Legislature(2019 - 2020)ADAMS ROOM 519

07/25/2019 09:00 AM FINANCE

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Audio Topic
09:02:51 AM Start
09:03:49 AM HB2003
09:31:27 AM Adjourn
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
-- Recessed from 7/24/19 --
+= HB2003 APPROP: PAYMENT OF PFD TELECONFERENCED
Moved CSHB 2003(FIN) Out of Committee
+ Bills Previously Heard/Scheduled TELECONFERENCED
                  HOUSE FINANCE COMMITTEE                                                                                       
                  SECOND SPECIAL SESSION                                                                                        
                       July 25, 2019                                                                                            
                         9:02 a.m.                                                                                              
                                                                                                                                
                                                                                                                                
9:02:51 AM                                                                                                                    
                                                                                                                                
[Note: Continued from recessed meeting on Wednesday, July                                                                       
24, 2019. See separate minutes for detail.]                                                                                     
                                                                                                                                
CALL TO ORDER                                                                                                                 
                                                                                                                                
Co-Chair Johnston called the House Finance Committee                                                                            
meeting to order at 9:02 a.m.                                                                                                   
                                                                                                                                
MEMBERS PRESENT                                                                                                               
                                                                                                                                
Representative Neal Foster, Co-Chair                                                                                            
Representative Jennifer Johnston, Co-Chair                                                                                      
Representative Dan Ortiz, Vice-Chair                                                                                            
Representative Andy Josephson                                                                                                   
Representative Gary Knopp                                                                                                       
Representative Bart LeBon                                                                                                       
Representative Kelly Merrick (via teleconference)                                                                               
Representative Colleen Sullivan-Leonard                                                                                         
Representative Cathy Tilton                                                                                                     
Representative Adam Wool                                                                                                        
                                                                                                                                
MEMBERS ABSENT                                                                                                                
                                                                                                                                
Representative Ben Carpenter                                                                                                    
                                                                                                                                
ALSO PRESENT                                                                                                                  
                                                                                                                                
Erin Shine, Staff,  Representative Jennifer Johnston; Amanda                                                                    
Ryder,     Analyst,     Legislative    Finance     Division;                                                                    
Representative  Tammie Wilson;  Representative Sarah  Vance;                                                                    
Representative Sara Hannan.                                                                                                     
                                                                                                                                
PRESENT VIA TELECONFERENCE                                                                                                    
                                                                                                                                
Representative Kelly Merrick                                                                                                    
                                                                                                                                
SUMMARY                                                                                                                       
                                                                                                                                
HB 2003   APPROP: PAYMENT OF PFD                                                                                                
                                                                                                                                
          CSHB 2003(FIN) was REPORTED  out of committee with                                                                    
          seven  "do  pass"  recommendations,  one  "do  not                                                                    
          pass"    recommendation,     and    one    "amend"                                                                    
          recommendation.                                                                                                       
                                                                                                                                
Co-Chair Johnston reviewed the agenda for the meeting.                                                                          
                                                                                                                                
HOUSE BILL NO. 2003                                                                                                           
                                                                                                                                
     "An Act making special appropriations for the payment                                                                      
     of permanent fund dividends; and providing for an                                                                          
     effective date."                                                                                                           
                                                                                                                                
9:03:49 AM                                                                                                                    
                                                                                                                                
Representative Josephson  discussed that some of  the public                                                                    
had  asked the  legislature not  to give  up their  careers,                                                                    
jobs, livelihoods,  and dreams  for Permanent  Fund Dividend                                                                    
(PFD)  payments.  He  clarified  that the  bill  as  written                                                                    
heeded those comments; it did  not encroach in a competitive                                                                    
way with  dollars the legislature  was trying to  restore to                                                                    
the budget. He supported the bill.                                                                                              
                                                                                                                                
Representative  Sullivan-Leonard   requested  to   hear  the                                                                    
calculation  of  the breakdown  for  the  percent of  market                                                                    
value (POMV)  model. She  also asked  for a  spreadsheet for                                                                    
clarification.                                                                                                                  
                                                                                                                                
9:05:06 AM                                                                                                                    
                                                                                                                                
ERIN SHINE,  STAFF, REPRESENTATIVE JENNIFER  JOHNSTON, asked                                                                    
for  clarity  on  the  specific  information  Representative                                                                    
Sullivan-Leonard was  interested in.  She detailed  that the                                                                    
bill   would  appropriate   $901,470,000,  which   had  been                                                                    
included  in   legislation  previously  considered   by  the                                                                    
committee. The  figure took  some of  the budget  veto items                                                                    
into consideration.  The items  that were not  restored were                                                                    
also calculated  into the figure  as well. She  explained it                                                                    
would  leave  a  PFD  of $1,336.  If  the  Statutory  Budget                                                                    
Reserve  (SBR)  reverse sweep  was  achieved  the PFD  would                                                                    
increase to $1,605.                                                                                                             
                                                                                                                                
Representative   Sullivan-Leonard   was   looking   at   the                                                                    
calculation of the POMV that  arrived at the $1,336 PFD. She                                                                    
asked if a 50/50 or 60/40 split was used.                                                                                       
                                                                                                                                
Co-Chair  Johnston  responded  that  the  bill  used  a  net                                                                    
dividend  rather   than  a   formula  based   dividend.  The                                                                    
structured  POMV draw  was  being utilized  as  part of  the                                                                    
revenue source for the budget.  The dividend in the bill was                                                                    
built  on funds  available after  balancing the  budget. She                                                                    
remarked that if  SB 2002 was successful,  the savings would                                                                    
be used for the PFD in order to reach a compromise.                                                                             
                                                                                                                                
Co-Chair  Johnston acknowledged  that Representative  Tammie                                                                    
Wilson, Representative Sarah  Vance, and Representative Sara                                                                    
Hannan were present in the audience.                                                                                            
                                                                                                                                
Representative   Sullivan-Leonard  addressed   the  existing                                                                    
statute specifying the  PFD formula that was  supposed to be                                                                    
followed. She  stated that if  the calculation was  based on                                                                    
the statutory formula and was  divided 50/50 it would result                                                                    
in a  $2,200 PFD. She believed  the PFD in the  bill was not                                                                    
based on a calculation.                                                                                                         
                                                                                                                                
Co-Chair  Johnston answered  that  the bill  included a  net                                                                    
PFD. She  offered to  have an  analyst from  the Legislative                                                                    
Finance Division (LFD) provide information on the split.                                                                        
                                                                                                                                
Ms.  Shine  added  that  the 5.25  percent  POMV  for  state                                                                    
revenue in  FY 20 was  about $2.9 billion.  Currently, there                                                                    
was traditional  revenue of approximately $2.3  billion, for                                                                    
a total of  $5.2 billion to spend on the  state's costs. The                                                                    
bill envisioned the  state costs at about  $5.2 billion. The                                                                    
total  left about  $900  million [for  the  PFD], which  was                                                                    
included in the bill.                                                                                                           
                                                                                                                                
9:08:43 AM                                                                                                                    
                                                                                                                                
Co-Chair Johnston  asked LFD  to provide  the split  for the                                                                    
dividend in the  bill. She asked for the split  with the SBR                                                                    
and the split without the SBR.                                                                                                  
                                                                                                                                
AMANDA   RYDER,  ANALYST,   LEGISLATIVE  FINANCE   DIVISION,                                                                    
answered that she did not  have the information on hand. She                                                                    
offered to follow up. She  shared that the bill utilized the                                                                    
5.25 POMV draw and drew from savings for the current PFD.                                                                       
                                                                                                                                
Representative Wool  thought Representative Sullivan-Leonard                                                                    
was asking  what percentage POMV  a $1,600 PFD would  be. He                                                                    
calculated a  $1,600 PFD  would be about  38 percent  of the                                                                    
draw  (a split  of 63/38  percent). He  stated that  HB 2002                                                                    
started off  as a surplus  PFD of approximately  $900, using                                                                    
the money  remaining after paying  for a certain  budget. He                                                                    
remarked  that   the  committee  had  taken   the  to  other                                                                    
communities and it had  received significant public support.                                                                    
He referenced Ms. Shine's earlier  statement that if the SBR                                                                    
was  not  swept,  the surplus  PFD  would  be  approximately                                                                    
$1,300. He  highlighted the change  from $900 to  $1,300. He                                                                    
asked  if the  PFD increase  was based  on restored  cuts of                                                                    
about $90  million. Alternatively, he wondered  if something                                                                    
else resulted in the increase.                                                                                                  
                                                                                                                                
Ms.  Shine  responded  that there  were  three  bills  under                                                                    
consideration   by   the    legislature,   one   was   under                                                                    
consideration by the House Finance  Committee [HB 2003]. She                                                                    
explained that SB  2002 included the capital  budget and the                                                                    
reverse sweep, which used  the Constitutional Budget Reserve                                                                    
(CBR) as a fund source. She  detailed that it freed up about                                                                    
$172  million  to $174  million.  She  relayed that  if  the                                                                    
legislature accessed the  SBR, as envisioned by  HB 2003, it                                                                    
would result  in another $172 million.  Currently, about $89                                                                    
million of  the governor's veto  had not been  restored. All                                                                    
of  the items  she had  listed  were factored  into the  PFD                                                                    
amount included in HB 2003.                                                                                                     
                                                                                                                                
9:11:56 AM                                                                                                                    
                                                                                                                                
Representative Wool  asked for verification that  if the SBR                                                                    
was not  swept, the capital  budget amount in SB  2002 would                                                                    
have to be accounted for if  the PFD was increased from $900                                                                    
to $1,300. He  asked for verification that  SB 2002 included                                                                    
$172 million  in the SBR  and approximately $170  million in                                                                    
CBR funds for the capital budget.                                                                                               
                                                                                                                                
Ms. Shine responded affirmatively.                                                                                              
                                                                                                                                
Co-Chair Johnston  asked Ms.  Ryder to put  her name  on the                                                                    
record.                                                                                                                         
                                                                                                                                
Ms. Ryder complied.                                                                                                             
                                                                                                                                
Representative Josephson followed up  on an earlier question                                                                    
by  Representative   Sullivan-Leonard.  He   suggested  that                                                                    
without the reverse  sweep the PFD in HB  2003 constituted a                                                                    
31 percent draw  and 69 percent for  funding government. The                                                                    
amount would  increase to  about 37 or  38 percent  with the                                                                    
SBR. He observed  that the extra funds would not  be part of                                                                    
the POMV.                                                                                                                       
                                                                                                                                
Representative Sullivan-Leonard  asked Ms. Ryder  to provide                                                                    
some history  about the calculation and  disbursement of the                                                                    
PFD  in prior  years. She  discussed  that in  the past  few                                                                    
sessions PFDs  were calculated, and  half had been  put back                                                                    
into the  Permanent Fund Earnings Reserve  Account (ERA) and                                                                    
half  was  distributed to  the  public.  She asked  how  the                                                                    
calculation had  been done. She  wondered if the  POMV model                                                                    
had been followed.                                                                                                              
                                                                                                                                
9:14:10 AM                                                                                                                    
                                                                                                                                
Ms.  Ryder responded  that she  was not  the best  person to                                                                    
speak  about the  model. The  POMV was  5.25 percent  of the                                                                    
total  value of  the  Permanent Fund  based  on the  average                                                                    
balance of the previous five  years. The method was based on                                                                    
the  endowment   model  where  the  maximum   of  a  certain                                                                    
percentage  was  drawn in  order  to  avoid overdrawing  and                                                                    
losing value  on an inflation adjusted  basis. She addressed                                                                    
the 5.25  percent and shared  that when  averaging backwards                                                                    
the amount was 4.7 percent or so of the actual value.                                                                           
                                                                                                                                
Representative    Sullivan-Leonard    referenced    Co-Chair                                                                    
Johnston's  discussion of  the  net value  of the  Permanent                                                                    
Fund. She  asked how  the net value  was different  from the                                                                    
original calculation of the POMV.                                                                                               
                                                                                                                                
Ms. Ryder asked for clarification on the question.                                                                              
                                                                                                                                
Co-Chair  Johnston explained  her  reference  to "net."  She                                                                    
detailed  that  the  calculation  subtracted  expenses  from                                                                    
revenues and  the remaining surplus  went to the  PFD. There                                                                    
had  been an  effort  to  be as  balanced  as possible.  She                                                                    
highlighted the  necessity of compromise and  explained that                                                                    
in order  to reach a $1,600  PFD, savings from the  SBR were                                                                    
included.                                                                                                                       
                                                                                                                                
Representative Sullivan-Leonard  thought the figures  in the                                                                    
bill appeared  to reflect a split  of 30 percent to  the PFD                                                                    
and 70 percent to government.                                                                                                   
                                                                                                                                
Representative Wool  clarified that the 70/30  split did not                                                                    
include the $172 million from  the SBR. He liked the surplus                                                                    
PFD that had  been included in HB 2002.  He highlighted that                                                                    
HB 2003 would  use savings to increase the  PFD, which could                                                                    
not be done every year.                                                                                                         
                                                                                                                                
Co-Chair Johnston agreed.                                                                                                       
                                                                                                                                
9:17:33 AM                                                                                                                    
                                                                                                                                
Representative   Tilton  asked   if   there   would  be   an                                                                    
opportunity to offer an amendment.                                                                                              
                                                                                                                                
Co-Chair  Johnston asked  if  Representative  Tilton had  an                                                                    
amendment prepared.                                                                                                             
                                                                                                                                
Representative Tilton replied that  she ordered an amendment                                                                    
from  Legislative  Legal  Services  that  she  had  not  yet                                                                    
received.   She  relayed   she  could   make  a   conceptual                                                                    
amendment.                                                                                                                      
                                                                                                                                
Representative Tilton MOVED to  ADOPT Conceptual Amendment 1                                                                    
(copy not on file):                                                                                                             
                                                                                                                                
     Delete                                                                                                                     
     Sections 1(a) and (b)                                                                                                      
                                                                                                                                
     Insert                                                                                                                     
     The  amount authorized  under AS  37.13.145(b) for  the                                                                    
     transfer  by  the  Alaska  Permanent  Fund  Corporation                                                                    
     (APFC)   on   June   30,    2019,   estimated   to   be                                                                    
     $1,944,000,000  is   appropriated  from   the  Earnings                                                                    
     Reserve Account,  AS 37.13.145 to the  Dividend Fund AS                                                                    
     43.23.045(a)   for  the   payment  of   Permanent  Fund                                                                    
     Dividends  and for  the  administrative and  associated                                                                    
     costs for the fiscal year ending June 30, 2020.                                                                            
                                                                                                                                
Co-Chair   Johnston   asked   for  verification   that   the                                                                    
conceptual amendment would delete  Section 1(a) and (b). She                                                                    
asked if Representative Tilton had also said Section (c).                                                                       
                                                                                                                                
Representative  Tilton replied  that the  amendment did  not                                                                    
include  a Section  (c). There  was no  such section  in the                                                                    
legislation.                                                                                                                    
                                                                                                                                
Representative Knopp OBJECTED.                                                                                                  
                                                                                                                                
Representative Tilton spoke to  her amendment. She indicated                                                                    
there was  a POMV statute  and a statutory PFD  statute. The                                                                    
amendment would  pay out the  statutory PFD.  She understood                                                                    
the net divided concept, which  had been discussed at length                                                                    
on the House  floor the previous day.  She referenced recent                                                                    
public  testimony heard  by the  committee  and pointed  out                                                                    
that it had been on vetoed  items and had not focused on the                                                                    
PFD the public expected  for the current year. Additionally,                                                                    
the ERA  contained money from  past dividends that  were not                                                                    
paid out.                                                                                                                       
                                                                                                                                
Representative    Sullivan-Leonard   supported    Conceptual                                                                    
Amendment 1. She  stated that the ERA  contained $19 billion                                                                    
and the corpus of the  Permanent Fund contained $66 billion.                                                                    
She  highlighted that  earlier in  the year  there had  been                                                                    
overwhelming  public testimony  from seniors,  students, and                                                                    
families asking for  a full statutory PFD.  She believed the                                                                    
people were tired of continuing  to say they wanted the full                                                                    
statutory PFD.  The amendment would  restore the PFD  to the                                                                    
statutory level.                                                                                                                
                                                                                                                                
9:21:49 AM                                                                                                                    
                                                                                                                                
Co-Chair Johnston asked  Representative Sullivan-Leonard how                                                                    
much she had  stated was currently in the  ERA and Permanent                                                                    
Fund corpus.                                                                                                                    
                                                                                                                                
Representative  Sullivan-Leonard  replied  that  as  of  May                                                                    
2019, there  was $19 billion in  the ERA and $66  billion in                                                                    
the corpus.                                                                                                                     
                                                                                                                                
Co-Chair  Johnston clarified  that the  $66 billion  was the                                                                    
total balance, including the ERA.                                                                                               
                                                                                                                                
Representative Knopp  opposed the amendment. He  agreed with                                                                    
Representatives  Tilton and  Sullivan-Leonard  that the  two                                                                    
statutes  conflicted. He  reasoned that  no matter  what the                                                                    
legislature did,  the solution would likely  be in violation                                                                    
of one of the statutes. He  felt strongly that the issue was                                                                    
about  good,  sound,  fiscal  policy.  He  stated  that  the                                                                    
balance of the ERA really  made no difference because if the                                                                    
draw  exceeded  a  sustainable amount,  the  fund  would  be                                                                    
depleted. He  reasoned it did  not make a difference  if the                                                                    
balance was $100  billion or $10 billion in  that regard. He                                                                    
stressed that continuing to draw  more than the fund earned,                                                                    
the  fund would  be  depleted  in three  to  four years.  He                                                                    
believed  it was  bad fiscal  policy to  draw more  than the                                                                    
fund would earn.                                                                                                                
                                                                                                                                
9:23:44 AM                                                                                                                    
                                                                                                                                
Representative LeBon  spoke in opposition to  the amendment.                                                                    
He  agreed  with  the  previous speaker  that  it  would  be                                                                    
irresponsible  to  over  draw from  the  ERA.  He  suggested                                                                    
reviewing the constitution and the  amendment that passed in                                                                    
1976  establishing the  Permanent  Fund. He  relayed it  was                                                                    
necessary  for the  legislature to  take direction  from the                                                                    
expectation of  the voters  (from that  time) of  the fund's                                                                    
long-term sustainability for  subsequent generations and the                                                                    
protection of the fund in the constitution from any law.                                                                        
                                                                                                                                
Co-Chair Foster  commented that  the committee  had received                                                                    
public testimony in Anchorage,  Wasilla, and Fairbanks on HB                                                                    
2001.  He detailed  that HB  2001 was  a two-part  bill that                                                                    
restored all  of the  governor's vetoes  and paid  a surplus                                                                    
PFD of just over $900.  He elaborated that the committee had                                                                    
received  myriad   comments  speaking  to  the   topics.  He                                                                    
reported that 619  people had testified in person  or on the                                                                    
phone and 80  percent of the testifiers  supported the bill.                                                                    
Additionally, the  committee had received 1,780  emails with                                                                    
89 percent  in support of  the bill. He emphasized  that the                                                                    
bill had included a PFD and many people had spoken to it.                                                                       
                                                                                                                                
9:25:54 AM                                                                                                                    
                                                                                                                                
Representative Josephson added  there were likely additional                                                                    
emails that  had been  received by  the committee  since the                                                                    
previous week.                                                                                                                  
                                                                                                                                
Representative  Tilton   provided  wrap  up   on  Conceptual                                                                    
Amendment  1.  She pointed  out  there  had been  discussion                                                                    
about not borrowing  from savings, but HB  2003 would borrow                                                                    
from savings.  She agreed on the  need to look at  the long-                                                                    
term  sustainability,  but  that  was  not  currently  under                                                                    
consideration  by  the  committee. She  stressed  there  was                                                                    
current  law  providing  for  a   full  statutory  PFD.  She                                                                    
highlighted  that lawmakers  had  not made  the decision  to                                                                    
change how dividends were paid  out. She noted that the bill                                                                    
provided  a  net surplus  dividend  of  the remaining  funds                                                                    
after government  took its share. Her  understanding was the                                                                    
PFD provided by the bill would  result in a 60/30 split. She                                                                    
agreed   there  had   been  significant   public  testimony;                                                                    
however, people had  not all testified they  were willing to                                                                    
give up  their PFD.  She stated there  had been  much public                                                                    
testimony about  the line  item vetoes.  She had  also heard                                                                    
numerous people  who were conflicted  and wanted  their PFD.                                                                    
She believed  many people probably  wanted a PFD and  all of                                                                    
the services, but that was  not sustainable. She pointed out                                                                    
that  there had  been public  testimony on  a previous  bill                                                                    
where thousands  of people  had been  unhappy with  a $1,600                                                                    
PFD; the individuals wanted a full statutory dividend.                                                                          
                                                                                                                                
Representative Knopp MAINTAINED his OBJECTION.                                                                                  
                                                                                                                                
A roll call vote was taken on the motion.                                                                                       
                                                                                                                                
IN FAVOR: Merrick, Sullivan-Leonard, Tilton                                                                                     
OPPOSED:  LeBon,  Ortiz, Wool,  Josephson, Knopp,  Johnston,                                                                    
Foster                                                                                                                          
                                                                                                                                
Representative Carpenter was absent from the vote.                                                                              
                                                                                                                                
The MOTION to ADOPT Conceptual Amendment 1 FAILED (3/7).                                                                        
                                                                                                                                
9:30:11 AM                                                                                                                    
                                                                                                                                
Vice-Chair  Ortiz  MOVED to  report  CSHB  2003(FIN) out  of                                                                    
Committee with individual recommendations.                                                                                      
                                                                                                                                
Representative  Tilton  OBJECTED.  She   did  not  have  any                                                                    
further comments.                                                                                                               
                                                                                                                                
A roll call vote was taken on the motion.                                                                                       
                                                                                                                                
IN FAVOR: Knopp,  LeBon,  Ortiz,  Wool,  Josephson,  Foster,                                                                    
Johnston                                                                                                                        
OPPOSED: Sullivan-Leonard, Tilton                                                                                               
                                                                                                                                
Representative  Merrick  and Representative  Carpenter  were                                                                    
absent from the vote.                                                                                                           
                                                                                                                                
The MOTION PASSED (7/2).                                                                                                        
                                                                                                                                
There  being  NO  further   OBJECTION,  CSHB  2003(FIN)  was                                                                    
REPORTED   out   of   committee   with   seven   "do   pass"                                                                    
recommendations, one  "do not pass" recommendation,  and one                                                                    
"amend" recommendation.                                                                                                         
                                                                                                                                
ADJOURNMENT                                                                                                                   
                                                                                                                                
9:31:27 AM                                                                                                                    
                                                                                                                                
The meeting was adjourned at 9:31 a.m.                                                                                          
                                                                                                                                

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