Legislature(2017 - 2018)HOUSE FINANCE 519

03/17/2017 01:30 PM FINANCE

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Audio Topic
02:47:00 PM Start
02:47:08 PM SB30
02:52:21 PM HB115
02:52:57 PM Amendments
04:43:01 PM Adjourn
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
-- Delayed to approx. 2:35 pm Today --
+= SB 30 APPROVAL: ROYALTY OIL SALE TO PETRO STAR TELECONFERENCED
Moved SB 30 Out of Committee
+= HB 115 INCOME TAX; PFD CREDIT; PERM FUND INCOME TELECONFERENCED
Heard & Held
+ Bills Previously Heard/Scheduled TELECONFERENCED
                  HOUSE FINANCE COMMITTEE                                                                                       
                       March 17, 2017                                                                                           
                         2:47 p.m.                                                                                              
                                                                                                                                
2:47:00 PM                                                                                                                    
                                                                                                                                
CALL TO ORDER                                                                                                                 
                                                                                                                                
Co-Chair Foster called the House Finance Committee meeting                                                                      
to order at 2:47 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                                                                                                    
Representative Mark Neuman (alternate)                                                                                          
                                                                                                                                
MEMBERS ABSENT                                                                                                                
                                                                                                                                
Representative Steve Thompson                                                                                                   
                                                                                                                                
ALSO PRESENT                                                                                                                  
                                                                                                                                
Ed King,  Special Assistant  to the Commissioner,  Department                                                                   
of  Natural   Resources;   Randall  Hoffbeck,   Commissioner,                                                                   
Department   of   Revenue;   Brandon    Brefczynski,   Staff,                                                                   
Representative  Steve  Thompson;   Alexei  Painter,  Analyst,                                                                   
Legislative Finance Division.                                                                                                   
                                                                                                                                
PRESENT VIA TELECONFERENCE                                                                                                    
                                                                                                                                
None                                                                                                                            
                                                                                                                                
SUMMARY                                                                                                                       
                                                                                                                                
HB 115    INCOME TAX; PFD CREDIT; PERM FUND INCOME                                                                              
                                                                                                                                
          HB 115 was HEARD and HELD in committee for                                                                            
          further consideration.                                                                                                
                                                                                                                                
SB 30     APPROVAL: ROYALTY OIL SALE TO PETRO STAR                                                                              
                                                                                                                                
2:47:08 PM                                                                                                                    
                                                                                                                                
Co-Chair Foster  addressed the meeting agenda.  He noted that                                                                   
Representative  Mark Neuman  was sitting  in as an  alternate                                                                   
for Representative Thompson.                                                                                                    
                                                                                                                                
SENATE BILL NO. 30                                                                                                            
                                                                                                                                
     "An Act approving and ratifying the sale of royalty                                                                        
     oil by the State of Alaska to Petro Star Inc.; and                                                                         
     providing for an effective date."                                                                                          
                                                                                                                                
2:48:04 PM                                                                                                                    
                                                                                                                                
Representative  Wilson   questioned  the  fiscal   note.  She                                                                   
wondered about  the non-UGF (Other)  fund source  of $1.945.4                                                                   
million.                                                                                                                        
                                                                                                                                
ED KING,  SPECIAL ASSISTANT  TO THE COMMISSIONER,  DEPARTMENT                                                                   
OF  NATURAL   RESOURCES,  identified  three   funds  [royalty                                                                   
distribution]:  the general  fund,  Permanent  Fund, and  the                                                                   
Public School Trust Fund.                                                                                                       
                                                                                                                                
Co-Chair Foster noted there were no amendments to the bill.                                                                     
                                                                                                                                
Vice-Chair   Gara  addressed   the  fiscal   note  from   the                                                                   
Department  of Natural  Resources,  FN  2 (DNR).  The  fiscal                                                                   
note had zero  expenditures and brought in  revenues totaling                                                                   
$3.852.2 million in FY 18.                                                                                                      
                                                                                                                                
2:50:22 PM                                                                                                                    
                                                                                                                                
Mr. King  clarified that the initial  fiscal note FN  1 (DNR)                                                                   
had contained an error.                                                                                                         
                                                                                                                                
Co-Chair Seaton MOVED  to REPORT SB 30 out  of committee with                                                                   
individual  recommendations   and  the  accompanying   fiscal                                                                   
note. There being NO OBJECTION, it was so ordered.                                                                              
                                                                                                                                
SB 30 was REPORTED out of committee with a "do pass"                                                                            
recommendation and with one previously published fiscal                                                                         
impact note: FN2 DNR.                                                                                                           
                                                                                                                                
2:51:26 PM                                                                                                                    
AT EASE                                                                                                                         
                                                                                                                                
2:52:14 PM                                                                                                                    
RECONVENED                                                                                                                      
                                                                                                                                
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."                                                                                                           
                                                                                                                                
2:52:21 PM                                                                                                                    
                                                                                                                                
^AMENDMENTS                                                                                                                   
                                                                                                                                
2:52:57 PM                                                                                                                    
AT EASE                                                                                                                         
                                                                                                                                
2:53:38 PM                                                                                                                    
RECONVENED                                                                                                                      
                                                                                                                                
Representative Wilson WITHDREW Amendment 16, 30-LS0125\E.23                                                                     
(Nauman, 3/12/17) (copy on file) and Amendment 17, 30-                                                                          
LS0125\E.22 (Nauman, 3/10/17).                                                                                                  
                                                                                                                                
Representative Wilson MOVED to ADOPT Amendment 18, 30-                                                                          
LS0125\E.39 (Nauman, 3/17/17).                                                                                                  
                                                                                                                                
     Page 1, line 5, following "Act;":                                                                                          
     2  Insert  "authorizing  an  advisory  vote  to  approve                                                                   
     legislative  action  that  appropriates money  from  the                                                                   
     earnings  reserve account  for  a purpose  other than  a                                                                   
     payment of a permanent fund dividend;"                                                                                     
                                                                                                                                
     Page 10, following line 24:                                                                                                
     Insert a new bill section to read:                                                                                         
     Sec. 16. The uncodified law of the State of Alaska is                                                                      
     amended by adding a new section to read:                                                                                   
                                                                                                                                
     ADVISORY VOTE.  At the next primary election  to be held                                                                   
     in  substantial  compliance with  the  election laws  of                                                                   
     the   state,   including   absentee   voting   and   the                                                                   
     preparation,  publication,  and mailing  of an  election                                                                   
     pamphlet under  AS 15.58, the lieutenant  governor shall                                                                   
     place  before  the  qualified  voters  of  the  state  a                                                                   
     question advisory  to the legislature and  the governor.                                                                   
     The  election pamphlet  for  the special  election  must                                                                   
     comply   with  AS   15.58.020(a)   (6),  including   the                                                                   
     requirement  that it  contain  statements that  advocate                                                                   
     voter   approval   or   rejection   of   the   question.                                                                   
     Notwithstanding  AS 15.80.005  and  other laws  relating                                                                   
     to preparation  of the ballot proposition,  the question                                                                   
     shall appear on the ballot in the following form:                                                                          
                                                                                                                                
     QUESTION                                                                                                                   
                                                                                                                                
     Should  the  legislature   appropriate  money  from  the                                                                   
     permanent  fund  earnings for  a  purpose  other than  a                                                                   
     payment of a permanent fund dividend?                                                                                      
                                                                                                                                
     Yes [ ] No [ ]"                                                                                                            
                                                                                                                                
     Renumber the following bill sections accordingly.                                                                          
                                                                                                                                
     Page 10, line 29:                                                                                                          
     Delete "15, and 16"                                                                                                        
     Insert "and 15 - 17"                                                                                                       
                                                                                                                                
     Page l0, line 3l:                                                                                                          
     Delete "see. 17"                                                                                                           
     Insert "sec. 18"                                                                                                           
                                                                                                                                
Representative Grenn OBJECTED for discussion.                                                                                   
                                                                                                                                
Representative Wilson  spoke to the amendment.  She explained                                                                   
that  the  amendment   called  for  an  advisory   vote.  She                                                                   
referenced  a  memorandum  from  Legislative  Legal  Services                                                                   
dated March 17, 2017 related to advisory votes.                                                                                 
                                                                                                                                
2:54:40 PM                                                                                                                    
                                                                                                                                
Co-Chair  Seaton noted  the language,  "at  the next  primary                                                                   
election" and  indicated that  the next primary  election was                                                                   
scheduled in  August of the  following year [2018].  He asked                                                                   
whether   that  was   the  amendment   sponsor's   intention.                                                                   
Representative  Wilson replied in  the affirmative.  She felt                                                                   
that the  tax discussion  was "complex" and  did not  want to                                                                   
"rush." She added  that if legislation was passed,  the delay                                                                   
allowed time to access whether it was working.                                                                                  
                                                                                                                                
Co-Chair  Seaton spoke  in opposition  to  the amendment.  He                                                                   
felt that  the impending vote  would delay the  "immediacy of                                                                   
the discussion and  the development of the bills."  He voiced                                                                   
that  a referendum  procedure  was  available if  the  public                                                                   
disapproved  of the approach  chosen by  the legislature.  He                                                                   
thought that  the vote lead  to a "blind  trail" and  did not                                                                   
allow the legislature  to address the issue  and move forward                                                                   
with a plan.                                                                                                                    
                                                                                                                                
Representative  Neuman supported  the  amendment and  alluded                                                                   
to  public  sentiment  towards the  Permanent  Fund  Dividend                                                                   
(PFD). He  stated that there were  many diverse views  on how                                                                   
the  Permanent Fund  should  be used.  He  believed that  the                                                                   
advisory vote "was  a good idea" and that "the  public should                                                                   
have the  chance to  decide." He indicated  that the  fate of                                                                   
the legislation  Co-Chair Seaton  referred to was  uncertain.                                                                   
He reported that  according to the Department  of Revenue the                                                                   
state  had over  $15 billion  in reserves;  $10.6 billion  in                                                                   
the Earning  Reserves Account (ERA)  and $4.5 billion  in the                                                                   
Constitutional  Budget  Reserves  (CBR).  He noted  that  the                                                                   
deficits were  running $3 billion.  He did not  support using                                                                   
the  Permanent Fund  to fund  government  while the  reserves                                                                   
were high.                                                                                                                      
                                                                                                                                
2:59:04 PM                                                                                                                    
                                                                                                                                
Representative  Guttenberg  testified  in opposition  to  the                                                                   
amendment.  He shared his  concerns regarding  the issue.  He                                                                   
spoke  to the  prior  and current  process  of attempting  to                                                                   
address  the problem  through  creation  of an  endowment  to                                                                   
create a revenue  stream while reserves dwindled  each year a                                                                   
plan  was  not adopted.  He  stated  that the  amendment  was                                                                   
merely an  advisory vote  and relayed  that the public  might                                                                   
introduce their  own referendum resulting in two  measures on                                                                   
the  ballot  posing  the same  question.  He  thought  public                                                                   
opinion  was  diverse  and  that an  advisory  vote  was  not                                                                   
helpful  especially  one and  half  years away.  He  believed                                                                   
that  it   was  imperative  for   the  legislature   to  take                                                                   
immediate action.                                                                                                               
                                                                                                                                
Representative  Pruitt believed  there would  be an  advisory                                                                   
vote  whether  it was  proposed  by  the legislature  or  put                                                                   
forward  in a  referendum.  He  supported the  amendment.  He                                                                   
emphasized  his  strong  support  for an  advisory  vote.  He                                                                   
determined that  public disapproval  of actions taken  by the                                                                   
legislature  would  more  "carefully" guide  the  policy.  He                                                                   
believed that  many politicians had  created a mind  set over                                                                   
30  years that  the Permanent  Fund  would never  be used  to                                                                   
fund  government.  He  believed that  the  amendment  allowed                                                                   
public participation  and as a  result "kept the  legislature                                                                   
on track no matter" what action was taken.                                                                                      
                                                                                                                                
3:03:43 PM                                                                                                                    
                                                                                                                                
Representative  Tilton spoke in  favor of the  amendment. She                                                                   
recounted  that the  committee  had heard  discussions  about                                                                   
timing.  She related  that prior  legislatures had  discussed                                                                   
an advisory  vote  on the matter.  She wished  that the  vote                                                                   
had  already taken  place and  wanted  the public  to have  a                                                                   
voice on the issue.                                                                                                             
                                                                                                                                
Vice-Chair Gara  was opposed to  the amendment.  He discussed                                                                   
that part  of the  legislature's  job was to  ensure it  "did                                                                   
not  fool  the  public."  He remarked  that  the  roughly  $9                                                                   
billion in  the Permanent Fund  Earnings Reserve  Account was                                                                   
referred  to as  savings. He  noted that  at the  end of  the                                                                   
current fiscal year  the state's savings balance  would be $3                                                                   
billion lower and  depleted in the following  fiscal year. He                                                                   
reminded  the  committee  that  the balance  started  at  $17                                                                   
billion. There  ultimately would  not be sufficient  money to                                                                   
pay a  dividend if  ERA funds  were expended  like savings  -                                                                   
even with  the implementation  of "radical  budget cuts."  He                                                                   
wanted to  work together  to determine a  way to  protect the                                                                   
dividend.                                                                                                                       
                                                                                                                                
3:06:10 PM                                                                                                                    
                                                                                                                                
Representative  Wilson  provided   closing  comments  on  the                                                                   
amendment. She  believed it was  a good thing the  vote would                                                                   
not  happen  immediately.  She  did  not  view  the  vote  as                                                                   
slowing down or  stopping anything. She wanted  the public to                                                                   
be  more engaged.  An  advisory vote  would  open a  dialogue                                                                   
with   the  public.   She  stated   the   vote  would   force                                                                   
legislators "to have a specific conversation with their                                                                         
constituents."                                                                                                                  
                                                                                                                                
3:09:26 PM                                                                                                                    
                                                                                                                                
Representative Grenn MAINTAINED his OBJECTION.                                                                                  
                                                                                                                                
A roll call vote was taken on the motion.                                                                                       
                                                                                                                                
IN FAVOR: Pruitt, Neuman, Tilton, Wilson                                                                                        
OPPOSED:                                                                                                                        
                                                                                                                                
The MOTION FAILED (4/7).                                                                                                        
                                                                                                                                
3:10:04 PM                                                                                                                    
                                                                                                                                
Representative Wilson MOVED to ADOPT Amendment 19, 30-                                                                          
LS0125\E.38 (Nauman, 3/17/17).                                                                                                  
                                                                                                                                
     Page 1, line 5, following "Act;":                                                                                          
     Insert  "authorizing  an  advisory vote  on  legislative                                                                   
     action that imposes an income tax;"                                                                                        
                                                                                                                                
     Page 10, following line 24:                                                                                                
     Insert a new bill section to read:                                                                                         
     Sec. 16. The uncodified law of the State of Alaska is                                                                      
     amended by adding a new section to read:                                                                                   
                                                                                                                                
     ADVISORY VOTE.  At the next primary election  to be held                                                                   
     in  substantial  compliance with  the  election laws  of                                                                   
     the   state,   including   absentee   voting   and   the                                                                   
     preparation,  publication,  and mailing  of an  election                                                                   
     pamphlet under  AS 15.58, the lieutenant  governor shall                                                                   
     place  before  the  qualified  voters  of  the  state  a                                                                   
     question advisory  to the legislature and  the governor.                                                                   
     The  election pamphlet  for  the special  election  must                                                                   
     comply   with  AS   15.58.020(a)   (6),  including   the                                                                   
     requirement  that it  contain  statements that  advocate                                                                   
     voter   approval   or   rejection   of   the   question.                                                                   
     Notwithstanding  AS 15.80.005  and  other laws  relating                                                                   
     to preparation  of the ballot proposition,  the question                                                                   
     shall appear on the ballot in the following form:                                                                          
                                                                                                                                
     QUESTION                                                                                                                   
     Should  the  legislature   appropriate  money  from  the                                                                   
     permanent  fund  earnings for  a  purpose  other than  a                                                                   
     payment of a permanent fund dividend?                                                                                      
     Yes [ ] No [ ]"                                                                                                            
                                                                                                                                
     Renumber the following bill sections accordingly.                                                                          
                                                                                                                                
     Page 10, line 29:                                                                                                          
     Delete "15, and 16"                                                                                                        
     Insert "and 15 - 17"                                                                                                       
                                                                                                                                
     Page l0, line 3l:                                                                                                          
     Delete "see. 17"                                                                                                           
     Insert "sec. 18"                                                                                                           
                                                                                                                                
Co-Chair Seaton OBJECTED for discussion.                                                                                        
                                                                                                                                
Representative Wilson  spoke to the amendment.  She commented                                                                   
that  the   amendment   called  for  an   advisory  vote   on                                                                   
legislative action that imposed an income tax.                                                                                  
                                                                                                                                
Representative  Guttenberg opposed  the amendment.  He voiced                                                                   
that his constituents  wanted him to act and he  did not want                                                                   
to second  guess the  decision by  seeking an advisory  vote.                                                                   
He supported  the public's use  of the referendum  process to                                                                   
register disapproval of actions taken by the legislature.                                                                       
                                                                                                                                
3:11:41 PM                                                                                                                    
                                                                                                                                
Representative  Neuman supported  the  amendment. He  related                                                                   
that  his constituents  rated an  income tax  as their  least                                                                   
favorable  way to  fund government.  He  favored an  advisory                                                                   
vote.  He felt  that  an income  tax took  money  out of  the                                                                   
economy at a time when a recession was impending.                                                                               
                                                                                                                                
Co-Chair  Seaton was  opposed to  the amendment.  He did  not                                                                   
believe it was  very useful to offer generic  language on the                                                                   
ballot  that would  result  in  a "generalized  opinion."  He                                                                   
communicated  that  an income  tax  could be  constructed  in                                                                   
many  ways  and  specific  details   would  generate  a  more                                                                   
informed   response.   He   believed   the   ballot   measure                                                                   
incentivized  delay and interfered  with forward  movement on                                                                   
use of an income tax to solve the fiscal problems.                                                                              
                                                                                                                                
Representative  Pruitt did  not believe  the structure  of an                                                                   
income  tax  mattered  to  the public.  He  opined  that  the                                                                   
public  had a  fundamental reaction  and  the discussion  was                                                                   
"psychological."  He  declared  that the  vote  would  reveal                                                                   
that "the  people did  not want an  income tax."  He believed                                                                   
the  legislature would  find "the  overwhelming majority"  of                                                                   
voters opposed  to an  income tax.  He did  not think  that a                                                                   
vote delayed  action taken on  the budget. He was  not afraid                                                                   
of hearing from  "the people" in an advisory  vote. He wanted                                                                   
to speak  for the people he  represented and voiced  that the                                                                   
"best" polling was the results from citizens voting.                                                                            
                                                                                                                                
3:17:32 PM                                                                                                                    
                                                                                                                                
Representative  Kawasaki relayed  that in  2015 the  Rasmuson                                                                   
Foundation   performed  a   poll   that  included   questions                                                                   
regarding  an  income tax.  The  poll  had asked  the  public                                                                   
whether  they  supported  an income  tax.  A  large  majority                                                                   
disapproved  unless the  tax only applied  to individuals  in                                                                   
the  over  $100,000   income  group.  He  deduced   that  the                                                                   
structure of  an income  tax would affect  the outcome  of an                                                                   
advisory vote.                                                                                                                  
                                                                                                                                
Vice-Chair  Gara spoke  in opposition  to  the amendment.  He                                                                   
believed  that  the amendments  "prevented  legislators  from                                                                   
leveling with the  public." He related that an  income tax or                                                                   
permanent  fund  restructuring   (no  dividend  distribution)                                                                   
alone would  not solve the  fiscal problem. He  declared that                                                                   
he  had wanted  a larger  dividend than  the amount  Alaskans                                                                   
received the  prior year. He  stated that the  budget deficit                                                                   
was so large  the concept was beyond comprehension  for many.                                                                   
He voiced  that the  issue "was  not a  political thing."  He                                                                   
reiterated  that single fixes  like a  sales tax or  "radical                                                                   
cuts" to  the budget  did not solve  the fiscal problem.  The                                                                   
state would run out of savings soon.                                                                                            
                                                                                                                                
Representative  Neuman  asked   that  the  discussion  remain                                                                   
focused on the amendment.                                                                                                       
                                                                                                                                
Co-Chair Foster  requested that Vice-Chair Gara  restrain his                                                                   
comments.                                                                                                                       
                                                                                                                                
Vice-Chair  Gara did  not support  putting part  of a  fiscal                                                                   
plan to  a public  vote. He thought  the advisory  vote would                                                                   
mislead  the  public.   He  characterized  the   issue  as  a                                                                   
"massive"  math   problem  that  would  lead   to  a  10-year                                                                   
recession.                                                                                                                      
                                                                                                                                
3:22:01 PM                                                                                                                    
                                                                                                                                
Representative  Wilson provided  concluding  comments on  the                                                                   
amendment. She  did not know "when  it had become a  crime to                                                                   
ask the public  what they wanted." She felt  that she engaged                                                                   
in honest  discourse with her  constituents. She  stated that                                                                   
taxing   a  person's  income   was  "specific"   and   was  a                                                                   
significant and  important issue.  She welcomed the  public's                                                                   
opinion on the matter.                                                                                                          
                                                                                                                                
3:24:31 PM                                                                                                                    
                                                                                                                                
Co-Chair Seaton MAINTAINED his OBJECTION.                                                                                       
                                                                                                                                
A roll call vote was taken on the motion.                                                                                       
                                                                                                                                
IN FAVOR: Pruitt, Neuman, Tilton, Thompson                                                                                      
OPPOSED: Ortiz, Gara, Grenn, Guttenberg, Kawasaki, Foster,                                                                      
Seaton                                                                                                                          
                                                                                                                                
The MOTION FAILED (4/7).                                                                                                        
                                                                                                                                
3:25:07 PM                                                                                                                    
                                                                                                                                
Representative Pruitt MOVED to ADOPT Amendment 12, 30-                                                                          
LS0125\E.27 (Nauman, 3/10/17) (copy on file):                                                                                   
                                                                                                                                
     Page 1, line 1, following "dividends;':                                                                                    
                                                                                                                                
     Insert  'relating  to  the   management  of  the  budget                                                                   
     reserve fund;"                                                                                                             
     Page 1, following line 9:                                                                                                  
     Insert a new bill section to read:                                                                                         
     "Sec. 2. AS 37.10.430(c) is amended to read:                                                                               
     (c) A  special subaccount  is established in  the budget                                                                   
     reserve  fund (art.  IX,  sec. 17.  Constitution of  the                                                                   
     State  of Alaska).  Money  in  the subaccount  shall  be                                                                   
     invested   to  yield  higher   returns  than   might  be                                                                   
     feasible  to  obtain  with  other money  in  the  budget                                                                   
     reserve   fund.  [IN  ESTABLISHING   OR  MODIFYING   THE                                                                   
     INVESTMENT POLICY                                                                                                          
     11  FOR  THE SUBACCOUNT  IN  THE  CONSTITUTIONAL  BUDGET                                                                   
     RESERVE FUND,  THE COMMISSIONER OF REVENUE  SHALL ASSUME                                                                   
     THAT THOSE  FUNDS WILL NOT  BE NEEDED FOR AT  LEAST FIVE                                                                   
     YEARS.] Income  earned on money in the  subaccount shall                                                                   
     be retained in the subaccount by the department."                                                                          
                                                                                                                                
     Page 10, line 18:                                                                                                          
     Delete "sec. 11"                                                                                                           
     Insert "sec. 12"                                                                                                           
                                                                                                                                
     Page 10, line 19:                                                                                                          
     Delete "sec. 11"                                                                                                           
     Insert "sec. 12"                                                                                                           
                                                                                                                                
     Page 10, line27:                                                                                                           
     Delete 'secs. 2 - 9" in both places                                                                                        
     Insert "secs. 3 - 10" in both places                                                                                       
                                                                                                                                
     Page 10, line 29:                                                                                                          
     Delete "Sections 1 - 9, 15, and 16"                                                                                        
     Insert "Sections 1, 3 - 10, 16, and 17"                                                                                    
                                                                                                                                
     Page l0, Iine3l:                                                                                                           
     Delete "sec. 17"                                                                                                           
     Insert "sec. 18"                                                                                                           
                                                                                                                                
Co-Chair Seaton OBJECTED.                                                                                                       
                                                                                                                                
Representative  Pruitt  spoke to  the amendment.  He  related                                                                   
that  CBR funds  were conservatively  managed  under a  five-                                                                   
year  limit  based on  a  potential  need for  liquidity.  He                                                                   
indicated   that  two  years   prior  Commissioner   Hoffbeck                                                                   
(Department of  Revenue) moved CBR  funds to an  account that                                                                   
was  managed  more  conservatively  so that  the  funds  were                                                                   
readily available  for expenditure. However, the  account was                                                                   
"making less money."  The amendment allowed funds  not deemed                                                                   
necessary in the  short term to be managed  more aggressively                                                                   
in the  hopes of  gaining higher  earnings. In addition,  the                                                                   
funds must  remain in a type  of account that kept  the funds                                                                   
readily available for expenditure.                                                                                              
                                                                                                                                
3:28:35 PM                                                                                                                    
                                                                                                                                
Co-Chair  Seaton thought  the amendment  seemed logical,  but                                                                   
he  wanted   to  see  how   it  worked  within   the  revenue                                                                   
restructuring act.                                                                                                              
                                                                                                                                
RANDALL  HOFFBECK,   COMMISSIONER,  DEPARTMENT   OF  REVENUE,                                                                   
answered that  the amendment worked  within the  framework of                                                                   
the  restructuring act  in two  distinct  ways. He  explained                                                                   
that by  allowing greater  flexibility in  the way  the funds                                                                   
were invested  increased the return on  investment. Secondly,                                                                   
the Permanent  Fund restructuring  component required  a draw                                                                   
from   the   Earnings   Reserve   Account   (ERA)   but   the                                                                   
administration  did  not  want   the  Alaska  Permanent  Fund                                                                   
Corporation (APFC)  to change  its investment practices.  The                                                                   
draw  required "cash  management  on the  treasury side"  and                                                                   
the CBR  played a critical  role. The flexibility  within the                                                                   
CBR  allowed  a  structure  to   become  a  "cash  management                                                                   
vehicle," ensuring  liquidity needs.  He reiterated  that the                                                                   
CBR would  be a  critical tool  in the restructuring  process                                                                   
for cash management,  but the amendment allowed  for "greater                                                                   
returns" as well.                                                                                                               
                                                                                                                                
Vice-Chair  Gara   favored  the   provision.  He   asked  for                                                                   
verification that  the amendment made  no sense if  a revenue                                                                   
plan was  not adopted.  He noted  that current spending  from                                                                   
the CBR  necessitated short-term,  low interest  investments.                                                                   
Commissioner Hoffbeck  answered in the affirmative.  He added                                                                   
that  without  restructuring,   the  CBR  funds  were  needed                                                                   
within two  years and would be  kept "liquid and  secure." He                                                                   
restated  that if no  restructuring occurred,  the CBR  would                                                                   
be gone  in two years. Vice-Chair  Gara asked whether  1 or 2                                                                   
percent  interest  was  expected on  short  term  investments                                                                   
versus   8  or   9   percent   on  long   term   investments.                                                                   
Commissioner Hoffbeck  answered that the earnings  were about                                                                   
2  percent.  Vice-Chair  Gara  supported  the  amendment.  He                                                                   
stated that the  CBR could only be invested  in the long-term                                                                   
if the  legislature found ways  to increase revenues  and not                                                                   
deplete  the  fund.  Commissioner  Hoffbeck  replied  in  the                                                                   
affirmative.                                                                                                                    
                                                                                                                                
3:33:06 PM                                                                                                                    
                                                                                                                                
Representative  Neuman   asked  for  verification   that  the                                                                   
legislature  had   the  ability  to  use  the   ERA  to  fund                                                                   
government.   Commissioner   Hoffbeck    responded   in   the                                                                   
affirmative.   Representative   Neuman  asked   whether   the                                                                   
balance   of  the   ERA   was  approximately   $10   billion.                                                                   
Commissioner    Hoffbeck   agreed    with   the    statement.                                                                   
Representative  Neuman deduced  that between  the balance  of                                                                   
the CBR,  which totaled  approximately  $4.6 billion  and the                                                                   
ERA combined the  state would not run out of  reserves in two                                                                   
years.  Commissioner  Hoffbeck  answered  that  the  question                                                                   
pertained  exclusively  to  the  CBR.  Representative  Neuman                                                                   
asked  whether  the  amendment  changed  the  investment  and                                                                   
management  rules governing  the  CBR. Commissioner  Hoffbeck                                                                   
answered that  the subaccount and  the main account  would be                                                                   
invested differently  from the other. The main  account would                                                                   
be secure  and liquid  because it was  assumed that  it would                                                                   
be used  sometime within a  five-year period.  The subaccount                                                                   
would  be  invested  more aggressively  for  a  longer  term.                                                                   
Representative Neuman  asked if the  money was "locked  up in                                                                   
a   subaccount"   the   fund   would   not   be   expendable.                                                                   
Commissioner  Hoffbeck  answered   CBR  funds  would  not  be                                                                   
placed in  a subaccount if he  determined the money  would be                                                                   
needed  within five  years.  He added  that  the idea  behind                                                                   
eliminating   the  five-year   requirement  but  maintain   a                                                                   
subaccount  allowed  for  a  more   "progressive"  investment                                                                   
policy;  having  three-year, four-year,  five-year  and  over                                                                   
investments,  opposed  to  a hard  5-year  line  for  keeping                                                                   
money  liquid.   Representative   Neuman  wondered   how  the                                                                   
administration  would  know  the   state's  future  financial                                                                   
needs. He  spoke to the crash  in oil prices that  had caused                                                                   
the current  recession. Commissioner  Hoffbeck answered  that                                                                   
the  five-year provision  was  not  a five-year  "lockup"  of                                                                   
funds but more  of a mindset on the amount of  risk the state                                                                   
was willing  to accept. The  subaccount could be  invested in                                                                   
a higher  risk portfolio  with high or  low swings  but could                                                                   
be and index fund that was accessible anytime.                                                                                  
                                                                                                                                
3:38:02 PM                                                                                                                    
                                                                                                                                
Representative  Neuman asked  whether DOR  would have  to pay                                                                   
penalties  if the  funds  were used  "earlier."  Commissioner                                                                   
Hoffbeck  answered  in the  negative.  Representative  Neuman                                                                   
thought  that   the  legislature   adopted  a  statute   that                                                                   
mandated  CBR  management  by   APFC.  Commissioner  Hoffbeck                                                                   
answered  that  it  was  contained   in  the  Permanent  Fund                                                                   
Protection  Act [SB  26 Approp  Limit &  Per Fund:  Dividend;                                                                   
Earnings].  Representative Neuman  suggested APFC  management                                                                   
of  the  CBR  as  another  option.  He  reiterated  that  the                                                                   
legislature  should allow  the APFC  to manage  the fund.  He                                                                   
noted that the  APFC recently hired more fund  managers while                                                                   
DOR  lost  positions.  Commissioner  Hoffbeck  answered  that                                                                   
currently  the APFC  did not  have the  same cash  management                                                                   
structure as  DOR. He explained  that the department  managed                                                                   
$400 million  worth of funds  monthly that was  structured to                                                                   
allow funds  to mature and  become available when  necessary.                                                                   
The APFC managed  one fund. He indicated that  moving the CBR                                                                   
to the  Permanent Fund was  inefficient since  DOR maintained                                                                   
all the  other accounts'  management and treasury  functions.                                                                   
He  informed the  committee that  DOR's  staff was  perfectly                                                                   
capable of managing  the money and had outperformed  the APFC                                                                   
22 years  out of the  last 30 years.  He summarized  that the                                                                   
APFC  "had a  different investment  mandate.  He shared  that                                                                   
Angela  Rodell,  Executive Director,  Alaska  Permanent  Fund                                                                   
Corporation had  testified that she  would invest the  CBR in                                                                   
a similar  manner as  DOR. The  department performed  a study                                                                   
recently that  showed a similar  outcome whether DOR  or APFC                                                                   
managed the  CBR. He concluded  that cash management  was the                                                                   
treasury's duty so CBR management should remain with DOR.                                                                       
                                                                                                                                
3:41:56 PM                                                                                                                    
                                                                                                                                
Representative  Neuman   asked  for  verification   that  the                                                                   
amendment would  not change the investment  "sideboards" that                                                                   
governed  how the  department managed  the CBR.  Commissioner                                                                   
Hoffbeck  replied  that  the   amendment  provided  increased                                                                   
flexibility   versus   the  "hard   line"   of  five   years.                                                                   
Representative  Neuman   thought  it  was  probably   a  good                                                                   
amendment.  He  related  that  he  had  received  information                                                                   
regarding  a  proposed bond  sale  from  the prior  year.  He                                                                   
offered that  if the  $3.4 billion  bonds sale proceeded  the                                                                   
state  would have  lost $278  million. Commissioner  Hoffbeck                                                                   
responded  that  the  Pension Obligation  Bonds  (POB)  would                                                                   
have been  sold the  previous fall when  the market  was low.                                                                   
He indicated  that the  POB sale would  have been  the lowest                                                                   
in history; the  "all in" rate was in the 3.5  to 3.7 percent                                                                   
range on  twenty-year notes. He  noted that the  stock market                                                                   
returns  since then  were over  14 percent.  The bonds  would                                                                   
have been sold  at the end of a downturn and  the start of an                                                                   
upturn in  the stock market.  He believed an  opportunity had                                                                   
been missed. The  state would have needed to make  3.6 or 3.7                                                                   
percent  return  on  the investments  over  twenty  years  to                                                                   
break  even. He  determined that  the proposed  sale was  "as                                                                   
close  to a  safe  large-scale  investment that  [the  state]                                                                   
possibly could have  had." The lost opportunity  had afforded                                                                   
a very low cost of debt.                                                                                                        
                                                                                                                                
3:44:59 PM                                                                                                                    
                                                                                                                                
Representative  Wilson wanted  to  understand the  amendment.                                                                   
She asked  for verification  that the  amendment allowed  DOR                                                                   
to   increase  the   investment  opportunity   in  the   CBR.                                                                   
Commissioner Hoffbeck replied in the affirmative.                                                                               
                                                                                                                                
Representative  Ortiz  asked  whether  a  potential  downside                                                                   
existed.   Commissioner  Hoffbeck   answered  that   DOR  was                                                                   
mandated  to follow  the prudent  investment  rule and  would                                                                   
balance  risk and  reward. He  felt that  the five-year  rule                                                                   
locked up funds and investing was currently "too safe."                                                                         
                                                                                                                                
Co-Chair  Seaton  WITHDREW  his  OBJECTION.  There  being  NO                                                                   
OBJECTION, it was so ordered.                                                                                                   
                                                                                                                                
Representative  Pruitt  MOVED  to  ADOPT  Amendment  13,  30-                                                                   
LS0125\E.25 (Nauman, 3/10/17) (copy on file):                                                                                   
                                                                                                                                
     Page 2, line 9:                                                                                                            
     Delete "a new subsection"                                                                                                  
     Insert "new subsections"                                                                                                   
                                                                                                                                
     Page 2, following line 18:                                                                                                 
     Insert a new subsection to read:                                                                                           
     '(c)  In  accordance  with   AS  37.13.145(b)  (1),  and                                                                   
     subject  to  appropriation,  33 percent  of  the  amount                                                                   
     available  for distribution  under (b)  of this  section                                                                   
     shall be  reserved for dividends.  The remainder  of the                                                                   
     amount  calculated  to  be  available  for  distribution                                                                   
     under  (b)  of this  section  shall  be reduced  by  the                                                                   
     difference  between the amount  calculated under  (1) of                                                                   
     this  subsection  and  the  amount  under  (2)  of  this                                                                   
     subsection  if the amount  calculated under (1)  of this                                                                   
     subsection  exceeds   the  amount  under   (2)  of  this                                                                   
     subsection:                                                                                                                
                                                                                                                                
     (1) the  total amount  of oil  and gas production  taxes                                                                   
     under AS  43.55.011 - 43.55.180, mineral  lease rentals,                                                                   
     royalties,  royalty  sale  proceeds, net  profit  shares                                                                   
     under  AS  38.05.180(f)  and (g),  and  federal  mineral                                                                   
     revenue  sharing payments  and bonuses  received by  the                                                                   
     state from mineral leases that are deposited into                                                                          
     the general  fund in  the current  fiscal year;  (2) the                                                                   
     sum of $1,200,000,000."                                                                                                    
                                                                                                                                
Vice-Chair Gara OBJECTED.                                                                                                       
                                                                                                                                
3:47:03 PM                                                                                                                    
AT EASE                                                                                                                         
                                                                                                                                
3:52:53 PM                                                                                                                    
RECONVENED                                                                                                                      
                                                                                                                                
Representative Pruitt  addressed Amendment 12 related  to the                                                                   
Permanent Fund  draw limit.  He pointed to  a chart  from the                                                                   
Legislative Finance  Division showing  two charts  [the chart                                                                   
on the  left was  titled "UGF  Revenue without Payout  Limit"                                                                   
and  the chart  on the  right  was titled  "UGF Revenue  with                                                                   
Payout  Limit" dated  3/15/17  (copy on  file)]. He  reported                                                                   
that  the  amendment  contained a  "mechanism"  that  ensured                                                                   
fund growth  and dividend growth  over time. The draw  on the                                                                   
Permanent  Fund for  government expenditures  was limited  as                                                                   
other revenues  increased. He  favored the amendment  because                                                                   
he felt  that government  spending would  easily increase  as                                                                   
revenue  increased   and  pointed   to  historical   spending                                                                   
patterns  to illustrate  his point. In  addition, he  thought                                                                   
that  a  draw  limit  protected  the  funds  growth  for  the                                                                   
future. He believed  Commissioner Hoffbeck was  supportive of                                                                   
the measure.  He asked Commissioner  Hoffbeck to  address the                                                                   
issue.                                                                                                                          
                                                                                                                                
3:56:17 PM                                                                                                                    
                                                                                                                                
BRANDON  BREFCZYNSKI, STAFF,  REPRESENTATIVE STEVE  THOMPSON,                                                                   
pointed   to   a  handout   distributed   by   Representative                                                                   
Thompson's  office  that  contained   a  table  addressing  a                                                                   
scenario under  HB 115  without the draw  limit and  with the                                                                   
draw  limit (copy  on file)  using information  from DOR.  He                                                                   
explained that  the first  row on the  chart showed  that the                                                                   
median  beginning  of  the  year   fund  balance  for  FY  18                                                                   
(including the FY  17 draw) was $54 billion  without the draw                                                                   
limit and  $54 billion with the  draw limit. The  second line                                                                   
depicted  the median  FY  2041  end of  year  balance at  $91                                                                   
billion ($54  billion real) nominal  amount without  the draw                                                                   
limit  and $109  billion nominal  amount  ($64 billion  real)                                                                   
amount with  the draw  limit. He pointed  out that  the third                                                                   
row contained  the median FY 2041  net payout to  the general                                                                   
fund  as $2.8  billion  ($1.7  billion real)  nominal  amount                                                                   
without  the  draw  limit and  $3.3  billion  nominal  amount                                                                   
($1.9  billion real)  amount with  the draw  limit. The  last                                                                   
line  portrayed the  median FY  2041 dividend  per person  as                                                                   
$1,837 nominal  amount [$1,077  real] without the  draw limit                                                                   
and  $2,130  nominal  amount  [$1,248  real]  with  the  draw                                                                   
limit.  He noted  that the  dividend was  calculated at  one-                                                                   
third of the  Point of Market Value (POMV).  He believed that                                                                   
the   dividend  amount   was  consistent   with  an   adopted                                                                   
amendment by Vice-Chair Gara that ensured a $1250 dividend.                                                                     
                                                                                                                                
3:59:54 PM                                                                                                                    
                                                                                                                                
Representative  Kawasaki  asked  for  verification  that  the                                                                   
model was  built to 2041.  Commissioner Hoffbeck  answered in                                                                   
the affirmative.  Representative Kawasaki thought  the number                                                                   
seemed  arbitrary and  was far  in the  future. He  requested                                                                   
"more near-term' modeling.                                                                                                      
                                                                                                                                
Vice-Chair  Gara surmised that  by 2041  there was  a roughly                                                                   
$500 million  difference. He deduced  that to  accomplish the                                                                   
increase the  state had to  flat-line the budget  between $75                                                                   
and $105 price  per barrel of oil. He did not  understand how                                                                   
to  compare   current  figures   to  2041  "by   flat  lining                                                                   
revenue." Commissioner  Hoffbeck replied  that the  impact of                                                                   
flat  lining revenue  was  shown in  the  differences in  the                                                                   
balances  under  a  fixed  draw.  The  fixed  draw  was  what                                                                   
created the additional revenue in the Permanent Fund.                                                                           
                                                                                                                                
Vice-Chair  Gara knew that  every circumstance  could  not be                                                                   
included  on a  chart.  However,  for the  next  five to  ten                                                                   
years   funds   were   necessary    for   schools,   deferred                                                                   
maintenance,  and  road  construction.  He  wondered  if  oil                                                                   
prices reached $75/bbl.  or $80/bbl., whether there  would be                                                                   
funds for  energy projects  in rural  areas, school  funding,                                                                   
etc. The  data on  the table did  not address the  questions,                                                                   
it  merely  showed  the  amount of  money  available  in  the                                                                   
Permanent  Fund.  Mr.  Brefczynski  replied  that  with  more                                                                   
money in the fund  there would be more money  for schools and                                                                   
other     government     expenditures,     which     provided                                                                   
sustainability and grew the fund.                                                                                               
                                                                                                                                
Vice-Chair  Gara countered that  it was  only more  money for                                                                   
schools  if combined  revenues  were factored  in. The  chart                                                                   
showed more  money only for the  portion of revenue  that was                                                                   
derived from  the ERA. Commissioner  Hoffbeck replied  in the                                                                   
affirmative.  He communicated  that employing Permanent  Fund                                                                   
earnings  was  never intended  to  be  the sole  plan.  Other                                                                   
revenues  were   intended  to  also  be  available   to  fund                                                                   
government. He reported  that the chart was  developed out of                                                                   
the  fear that  spending  would  "hyperinflate"  in high  oil                                                                   
price years. He  specified that if the limit was  in place it                                                                   
was necessary  to "ratchet  down" the draw  in all  years and                                                                   
currently  less money would  be available  to fund  services.                                                                   
Vice-Chair Gara  relayed that  the current debate  included a                                                                   
permanent  fund restructure  only  plan. He  referred to  the                                                                   
LFD model.                                                                                                                      
                                                                                                                                
[Secretary Note: the model was interactive.]                                                                                    
                                                                                                                                
ALEXEI  PAINTER,   ANALYST,  LEGISLATIVE  FINANCE   DIVISION,                                                                   
replied the chart's  data included the income  tax provisions                                                                   
in  HB 115.  He was  able to  remove the  income tax  portion                                                                   
from  the model.  He added  that  in a  response to  previous                                                                   
committee questions  the model included the impacts  for each                                                                   
year from  FY 18 through FY  26. He modeled  lower production                                                                   
and  higher budget  figures. He  explained  that without  the                                                                   
income tax  or draw limit the  budget was not  balanced until                                                                   
$85/bbl.  of oil.  He  noted that  with  the  draw limit  the                                                                   
budget  was not balanced  until  a price of  $105/bbl.  in FY                                                                   
18. He  showed a similar situation  under HB 115  without the                                                                   
income tax  extending out through  the years where  a deficit                                                                   
persisted.  He added  that with  the income  tax "the  budget                                                                   
line  approximately  met the  flat  spot on  the  expenditure                                                                   
limit  in  the following  years."  Production  was  declining                                                                   
resulting in less  revenue, but the POMV was  larger, growing                                                                   
at roughly the rate of inflation.                                                                                               
                                                                                                                                
Vice-Chair Gara  asked what the  model would look  like under                                                                   
HB 115 without  the income tax in 2024 and wondered  how long                                                                   
would the deficit last.                                                                                                         
                                                                                                                                
4:08:18 PM                                                                                                                    
                                                                                                                                
Mr. Painter modeled  one graph under the Senate  plan and one                                                                   
graph  depicting  Vice-Chair   Gara's  request  and  did  not                                                                   
verbally explain the results.                                                                                                   
                                                                                                                                
Representative   Neuman   referred    to   the   chart   from                                                                   
Representative  Thompson's   office  and  asked   whether  an                                                                   
additional $200  million was available for  state expenditure                                                                   
in  24 years.  Mr. Brefczynski  answered  in the  affirmative                                                                   
and explained  that according to  the model more  money would                                                                   
be   available  for   state   spending   and  dividends.   He                                                                   
reiterated  that more money  retained in  the Permanent  Fund                                                                   
grew the fund.  He specified that the POMV draw  was based on                                                                   
a five-year average of the fund.                                                                                                
                                                                                                                                
Representative  Neuman  asked whether  $1.2  billion was  the                                                                   
draw  limit.   Commissioner  Hoffbeck  responded   that  $1.2                                                                   
billion  was the  amount  of oil  and  gas  tax revenue  that                                                                   
triggered  a reduction  in the  Permanent  Fund draw,  dollar                                                                   
for dollar. He  clarified that the oil and  gas tax royalties                                                                   
activated  the   draw  limit.  Representative   Neuman  asked                                                                   
whether the  POMV was  the amount  reserved for the  dividend                                                                   
distribution.   Commissioner   Hoffbeck   answered   in   the                                                                   
negative. He  clarified that the  POMV was the amount  of the                                                                   
total  draw for  government services  and  the dividend.  The                                                                   
draw limit  reduced the  amount for  government services  but                                                                   
not the amount for the dividend.  Representative Neuman asked                                                                   
whether  there was an  additional mechanism  that added  more                                                                   
money to the dividends.                                                                                                         
                                                                                                                                
4:12:25 PM                                                                                                                    
                                                                                                                                
Commissioner  Hoffbeck  replied  that  as  the  fund's  value                                                                   
grew,  the 5 percent  or 5.25  percent value  grew. The  more                                                                   
money in the fund the larger the dividend.                                                                                      
                                                                                                                                
Representative  Neuman  pointed  to  the  LFD  chart  on  the                                                                   
screen. He noted  that the bottom line on the  graph depicted                                                                   
the  state still  running over  a  $1 billion  deficit in  24                                                                   
years.  Mr.  Painter  clarified   that  the  slide  showed  a                                                                   
scenario  without the  income tax,  with the  income tax  the                                                                   
deficit disappeared when the price of oil rose to $75/bbl.                                                                      
                                                                                                                                
Representative  Ortiz asked  whether DOR  included a rate  of                                                                   
inflation   for  the  figures   through  2041.   Commissioner                                                                   
Hoffbeck  answered that  the inflation  rate was factored  in                                                                   
at  2.25  percent.  Representative   Ortiz  asked  whether  a                                                                   
higher  inflation  rate  impacted   the  model.  Commissioner                                                                   
Hoffbeck  replied  in  the  affirmative.  He  concluded  that                                                                   
higher  investment  returns  accompanying  the high  rate  of                                                                   
inflation  would  balance  out  the  effect  on  the  budget.                                                                   
Representative   Ortiz   understood  the   deficit   scenario                                                                   
without  an income  tax. He  wondered  what the  "opportunity                                                                   
cost"  of  an extended  deficit  was.  Commissioner  Hoffbeck                                                                   
ascertained that  the other savings  would be  expended first                                                                   
leaving unplanned  draws from  the ERA. Representative  Ortiz                                                                   
asked whether  other revenue was  necessary under  a scenario                                                                   
with  an extended  deficit.  Commissioner  Hoffbeck  answered                                                                   
that  the  assumption   was  revenue  or  budget   cuts  were                                                                   
necessary.  He added that  the Permanent  Fund alone  was not                                                                   
sufficient to resolve the entire issue.                                                                                         
                                                                                                                                
Co-Chair Seaton  asked Mr.  Painter to  adjust the  LFD chart                                                                   
on the screen.  He requested that a reduction  of fifty cents                                                                   
on  the dollar  was modeled.  Co-Chair  Seaton reported  that                                                                   
the results  increased revenue at  $90/bbl. of oil at  a more                                                                   
rapid rate, but the deficit increased.                                                                                          
                                                                                                                                
Representative  Wilson requested  more information  about the                                                                   
changes  to the  Excel  chart  and how  they  related to  the                                                                   
amendment.                                                                                                                      
                                                                                                                                
Representative  Pruitt   explained  that  the   sum  of  $1.2                                                                   
billion sum was  found under subsection (c) (2)  [line 19] on                                                                   
page  1  of the  amendment  and  Co-Chair  Seaton's  scenario                                                                   
changed  the $1.2  billion to  $1.5  billion on  line 19.  He                                                                   
cited subsection (c)  on lines 9 through 13  of the amendment                                                                   
and read the following {line identifiers included]:                                                                             
                                                                                                                                
     …The   remainder  of   the  amount   calculated  to   be                                                                   
     available  for distribution  under (b)  of this  section                                                                   
     shall be  reduced by the  difference between  the amount                                                                   
     calculated under  (1) of this subsection  and the amount                                                                   
     under (2) of this subsection if the amount calculated                                                                      
     under (1) of this subsection exceeds the amount  under                                                                     
     (2) of this subsection:                                                                                                    
                                                                                                                                
Representative   Pruitt  referred   to  the   sum  from   the                                                                   
calculation in  subsection (1)  of subsection (c)  [the total                                                                   
amount  of oil  and  gas production  tax]  and  that sum  was                                                                   
reduced $1.00  per every dollar  beyond the specified  amount                                                                   
of  revenue  in (2)  (c),  $1.2  billion  [from oil  and  gas                                                                   
production  tax]. In  Co-Chair Seaton's  scenario the  dollar                                                                   
for  dollar   was  reduced  to  a  corresponding   fifty-cent                                                                   
reduction.                                                                                                                      
                                                                                                                                
4:19:52 PM                                                                                                                    
                                                                                                                                
Co-Chair Seaton  continued with  his questions about  the LFD                                                                   
chart. He asked what the charts would look like over time.                                                                      
                                                                                                                                
Representative  Neuman   saw  that  the  UGF   budget  slowly                                                                   
increased. He asked  whether the increase was  related to the                                                                   
2.5  percent rate  of inflation.  Mr.  Painter answered  that                                                                   
the model  assumed a flat operating  budget for the  next two                                                                   
years subsequently  increasing  with inflation. He  indicated                                                                   
that debt  service was not  increasing with inflation  due to                                                                   
the   pause  in   school   debt  reimbursement,   but   state                                                                   
retirement  increased. The  entire budget  did not grow  with                                                                   
the  rate  of  inflation  but   did  increase  close  to  the                                                                   
inflation rate under the model.                                                                                                 
                                                                                                                                
Co-Chair  Seaton  requested that  he  take the  $1.5  billion                                                                   
revenue limit  input to $2  billion. He reported  that kicked                                                                   
in at  $95/bbl. of  oil. He  asked Mr.  Painter to  return to                                                                   
the  50  cents  on the  dollar  scenario.  He  mentioned  the                                                                   
change  would   provide  greater  security   for  eliminating                                                                   
budget  deficits and  making up  capital  projects. He  asked                                                                   
whether the  changes he  made were unadvisable.  Commissioner                                                                   
Hoffbeck  responded that  he could  provide further  modeling                                                                   
but  deduced that  the  change might  require  a "lower  base                                                                   
draw' to avoid  increasing the failure rate.  Co-Chair Seaton                                                                   
indicated that  his scenario  looked favorable and  requested                                                                   
that he  provide additional  modeling. Commissioner  Hoffbeck                                                                   
agreed to provide the information.                                                                                              
                                                                                                                                
Representative Pruitt  interjected that the  models indicated                                                                   
the  potential for  failure and  the potential  to erode  the                                                                   
Permanent  Fund.  He  related  that the  model  included  the                                                                   
different plans.  He noted  that with a  full fiscal  plan in                                                                   
2041 the  likelihood of  failure was  only 1.43 percent  with                                                                   
the draw  limit. Without  the draw  limit, the likelihood  of                                                                   
failure  was 8.6  percent. The  legislature could  manipulate                                                                   
the  Permanent  Fund  to achieve  many  desired  results.  He                                                                   
voiced that  a decision was needed  on what the main  goal of                                                                   
the  fund was.  He  requested  that the  additional  modeling                                                                   
include  how the  failure rate  changed.  He emphasized  that                                                                   
the   failure  rate   of   the   ERA  was   very   important.                                                                   
Commissioner  Hoffbeck  responded  that  some  of  the  other                                                                   
things to  be considered was if  the draw limit was  set at a                                                                   
higher  threshold  and the  dollar  for dollar  scenario  was                                                                   
reduced the impact  would affect the four times  draw because                                                                   
reserves would  grow slower and  inflation proofing  would be                                                                   
impacted. In addition, volatility increased.                                                                                    
                                                                                                                                
Representative  Grenn  asked whether  the  scenario  produced                                                                   
more   for   government   spending.   Commissioner   Hoffbeck                                                                   
responded  that  if  the  draw  limit  was  removed,  revenue                                                                   
increased  in   certain  years.  The  revenue   spikes  could                                                                   
increase  overall  spending and  threaten  sustainability  as                                                                   
revenue dropped again.                                                                                                          
                                                                                                                                
4:30:59 PM                                                                                                                    
                                                                                                                                
Mr.  Brefczynski  interjected   that  if  the  threshold  was                                                                   
raised and  lowered to  fifty cents on  the dollar,  the real                                                                   
value of  the Permanent  Fund would  decrease. He noted  that                                                                   
HB  115 reduced  the royalty  contributions to  the fund  and                                                                   
eliminated the  statutory inflation  proofing relying  on the                                                                   
four times  rule to  grow. He deduced  that without  the four                                                                   
times rule triggering  because the ERA  expenditure increased                                                                   
it  was also  less likely  to inflation  proof. He  concluded                                                                   
that raising the  threshold and lowering the  offset to fifty                                                                   
cents  on the  dollar  would result  in  a smaller  Permanent                                                                   
Fund, smaller POMV, and a smaller dividend.                                                                                     
                                                                                                                                
4:32:43 PM                                                                                                                    
                                                                                                                                
Vice-Chair  Gara   commented  that   all  the  modeling   was                                                                   
academic  if the  Senate's  plan without  additional  revenue                                                                   
was  adopted.  He  requested Mr.  Painter  model  the  Senate                                                                   
plan.                                                                                                                           
                                                                                                                                
Representative  Wilson contended  that  modeling other  bills                                                                   
and  going off  topic  of the  amendment  was confusing.  She                                                                   
wanted to understand how the amendment worked with HB 115.                                                                      
                                                                                                                                
4:34:14 PM                                                                                                                    
AT EASE                                                                                                                         
                                                                                                                                
4:34:44 PM                                                                                                                    
RECONVENED                                                                                                                      
                                                                                                                                
Co-Chair Foster would allow the digression.                                                                                     
                                                                                                                                
Vice-Chair  Gara wanted  to  recognize that  currently  there                                                                   
was a difference  of opinion in the legislature.  He wondered                                                                   
how a draw limit  would impact a plan that  only restructured                                                                   
the  permanent fund.  He asked  for  a model  of a  permanent                                                                   
fund only plan.  He asked for the projected  numbers in 2024.                                                                   
Vice-Chair Gara  asked whether  the state retained  a deficit                                                                   
until $95/bbl.  with the  draw limit.  Mr. Painter  responded                                                                   
that  he  was  correct.  Vice-Chair Gara  asked  if  the  CBR                                                                   
balance would  last until  2024 under  a permanent  fund only                                                                   
plan.  Mr. Painter  commented that  under HB  115 without  an                                                                   
income  tax the  CBR lasted  through FY  26. Vice-Chair  Gara                                                                   
did not  want to consider the  amendment until a  fiscal plan                                                                   
was  adopted. He  believed the  provision kept  the state  in                                                                   
austerity without increased revenue.                                                                                            
                                                                                                                                
Representative   Neuman  cited  the   50  cents   per  dollar                                                                   
scenario.   He  wondered  what   "volatile  cash"   [volatile                                                                   
revenue]  was. Mr. Painter  explained that  the revenue  that                                                                   
fell   under  the   limit   was   the  production   tax   and                                                                   
unrestricted  general  fund  royalties  and did  not  include                                                                   
other  revenue  sources.  Representative  Neuman  interpreted                                                                   
that without  the limit  there was  more revenue in  general.                                                                   
Mr. Painter responded  that the POMV payout  would be reduced                                                                   
under the  limit under  high oil prices  and the  funds would                                                                   
remain in the ERA.                                                                                                              
Mr. Brefczynski  interjected that  besides price,  production                                                                   
would  also influence  the  draw. Representative  Neuman  was                                                                   
aware of the statement.                                                                                                         
                                                                                                                                
Representative  Neuman  observed  that  in future  years  the                                                                   
POMV  payout  with  the  limit   disappeared.  He  asked  for                                                                   
clarification.  Mr. Painter  responded  that  the model  only                                                                   
portrayed  FY 18. He  delineated that  the graph  represented                                                                   
that  as  oil  price  increased   a  smaller  POMV  draw  was                                                                   
necessary;  in  the  scenario  it  was  fifty  cents  on  the                                                                   
dollar.  He commented that  with every  additional dollar  of                                                                   
volatile revenue  the POMV draw  was reduced by  fifty cents.                                                                   
He  summarized  that  within  FY 18  the  dollar  for  dollar                                                                   
provision substituted  one type  of revenue for  another; the                                                                   
higher  oil revenue  for  POMV funds.  Representative  Neuman                                                                   
asked whether  the dividend  check would  also increase  at a                                                                   
greater  rate. Mr.  Painter  replied that  would  not be  the                                                                   
case  for FY  18. However,  leaving  more money  in the  fund                                                                   
would  eventually increase  the  dividend amount  based on  a                                                                   
five year average.                                                                                                              
                                                                                                                                
Co-Chair  Foster  reviewed  the   agenda  for  the  following                                                                   
meeting.                                                                                                                        
                                                                                                                                
HB  115  was   HEARD  and  HELD  in  committee   for  further                                                                   
consideration.                                                                                                                  
                                                                                                                                
Co-Chair  Foster addressed  the  schedule  for the  following                                                                   
meeting.                                                                                                                        
                                                                                                                                
ADJOURNMENT                                                                                                                   
                                                                                                                                
4:43:01 PM                                                                                                                    
                                                                                                                                
The meeting was adjourned at 4:43 p.m.                                                                                          

Document Name Date/Time Subjects
SB 30 - Response to Rep. Guttenberg PS1 Tariffs.pdf HFIN 3/17/2017 1:30:00 PM
SB 30
SB 30 DNR Response to Rep Guttenber 03.15.2017.pdf HFIN 3/17/2017 1:30:00 PM
SB 30
HB 115 Amendments 18 - 19.PDF HFIN 3/17/2017 1:30:00 PM
HB 115
HB 115 Amendments 18-19 Legal Memo.pdf HFIN 3/17/2017 1:30:00 PM
HB 115
HB 115 - Amendment #13 supplemental info - $1.2B Draw Limit Comparison Chart.pdf HFIN 3/17/2017 1:30:00 PM
HB 115