Legislature(2017 - 2018)HOUSE FINANCE 519

04/11/2017 01:30 PM FINANCE

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Audio Topic
01:37:33 PM Start
01:38:34 PM SB26
01:38:40 PM Amendments
02:52:52 PM HB115
03:46:54 PM Adjourn
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
-- Recessed to a Call of the Chair --
+= SB 26 APPROP LIMIT & PER FUND:DIVIDEND;EARNINGS TELECONFERENCED
Moved HCS CSSB 26(FIN) Out of Committee
+= HB 115 INCOME TAX; PFD CREDIT; PERM FUND INCOME TELECONFERENCED
Moved CSHB 115(FIN) Out of Committee
+ Bills Previously Heard/Scheduled TELECONFERENCED
                  HOUSE FINANCE COMMITTEE                                                                                       
                      April 11, 2017                                                                                            
                         1:37 p.m.                                                                                              
                                                                                                                                
                                                                                                                                
1:37:33 PM                                                                                                                    
                                                                                                                                
CALL TO ORDER                                                                                                                 
                                                                                                                                
Co-Chair Foster called the House Finance Committee meeting                                                                      
to order at 1:37 p.m.                                                                                                           
                                                                                                                                
MEMBERS PRESENT                                                                                                               
                                                                                                                                
Representative Neal Foster, Co-Chair                                                                                            
Representative Paul Seaton, Co-Chair                                                                                            
Representative Les Gara, Vice-Chair                                                                                             
Representative Jason Grenn                                                                                                      
Representative David Guttenberg                                                                                                 
Representative Scott Kawasaki                                                                                                   
Representative Dan Ortiz                                                                                                        
Representative Lance Pruitt                                                                                                     
Representative Steve Thompson                                                                                                   
Representative Cathy Tilton                                                                                                     
Representative Tammie Wilson                                                                                                    
                                                                                                                                
MEMBERS ABSENT                                                                                                                
                                                                                                                                
None                                                                                                                            
                                                                                                                                
ALSO PRESENT                                                                                                                  
                                                                                                                                
Randall  Hoffbeck,   Commissioner,  Department   of  Revenue;                                                                   
Jerry  Burnett,   Deputy  Commissioner,  Treasury   Division,                                                                   
Department    of    Revenue;     Taneeka    Hansen,    Staff,                                                                   
Representative   Paul  Seaton;   Ken  Alper,  Director,   Tax                                                                   
Division,   Department   of  Revenue;   Representative   Lora                                                                   
Reinbold.                                                                                                                       
                                                                                                                                
PRESENT VIA TELECONFERENCE                                                                                                    
                                                                                                                                
                                                                                                                                
SUMMARY                                                                                                                       
                                                                                                                                
HB 115    INCOME TAX; PFD CREDIT; PERM FUND INCOME                                                                              
                                                                                                                                
                                                                                                                                
CSSB 26(FIN)                                                                                                                    
          APPROP LIMIT & PER FUND:DIVIDEND;EARNINGS                                                                             
                                                                                                                                
                                                                                                                                
Co-Chair Foster reviewed the meeting agenda.                                                                                    
                                                                                                                                
CS FOR SENATE BILL NO. 26(FIN)                                                                                                
                                                                                                                                
     "An  Act relating  to an  appropriation limit;  relating                                                                   
     to  the   budget  responsibilities   of  the   governor;                                                                   
     relating to  the Alaska permanent fund,  the earnings of                                                                   
     the  Alaska permanent  fund,  and  the earnings  reserve                                                                   
     account;  relating  to  the mental  health  trust  fund;                                                                   
     relating  to deposits into  the dividend fund;  relating                                                                   
     to  the  calculation  and   payment  of  permanent  fund                                                                   
     dividends; and providing for an effective date."                                                                           
                                                                                                                                
1:38:34 PM                                                                                                                    
                                                                                                                                
^AMENDMENTS                                                                                                                   
                                                                                                                                
1:38:40 PM                                                                                                                    
                                                                                                                                
Vice-Chair Gara MOVED to ADOPT Amendment 1, 30-GS1690\U.12                                                                      
(Martin, 4/11/17) (copy on file):                                                                                               
                                                                                                                                
     Page 3, line 26, following "$1,400,000,000":                                                                               
                                                                                                                                
          Insert  ", adjusted  annually  for inflation  based                                                                   
          on a  formula provided  by the Department  of Labor                                                                   
          and  Workforce Development,  reflecting the  change                                                                   
          from  the  previous  year  in  the  Consumer  Price                                                                   
          Index   for   the   Anchorage   metropolitan   area                                                                   
          compiled  by the  Bureau of  Labor and  Statistics,                                                                   
          United States  Department of Labor, and  rounded to                                                                   
          the nearest $10,000,000"                                                                                              
                                                                                                                                
Representative Wilson OBJECTED for the purpose of                                                                               
discussion.                                                                                                                     
                                                                                                                                
Vice-Chair Gara explained the amendment. He thought that a                                                                      
level of oil revenue should be established that would                                                                           
trigger the decrease in the use of permanent fund earnings.                                                                     
                                                                                                                                
1:40:32 PM                                                                                                                    
                                                                                                                                
Representative Kawasaki  felt that the amendment  did not say                                                                   
anything  specific about  population growth.  He queried  the                                                                   
nexus for inflation versus population growth.                                                                                   
                                                                                                                                
Vice-Chair  Gara  agreed that  the  amendment  only spoke  to                                                                   
inflation  and not  population  growth.  He said  that  there                                                                   
would hopefully be  a small annual increase in  the amount of                                                                   
available  earnings   reserve  funds.   He  stated   that  by                                                                   
allowing the trigger  point to move with inflation  some head                                                                   
room to address population growth could be created.                                                                             
                                                                                                                                
Representative  Wilson  understood   that  the  current  bill                                                                   
version would  give less than  $.80 on the dollar  because of                                                                   
inflation proofing.                                                                                                             
                                                                                                                                
Vice-Chair  Gara explained  that once  the trigger point  was                                                                   
reached,  80  percent  of the  available  earnings  from  the                                                                   
permanent  fund, which would  otherwise be  allowed by  the 5                                                                   
percent  draw, would  become  unavailable  for  use. He  said                                                                   
that  the  trigger  point would  adjust  with  inflation  and                                                                   
would  allow  for  more  combined   oil  and  permanent  fund                                                                   
revenue available for state services.                                                                                           
                                                                                                                                
Representative   Wilson  surmised   that  the  $1.4   million                                                                   
trigger point would change and not the percentages.                                                                             
                                                                                                                                
Vice-Chair Gara replied in the affirmative.                                                                                     
                                                                                                                                
Representative  Pruitt  was  concerned  the  amendment  would                                                                   
dilute  the value  of the  appropriation  limit. He  lamented                                                                   
that   the  current   appropriation   limit   in  the   State                                                                   
Constitution  had  no  value  and  was  double  of  what  was                                                                   
currently being spent.                                                                                                          
                                                                                                                                
1:44:33 PM                                                                                                                    
                                                                                                                                
Representative  Thompson requested  further explanation  from                                                                   
the Department of Revenue (DOR).                                                                                                
                                                                                                                                
RANDALL  HOFFBECK,   COMMISSIONER,  DEPARTMENT   OF  REVENUE,                                                                   
offered  a history  of the  progression of  the bill  through                                                                   
the  legislative process.  He  relayed that  modeling of  the                                                                   
amendment  had shown  that eventually  the  cap would  exceed                                                                   
the revenue,  which would  kill the  draw limit function.  He                                                                   
stated that  the current  bill accounted  for both  inflation                                                                   
proofing   and  population   adjustments   in  the   combined                                                                   
revenues from royalties,  production tax, and  the POMV draw,                                                                   
out  10 years.  He  related that  the  growth  was lesser  25                                                                   
years out,  and that  the fund would  be less protected  from                                                                   
overdraws in  the intermediate  years. He concluded  that the                                                                   
administration did not support the amendment.                                                                                   
                                                                                                                                
Representative  Thompson surmised that  the inflation  of the                                                                   
draw  limit  would have  a  negative  effect on  the  state's                                                                   
financial health.                                                                                                               
                                                                                                                                
Commissioner Hoffbeck agreed.                                                                                                   
                                                                                                                                
1:48:48 PM                                                                                                                    
                                                                                                                                
Representative  Kawasaki spoke  about a  debate on the  House                                                                   
floor. He  appreciated the  history provided by  Commissioner                                                                   
Hoffbeck;  however, he  noted  that the  current  legislature                                                                   
was  tasked with  making  decisions  using the  most  current                                                                   
information.                                                                                                                    
                                                                                                                                
Representative  Wilson  wondered  whether the  amendment  was                                                                   
necessary to fund essential government.                                                                                         
                                                                                                                                
Commissioner  Hoffbeck   answered  that  the   administration                                                                   
supported the current bill structure without the amendment.                                                                     
                                                                                                                                
1:50:03 PM                                                                                                                    
                                                                                                                                
Representative Wilson MAINTAINED her OBJECTION.                                                                                 
                                                                                                                                
A roll call vote was taken on the motion.                                                                                       
                                                                                                                                
IN FAVOR: Gara, Guttenberg, Kawasaki, Ortiz, Foster, Seaton                                                                     
OPPOSED: Pruitt, Thompson, Tilton, Wilson, Grenn                                                                                
                                                                                                                                
The MOTION PASSED (6/5).                                                                                                        
                                                                                                                                
1:50:53 PM                                                                                                                    
                                                                                                                                
Representative Thompson MOVED to ADOPT Amendment 2:                                                                             
                                                                                                                                
     Page 8, lines 12 - 28:                                                                                                     
                                                                                                                                
          Delete all material and insert:                                                                                       
          "*Sec 19. Sections 17 and 18 of this Act take                                                                       
         effect immediately under AS Ol.10.070(c).                                                                              
          Sec. 20. Section 6 of this Act takes effect                                                                       
          July 1, 2019.                                                                                                         
          Sec. 21. Section 10 of this Act takes effect                                                                      
          June 30, 2020.                                                                                                        
          Sec. 22 •• Except as provided in secs. 19 - 21,                                                                   
          this Act takes effect July 1, 2017."                                                                                  
                                                                                                                                
Co-Chair Seaton OBJECTED for the purpose of discussion.                                                                         
                                                                                                                                
Representative  Thompson  explained  the amendment.  He  said                                                                   
that  the  conditional   language  in  the   amendment  would                                                                   
require the  enactment of HB 111  as passed by the  house. He                                                                   
said that by  effectively combining three  uniquely different                                                                   
policy decisions into  a "take it, or leave it"  bill did not                                                                   
serve  the   deliberative  process.  He  believed   that  the                                                                   
language   in   the  section   violated   the   legislature's                                                                   
bicameral system.                                                                                                               
                                                                                                                                
Co-Chair  Seaton spoke  in opposition  to  the amendment.  He                                                                   
supported  the  conditional  language  included in  the  bill                                                                   
that would provide  a comprehensive fiscal plan.  He lamented                                                                   
that the  section was necessary  to negotiate with  the other                                                                   
chamber.                                                                                                                        
                                                                                                                                
Representative Wilson  remarked that the legislation  was not                                                                   
restructuring  the  dividend  in  the same  way  as  previous                                                                   
legislation  had attempted  to do.  She spoke  in support  of                                                                   
the amendment.                                                                                                                  
                                                                                                                                
1:56:49 PM                                                                                                                    
                                                                                                                                
Representative  Tilton relayed  she had  spoken to the  issue                                                                   
on  the House  floor earlier  in  the day.  She believed  the                                                                   
language  in the  bill violated  the legislature's  bicameral                                                                   
structure.  She  believed  the section  inhibited  the  other                                                                   
body's ability to act. She supported the amendment.                                                                             
                                                                                                                                
Representative  Pruitt voiced support  for the amendment.  He                                                                   
echoed the  concerns of  the pervious  testifier. He  thought                                                                   
that  agreement  could  have been  reached  between  the  two                                                                   
bodies  if  it were  not  for  Section  19  of the  bill.  He                                                                   
thought  that   "add-ons"  to   the  bill  would   force  the                                                                   
extension of the  90-day legislative process,  and would lead                                                                   
to no  solution to  the state's fiscal  issues. He  relayed a                                                                   
story  of  the previous  use  of  contingency language  in  a                                                                   
budget bills.                                                                                                                   
                                                                                                                                
2:02:40 PM                                                                                                                    
                                                                                                                                
Co-Chair Foster  recognized Representative  Lora Reinbold  in                                                                   
the audience.                                                                                                                   
                                                                                                                                
Vice-Chair  Gara agreed  that  both chambers  needed to  come                                                                   
together on  order to do  the people's business.  He believed                                                                   
that it  was common knowledge,  to both the majority  and the                                                                   
minority,  that a fiscal  plan was  needed that was  balanced                                                                   
for every socioeconomic  level; a plan that was  fair to both                                                                   
rich and  poor. He felt  that a plan  that only  involved the                                                                   
permanent fund  would put  the burden on  the poorest  in the                                                                   
state,  which was  why the  bill included  a higher  dividend                                                                   
than the  original bill. He hoped  that the two  bodies could                                                                   
come  together to  forge  a solution  to  the state's  fiscal                                                                   
crisis.                                                                                                                         
                                                                                                                                
Representative Guttenberg spoke out against the amendment.                                                                      
He  believed  that without  the  section  there would  be  no                                                                   
possibility of a  solution. He felt that the  behavior of the                                                                   
other  body was  counter  to reaching  a  compromise and  was                                                                   
contributing  to  further  gridlock.  He  asserted  that  the                                                                   
permanent  fund  could  not  be   expected  to  be  the  only                                                                   
solution to the fiscal crisis.                                                                                                  
                                                                                                                                
2:07:40 PM                                                                                                                    
                                                                                                                                
Representative Thompson  provided a closing statement  on the                                                                   
amendment.  He did  not believe  the  language would  improve                                                                   
the  behavior   of  the  other   body.  He  spoke   to  other                                                                   
components  of the  fiscal plan  under  consideration by  the                                                                   
legislature.  He  spoke  to the  restrictive  nature  of  the                                                                   
language  in  the bill.  He  maintained  his support  of  the                                                                   
amendment.                                                                                                                      
                                                                                                                                
Co-Chair Seaton MAINTAINED his OBJECTION.                                                                                       
                                                                                                                                
A roll call vote was taken on the motion.                                                                                       
                                                                                                                                
IN FAVOR: Pruitt, Thompson, Tilton, Wilson                                                                                      
OPPOSED: Gara,  Grenn, Guttenberg,  Kawasaki, Ortiz,  Seaton,                                                                   
Foster                                                                                                                          
                                                                                                                                
The MOTION FAILED (4/7).                                                                                                        
                                                                                                                                
2:09:57 PM                                                                                                                    
AT EASE                                                                                                                         
                                                                                                                                
2:13:01 PM                                                                                                                    
RECONVENED                                                                                                                      
                                                                                                                                
Representative  Thompson  WITHDREW  Amendments  3, 4,  and  5                                                                   
(copy on file).                                                                                                                 
                                                                                                                                
Representative Thompson MOVED to ADOPT Amendment 6                                                                              
                                                                                                                                
     Page 3, lines 17 - 18:                                                                                                     
          Delete "80 cents for each dollar by which"                                                                            
          Insert "the difference between"                                                                                       
                                                                                                                                
          Page 3, line 26:                                                                                                      
          Delete "$1,400,000,000"                                                                                               
          Insert "$1,200,000,000"                                                                                               
                                                                                                                                
Co-Chair Seaton OBJECTED for the purpose of discussion.                                                                         
                                                                                                                                
Representative  Thompson explained  that the amendment  would                                                                   
restore the  draw limit supported  by the administration  and                                                                   
other parties.  He believed  that the amendment  strengthened                                                                   
the  permanent  fund,  urged the  committee  to  support  the                                                                   
amendment.                                                                                                                      
                                                                                                                                
Co-Chair Seaton MAINTAINED his OBJECTION.                                                                                       
                                                                                                                                
A roll call vote was taken on the motion.                                                                                       
                                                                                                                                
IN FAVOR: Thompson, Tilton, Wilson, Pruitt                                                                                      
OPPOSED: Gara,  Grenn, Guttenberg,  Kawasaki, Ortiz,  Foster,                                                                   
Seaton                                                                                                                          
                                                                                                                                
The MOTION FAILED (7/4).                                                                                                        
                                                                                                                                
2:16:12 PM                                                                                                                    
                                                                                                                                
Representative Thompson WITHDREW Amendments 7 and 8.                                                                            
                                                                                                                                
Vice-Chair  Gara  spoke  to  the fiscal  note  with  the  OMB                                                                   
component number 2616.                                                                                                          
                                                                                                                                
Representative  Wilson asked whether  the bill version  under                                                                   
discussion should be reflected on the fiscal note.                                                                              
                                                                                                                                
2:18:03 PM                                                                                                                    
AT EASE                                                                                                                         
                                                                                                                                
2:19:24 PM                                                                                                                    
RECONVENED                                                                                                                      
                                                                                                                                
JERRY  BURNETT,   DEPUTY  COMMISSIONER,  TREASURY   DIVISION,                                                                   
DEPARTMENT  OF REVENUE,  pointed  to the  identifier for  the                                                                   
fiscal  note,  which needed  to  be  updated to  reflect  the                                                                   
current bill version.                                                                                                           
                                                                                                                                
Co-Chair  Foster  clarified  that  the  identifier  could  be                                                                   
found on the  top left hand of  the first page of  the fiscal                                                                   
note.                                                                                                                           
                                                                                                                                
Mr.  Burnett lamented  that  there  had been  a  typo on  the                                                                   
fiscal note.                                                                                                                    
                                                                                                                                
Representative  Guttenberg noted  that the  box titled,  "Why                                                                   
this fiscal  note differs from  previous version:"  read that                                                                   
the note  had been  updated to reflect  changes in  the house                                                                   
finance CS.                                                                                                                     
                                                                                                                                
2:22:11 PM                                                                                                                    
                                                                                                                                
Vice-Chair Gara  expressed confidence  that the  fiscal noted                                                                   
were current  to the  bill version  before the committee.  He                                                                   
addressed  fiscal notes,  OMB  components  3121, 2726,  2310,                                                                   
2952, and zero (copy on file).                                                                                                  
                                                                                                                                
2:25:48 PM                                                                                                                    
                                                                                                                                
Representative  Wilson  asked  about  the  fiscal  note,  OMB                                                                   
Component  2952.  She  understood  that  the  note  reflected                                                                   
taking $9,103,600,  that  did not exist  without cutting  the                                                                   
permanent  fund  dividend,  to  find  real  money  under  the                                                                   
Alaska  Capital  Fund.  She wondered  whether  DOC  would  be                                                                   
forced  to have  the funds  available  to cover  the note  in                                                                   
perpetuity.                                                                                                                     
                                                                                                                                
Vice-Chair  Gara replied  that  the money  would be  directed                                                                   
from the Alaska Capitol Income Fund to DOC each year.                                                                           
                                                                                                                                
Representative Wilson  said that the  intent of the  fund was                                                                   
to  match  federal   funding  in  the  Capital   Budget.  She                                                                   
wondered what would  happen all of $9.1 million  were used to                                                                   
match  federal  dollars,  and  whether  the  state  would  be                                                                   
required to  keep the amount of  money in the fund  from year                                                                   
to year.                                                                                                                        
                                                                                                                                
2:28:42 PM                                                                                                                    
Co-Chair Seaton answered  there was about $26  million in the                                                                   
fund and that  the governor's budget had released  using $9.1                                                                   
as  a funding  source.  He  said  that disputes  over  future                                                                   
allocations  would  need  to  be  worked  out  in  conference                                                                   
committee and by future legislatures.                                                                                           
                                                                                                                                
Representative  Wilson  said  that  the  normal  method  used                                                                   
would be  a fund switch,  where the  budget was  decreased in                                                                   
one area  and increased  in another.  She asserted  that note                                                                   
should be indeterminate.                                                                                                        
                                                                                                                                
Vice-Chair Gara  remarked that,  historically, the  state had                                                                   
leveraged  90 percent  funding  from the  federal  government                                                                   
for  road projects  using  the general  fund.  He hoped  that                                                                   
this would be the continued method.                                                                                             
                                                                                                                                
2:30:58 PM                                                                                                                    
                                                                                                                                
Representative Ortiz  asked about fiscal note,  OMB Component                                                                   
3121.  He  wondered   why  there  was  a   gradual  projected                                                                   
increase  from FY 18  to FY  23, except  for a downfall  from                                                                   
2019 to 2020.                                                                                                                   
                                                                                                                                
Representative  Wilson noted that  the fiscal note  reflected                                                                   
the  decrease  in   the  percentage  draw  from   5.25  to  5                                                                   
beginning July 1, 2018.                                                                                                         
                                                                                                                                
Co-Chair  Seaton  MOVED  to  REPORT  HCS SB  26(FIN)  out  of                                                                   
committee  as  amended with  individual  recommendations  and                                                                   
the accompanying fiscal notes.                                                                                                  
                                                                                                                                
Representative  Wilson OBJECTED.  She asserted  that she  did                                                                   
not support tying the hands of the other body.                                                                                  
                                                                                                                                
2:33:14 PM                                                                                                                    
                                                                                                                                
Representative Tilton echoed the comments of her colleague.                                                                     
                                                                                                                                
Representative  Pruitt felt that  the bill had  been hijacked                                                                   
by  the majority.  He  appreciated that  the  income tax  had                                                                   
been removed from  the legislation. He lamented  that it took                                                                   
a  threat  from  Bob  Gillam  for  the  income  takes  to  be                                                                   
separated from the bill.                                                                                                        
                                                                                                                                
Vice-Chair  Gara called for  a point  of order. He  suggested                                                                   
that   Representative   Pruitt   was   misinformed   of   the                                                                   
situation.                                                                                                                      
                                                                                                                                
Representative  Pruitt  remarked  that  the  information  had                                                                   
been  in   the  Alaska  Dispatch   News.  He  spoke   to  the                                                                   
conditional  effect of  the legislation.  He thought  that it                                                                   
was unclear whether  legislation had to be  passed by January                                                                   
1, 2019,  or must the legislation  be in place by  January 1,                                                                   
2019. He  wondered whether  the legislation  could be  halted                                                                   
through a  referendum. He agreed  with choosing $1250  as the                                                                   
permanent  fund dividend  amount,  but he  could not  support                                                                   
the legislation.  He hoped  that agreement  could be  reached                                                                   
on the House Floor.                                                                                                             
                                                                                                                                
2:38:17 PM                                                                                                                    
                                                                                                                                
Vice-Chair  Gara agreed  that the issue  was challenging.  He                                                                   
said that  touching the permanent  fund should  be considered                                                                   
only  after the  state  got  a fair  share  for  its oil.  He                                                                   
stated  that  the  bill  was  intended  to  be  fair  to  all                                                                   
parties;   that  the  miserable   price   of  oil  had   been                                                                   
unexpected,  but action  needed to  be taken  to address  the                                                                   
fiscal crisis.  He noted  that the  bill contained  inflation                                                                   
proofing provisions.  He believed that many people  relied on                                                                   
the  dividend and  supported the  increased amount  reflected                                                                   
in  the bill.  He worried  that without  the legislation  the                                                                   
state  would  not be  able  to  support basic  and  necessary                                                                   
government spending.                                                                                                            
                                                                                                                                
Representative Thompson  did not support the  legislation. He                                                                   
believed  that language  would be detrimental  to the  intent                                                                   
of the bill.                                                                                                                    
                                                                                                                                
Representative  Guttenberg spoke in  support of the  bill. He                                                                   
felt  that the  language  in  the amendment  highlighted  the                                                                   
need for further dialogue.                                                                                                      
                                                                                                                                
2:45:09 PM                                                                                                                    
                                                                                                                                
Representative Wilson MAINTAINED her OBJECTION.                                                                                 
                                                                                                                                
A roll call vote was taken on the motion.                                                                                       
                                                                                                                                
IN FAVOR: Gara, Grenn,  Guttenberg, Kawasaki,  Ortiz, Seaton,                                                                   
Foster                                                                                                                          
OPPOSED: Tilton, Wilson, Pruitt, Thompson                                                                                       
                                                                                                                                
The MOTION PASSED (7/4).                                                                                                        
                                                                                                                                
There being  NO OBJECTION,  HCS SB  26(FIN) was REPORTED  out                                                                   
of  committee  with  a  "do  pass"  recommendation  and  with                                                                   
attached fiscal notes.                                                                                                          
                                                                                                                                
2:46:02 PM                                                                                                                    
AT EASE                                                                                                                         
                                                                                                                                
2:52:19 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."                                                                                               
                                                                                                                                
2:52:52 PM                                                                                                                    
                                                                                                                                
Co-Chair  Seaton  MOVED  to  ADOPT   the  proposed  committee                                                                   
substitute (CS)  for HB 115, Work Draft  30-LS0125\K (Nauman,                                                                   
4/7/17).                                                                                                                        
                                                                                                                                
Representative   Wilson   OBJECTED   for   the   purpose   of                                                                   
discussion.                                                                                                                     
                                                                                                                                
TANEEKA   HANSEN,   STAFF,   REPRESENTATIVE    PAUL   SEATON,                                                                   
explained that  the current version contained  the amendments                                                                   
to  the income  tax  section that  had  been  adopted by  the                                                                   
committee. The sections  referring to the permanent  fund had                                                                   
been  removed. She  said  that  there were  three  additional                                                                   
changes;  the sort  title had  been changed  to reflect  that                                                                   
the  bill  was no  longer  a  combined  act, from  the  State                                                                   
Revenue Restructuring  Act to the Education Funding  Act. She                                                                   
directed  committee  attention to  Page  22, line  12,  which                                                                   
directed   that  the   legislature   could  appropriate   the                                                                   
estimated  amount  collected   for  the  tax  to  the  Public                                                                   
Education  Fund.  She  pointed  to Page  5,  subsection  (g),                                                                   
which was  related to an amendment  that had been  adopted in                                                                   
committee  and  was  conceptually  amended  define  "disabled                                                                   
beneficiary" under AS 18.80.300, (a) and (b) only.                                                                              
2:55:46 PM                                                                                                                    
                                                                                                                                
Representative Wilson  pointed to page  22, line 12.  She had                                                                   
initially thought  a new fund was created, but  she no longer                                                                   
believed that  was the case. She  wondered why the  word "may                                                                   
had been used, and not "shall".                                                                                                 
                                                                                                                                
Ms. Hansen  replied that  a new fund  was not being  created.                                                                   
She said  that the  reason for  the use of  "may" was  due to                                                                   
the Constitution;  there  always had  to be an  appropriation                                                                   
done  by  the  legislature.  She   relayed  that  the  Public                                                                   
Education    Fund    was    distributed    without    further                                                                   
appropriation,  so  the  direction  could  not  be  that  the                                                                   
revenue "shall"  go into  a fund where  there was  no further                                                                   
appropriation,  the   legislature  had  to   appropriate  the                                                                   
revenue.                                                                                                                        
                                                                                                                                
Representative Wilson  stated no matter where  the funds were                                                                   
put outside  of the General Fund,  it was still  General Fund                                                                   
money. She requested further clarity.                                                                                           
                                                                                                                                
Ms.  Hansen answered  that  the bill  could  have no  binding                                                                   
effect on  future legislatures  and did  not address  revenue                                                                   
beyond what was in the bill.                                                                                                    
                                                                                                                                
2:57:57 PM                                                                                                                    
                                                                                                                                
Representative  Wilson felt that  it should  be clear  to the                                                                   
public  that the  money could  be  appropriated for  anything                                                                   
and was not earmarked for education.                                                                                            
                                                                                                                                
Co-Chair  Seaton clarified  that  the Public  Education  Fund                                                                   
was where  the legislature put  money for forward  funding of                                                                   
education; the money  flowed from the fund  automatically and                                                                   
funded the  formula and  pupil transportation.  He said  that                                                                   
an  appropriation  had to  be  made  into  the fund  for  the                                                                   
deposit, but the funds automatically funded only education.                                                                     
                                                                                                                                
3:00:25 PM                                                                                                                    
                                                                                                                                
Vice-Chair Gara  preferred the use  of the word  "shall", but                                                                   
explained  that the  word  "may"  had to  be  used under  the                                                                   
Constitution.                                                                                                                   
                                                                                                                                
Representative  Pruitt  expressed   his  distaste  for  short                                                                   
titles. He  plugged the use of  iPads in committee  to easily                                                                   
access  information  for  bills   that  were  accompanied  by                                                                   
excessive documents.                                                                                                            
                                                                                                                                
Representative   Guttenberg  remarked   that  the   issue  of                                                                   
electronic  and telecommunications  was  under discussion  in                                                                   
Legislative Council.                                                                                                            
                                                                                                                                
Representative Wilson MAINTAINED her OBJECTION.                                                                                 
                                                                                                                                
A roll call vote was taken on the motion.                                                                                       
                                                                                                                                
IN FAVOR: Gara,  Grenn, Guttenberg, Kawasaki,  Ortiz, Pruitt,                                                                   
Thompson, Foster, Seaton                                                                                                        
OPPOSED: Wilson, Tilton                                                                                                         
                                                                                                                                
The MOTION PASSED (9/2).                                                                                                        
                                                                                                                                
3:03:22 PM                                                                                                                    
                                                                                                                                
Vice-Chair Gara  addressed the  two fiscal notes  attached to                                                                   
the bill.                                                                                                                       
                                                                                                                                
Representative  Wilson reiterated her  request that  the bill                                                                   
version  on the  notes be  updated to  reflect the  committee                                                                   
substitute.  She asked  about  the inter-agency  receipts  on                                                                   
FN1, she  had understood that  the hearings would be  done by                                                                   
the administration and not the court system.                                                                                    
                                                                                                                                
3:06:15 PM                                                                                                                    
                                                                                                                                
KEN  ALPER, DIRECTOR,  TAX DIVISION,  DEPARTMENT OF  REVENUE,                                                                   
replied  that the  interagency  receipt meant  DOR would  pay                                                                   
the funds  to DOA. He  said that it  had been estimated  that                                                                   
$200,000  to  $300,000 of  the  $1.2  million listed  on  the                                                                   
services line  of FN2 would  be money  paid to the  Office of                                                                   
Administrative Hearings (OAH) for the purpose of appeals.                                                                       
                                                                                                                                
Representative  Wilson understood  that DOR  would be  paying                                                                   
for the administrative hearings from collected taxes.                                                                           
                                                                                                                                
Mr. Alper replied  that DOR would make the  payments from its                                                                   
general fund budget.                                                                                                            
                                                                                                                                
Representative  Wilson asked  whether  a person  could go  to                                                                   
the courts to appeal the income tax.                                                                                            
                                                                                                                                
Mr. Alper replied  that the first step would  be the internal                                                                   
appeals group, then OAH, and then to superior court.                                                                            
                                                                                                                                
Representative Wilson  asked why there was not  a fiscal note                                                                   
for that process.                                                                                                               
                                                                                                                                
Mr. Alper  responded that  he did not  know that  the process                                                                   
would require revenue  spending. He said that  the Department                                                                   
of  Law would  support  the state's  position  and the  court                                                                   
system would have  costs as well, but forecasting  the number                                                                   
of cases would  be difficult. He added that OAH  had a metric                                                                   
for the percentage of tax items that were appealed.                                                                             
                                                                                                                                
Representative Wilson  hoped that the costs would  be clearly                                                                   
laid out.                                                                                                                       
                                                                                                                                
Co-Chair Foster noted his staff would research the issue.                                                                       
                                                                                                                                
3:09:45 PM                                                                                                                    
                                                                                                                                
Representative Pruitt  addressed that regulations  would have                                                                   
to  be   written.  He   wondered  whether   DOR  would   need                                                                   
additional money to write regulations.                                                                                          
                                                                                                                                
Mr.  Alper replied  there was  a $14  million capital  budget                                                                   
item in the  fiscal note that would partially  go to drafting                                                                   
regulation.                                                                                                                     
                                                                                                                                
Co-Chair  Seaton  MOVED  to  REPORT   CSHB  115(FIN)  out  of                                                                   
committee   with    individual   recommendations    and   the                                                                   
accompanying fiscal notes.                                                                                                      
                                                                                                                                
Representative Wilson spoke to her OBJECTION.                                                                                   
                                                                                                                                
3:12:11 PM                                                                                                                    
                                                                                                                                
Representative  Thompson said  that 80  percent of the  wages                                                                   
paid  to residents  was in  the  Railbelt. He  stated that  a                                                                   
person  working  on  the  North   Slope  that  lived  in  the                                                                   
Railbelt was  not included  in that  80 percent because  they                                                                   
would  be  considered  a  North  Slope  employee  and  not  a                                                                   
Railbelt resident.  He thought  that the bill  needed further                                                                   
vetting.                                                                                                                        
                                                                                                                                
Vice-Chair  Gara  thought  that  the  only way  to  tax  more                                                                   
people was  to tax those at  lower incomes. He  was satisfied                                                                   
that  the  legislation  would   not  impose  taxes  at  lower                                                                   
incomes, which  he felt  would disproportionately  hurt rural                                                                   
and poor  areas of  the state.  He stressed  that he  did not                                                                   
want to  tax more Alaskans. He  noted that no taxes  would be                                                                   
imposed  on the  first  $15,500 of  earned  income; for  each                                                                   
$1,000  above  $15,500,  a  $25  tax  would  be  imposed.  He                                                                   
expressed  discomfort  with  the  idea of  taxing  people  at                                                                   
lower incomes  than $15,500.  He lamented  that areas  in the                                                                   
budget that  could withstand further  cuts were  limited, and                                                                   
he expressed  concern that  liberty and  dignity for  Alaskan                                                                   
residents could be cut along with funding.                                                                                      
                                                                                                                                
3:16:44 PM                                                                                                                    
                                                                                                                                
Representative  Pruitt offered  a  personal anecdote  related                                                                   
to the possible  impacts of an  income tax. He argued  that a                                                                   
person  making  $42,000  per year  was  not  privileged,  but                                                                   
rather  was a  "regular Joe"  out  working in  the world  who                                                                   
would be taxed $692.50 under the legislation.                                                                                   
                                                                                                                                
Vice-Chair Gara clarified  that he did not  say that everyone                                                                   
who  would pay  taxes under  the bill  came from  a place  of                                                                   
privilege.                                                                                                                      
                                                                                                                                
Representative  Pruitt  returned to  the  $692.50 figure.  He                                                                   
referred  to seniors  on fixed  incomes in  Alaska. He  noted                                                                   
that the  figure would be  spread out  over the course  of 12                                                                   
months, roughly  $58 per month,  would be a burden.  He spoke                                                                   
to seniors  on fixed  incomes of $30,000  per year  who would                                                                   
struggle under  the legislation. He offered  another anecdote                                                                   
related to a  senior's fixed income budget.  He lamented that                                                                   
property  taxes  in  Anchorage  had  recently  increased.  He                                                                   
worried   that  an   income  tax   would  negatively   affect                                                                   
recruiting  people  in certain  professions  to  work in  the                                                                   
state. He  noted that the  Alaska Permanent Fund  Corporation                                                                   
already struggled  with hiring  people from out-of-state.  He                                                                   
queried that  overall effect  that an  income tax  would have                                                                   
on  the state's  economy.  He  expounded  on the  reasons  he                                                                   
believed that an income tax was a bad idea.                                                                                     
                                                                                                                                
3:24:33 PM                                                                                                                    
                                                                                                                                
Co-Chair  Seaton  stated  that  the  hope  was  to  strike  a                                                                   
balance  between the bill  and the  Permanent Fund  reduction                                                                   
bill. He stated  the money from the tax would  be directed at                                                                   
education.  He was  perplexed  to  hear members  stating  the                                                                   
committee  had  not  heard from  economists.  He  stated  the                                                                   
committee  had heard from  Institute of  Social and  Economic                                                                   
Research  (ISER) and among  other experts.  He remarked  that                                                                   
some  public  testimony  had underscored  that  further  cuts                                                                   
were  one  of the  worst  things  that  could happen  to  the                                                                   
economy. He shared  that the bill represented one  piece of a                                                                   
four-part fiscal  plan. He spoke about services  such as road                                                                   
maintenance, troopers,  the university, and others  that were                                                                   
struggling  under  funding  cuts. He  reminded  members  that                                                                   
individuals earning  under $30,000 would be exempt.  He noted                                                                   
that the tax rate  would be 2.5 percent, $25  per $1,000 over                                                                   
$30,000.  He stressed  that  social security  for  low-income                                                                   
seniors would  be exempt  under federal  law. He stated  that                                                                   
exempting  the  permanent  fund   dividend,  and  the  $4,000                                                                   
personal  exemption,  would help  lower-income  Alaskans.  He                                                                   
responded to the  statement that 80 percent of  the tax would                                                                   
come from  the Railbelt, but pointed  out that 80  percent of                                                                   
the state's  population  lived in the  Railbelt. He  stressed                                                                   
that the bill  was not a geographically  discriminatory piece                                                                   
of legislation.  He believed that Alaskans should  be willing                                                                   
to pay  for services, such as  road maintenance, in  order to                                                                   
protect    roads   from   deterioration.    He   felt    that                                                                   
the bill  represented one  component of a  plan to  solve the                                                                   
fiscal problem.  He stated if  only a portion of  the deficit                                                                   
was  solved it  meant  the legislature  would  be faced  with                                                                   
making further  cuts. He  spoke to  potential impacts  around                                                                   
the state. He stated  it came down to what the  future of the                                                                   
state  should  look   like.  He  believed  that   the  credit                                                                   
legislation that  had passed could  not solve the  problem on                                                                   
its own.                                                                                                                        
                                                                                                                                
3:30:46 PM                                                                                                                    
                                                                                                                                
Representative  Tilton  remarked  the members  had  different                                                                   
philosophies  on how the  fiscal gap  should be handled.  She                                                                   
said  that  state government  could  be  funded  sufficiently                                                                   
with a $400 million  cut. She echoed concern for  hoe the tax                                                                   
could affect  seniors on  a fixed  income. She worried  about                                                                   
how the  tax would  affect the  private sector. She  asserted                                                                   
that she  was supportive of  funding for education,  but that                                                                   
"an income  tax was an  income tax,  no matter what  you call                                                                   
it."                                                                                                                            
                                                                                                                                
3:33:27 PM                                                                                                                    
                                                                                                                                
Representative   Guttenberg    agreed   the   situation   was                                                                   
difficult.  He   shared  that  even  in  time   of  financial                                                                   
security  he  worried  about  not  building  out  sustainable                                                                   
infrastructure.  He  lamented that  people  took  joy in  the                                                                   
building   and   ribbon  cutting   connected   to   increased                                                                   
infrastructure,   but  that   major   maintenance  of   those                                                                   
structures   was  less   attractive.   He   thought  that   a                                                                   
restructuring of  the permanent fund would spread  the burden                                                                   
unfairly across  the population.  He believed that  an income                                                                   
tax  would  level  out  the  financial   burden  to  Alaska's                                                                   
residents. He  noted that many  on his constituents  in rural                                                                   
Alaska,  even during times  of financial  stability,  had not                                                                   
received  the  services  they  had needed.  He  lamented  the                                                                   
historical  inequities  in state  spending.  He stressed  the                                                                   
need  for a  stable  economy. He  hoped  that industry  would                                                                   
commit  to investing  in the  state.  He felt  that the  most                                                                   
important issues  facing the state were controlling  the size                                                                   
of government and  stabilizing the economy. He  believed that                                                                   
the  solution to  the  fiscal  crisis was  multi-faceted.  He                                                                   
felt that the legislature  was running out of time  to act on                                                                   
the  issue.   He  expressed  concern   that  the   state  was                                                                   
currently    unable   to   take    advantage   of    economic                                                                   
opportunities    through   the    University   because    the                                                                   
legislature was making deep cuts to their budget.                                                                               
                                                                                                                                
3:41:26 PM                                                                                                                    
AT EASE                                                                                                                         
                                                                                                                                
3:44:45 PM                                                                                                                    
RECONVENED                                                                                                                      
                                                                                                                                
Representative Wilson MAINTAINED her OBJECTION.                                                                                 
                                                                                                                                
A roll call vote was taken on the motion.                                                                                       
                                                                                                                                
IN FAVOR: Gara, Grenn, Guttenberg, Kawasaki, Foster, Seaton                                                                     
OPPOSED: Ortiz, Pruitt, Thompson, Tilton, Wilson                                                                                
                                                                                                                                
The MOTION PASSED (6/5).                                                                                                        
                                                                                                                                
There  being   NO  further   OBJECTION,  CSHB  115(FIN)   was                                                                   
REPORTED  out of committee  with a  "do pass"  recommendation                                                                   
and with  one new fiscal impact  note from the  Department of                                                                   
Revenue and  one new fiscal  impact note from  the Department                                                                   
of Administration.                                                                                                              
                                                                                                                                
Co-Chair  Foster  discussed  housekeeping.  He  recessed  the                                                                   
meeting  to a  call of  the chair  [Note:  the meeting  never                                                                   
reconvened].                                                                                                                    
                                                                                                                                
ADJOURNMENT                                                                                                                   
                                                                                                                                
3:46:54 PM                                                                                                                    
                                                                                                                                
The meeting was adjourned at 3:46 p.m.                                                                                          

Document Name Date/Time Subjects
HB 115 CS WORK DRAFT v K_4.7.2017.pdf HFIN 4/11/2017 1:30:00 PM
HB 115
HB 115_Sectional version K_long form_4.11.2017.pdf HFIN 4/11/2017 1:30:00 PM
HB 115
SB 26 v.U Amendments 1-8.pdf HFIN 4/11/2017 1:30:00 PM
SB 26
SB 26 Fiscal Note PKT v.U.pdf HFIN 4/11/2017 1:30:00 PM
SB 26
HB 115 Fiscal Note PKT. v.K.pdf HFIN 4/11/2017 1:30:00 PM
HB 115
SB26_Oppose_041117.pdf HFIN 4/11/2017 1:30:00 PM
SB 26
SB26_Support_041117.pdf HFIN 4/11/2017 1:30:00 PM
SB 26
HB115_Oppose_041117.pdf HFIN 4/11/2017 1:30:00 PM
HB 115
HB115_Support_041117.pdf HFIN 4/11/2017 1:30:00 PM
HB 115
SB 26 Support Letter.pdf HFIN 4/11/2017 1:30:00 PM
SB 26