the  legislation. It  was difficult                                                                    
to take the numbers off  the chart. She appreciated the idea                                                                    
of giving more to the  people. However, she thought the bill                                                                    
was intended for  the purpose of government  getting what it                                                                    
wanted in spite  of what it might do to  individuals as well                                                                    
as the economy of the state.                                                                                                    
                                                                                                                                
4:05:53 PM                                                                                                                    
                                                                                                                                
Representative  Thompson reflected  back to  the origination                                                                    
of  the PF.  In 1979,  Governor  Hammond sent  memos to  the                                                                    
Senate indicating  he wanted 50  percent of the  earnings to                                                                    
be used to  operate government, 25 percent  would go towards                                                                    
capital projects, and  the remaining 25 percent  would go to                                                                    
paying  Permanent Fund  Dividends to  the people  of Alaska.                                                                    
The current  and future  legislators would  be faced  with a                                                                    
monumental  problem  of  deferred maintenance.  He  believed                                                                    
that the  state needed  to put about  $100 million  per year                                                                    
into  deferred maintenance,  although he  did not  think the                                                                    
state would be able to catch  up. He thought the state would                                                                    
be  heading in  the wrong  direction unless  it addressed  a                                                                    
major future problem.                                                                                                           
                                                                                                                                
4:07:16 PM                                                                                                                    
                                                                                                                                
Representative  Grenn reflected  on  Amendment  3. He  asked                                                                    
what the projected amount would be  in FY 18 and FY 19 prior                                                                    
to Amendment 3.                                                                                                                 
                                                                                                                                
Vice-Chair  Gara asked  if Representative  Grenn was  asking                                                                    
about the dividend or the payout.                                                                                               
                                                                                                                                
Representative  Grenn  confirmed  he  was  speaking  of  the                                                                    
payout.                                                                                                                         
                                                                                                                                
Vice-Chair Gara  referred to page  4 and  page 6 of  the LFD                                                                    
charts.  He  pointed out  that  Amendment  3 resulted  in  a                                                                    
payout of $1.66 billion for  public services and a $1250 PFD                                                                    
in year  1. In the second  year, the payout would  be $1.683                                                                    
billion  with a  slightly  smaller dividend.  He added  that                                                                    
without the  amendment the payout  would be  $1.708 billion.                                                                    
By year 3, it was the same.                                                                                                     
                                                                                                                                
Co-Chair  Seaton noted  that there  was a  table in  the far                                                                    
bottom right  corner of  the charts  that showed  the amount                                                                    
that would go into the GF  and the amount that would be paid                                                                    
to dividends.                                                                                                                   
                                                                                                                                
Representative   Grenn  asked   for   the  dividend   amount                                                                    
projected on chart 4 and chart 6 for FY 18 and FY 19.                                                                           
                                                                                                                                
Vice-Chair   Gara  responded   that   without  the   minimum                                                                    
guaranteed  $1250 dividend,  it was  projected to  be around                                                                    
$1220 or  $1215. The amount  would be variable  depending on                                                                    
returns. The amendment would set the dividend at $1250.                                                                         
                                                                                                                                
Ms. Hansen noted that the  way the amendment was drafted and                                                                    
the way  it was shown  on the chart was  slightly different.                                                                    
She  had  not received  the  amendment  in  time to  get  an                                                                    
updated chart.  The distribution would remain  67/33 and the                                                                    
amount  going  to the  GF  would  remain  the same  with  or                                                                    
without   the  dividend   floor.  The   amendment  specified                                                                    
appropriating   any  additional   necessary  funds   to  the                                                                    
dividend for the first 2  years. It was a nominal difference                                                                    
between  what it  would be  with or  without the  floor. The                                                                    
amount would  not come directly  out of what was  going into                                                                    
the GF.                                                                                                                         
                                                                                                                                
Representative Pruitt  commented that the dividend  would be                                                                    
about $100 higher  than with keeping the  current status quo                                                                    
for the  following 2 years.  He was trying to  thumb through                                                                    
the  various  charts. It  appeared  that  it would  increase                                                                    
slightly through FY  26. He also asked how the  maker of the                                                                    
amendment came  up with the  dividend of $1250 for  2 years.                                                                    
He wanted  to understand  the maker's thinking  versus going                                                                    
to a different percentage.                                                                                                      
                                                                                                                                
Vice-Chair  Gara responded  that under  any budget  proposal                                                                    
without the amendment  the state would have  to exhaust what                                                                    
was left in the savings account,  dip into the ERA, and then                                                                    
there would no  longer be funds for a dividend.  In 2 years,                                                                    
the  savings account  would be  drained  and spending  would                                                                    
ensue  from the  ERA,  which he  thought  was haphazard  and                                                                    
jeopardized  the  dividend.  He   wanted  to  see  a  larger                                                                    
dividend  than the  previous year,  while generating  enough                                                                    
money to extend the savings  account. He relayed that it was                                                                    
a choice of either using the  legal earnings from the ERA or                                                                    
exhausting the savings account. He  did not feel either were                                                                    
great choices. He suggested there  were other bills he would                                                                    
like to  see passed,  that would raise  additional revenues.                                                                    
He  reiterated that  if only  the current  bill passed,  the                                                                    
state would  have only two  choices: to exhaust  the state's                                                                    
savings account, or to jeopardize  the ERA. He asserted that                                                                    
the amendment  provision ensured protecting the  ERA, the PF                                                                    
principle, and extending the ERA  and the CBR. The state was                                                                    
trying  not  to  cannibalize  these funds  until  there  was                                                                    
nothing left  while creating the largest  dividend possible.                                                                    
He thought the  amendment created the right  balance. He had                                                                    
once wanted  a $2000 dividend forever.  However, he realized                                                                    
that there  would not  be any money  left over  for schools,                                                                    
the university,  or other things  he believed in.  He wished                                                                    
the legislature had adopted a fiscal plan much earlier.                                                                         
                                                                                                                                
Representative Ortiz returned to  the question regarding the                                                                    
minimum PFD at $1250 for the  first 2 years and how it would                                                                    
not impact  the amount of money  available to go to  the GF.                                                                    
He wondered where the money  would come from to maintain the                                                                    
PFD amount.                                                                                                                     
                                                                                                                                
Ms. Hansen  responded that  the way  that the  amendment was                                                                    
currently written the  money would come from  the ERA. There                                                                    
could  be a  decision  to appropriate  it  from a  different                                                                    
account.  She explained  that it  was a  bit complicated  to                                                                    
amend  the  distribution  percentage  of 67/33  for  only  2                                                                    
years. For  drafting purposes,  it was  cleaner to  keep the                                                                    
distribution  amount  and  if  there   was  a  need  for  an                                                                    
additional amount  (if 33 percent  did not equate  to $1250)                                                                    
then it was easier to have a direct appropriation.                                                                              
                                                                                                                                
Representative Wilson WITHDREW her OBJECTION.                                                                                   
                                                                                                                                
There being NO OBJECTION, Amendment 3 was ADOPTED.                                                                              
                                                                                                                                
4:16:43 PM                                                                                                                    
                                                                                                                                
Co-Chair Seaton  MOVED to  ADOPT Amendment  4, 30-LS0125\E.3                                                                    
(Nauman, 2/16/17):                                                                                                              
                                                                                                                                
     Page 3, lines 22 - 28:                                                                                                     
     Delete all material.                                                                                                       
                                                                                                                                
     Renumber the following bill sections accordingly.                                                                          
                                                                                                                                
     Page 10, line 18:                                                                                                          
     Delete "sec. 11"                                                                                                           
     Insert "sec. 10"                                                                                                           
                                                                                                                                
     Page 10, line 19:                                                                                                          
     Delete "sec. 11"                                                                                                           
     Insert "sec. 10"                                                                                                           
                                                                                                                                
     Page 10, line 27:                                                                                                          
     Delete "secs. 2 - 9" in both places                                                                                        
     Insert "secs. 2 - 8" in both places                                                                                        
                                                                                                                                
     Page 10, line 29:                                                                                                          
     Delete "Sections l - 9, 15, and 16"                                                                                        
     Insert "Sections 1 - 8, 14, and 15"                                                                                        
                                                                                                                                
     Page 10, line 31:                                                                                                          
     Delete "sec. 17"                                                                                                           
     Insert "sec. 16"                                                                                                           
                                                                                                                                
Representative Wilson OBJECTED.                                                                                                 
                                                                                                                                
Co-Chair  Seaton   explained  that  the   amendment  removed                                                                    
Section 9 from  the bill. There were  language changes being                                                                    
made  to AS  37.14.031(c).  The Alaska  Mental Health  Trust                                                                    
Fund  defined  the net  income  for  calculating the  mental                                                                    
health   trust  fund's   net  income.   The  change   to  AS                                                                    
37.14.031(c)  was  not  necessary  because  the  net  income                                                                    
remained  defined   in  AS  37.13.140,  which   the  statute                                                                    
currently  referenced.  Therefore, it  did  not  need to  be                                                                    
redefined and Section 9 was unnecessary.                                                                                        
                                                                                                                                
Representative Pruitt commented  that the representative had                                                                    
just  read Section  8. He  was  correct that  Section 9  was                                                                    
indicated on the amendment. However,  Section 9 did not deal                                                                    
with the mental health trust. He asked for clarification.                                                                       
                                                                                                                                
Ms.  Hansen informed  the committee  that the  section dealt                                                                    
with  the  Alaska Mental  Health  Trust.  The mental  health                                                                    
trust fund was  managed by the APFC. At the  end of the year                                                                    
when  the corporation  determined  its net  income, it  also                                                                    
used the same  method of determining the net  income for the                                                                    
mental health trust fund. If  the legislature had deleted or                                                                    
changed the definition  of net income under  AS 37.13.140, a                                                                    
definition would  have been necessary for  the mental health                                                                    
trust  fund.  The definition  was  being  kept the  same  in                                                                    
statute.                                                                                                                        
                                                                                                                                
Representative Wilson WITHDREW her OBJECTION.                                                                                   
                                                                                                                                
There being NO OBJECTION, Amendment 4 was ADOPTED.                                                                              
                                                                                                                                
4:19:23 PM                                                                                                                    
                                                                                                                                
Co-Chair Seaton  MOVED to  ADOPT Amendment  5, 30-LS0125\E.5                                                                    
(Nauman, 2/21/17).                                                                                                              
                                                                                                                                
     Amendment 5 (30-LS0125\E.5)                                                                                                
                                                                                                                                
     Page 1, line 1, following "dividend;":                                                                                     
     Insert "relating to the permanent fund;"                                                                                   
                                                                                                                                
     Page 1, following line 9:                                                                                                  
     Insert new bill sections to read:                                                                                          
     "*Sec. 2. AS 37.05.550(b) is amended to read:                                                                              
            (b) The legislature may appropriate to the fund                                                                     
     money received  by the state  as Alaska  marine highway                                                                    
     system program  receipts or from a  settlement or final                                                                    
     judicial  determination   of  the  Dinkum   Sands  case                                                                    
     (United States  v. Alaska) and the  North Slope royalty                                                                    
     case (State v. Amerada Hess,  et al.) and not deposited                                                                    
     into the  Alaska permanent  fund under  AS 37.13.0l0(a)                                                                    
     [AS 37.13.0l0(a)(l) OR (2)] or into the public 2                                                                           
     school trust fund under AS 3 7 .14.150.                                                                                    
     *Sec. 3. AS 37.13 .0lO(a) is amended to read:                                                                              
            (a) Under art. IX, sec. 15, of the state                                                                            
     constitution, there  is established as a  separate fund                                                                    
     the Alaska  permanent fund.  The Alaska  permanent fund                                                                    
     consists of                                                                                                                
                                                                                                                                
               (1) 25 percent of all mineral lease rentals,                                                                     
               royalties, royalty sale  proceeds, net profit                                                                    
               shares  under AS  38.05.180(£)  and (g),  and                                                                    
               federal  mineral   revenue  sharing  payments                                                                    
               received  by the  state  from mineral  leases                                                                    
               [ISSUED ON  OR BEFORE DECEMBER 1,  1979], and                                                                    
               25  percent of  all bonuses  received by  the                                                                    
               state  from  mineral  leases  [ISSUED  ON  OR                                                                    
              BEFORE FEBRUARY 15, 1980]; and                                                                                    
                                                                                                                                
               (2)   [50  PERCENT   OF  ALL   MINERAL  LEASE                                                                    
               RENTALS,  ROYALTIES,  ROYALTY SALE  PROCEEDS,                                                                    
               NET PROFIT  SHARES UNDER AS  38.05.180(f) AND                                                                    
               (g),  AND  FEDERAL  MINERAL  REVENUE  SHARING                                                                    
               PAYMENTS RECEIVED  BY THE STATE  FROM MINERAL                                                                    
               LEASES ISSUED AFTER DECEMBER  1, 1979, AND 50                                                                    
               PERCENT OF ALL BONUSES  RECEIVED BY THE STATE                                                                    
               FROM  MIN ERAL  LEASES ISSUED  AFTER FEBRUARY                                                                    
               15, 4     1980; and                                                                                              
                                                                                                                                
               (3)  any  other   money  appropriated  to  or                                                                    
               otherwise allocated  by law or former  law to                                                                    
               the Alaska permanent fund."                                                                                      
                                                                                                                                
Representative Thompson and Representative Wilson OBJECTED.                                                                     
                                                                                                                                
Co-Chair  Seaton spoke  to the  amendment. He  reported that                                                                    
the  amendment  deleted a  royalty  currently  going to  the                                                                    
principle of  the PF above the  constitutionally required 25                                                                    
percent. The  extra royalty revenue  would remain in  the GF                                                                    
for state use.  The provision was adopted in  the budget for                                                                    
FY 18. The  amendment changed the statutory  reference to be                                                                    
the same.                                                                                                                       
                                                                                                                                
Representative   Thompson  spoke   to   his  objection.   He                                                                    
indicated  that  the royalties  going  to  the PF  principle                                                                    
would be reduced  by about $55 million. The  amount would be                                                                    
available  for  spending  instead  of placing  it  into  the                                                                    
principle  of  the  PF  so that  it  could  grow  ultimately                                                                    
increasing the  amount of  money going into  the ERA  in the                                                                    
future. It would increase the  amount of money available for                                                                    
PFDs. He opposed  the amendment because he  would rather see                                                                    
the money placed where it could earn money for the future.                                                                      
                                                                                                                                
Representative Pruitt  agreed with  Representative Thompson.                                                                    
He disagreed  with putting the  provision in the  budget. He                                                                    
wanted to  ensure the long-term  viability of the  fund. The                                                                    
money had been  going into the fund since  1980. He expected                                                                    
that if the legislature voted  in favor of the amendment, it                                                                    
would be  much more difficult  to reverse down the  road. He                                                                    
opposed the amendment. He suggested  that spending the money                                                                    
in the near-term meant losing  the earnings potential of the                                                                    
$55 million in  perpetuity of the PF. Based  on the earnings                                                                    
in the current year it  would translate to around $5 million                                                                    
in one  year. If  the amount was  compounded over  the long-                                                                    
term,  it  would equal  a  sizable  amount. He  opposed  the                                                                    
action.                                                                                                                         
                                                                                                                                
Representative  Wilson  thought  the legislature  should  be                                                                    
doing more  to protect the  corpus of the PF.  The amendment                                                                    
would  be doing  less to  protect the  corpus. She  asserted                                                                    
that the amendment was taking "permanent" out of the PF.                                                                        
                                                                                                                                
Co-Chair Seaton clarified that the  additional revenue of 25                                                                    
percent on new  leases was due to higher  royalty amounts on                                                                    
older  leases. However,  under  the  current production  tax                                                                    
structure  and, in  particular,  the  gross value  reduction                                                                    
(GVR), the state was not  receiving additional total revenue                                                                    
from new leases. There was  an additional 10 percent GVR for                                                                    
any lease  above 12.5  percent. He  suggested the  state had                                                                    
used  the  tax structure  to  override  the value  it  would                                                                    
receive  from higher  royalty  amounts. Unfortunately,  with                                                                    
the  20  percent GVR  for  new  oil  and the  additional  10                                                                    
percent GVR for any lease  with a higher royalty amount, the                                                                    
state had circumvented  its royalty. As a result  the GF was                                                                    
receiving  less money  than the  state would  have otherwise                                                                    
received, which was why the  amendment reduced the amount to                                                                    
what was constitutionally required  and suggested 25 percent                                                                    
of net royalties.                                                                                                               
                                                                                                                                
Representative    Thompson    and   Representative    Wilson                                                                    
MAINTAINED their OBJECTION.                                                                                                     
                                                                                                                                
A roll call vote was taken on the motion.                                                                                       
                                                                                                                                
IN FAVOR: Guttenberg, Kawasaki, Ortiz, Gara, Foster, Seaton                                                                     
OPPOSED: Pruitt, Thompson, Tilton, Wilson, Grenn                                                                                
                                                                                                                                
The MOTION to ADOPT Amendment 4 PASSED (6/5).                                                                                   
                                                                                                                                
4:26:13 PM                                                                                                                    
AT EASE                                                                                                                         
                                                                                                                                
4:26:55 PM                                                                                                                    
RECONVENED                                                                                                                      
                                                                                                                                
Vice-Chair Gara  indicated he would be  rescinding action on                                                                    
Amendment 3 due to a typo.                                                                                                      
                                                                                                                                
Vice-Chair Gard MOVED to RESCIND action on Amendment 3.                                                                         
                                                                                                                                
There being NO OBJECTION, it was so ordered.                                                                                    
                                                                                                                                
Vice-Chair  Gara  explained  that Amendment  3  was  written                                                                    
correctly on  page 1,  Line 16.  The intent  was to  have at                                                                    
least  a $1250  dividend. The  formula, if  there were  good                                                                    
stock  returns, could  result in  an  even larger  dividend.                                                                    
However, the words  "at least" were left out on  Line 22. If                                                                    
the  formula provided  for a  larger dividend,  the dividend                                                                    
would still only equal $1250.                                                                                                   
                                                                                                                                
Vice-Chair Gara MOVED to ADOPT Amendment 3.                                                                                     
                                                                                                                                
Representative Wilson OBJECTED.                                                                                                 
                                                                                                                                
Vice-Chair Gara MOVED to AMEND Amendment 3.                                                                                     
                                                                                                                                
Vice-Chair Gara  wanted to  insert the  words "at  least" on                                                                    
Page  1, line  22 before  the number  $1250. If  the formula                                                                    
provided  for a  larger dividend,  then the  dividend amount                                                                    
would be larger.                                                                                                                
                                                                                                                                
There being  NO OBJECTION, the amendment  to amend Amendment                                                                    
3 was ADOPTED.                                                                                                                  
                                                                                                                                
Representative  Wilson WITHDREW  her OBJECTION  to Amendment                                                                    
3.                                                                                                                              
                                                                                                                                
Amendment 3 as amended was ADOPTED.                                                                                             
                                                                                                                                
4:29:23 PM                                                                                                                    
                                                                                                                                
Co-Chair Seaton MOVED to ADOPT Amendment 6, 30-LS0125\E.6                                                                       
(Nauman, 2/21/17):                                                                                                              
                                                                                                                                
     Page 10, following line 8:                                                                                                 
          Insert a new bill section to read:                                                                                    
     Sec. 12. AS 43 .23.055 is amended to read:                                                                                 
          Sec. 43.23.055. Duties of the department. The                                                                         
          department shall                                                                                                      
               (1)  annually  pay permanent  fund  dividends                                                                    
               from the dividend fund                                                                                           
     without further appropriation;                                                                                             
               (2)  subject to  AS  43.23.011 and  paragraph                                                                    
               (8) of this section, adopt                                                                                       
     regulations  under AS  44.62 (Administrative  Procedure                                                                    
     Act)  that establish  procedures  and  time limits  for                                                                    
     claiming  a  permanent  fund dividend;  the  department                                                                    
     shall determine  the number  of eligible  applicants by                                                                    
     October  1  of  the  year for  which  the  dividend  is                                                                    
     declared and pay  the dividends by December  31 of that                                                                    
     year;                                                                                                                      
               (3)   adopt   regulations  under   AS   44.62                                                                    
     (Administrative    Procedure   Act)    that   establish                                                                    
     procedures  and  time  limits for  an  individual  upon                                                                    
     emancipation  or upon  reaching majority  to apply  for                                                                    
     permanent fund  dividends not received  during minority                                                                    
     because  the  parent,  guardian,  or  other  authorized                                                                    
     representative  did   not  apply   on  behalf   of  the                                                                    
     individual;                                                                                                                
               (4)   assist   residents    of   the   state,                                                                    
     particularly in  rural areas, who because  of language,                                                                    
     disability,     or     inaccessibility    to     public                                                                    
     transportation    need    assistance    to    establish                                                                    
     eligibility and to apply for permanent fund dividends;                                                                     
               (5) use a list  of individuals ineligible for                                                                    
     a dividend  under AS 43.23.005(d) provided  annually by                                                                    
     the  Department of  Corrections and  the Department  of                                                                    
     Public Safety  to determine the number  and identity of                                                                    
     those individuals;                                                                                                         
               (6) adopt  regulations that are  necessary to                                                                    
     implement AS 43 .23.005(d);                                                                                                
               (7)   adopt    regulations   that   establish                                                                    
     procedures   for  the   parent,   guardian,  or   other                                                                    
     authorized representative  of a disabled  individual to                                                                    
     apply  for prior  year 4  permanent fund  dividends not                                                                    
     received   by  the   disabled  individual   because  no                                                                    
     application was submitted on behalf of the individual;                                                                     
               (8)   adopt    regulations   that   establish                                                                    
     procedures  for  an  individual  to  apply  to  have  a                                                                    
     dividend   disbursement    under   AS   37.25.050(a)(2)                                                                    
     reissued if it is not  collected within two years after                                                                    
     the date  of its issuance; however,  the department may                                                                    
     not establish a time  limit within which an application                                                                    
     to have a disbursement reissued must be filed;                                                                             
               (9) provide any information, upon request,                                                                       
     contained  in permanent  fund dividend  records to  the                                                                    
     child support services agency  created in AS 25.27.010,                                                                    
     or  the child  support  enforcement  agency of  another                                                                    
     state,  for  child  support purposes  authorized  under                                                                    
     law; if  the information is contained  in an electronic                                                                    
     database, the  department shall provide  the requesting                                                                    
     agency with either                                                                                                         
                    (A) access to the data base; or                                                                             
                    (B) a copy of the information in the                                                                        
    data base and a statement certifying its contents;                                                                          
               (10) establish a fraud investigation unit                                                                        
     for the purpose of assisting the                                                                                           
                    (A)   Department    of   Law    in   the                                                                    
     prosecution of  individuals who apply  for or  obtain a                                                                    
     permanent fund dividend in violation  of a provision in                                                                    
     AS  11, by  detecting and  investigating those  crimes;                                                                    
     and                                                                                                                        
                    (B)    commissioner   to    detect   and                                                                    
     investigate the  claiming or  paying of  permanent fund                                                                    
     dividends that should not have  been claimed by or paid                                                                    
     to  an  individual  and to  impose  the  penalties  and                                                                    
     enforcement provisions under AS 43.23.035.'                                                                                
                                                                                                                                
     Renumber the following bill sections accordingly.                                                                          
                                                                                                                                
     Page 10, line 29:                                                                                                          
          Delete "15, and 16"                                                                                                   
          Insert "12, 16, and 17'                                                                                               
                                                                                                                                
     Page 10, line 31:                                                                                                          
                                                                                                                                
          Delete "sec 17"                                                                                                       
          Insert "sec. 18"                                                                                                      
                                                                                                                                
Representative Wilson OBJECTED.                                                                                                 
                                                                                                                                
Co-Chair Seaton  spoke to the  amendment. It  clarified that                                                                    
the dividend  could be paid  from the dividend  fund without                                                                    
further  appropriation.  Under  current statute,  money  was                                                                    
appropriated into  the dividend  fund but  it was  not clear                                                                    
how the money moved from the dividend fund.                                                                                     
                                                                                                                                
Representative  Pruitt asked  if the  amendment allowed  the                                                                    
dividend  to  be paid  out  automatically  if no  action  to                                                                    
appropriate was taken by the legislature.                                                                                       
                                                                                                                                
Co-Chair Seaton responded affirmatively.                                                                                        
                                                                                                                                
Ms. Hansen confirmed Co-Chair Seaton  was correct. She added                                                                    
that the  language specifying how  the money moved  from the                                                                    
ERA  to   the  dividend   fund  still  indicated   that  the                                                                    
legislature should  appropriate 33 percent of  the draw. The                                                                    
language clarified that  once the money was  in the dividend                                                                    
fund  it did  not  need  to be  appropriated  out; it  would                                                                    
happen automatically.                                                                                                           
                                                                                                                                
Representative Pruitt  asked if  it was  a change  from what                                                                    
the state  was currently  doing. He  asked why  the language                                                                    
was needed.                                                                                                                     
                                                                                                                                
Ms.  Hansen explained  her understanding  was the  state had                                                                    
always  just appropriated  the  funds  under the  assumption                                                                    
that the  legislature was  directed to  do so.  However, the                                                                    
statute had not  been clear. She added that  LFD had flagged                                                                    
the same  language in the  past and suggested  bringing them                                                                    
to the table for further clarification.                                                                                         
                                                                                                                                
Commissioner Hoffbeck asked  Representative Pruitt to repeat                                                                    
his question.                                                                                                                   
                                                                                                                                
Representative  Pruitt   asked  about   the  need   for  the                                                                    
language. He wondered why the committee was adding 3 words.                                                                     
                                                                                                                                
Commissioner Hoffbeck  responded that  in the past  once the                                                                    
money was appropriated  in the dividend fund,  the money was                                                                    
used  to pay  dividends  without  further appropriation.  He                                                                    
suggested having LFD respond.                                                                                                   
                                                                                                                                
Co-Chair Foster invited Mr. Teal to the table.                                                                                  
                                                                                                                                
DAVID   TEAL,   DIRECTOR,  LEGISLATIVE   FINANCE   DIVISION,                                                                    
explained the dividends had flowed  out of the dividend fund                                                                    
in  the  past. However,  most  statutes  that created  funds                                                                    
would   outline   whether    further   appropriations   were                                                                    
necessary.  He suggested  that the  current statute  did not                                                                    
contain  clarifying  language.  The state  had  always  just                                                                    
assumed  that the  money would  be paid  out. The  amendment                                                                    
simply clarified what  had happened in the  past and allowed                                                                    
it to flow out without appropriation in the future.                                                                             
                                                                                                                                
Representative   Pruitt   surmised    that   the   amendment                                                                    
eliminated ambiguity.                                                                                                           
                                                                                                                                
Mr. Teal responded, "Right."                                                                                                    
                                                                                                                                
Representative Wilson WITHDREW her OBJECTION.                                                                                   
                                                                                                                                
There being NO OBJECTION, Amendment 6 was ADOPTED.                                                                              
                                                                                                                                
4:34:35 PM                                                                                                                    
                                                                                                                                
Co-Chair Seaton  MOVED to ADOPT Amendment  7, 30-LS0125\E.19                                                                    
(Nauman, 3/9/17):                                                                                                               
                                                                                                                                
     Page 3, lines 7 - 10:                                                                                                      
      Delete all material and insert:                                                                                           
           "(e) Each year  that the balance of  the earnings                                                                    
     reserve   account  exceeds   four   times  the   amount                                                                    
     calculated   for  appropriation   under  (b)   of  this                                                                    
     section,  after the  appropriations under  (b) of  this                                                                    
     section,  the  legislature  may  appropriate  from  the                                                                    
     earnings  reserve  account  to  the  principal  of  the                                                                    
     permanent fund the lesser of the                                                                                           
            (1) amount by which the balance  of the earnings                                                                    
           reserve account  exceeds  four  times the  amount                                                                    
           calculated for  appropriation under  (b) of  this                                                                    
           section; or                                                                                                          
            (2)  cumulative  amount  of   inflation  on  the                                                                    
           principal of the fund between  the current fiscal                                                                    
           year and June 30, 2015,  less amounts transferred                                                                    
           after June 30,  2015, to  the fund to  offset the                                                                    
           effect  of inflation  on  the  principal  of  the                                                                    
           fund."                                                                                                               
                                                                                                                                
Representative Wilson OBJECTED.                                                                                                 
                                                                                                                                
Co-Chair  Seaton   reported  that  the  new   subsection  AS                                                                    
37.13.145(e) stated  that when  the ERA exceeded  four times                                                                    
the annual draw calculated  under AS 37.13.145(b) the excess                                                                    
over the amount would be  appropriated into the principle of                                                                    
the fund.  The amendment limited  the transfer from  the ERA                                                                    
to the  principle to the  lessor of the excess  available or                                                                    
the  cumulative total  inflation since  June 30,  2015 minus                                                                    
any inflation proofing already transferred.                                                                                     
                                                                                                                                
Representative  Pruitt  preferred  if  the  legislature  did                                                                    
something every year. However, recognizing  that was not the                                                                    
direction  of  the  committee,  he  agreed  the  legislature                                                                    
needed  to do  something. He  cautioned future  legislatures                                                                    
that  the   provision  could  easily  be   manipulated.  The                                                                    
legislature could  appropriate money into the  CBR, into the                                                                    
SBR,  or various  other state  funds. The  legislature could                                                                    
use  mechanisms  every  year to  prevent  it  from  actually                                                                    
happening. There was an intent  to inflation proof the fund.                                                                    
He did not  want to do anything  to get in the  way of doing                                                                    
so. He spoke in cautious support of the amendment.                                                                              
                                                                                                                                
Vice-Chair Gara commented  there had been a  lot of conflict                                                                    
in  the  legislature.  He  suggested   that  at  some  point                                                                    
legislators  needed to  reach common  ground.  He could  not                                                                    
speak for  all 60  members of  the legislature.  However, he                                                                    
saw common  ground regarding the  current provision  in both                                                                    
houses and in  both parties. He thought  the legislature had                                                                    
to  make  a  promise  to  the Permanent  Fund  to  take  the                                                                    
necessary  measures   to  inflation  proof  the   fund.  The                                                                    
amendment,  which he  would be  supporting, seemed  to be  a                                                                    
mechanism that had  generated a fair amount  of support from                                                                    
members of both parties.                                                                                                        
                                                                                                                                
4:37:51 PM                                                                                                                    
                                                                                                                                
Representative Ortiz  asked how  the committee arrived  at 4                                                                    
times the annual draw as opposed to 3 or 5 times.                                                                               
                                                                                                                                
Co-Chair Seaton responded  that the amount had  to be enough                                                                    
to avoid  depleting the ERA.  There had to be  enough volume                                                                    
in the ERA  to account for volatility in  years when returns                                                                    
were  low.  The  amount  equal  to  4  times  the  draw  was                                                                    
determined to  be an adequate  amount. After taking  out the                                                                    
5.25 percent  draw and accruing,  4 times the draw  then the                                                                    
excess could be used  for additional inflation proofing. The                                                                    
legislature  also built  in .25  percent  ($120 million  per                                                                    
year)  for   inflation  proofing.   The  intention   of  the                                                                    
legislature was  not to over-inflation proof,  which was why                                                                    
the date  of June  30th was  included as  the last  time the                                                                    
legislature inflation  proofed. It  was possible once  the 4                                                                    
times  the  draw amount  was  reached  that there  would  be                                                                    
excess funds to reconstitute  the CBR. The amendment ensured                                                                    
that  the  state  caught  up with  inflation  and  that  the                                                                    
formula worked at both high and low ends.                                                                                       
                                                                                                                                
4:40:19 PM                                                                                                                    
                                                                                                                                
Representative Thompson  observed that the  amendment placed                                                                    
no additional  money into the  corpus once the  state caught                                                                    
up with inflation. He asked  why. He wondered what was wrong                                                                    
with  more money  going into  the  corpus of  the fund.  The                                                                    
legislature had already decreased  the royalties. He did not                                                                    
see a problem  with continuing to have excess  flow into the                                                                    
fund, which would make more money available in the future.                                                                      
                                                                                                                                
Co-Chair  Seaton   explained  that  he  was   talking  about                                                                    
inflation  proofing.   There  was  nothing   preventing  the                                                                    
legislature from  placing additional money into  the corpus.                                                                    
He  mentioned the  legislature adding  $3  billion into  the                                                                    
Public   Employee  Retirement   System   and  the   Teachers                                                                    
Retirement System a  few years prior. He  thought to include                                                                    
language that  stipulated putting any excess  funds into the                                                                    
corpus would limit future  legislatures. The amendment would                                                                    
ensure that  that the state  was caught up 100  percent with                                                                    
inflation  proofing  the  fund.  It   would  be  up  to  the                                                                    
legislature at  the time  to determine what  to do  with the                                                                    
excess.                                                                                                                         
                                                                                                                                
Vice-Chair Gara agreed with  Representative Thompson that if                                                                    
the legislature approved the plan,  there would still not be                                                                    
enough  money for  a capital  budget.  He did  not think  it                                                                    
generated  that much  money. As  the  member from  Fairbanks                                                                    
noted the state  was way behind on  deferred maintenance. He                                                                    
had   heard   estimates   for  the   university's   deferred                                                                    
maintenance of  about $1  billion. The  state was  no longer                                                                    
building energy  projects, renewable projects,  or upgrading                                                                    
diesel power  in rural  Alaska. The  excess would  allow the                                                                    
state  to  catch  up with  deferred  maintenance  and  other                                                                    
things that had  been placed on hold. He  thought the amount                                                                    
of 4 times the draw  made sense because the earnings reserve                                                                    
of the  PF went up and  down. Even with a  good stock market                                                                    
year, if  the PF did not  cash in its stocks,  no money went                                                                    
into the ERA.  There had been years where there  was a minus                                                                    
1500 percent change  in the earnings of the PF.  Even with a                                                                    
large PF,  the dividend  had been  around $900  the previous                                                                    
few years. He  thought the amount of 4 times  the draw would                                                                    
ensure that there was about  $10.5 billion or $11 billion in                                                                    
the  ERA. There  would be  cushion room  in case  there were                                                                    
years of poor earnings.                                                                                                         
                                                                                                                                
Representative Wilson  noted that her party  affiliation had                                                                    
less to do  with the decisions that she was  making. She was                                                                    
making the  right decisions for  her constituents  no matter                                                                    
what  party   she  represented  and  no   matter  the  party                                                                    
affiliation of her constituents.  She requested that members                                                                    
discontinue  referring to  other members'  party affiliation                                                                    
as if it  had more to do with the  decision legislators were                                                                    
making. She thought it was  inappropriate. She wanted people                                                                    
to  know  that it  was  about  judging the  legislation  and                                                                    
amendments  before   the  committee.  She  asked   that  the                                                                    
references halt.                                                                                                                
                                                                                                                                
Representative Pruitt  appreciated Representative Thompson's                                                                    
comments  about the  words,  "lessor of  the."  they made  a                                                                    
substantial shift in his view  of the amendment. He asserted                                                                    
that the language  had the potential to  severely water down                                                                    
the intent.  He thought  he had  heard that  the legislature                                                                    
wanted to  make sure it  had the  ability to fund  above and                                                                    
beyond  the  POMV  draw  whether  for  capital  projects  or                                                                    
deferred maintenance.  He thought the  intent was to  keep a                                                                    
confined  POMV amount.  He believed  it would  be better  to                                                                    
protect the  money from the  legislature by placing  it into                                                                    
the corpus. He was uncertain if  he would offer to amend the                                                                    
amendment to  remove the  three words,  "lessor of  the." He                                                                    
argued  that  it was  a  large  change  from what  had  been                                                                    
discussed over  the last year  and a half. He  thought there                                                                    
should be further discussion on the issue.                                                                                      
                                                                                                                                
4:48:34 PM                                                                                                                    
                                                                                                                                
Representative Wilson  asked what  the difference  (in terms                                                                    
of dollars) would be if  the language stated "higher of the"                                                                    
rather than "lessor of the."                                                                                                    
                                                                                                                                
Ms. Hansen responded that it  would be difficult to speak to                                                                    
her question because  it would depend on  returns each year.                                                                    
If  the language  changed to  "greater of"  the state  would                                                                    
potentially dip into the cushion  created with the amount of                                                                    
4 times the  draw. If the language stipulated  the amount in                                                                    
excess of  4 times the draw,  then the 4 times  would remain                                                                    
in  the ERA  for a  cushion  for bad  years. Anything  extra                                                                    
would  go into  the principle.  If  the term  "lessor of"  4                                                                    
times  the  draw  or "the  amount  necessary  for  inflation                                                                    
proofing"  was  used, the  state  could  still transfer  the                                                                    
excess.  She provided  an example  of  the use  of the  term                                                                    
"greater of."  If the  state did not  inflation proof  for 5                                                                    
years and  the amount in  excess of  the draw was  only $100                                                                    
million, the state  would have to dip into  its cushion. She                                                                    
suggested LFD could perhaps speak  to the probability of the                                                                    
particular  wording being  triggered  in  the following  few                                                                    
years.                                                                                                                          
                                                                                                                                
4:50:46 PM                                                                                                                    
                                                                                                                                
Representative Wilson  wondered if the alternative  would be                                                                    
to  change  the  amount  through  an  appropriation  if  the                                                                    
legislature thought the amount was too low.                                                                                     
                                                                                                                                
Ms. Hansen  responded that  it was always  an option  of the                                                                    
legislature.  She  was  unclear about  the  representative's                                                                    
comment about  the legislature thinking  the amount  was too                                                                    
low.                                                                                                                            
                                                                                                                                
Representative   Wilson  remarked   that  the   "lessor  of"                                                                    
indicated doing  the least  that needed to  be done  but was                                                                    
not what was necessarily best for the state.                                                                                    
                                                                                                                                
Ms. Hansen explained that the  language meant that the state                                                                    
would get  up to  the full value  of any  inflation proofing                                                                    
that  was missed  as long  as the  value was  in the  amount                                                                    
above the cushion.                                                                                                              
                                                                                                                                
Co-Chair Seaton provided an example  of the state having $50                                                                    
million  over  the  4  times  amount of  the  draw.  If  the                                                                    
amendment  specified the  greater  amount and  there was  $3                                                                    
billion of inflation proofing to  catch up the statute would                                                                    
require  the legislature  to  wipe out  the  4 times  amount                                                                    
because the state  would have to have the  greater amount of                                                                    
accumulated inflation or  the amount in excess.  It would be                                                                    
the  greater  amount  and  the state  would  only  have  $50                                                                    
million over  the 4 times  amount. However, the  state would                                                                    
dip $2  billion into  the 4 times  amount leaving  less that                                                                    
the  4  times amount  available  for  future volatility  and                                                                    
conservative  management which  was why  the amendment  used                                                                    
"lessor  of."  If  the  amount  of  inflation  proofing  was                                                                    
available over the  4 times amount the state  would catch it                                                                    
up 100 percent.                                                                                                                 
                                                                                                                                
Representative   Guttenberg   liked   that   the   amendment                                                                    
established a  set of  rules. He asked  about the  intent of                                                                    
Line  11 of  the  amendment.  He asked  if  it included  the                                                                    
interest  that  the  state would  have  accumulated  had  it                                                                    
inflation proofed the fund every year.                                                                                          
                                                                                                                                
Co-Chair Seaton  responded that the intent  of the amendment                                                                    
was that if the state did  not inflation proof the fund $200                                                                    
million  3  years previously,  it  would  be the  effect  of                                                                    
having not  inflation proofed the fund.  The amendment would                                                                    
recapture all of the earnings  as if the state had inflation                                                                    
proofed every year.                                                                                                             
                                                                                                                                
4:55:51 PM                                                                                                                    
                                                                                                                                
Vice-Chair Gara  thought the amendment mimicked  the current                                                                    
rule, which was  to inflation proof up to  the amount needed                                                                    
to inflation proof  the PF. In a year where  the state had a                                                                    
significant amount  of excess money, additional  money could                                                                    
be placed  in the  fund. The  amendment specified  that once                                                                    
the amount equaled 4 times the  amount of the draw, then the                                                                    
amount needed for inflation proofing  would be placed in the                                                                    
fund.  It was  not  mandatory  in current  law,  nor was  it                                                                    
mandatory under the proposed language  to put in more money.                                                                    
In statute, it  would specify that the amount  placed in the                                                                    
fund  would be  equal  to the  amount  needed for  inflation                                                                    
proofing.                                                                                                                       
                                                                                                                                
Representative    Pruitt     appreciated    the    committee                                                                    
facilitating  the  conversation.  He  referred  to  the  .25                                                                    
percent inflation  proofing which  was expected to  be lower                                                                    
than  actual inflation  in the  current year.  If the  state                                                                    
saved the amount  of 4 times the draw, it  would make-up for                                                                    
those times the state had  not hit the number. Following the                                                                    
discussion,  he   better  understood   the  intent   of  the                                                                    
amendment. The  intent was for  the legislature  to maintain                                                                    
the inflation proofing mechanism into the future.                                                                               
                                                                                                                                
Representative Wilson WITHDREW her OBJECTION.                                                                                   
                                                                                                                                
There being NO OBJECTION, Amendment 7 was ADOPTED.                                                                              
                                                                                                                                
4:58:27 PM                                                                                                                    
                                                                                                                                
Co-Chair Seaton reported he would  not be offering Amendment                                                                    
8,  30-LS0125\E.1   (Nauman,  2/16/17),  Amendment   9,  30-                                                                    
LS0125\E.2   (Nauman,  2/16/17),   and  Amendment   10,  30-                                                                    
LS0125\E.9 (Nauman,  2/23/17). He  explained that  they were                                                                    
technical amendments  that were incorporated  into Amendment                                                                    
1.                                                                                                                              
                                                                                                                                
Co-Chair Foster announced that Co-Chair Seaton would not be                                                                     
offering Amendments 8, 9, and 10.                                                                                               
                                                                                                                                
Representative Pruitt MOVED to ADOPT Amendment 11, 30-                                                                          
LS0125\E.34 (Nauman, 3/11/17):                                                                                                  
                                                                                                                                
     Page 1, line 1, following "dividend;":                                                                                     
          Insert "relating to procurement by the Alaska                                                                         
          Permanent Fund Corporation;"                                                                                          
                                                                                                                                
     Page 1, following line 9:                                                                                                  
          Insert new bill sections to read:                                                                                     
    "* Sec. 2. AS 36.30.015 is amended by adding a new                                                                          
     subsection to read:                                                                                                        
               (1)  The  board  of trustees  of  the  Alaska                                                                    
               Permanent   Fund   Corporation  shall   adopt                                                                    
               regulations  to  govern  the  procurement  of                                                                    
               supplies,    services,    and    professional                                                                    
               services. The regulations  must be similar to                                                                    
               the procedures described  in this chapter and                                                                    
               in  regulations adopted  under this  chapter.                                                                    
               Notwithstanding any other  provisions of this                                                                    
               subsection,   the   Alaska   Permanent   Fund                                                                    
               Corporation  shall   comply  with   the  five                                                                    
               percent preference under  AS 36.30.321(a) and                                                                    
               the requirement that contracts for legal                                                                         
               services be approved  by the attorney general                                                                    
               under (d) of this section.                                                                                       
     * Sec. 3. AS 36.30.990(1) is amended to read:                                                                              
               (1) "agency"                                                                                                     
                    (A) means a department, institution,                                                                        
               board,   commission,   division,   authority,                                                                    
               public  corporation,   the  Alaska  Pioneers'                                                                    
               Home,  the Alaska  Veterans'  Home, or  other                                                                    
               administrative unit  of the  executive branch                                                                    
               of state government;                                                                                             
                   (B) does not include                                                                                         
                         (i) the University of Alaska;                                                                          
                         (ii)     the    Alaska     Railroad                                                                    
                         Corporation;                                                                                           
                         (iii) the Alaska Housing Finance                                                                       
                         Corporation;                                                                                           
                         (iv) a regional Native housing                                                                         
                    authority created under AS 18.55.996 or                                                                     
                    a regional electrical authority created                                                                     
                    under AS 18.57.020;                                                                                         
                         (v)      the     Department      of                                                                    
                    Transportation  and  Public  Facilities,                                                                    
                    in  regard to  the repair,  maintenance,                                                                    
                    and  reconstruction of  vessels, docking                                                                    
                    facilities,  and  passenger and  vehicle                                                                    
                    transfer   facilities   of  the   Alaska                                                                    
                    marine highway system;                                                                                      
                         (vi)    the     Alaska    Aerospace                                                                    
                         Corporation;                                                                                           
                         (vii)    the   Alaska    Retirement                                                                    
                    Management Board;                                                                                           
                         (viii)    the     Alaska    Seafood                                                                    
                   Marketing Institute;                                                                                         
                         (ix)  the  Alaska children's  trust                                                                    
                    and the Alaska Children's Trust Board;                                                                      
                         (x)    the     Alaska    Industrial                                                                    
                    Development and Export Authority;                                                                           
                         (xi)  the   Alaska  Permanent  Fund                                                                    
                    Corporation;"                                                                                               
                                                                                                                                
     Renumber the following bill sections accordingly.                                                                          
                                                                                                                                
     Page 10, line 18:                                                                                                          
          Delete "sec. 11                                                                                                       
          Insert "sec. 13"                                                                                                      
                                                                                                                                
     Page 10, line 19:                                                                                                          
          Delete "sec. 11"                                                                                                      
          Insert "sec. 13"                                                                                                      
                                                                                                                                
     Page 10, line 22, following "REGULATIONS.":                                                                                
          Insert "(a)"                                                                                                          
                                                                                                                                
     Page 10, following line 24:                                                                                                
          Insert a new subsection to read:                                                                                      
                                                                                                                                
               "(b) The commissioner of revenue and the                                                                         
          Alaska  Permanent   Fund  Corporation   may  adopt                                                                    
          regulations,  policies,  and procedures  necessary                                                                    
          to implement this  Act. The regulations, policies,                                                                    
          or  procedures  may  not take  effect  before  the                                                                    
          effective  date  of  the law  implemented  by  the                                                                    
          regulation, policy, or procedure."                                                                                    
                                                                                                                                
     Page 10, line 27:                                                                                                          
          Delete "secs. 2 - 9" in both places                                                                                   
          Insert "secs. 4 - 11 "in both places                                                                                  
                                                                                                                                
     Page 10,line 29:                                                                                                           
          Delete "Sections 1 -9, 15, and 16"                                                                                    
          Insert "Sections 1, 4 - 11, 17, and 18"                                                                               
                                                                                                                                
     Page 10, line 31:                                                                                                          
          Delete "sec. 17"                                                                                                      
          Insert "sec. 19"                                                                                                      
                                                                                                                                
Co-Chair Seaton OBJECTED for discussion.                                                                                        
                                                                                                                                
Representative Pruitt  spoke to the amendment.  He explained                                                                    
that over the  previous two years there  had been discussion                                                                    
about  potentially needing  to  use  the earnings  reserves,                                                                    
which could be  placed in the GF. There had  been a need for                                                                    
APFC  to  manage  and  bring   about  the  greatest  return.                                                                    
Currently,  the corporation  was restricted  because of  the                                                                    
procurement code.  He had  asked Ms. Rodell  if she  felt it                                                                    
was necessary  for the corporation  to be placed  outside of                                                                    
the state  procurement code like  other state  entities such                                                                    
as  Alaska  Industrial   Development  and  Export  Authority                                                                    
(AIDEA), Alaska Seafood Marketing  Institute (ASMI), and the                                                                    
Aerospace Corporation.  Presently, in  order for  the Alaska                                                                    
Permanent Fund  Corporation to  contract with  a consultant,                                                                    
the  director  would  have to  go  through  the  procurement                                                                    
process. If  she needed  to make  an immediate  decision for                                                                    
the  corporation regarding  an investment,  by the  time the                                                                    
procurement process was  completed an investment opportunity                                                                    
might be missed.                                                                                                                
                                                                                                                                
Co-Chair Seaton relayed  that there was a  board member from                                                                    
APFC in the room. He suggested  that that person come to the                                                                    
table.                                                                                                                          
                                                                                                                                
Commissioner Hoffbeck was  also a board member  of the APFC.                                                                    
He confirmed that  the concern had to do with  being able to                                                                    
respond  to opportunities  for  investments  that were  time                                                                    
sensitive.  Stricter procurement  regulations could  lead to                                                                    
missed opportunities. The  Alaska Permanent Fund Corporation                                                                    
and the board  of trustees had made the  request for several                                                                    
years. It  had been  in a  bill that  was introduced  in the                                                                    
previous year  but was stripped out.  The administration had                                                                    
not included it  in the bill in the current  year because of                                                                    
wanting  to   focus  strictly  on   the  PF.   However,  the                                                                    
administration believed APFC should have the tool.                                                                              
                                                                                                                                
5:03:35 PM                                                                                                                    
                                                                                                                                
Vice-Chair Gara  pointed to line  11. He commented  that the                                                                    
state  provided  for  a local  preference  in  state  agency                                                                    
spending by allowing a vendor  to charge 5 percent more than                                                                    
a  competitor.  He wondered  if  the  APFC was  required  to                                                                    
comply with the 5 percent  preference. He wondered if it met                                                                    
the APFC goal of providing  the state the maximum investment                                                                    
returns - hiring someone that charged 5 percent more.                                                                           
                                                                                                                                
Commissioner  Hoffbeck  responded  he would  have  to  think                                                                    
about  the  legislator's question.  The  intent  was for  an                                                                    
investment to benefit  the state. He was  uncertain that the                                                                    
circumstances would  be such that  the corporation  would be                                                                    
looking  at multiple  vendors and  one getting  a 5  percent                                                                    
preference over  another. More importantly,  the corporation                                                                    
could  quickly select  a vendor  and move  on. The  attorney                                                                    
from APFC could perhaps provide a more detailed answer.                                                                         
                                                                                                                                
Vice-Chair Gara  was missing something. He  relayed that the                                                                    
commissioner had  indicated that  the corporation  wanted to                                                                    
have the  ability to do  things more nimbly and  quickly. He                                                                    
referenced Section  2, which stipulated the  PF would comply                                                                    
with  a 5  percent preference.  He wondered  about potential                                                                    
impacts  of using  the words,  "shall  comply." He  wondered                                                                    
about the  impacts of having  to hire someone who  charged 5                                                                    
percent  more   for  investment  services  when   trying  to                                                                    
maximize the returns on the PF.                                                                                                 
                                                                                                                                
Commissioner Hoffbeck  could not think of  a situation where                                                                    
the state would have  competing fund managers performing the                                                                    
exact same  work where the  5 percent would come  into play.                                                                    
The language was developed by  the PF, adopted by the Senate                                                                    
Finance  Committee the  previous year,  and included  in the                                                                    
bill.  He suggested  directing the  question to  APFC for  a                                                                    
more detailed answer.                                                                                                           
                                                                                                                                
CHRIS   POAG,  GENERAL   COUNSEL,   ALASKA  PERMANENT   FUND                                                                    
CORPORATION, replied  that if the state  scored 2 proposals,                                                                    
one of  them being  experience and one  of them  being cost,                                                                    
one of them  being from in state and  one from out-of-state,                                                                    
the  in-state  Alaska  bidder  would  receive  a  5  percent                                                                    
scoring  preference. If  they scored  equally the  same, the                                                                    
in-state Alaska bidder would succeed  and issue a notice for                                                                    
intent  to  award. He  relayed  that  APFC  was one  of  the                                                                    
agencies that  requested waivers from the  Alaska preference                                                                    
requirement  because  most of  the  services  and goods  the                                                                    
corporation  procured  were  not available  in  Alaska.  The                                                                    
corporation would  have to deal  with the issues  of waivers                                                                    
and requests for alternative procurements  when it asked for                                                                    
authorization to adopt its own procurement code.                                                                                
                                                                                                                                
Vice-Chair  Gara asked  if the  5 percent  preference was  a                                                                    
scoring preference rather than a 5 percent cost to the PF.                                                                      
                                                                                                                                
Mr.  Poag believed  it was  a scoring  preference. He  noted                                                                    
that when  the corporation  had drafted  the language  a few                                                                    
years  prior  it  wanted  to follow  the  model  that  other                                                                    
corporations had  pursued. Other corporations had  also used                                                                    
the 5  percent preference. It  was clearly a policy  call by                                                                    
the legislature. If the legislature  thought costs should be                                                                    
the  driving  factor  above  all  other  factors,  then  the                                                                    
provision could  be removed and  the highest  scoring entity                                                                    
would be chosen.                                                                                                                
                                                                                                                                
5:09:20 PM                                                                                                                    
                                                                                                                                
Vice-Chair  Gara  was  more comfortable  with  a  5  percent                                                                    
scoring preference rather than a 5 percent additional cost.                                                                     
                                                                                                                                
Mr. Poag would look further at the statutory site.                                                                              
                                                                                                                                
Co-Chair Seaton  pointed out  that it  seemed like  the bill                                                                    
was  allowing  for the  procurement  of  supplies and  other                                                                    
things  as  well  as   acquiring  services  of  professional                                                                    
consultants.  He thought  the corporation  would be  able to                                                                    
set  its entire  panoply of  procurements, which  might vary                                                                    
between supplies and professional services.                                                                                     
Vice-Chair  Gara wanted  to support  the  amendment, but  he                                                                    
wanted  to make  sure  he  understood it.  He  asked if  the                                                                    
corporation  had  to   adopt  regulations  that  encompassed                                                                    
services  along with  the 5  percent preference.  He thought                                                                    
the corporation would have to  comply with services as well.                                                                    
He  also  wanted to  confirm  that  there  was a  5  percent                                                                    
scoring  preference as  opposed  to a  5 percent  additional                                                                    
cost preference.  He suggested  that it  was just  a service                                                                    
preference.  An  example  of  services was  the  use  of  an                                                                    
investment company  in Anchorage,  McKinley Capital.  In the                                                                    
past, the  company had  contracted with  APFC. He  wanted to                                                                    
know if they  were receiving a 5 percent  cost preference or                                                                    
a 5 percent scoring preference.                                                                                                 
                                                                                                                                
Mr. Poag  responded that  there were  2 parts  to Vice-Chair                                                                    
Gara's  question.  He  referenced  statute  36.33.21(a).  He                                                                    
explained that  cost was one  of the items that  was scored.                                                                    
The  score   attributed  to  cost   received  a   5  percent                                                                    
preference. Often costs  could be 20 percent or  more of the                                                                    
scoring criteria.  Therefore, the one criterial  would get a                                                                    
5  percent preference,  which would  give a  benefit to  the                                                                    
pricing of an Alaska bidder under  the statute. It was not a                                                                    
5  percent  price  bump.  He   spoke  to  Vice-Chair  Gara's                                                                    
reference to  McKinley Capital.  He noted  that it  was only                                                                    
for   services  the   corporation  procured   to  help   the                                                                    
corporation  with investment  transactions. The  procurement                                                                    
did not apply  to the corporation when  it made investments.                                                                    
It  would  not   make  sense  to  apply  it   to  APFC.  The                                                                    
corporation  chose managers  that were  best suited  to fill                                                                    
the mandate  with the  best price and  track record.  He did                                                                    
not believe there  was a concern with  the particular bidder                                                                    
the  representative  mentioned.  He   reiterated  that  a  5                                                                    
percent scoring preference applied to cost criteria.                                                                            
                                                                                                                                
5:12:30 PM                                                                                                                    
                                                                                                                                
Representative  Guttenberg  assumed  the corporation  had  a                                                                    
portfolio of fund managers and  investment brokers. He asked                                                                    
Mr.  Poag  provide  an  example   of  the  procurement  code                                                                    
hindering the  corporation from the  ability to  achieve the                                                                    
best for the PF.                                                                                                                
                                                                                                                                
Mr.  Poag could  not put  his finger  on a  specific example                                                                    
where the corporation lost out  on an investment opportunity                                                                    
due to the  state's procurement code. He  clarified that the                                                                    
standard  timeline to  give  notice  for public  procurement                                                                    
under the  state's procurement  code was  21 days.  Once the                                                                    
corporation  made its  selection there  had to  be a  10-day                                                                    
award  period.   Some  of  the   investments  came   to  the                                                                    
corporation  on a  shortened timeframe.  If the  corporation                                                                    
needed  to  procure  a  consultant   to  help  evaluate  the                                                                    
transaction, there would  be an issue with  timing. The goal                                                                    
of  the  amendment was  not  to  avoid using  a  procurement                                                                    
process. The  goal was to  draft a procurement  process that                                                                    
was tailored to the function  of the corporation. The Alaska                                                                    
Legislature  created the  PF with  a  single myopic  vision,                                                                    
which  was to  invest and  manage  the assets  of the  fund.                                                                    
However,   the  procurement   code  that   applied  to   the                                                                    
corporation (the  state statute, state regulations,  and the                                                                    
state administrative  manual) was a  one-size-fits-all code.                                                                    
It had caused problems for  the corporation in the past. The                                                                    
corporation  was also  one of  the  agencies that  requested                                                                    
alternative  procurement more  than  other agencies  because                                                                    
most  of   the  goods  and  services   the  corporation  was                                                                    
procuring did  not fit neatly within  the normal categories.                                                                    
He  was  unable  to  identify   a  specific  investment  the                                                                    
corporation  had  lost.  However,  as  an  example,  in  the                                                                    
previous  day  the  corporation   had  made  a  decision  to                                                                    
consider an investment,  which was supposed to  close at the                                                                    
end of the month. Sometimes  investments took place within a                                                                    
shortened   timeframe.   In   his  specific   example,   the                                                                    
corporation did  not need the  help of a vendor  to evaluate                                                                    
the  investment. However,  the need  occurred from  time-to-                                                                    
time. He  reported that the ARM  Board had over 10  pages in                                                                    
the regulations.  The corporation would use  a similar model                                                                    
to adopt  a regulation  packet substantially similar  to the                                                                    
state's  procurement   code,  but   tailored  to   meet  the                                                                    
corporation's need.                                                                                                             
                                                                                                                                
5:15:10 PM                                                                                                                    
                                                                                                                                
Representative Kawasaki  asked if APFC was  currently exempt                                                                    
from  the  procurement code  as  it  pertained to  acquiring                                                                    
income   producing  assets,   investments,  and   investment                                                                    
authority.                                                                                                                      
                                                                                                                                
Mr.  Poag  referenced  AS 36.30.850.15.  He  read  from  the                                                                    
statute:                                                                                                                        
                                                                                                                                
     (15) a  contract that is  a delegation, in whole  or in                                                                    
     part,  of  investment  powers or  fiduciary  duties  of                                                                    
       (A)  the Board  of Trustees  of the  Alaska Permanent                                                                    
     Fund Corporation under AS 37.13                                                                                          
                                                                                                                                
Mr. Poag  confirmed that the  Board of Trustees of  APFC was                                                                    
exempt from the procurement  code. When the corporation made                                                                    
investment decisions and  needed the help of  a fiduciary or                                                                    
delegated  authority to  an outside  manager, it  was exempt                                                                    
from the procurement code.                                                                                                      
                                                                                                                                
Representative  Kawasaki  was  looking at  APFC's  suggested                                                                    
procurement  delegation  regulation  changes. The  staff  of                                                                    
APFC  recommended  that  the   corporation  create  its  own                                                                    
procurement  processes. He  thought a  corresponding statute                                                                    
would  be necessary  to change  the  process completely.  He                                                                    
asked if the statute change was necessary.                                                                                      
                                                                                                                                
Mr.  Poag  was  not  sure  about  Representative  Kawasaki's                                                                    
question  concerning referencing  a  statute. The  amendment                                                                    
identified  APFC  as  one  of  the  agencies  that  had  the                                                                    
authority not to comply with  the standard state procurement                                                                    
code,  but to  adopt  a code  substantially  similar to  the                                                                    
state   procurement   code.   The  Alaska   Permanent   Fund                                                                    
Corporation was asking  to be added to the  list of agencies                                                                    
that  were exempt  from the  state's  procurement code.  The                                                                    
amendment included language that  required the APFC to adopt                                                                    
by regulation of  a code substantially similar  to the state                                                                    
procurement code.                                                                                                               
                                                                                                                                
Representative  Kawasaki   was  unsure   if  he   liked  the                                                                    
amendment.  The  committee  had  just  had  a  debate  about                                                                    
another corporation, the  Alaska Seafood Marketing Institute                                                                    
(ASMI),  which was  also exempt  from the  state procurement                                                                    
code.  He reported  that ASMI  presently  employed 7  people                                                                    
out-of-state, which  he thought was  a result of  the entity                                                                    
operating outside of the state  procurement code. He did not                                                                    
think it  was appropriate for the  change to be in  the bill                                                                    
at the current time.                                                                                                            
                                                                                                                                
Co-Chair Seaton WITHDREW his OBJECTION.                                                                                         
                                                                                                                                
There being NO OBJECTION, Amendment 11 was ADOPTED.                                                                             
                                                                                                                                
Co-Chair   Foster   indicated   the   committee   would   be                                                                    
adjourning, but  the remaining amendments  for HB  115 would                                                                    
be heard,  as well as  HB 31, on  the following day  at 1:30                                                                    
p.m.                                                                                                                            
                                                                                                                                
ADJOURNMENT                                                                                                                   
                                                                                                                                
5:18:51 PM                                                                                                                    
                                                                                                                                
The meeting was adjourned at 5:18 p.m.                                                                                          

Document Name Date/Time Subjects
HB 115 Amendment Packet .pdf HFIN 3/14/2017 8:30:00 AM
HB 115