Legislature(2019 - 2020)ADAMS 519

03/10/2020 01:30 PM FINANCE

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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
*+ HB 300 PERM FUND: APPROPS FR EARNINGS RESERVE TELECONFERENCED
Heard & Held
*+ HB 306 PFD/GF APPROPS; EARNINGS RESERVE TELECONFERENCED
Heard & Held
+ Bills Previously Heard/Scheduled TELECONFERENCED
                  HOUSE FINANCE COMMITTEE                                                                                       
                      March 10, 2020                                                                                            
                         1:33 p.m.                                                                                              
                                                                                                                                
                                                                                                                                
1:33:04 PM                                                                                                                    
                                                                                                                                
CALL TO ORDER                                                                                                                 
                                                                                                                                
Co-Chair Foster called the House Finance Committee meeting                                                                      
to order at 1:33 p.m.                                                                                                           
                                                                                                                                
MEMBERS PRESENT                                                                                                               
                                                                                                                                
Representative Neal Foster, Co-Chair                                                                                            
Representative Jennifer Johnston, Co-Chair                                                                                      
Representative Dan Ortiz, Vice-Chair                                                                                            
Representative Ben Carpenter                                                                                                    
Representative Andy Josephson                                                                                                   
Representative Gary Knopp                                                                                                       
Representative Bart LeBon                                                                                                       
Representative Kelly Merrick                                                                                                    
Representative Colleen Sullivan-Leonard                                                                                         
Representative Cathy Tilton                                                                                                     
Representative Adam Wool                                                                                                        
                                                                                                                                
MEMBERS ABSENT                                                                                                                
                                                                                                                                
None                                                                                                                            
                                                                                                                                
ALSO PRESENT                                                                                                                  
                                                                                                                                
Representative Jennifer Johnston; Representative Chuck                                                                          
Kopp; Grace Irvine, Staff, Representative Chuck Kopp;                                                                           
Representative Adam Wool, Sponsor.                                                                                              
                                                                                                                                
SUMMARY                                                                                                                       
                                                                                                                                
HB 300    PERM FUND: APPROPS FR EARNINGS RESERVE                                                                                
                                                                                                                                
          HB 300 was HEARD and HELD in committee for                                                                            
          further consideration.                                                                                                
                                                                                                                                
HB 306    PFD/GF APPROPS; EARNINGS RESERVE                                                                                      
                                                                                                                                
          HB 306 was HEARD and HELD in committee for                                                                            
          further consideration.                                                                                                
                                                                                                                                
Co-Chair Foster reviewed the meeting agenda.                                                                                    
                                                                                                                                
HOUSE BILL NO. 306                                                                                                            
                                                                                                                                
     "An  Act relating  to deposits  into the  dividend fund                                                                    
     and  income of  and  appropriations  from the  earnings                                                                    
     reserve   account;   establishing  a   permanent   fund                                                                    
     dividend  task force;  and providing  for an  effective                                                                    
     date."                                                                                                                     
                                                                                                                                
1:33:04 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  JENNIFER  JOHNSTON,  shared  that  the  bill                                                                    
built on the  work done by the Permanent  Fund Working Group                                                                    
and   continued  a   conversation   seeking  a   sustainable                                                                    
Permanent Fund  for future generations.  She shared  that it                                                                    
had been an honor to serve  as co-chair of the working group                                                                    
with Senator Click  Bishop. The group was  comprised of four                                                                    
members  of the  House and  four members  of the  Senate and                                                                    
included  House  Finance  Committee  members  Representative                                                                    
Merrick  and Representative  Wool. She  reported that  while                                                                    
the working group had not come  to an agreement on the ideal                                                                    
Permanent Fund  Dividend (PFD) amount,  they all  agreed the                                                                    
Permanent Fund needed to grow  and be protected from effects                                                                    
of inflation.                                                                                                                   
                                                                                                                                
Co-Chair  Johnston  elaborated  that  the  majority  of  the                                                                    
working  group  agreed  on  the  need  to  live  within  the                                                                    
framework  of SB  26 [Permanent  Fund legislation  passed in                                                                    
2018] or the percent of  market value (POMV). She referenced                                                                    
slide  5  of  a  presentation  to  the  committee  given  by                                                                    
Department of  Revenue Deputy Commissioner Mike  Barnhill on                                                                    
the  afternoon  of  March 9  [titled  "HB  259  Supplemental                                                                    
Permanent Fund Dividend"(copy on  file)]. She read the third                                                                    
bullet  point  on  slide 5:  "Structured  (i.e.,  statutory)                                                                    
solution to the  PFD is important to  reducing annual fiscal                                                                    
uncertainty."   She  relayed   that  HB   306  started   the                                                                    
conversation on how  to address the structure  and move away                                                                    
from  the  uncertainty that  had  existed  for a  number  of                                                                    
years.                                                                                                                          
                                                                                                                                
Co-Chair Johnston  relayed that  the Permanent  Fund Working                                                                    
Group had  modeled many different  scenarios, none  of which                                                                    
had   completely  eliminated   the  deficit.   The  scenario                                                                    
proposed in HB 306 had  come the closest [to eliminating the                                                                    
deficit]  at  the time.  She  highlighted  that the  current                                                                    
fiscal outlook  for world  markets had  changed dramatically                                                                    
over  the past  couple of  days. She  looked forward  to the                                                                    
committee's  conversations   that  would  account   for  the                                                                    
current market and looking into  the future. She stated that                                                                    
like recent  conversations on the House  floor regarding HCR
13,  common ground  was most  often  found on  the topic  of                                                                    
ensuring  the  Permanent  Fund   was  protected  for  future                                                                    
generations.                                                                                                                    
                                                                                                                                
Co-Chair Foster handed the gavel to Co-Chair Johnston.                                                                          
                                                                                                                                
1:37:06 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE   CHUCK   KOPP,   introduced   a   PowerPoint                                                                    
presentation  titled  "HB  306:  A Path  Forward"  (copy  on                                                                    
file). He  began on slide  2 and expressed gratitude  to the                                                                    
Permanent Fund  Working Group. He detailed  that the group's                                                                    
work over the interim had  brought them to the current point                                                                    
and showed that the legislature  could reach consensus on an                                                                    
important  topic  like  protecting the  Permanent  Fund.  He                                                                    
moved  to  shared goals  for  Alaska  on slide  3  including                                                                    
healthy and safe communities, a  thriving private sector, an                                                                    
efficient  government that  upheld  the law,  and a  strong,                                                                    
growing Permanent Fund.                                                                                                         
                                                                                                                                
Representative  Kopp moved  to slide  4 titled  "Why Protect                                                                    
the Permanent  Fund." He detailed that  historic investments                                                                    
in  the  fund  had  allowed  it to  grow  from  the  initial                                                                    
$734,000 deposit to $68 billion  as of several days earlier.                                                                    
He noted  an update  was likely  needed. He  elaborated that                                                                    
there had  been recent discussion  on the House  floor about                                                                    
the  growth   of  the  fund,  a   sustainable  draw,  fiscal                                                                    
solvency, and  the state's  creditworthiness. He  noted that                                                                    
the  fund could  be  ephemeral  at times,  but  it could  be                                                                    
helpful to discuss  the ways it had played  into the state's                                                                    
shared history, outside of paying  a PFD. He believed it was                                                                    
an opportunity to celebrate  the fund's success, recognizing                                                                    
that  the Permanent  Fund  would continue  to  have a  major                                                                    
impact on Alaskan life.                                                                                                         
                                                                                                                                
1:39:17 PM                                                                                                                    
                                                                                                                                
Representative Kopp  addressed goals for Alaska  and how the                                                                    
Permanent Fund supported  the goals on slide  5. He believed                                                                    
the  outcomes  listed  on the  slide  were  useful  whenever                                                                    
concerns  were vocalized  about  the POMV  being  a raid  or                                                                    
theft. He expounded that fund  earnings had helped the state                                                                    
respond to the opioid epidemic,  the rise in crime, the 2018                                                                    
earthquake, and the 2019 wildfire  season. He continued that                                                                    
earnings  had allowed  Alaskans'  tax burden  to remain  low                                                                    
despite the drop  in oil prices. Additionally,  the POMV had                                                                    
acted  as the  most effective  spending cap  in decades.  He                                                                    
stated  that  the  accomplishments further  underscored  the                                                                    
need to keep the fund strong.                                                                                                   
                                                                                                                                
Representative Kopp moved  to slide 6 and  addressed how the                                                                    
state had  been funding its  services. The slide  began with                                                                    
1912 through  statehood and present day  and highlighted how                                                                    
the  fund's  earnings had  become  integral  to running  the                                                                    
state over  time. In  1912, funding  had come  from industry                                                                    
taxes and  an income tax.  By 1977, significant  oil revenue                                                                    
began to flow into Alaska.  The income tax had been repealed                                                                    
in 1980  and in 2013  when oil prices  dropped dramatically,                                                                    
the  state   had  responded  by  cutting   billions  in  the                                                                    
operating   budget.  The   state's  need   to  address   the                                                                    
mathematical  tension in  its budget  with the  dividend and                                                                    
the POMV was continuing.                                                                                                        
                                                                                                                                
Representative  Kopp moved  to  slide 7  and discussed  that                                                                    
deposits into  the Permanent  Fund had  allowed the  fund to                                                                    
grow. He  detailed that deposits  into the fund  including a                                                                    
combination   of    mineral   royalties    and   non-royalty                                                                    
legislative  appropriations  plus  inflation  proofing,  had                                                                    
caused  the  fund  to  grow to  roughly  $66.7  billion.  He                                                                    
pointed out  that previous  legislatures had  understood the                                                                    
importance of growing  the fund in the  long-term, which had                                                                    
been  done at  the  expense of  short-term benefits  through                                                                    
appropriations.                                                                                                                 
                                                                                                                                
1:41:34 PM                                                                                                                    
                                                                                                                                
Representative Kopp  reviewed how  the POMV worked  on slide                                                                    
8. He  explained that the Alaska  Permanent Fund Corporation                                                                    
(APFC)  calculated the  total value  of  the Permanent  Fund                                                                    
(principal and  earnings) and  then calculated  5.25 percent                                                                    
of  the fund's  value  over the  first five  of  the last  6                                                                    
years. He noted  the draw was set at 5.25  percent for FY 19                                                                    
through FY  21 and 5  percent thereafter. The  result became                                                                    
the maximum amount  the state could spend  from the Earnings                                                                    
Reserve Account (ERA).  Lastly, the legislature appropriated                                                                    
the  specified  amount  to  pay   for  dividends  and  state                                                                    
services.                                                                                                                       
                                                                                                                                
Representative Kopp turned  to slide 9 and  discussed how to                                                                    
keep the Permanent  Fund strong. He stated  that in addition                                                                    
to the  appropriations made to  the fund's  principal, there                                                                    
was more that could be  done to support the fund's strength.                                                                    
Other ways to  keep the fund strong  included supporting and                                                                    
abiding  by the  POMV  structure, paying  out an  affordable                                                                    
dividend, and  supporting APFC's work to  recruit and retain                                                                    
great investors.  He acknowledged Co-Chair Johnston  for her                                                                    
work helping  APFC with  its ability  to recruit  and retain                                                                    
some of the best investors  in the country, which Alaska had                                                                    
benefitted from.                                                                                                                
                                                                                                                                
1:42:52 PM                                                                                                                    
                                                                                                                                
Representative  Kopp  turned to  slide  10  titled "Why  Act                                                                    
Now?" He  believed the legislature  had kicked the  can down                                                                    
the road  long enough.  He clarified he  was not  laying the                                                                    
blame on anyone. He continued  that the state's savings were                                                                    
nearly exhausted and with oil  at such low prices, oil could                                                                    
not be  expected to bail the  state out of the  $1.5 billion                                                                    
structural  deficit. He  highlighted that  any new  revenues                                                                    
would not  solve the deficit  in the current year.  He noted                                                                    
that  oil  was  currently  around $34  per  barrel  and  the                                                                    
forecast indicated prices heading into the $20s.                                                                                
                                                                                                                                
Representative Kopp reviewed a  slide addressing the need to                                                                    
change state statutes on slide  11. He explained there was a                                                                    
mathematical tension between revenues  and costs. The change                                                                    
in  statute was  needed due  to the  gap illustrated  on the                                                                    
slide. The slide showed the  revenue picture paired with the                                                                    
state's expense picture  in the governor's FY  21 budget and                                                                    
the  size  of  the  gap   necessary  to  pay  the  statutory                                                                    
dividend.  He  continued  that the  gap  caused  unnecessary                                                                    
stress  and  uncertainty across  the  state.  He noted  that                                                                    
attempts to  reduce the  gap with $1.5  billion in  cuts and                                                                    
cost  shifting  had  not  worked   well.  He  detailed  that                                                                    
legislators had heard  from all of their  communities on the                                                                    
devastating effects  of absorbing the costs  or having their                                                                    
share  of petroleum  property tax  or  fisheries tax  clawed                                                                    
back  to  the   state  (actions  taken  to   pay  the  whole                                                                    
dividend). He pointed out that  if the gap occurred again in                                                                    
the following year, the state  would have no savings to fill                                                                    
it. He expressed gratitude to  Mr. Barnhill for underscoring                                                                    
the issue in his presentation the previous day.                                                                                 
                                                                                                                                
Representative Kopp  shared that according to  Fitch ratings                                                                    
(one  of the  three largest  credit rating  agencies in  the                                                                    
U.S.  other  than  Moody's and  Standard  and  Poor's),  the                                                                    
state's  desire to  pay a  full  statutorily calculated  PFD                                                                    
elevated  the  state's fixed  cost  burden  and reduced  its                                                                    
ability to  respond to future economic  weakness, as revenue                                                                    
growth was expected to be  modest. He stated the Coronavirus                                                                    
and downward spiral  of oil were contributing to  a state of                                                                    
future economic weakness.  He noted that Fitch  had made the                                                                    
statement five or six months back.                                                                                              
                                                                                                                                
1:45:25 PM                                                                                                                    
                                                                                                                                
Representative  Kopp  turned  to  a graph  showing  the  UGF                                                                    
revenue/budget   status  quo   on   slide   12.  The   graph                                                                    
illustrated the  amount left unknown  if no change  was made                                                                    
in  the current  year.  The top  dotted  line represented  a                                                                    
budget with a statutory PFD  and the gap between the budget,                                                                    
less  dividends.  He  noted  the  gap  was  significant  and                                                                    
$1.5 billion  would be  required to  balance the  budget. He                                                                    
highlighted  that in  the  following  year, the  legislature                                                                    
could spend the remaining $500  million in savings and still                                                                    
have a deficit exceeding $1  billion. He reported that under                                                                    
the  status quo,  the annual  gap would  exceed the  state's                                                                    
savings and would result in a crippling tax burden.                                                                             
                                                                                                                                
Representative Kopp moved to slide  13 and addressed the two                                                                    
elements of  the HB  306 plan, including  an 80/20  split of                                                                    
the POMV and  the review of the plan's  effectiveness by the                                                                    
Permanent  Fund Task  Force within  six years.  He explained                                                                    
that the  timeframe had been  selected because it  had taken                                                                    
since  2014 to  present day  to evaluate  the situation.  He                                                                    
detailed that under the 80/20  split, of the $3.1 billion in                                                                    
FY  21,  80  percent  would go  to  fund  state  obligations                                                                    
(education,  public safety,  transportation) and  20 percent                                                                    
went to dividends.                                                                                                              
                                                                                                                                
Representative Sullivan-Leonard looked at  slide 13. She was                                                                    
trying to determine  how the 80/20 formula  had been decided                                                                    
upon.  She  believed  the  task   force  had  received  many                                                                    
different proposals.                                                                                                            
                                                                                                                                
Co-Chair Johnston clarified that  the Permanent Fund Working                                                                    
Group was different than the  Permanent Fund Task Force that                                                                    
would  review the  plan's effectiveness  in six  years under                                                                    
the proposed legislation.                                                                                                       
                                                                                                                                
Representative  Sullivan-Leonard  asked  if the  80/20  POMV                                                                    
split was a  result of the working group or  had been formed                                                                    
independently.                                                                                                                  
                                                                                                                                
Representative  Kopp  answered  that  much  of  the  working                                                                    
group's effort  was incorporated in the  bill. He elaborated                                                                    
that  the  80/20   split  was  a  starting   point  for  the                                                                    
conversation  as laid  out by  Co-Chair Johnston.  He shared                                                                    
that  the  committee  would   be  presented  with  different                                                                    
modeling scenarios  - it was  possible to look at  the split                                                                    
in many  different ways.  He explained  that the  bill began                                                                    
with the 80/20  split because it worked the  best for Alaska                                                                    
out of the scenarios that had  been available at the time of                                                                    
the bill's introduction, which the modeling would show.                                                                         
                                                                                                                                
Representative  Sullivan-Leonard  noted  that  the  proposal                                                                    
brought  forward  by  her  Mat-Su  representative  was  very                                                                    
different  from  the  bill's proposal.  She  was  trying  to                                                                    
figure out who the author of  the proposal was. She asked if                                                                    
Co-Chair Johnston had proposed the 80/20 split in the bill.                                                                     
                                                                                                                                
Co-Chair  Johnston  that she  had  been  a co-chair  on  the                                                                    
Permanent Fund Working  Group, and the 80/20  split had been                                                                    
one of the  scenarios the group had  modeled. She elaborated                                                                    
that  it  was one  of  the  few  scenarios that  provided  a                                                                    
glidepath of sustainability.                                                                                                    
                                                                                                                                
Representative  Sullivan-Leonard asked  who had  brought the                                                                    
proposal forward.                                                                                                               
                                                                                                                                
1:49:28 PM                                                                                                                    
                                                                                                                                
Co-Chair Johnston  answered that  the House  Rules Committee                                                                    
had brought the  bill forward via herself  as the vice-chair                                                                    
and the committee chair Representative Kopp.                                                                                    
                                                                                                                                
Representative Sullivan-Leonard  shared that she  was trying                                                                    
to determine who brought the  proposal forward. She asked if                                                                    
it  had been  Senator  Bishop or  another  group. She  noted                                                                    
there had been people tasked to work on different modeling.                                                                     
                                                                                                                                
Co-Chair  Johnston answered  that she,  Representative Kopp,                                                                    
and the  majority of the  House Rules Committee  had brought                                                                    
the proposal forward. She detailed  that two things had been                                                                    
brought forward  with the Permanent  Fund Working  Group: 1)                                                                    
the need  to maintain the  structured draw and  2) agreement                                                                    
on the  modeling presented to  the group. She added  that it                                                                    
was possible to use numbers  from the past week in modeling,                                                                    
but  it  may  not  contain  all  of  the  nuances  currently                                                                    
occurring in the world markets.                                                                                                 
                                                                                                                                
Representative Kopp added that the  bill was informed by the                                                                    
working group  but authored by  himself with  the assistance                                                                    
of Co-Chair Johnston.  He added that he was proud  to be the                                                                    
author  of  the  legislation.  He turned  to  slide  15  and                                                                    
detailed that  under the bill,  a Permanent Fund  Task Force                                                                    
would review and  evaluate the Permanent Fund  and PFD after                                                                    
six  years.  The  task  force   would  include  three  House                                                                    
members,  three  Senate members,  and  an  appointee by  the                                                                    
governor.  He elaborated  that the  task  force was  charged                                                                    
with giving  Alaskans a  performance review  for HB  306 and                                                                    
the  Permanent  Fund.  The task  force  would  consider  the                                                                    
effectiveness  of   the  plan  and  determine   whether  the                                                                    
Permanent  Fund continued  to be  sustainable. The  goal was                                                                    
for  the  task  force  to  evaluate  whether  a  change  was                                                                    
necessary (the  same thing  legislators had  been evaluating                                                                    
since 2014).  He stated that  2026 had been chosen  in order                                                                    
for  legislators  to have  a  full  two-year legislature  to                                                                    
consider the recommendations (the 35th legislature).                                                                            
                                                                                                                                
1:51:40 PM                                                                                                                    
                                                                                                                                
Representative  Kopp  turned to  a  graph  on slide  16  and                                                                    
discussed the impact  of the plan on  UGF revenue/budget. He                                                                    
noted the graph  had been produced by LFD  to illustrate the                                                                    
plan's performance under  the FY 21 budget.  He relayed that                                                                    
LFD would  provide testimony to the  committee regarding the                                                                    
bill and could address impacts  on a more detailed level. He                                                                    
pointed  to the  significant difference  between the  budget                                                                    
gap under  the status quo  compared to the bill.  He pointed                                                                    
out  that while  a modest  draw from  savings would  need to                                                                    
occur,  the  gap  would  be  far  more  easily  filled  with                                                                    
reductions or revenues  than the $1.5 billion  gap under the                                                                    
status quo. He continued that  state savings also had a much                                                                    
longer life under the proposed scenario.                                                                                        
                                                                                                                                
1:52:43 PM                                                                                                                    
                                                                                                                                
Representative Kopp  advanced to slide  17 and spoke  to the                                                                    
impacts of  state savings.  The slide  included a  bar chart                                                                    
showing the  ERA growth  under HB  306. He  highlighted that                                                                    
under the bill proposal the ERA  grew and the CBR provided a                                                                    
glidepath of  about six  years to  allow the  legislature to                                                                    
look at new revenues/spending reductions.                                                                                       
1:53:16 PM                                                                                                                    
                                                                                                                                
Representative Kopp looked at  slide 18 that illustrated the                                                                    
difference  between the  traditional statutory  PFD and  the                                                                    
PFD  under  the  proposed  scenario in  HB  306.  Under  the                                                                    
legislation, the  PFD was roughly  $900. He turned  to slide                                                                    
19 to  show how the  amount compared to historical  PFDs. He                                                                    
pointed to  the black  line reflecting  the PFD  (in nominal                                                                    
dollars) and noted the volatility  over time. The slide also                                                                    
showed the average dividend over time.                                                                                          
                                                                                                                                
Representative Kopp  moved to slide 20  and highlighted that                                                                    
the  average  past  PFD  amount was  $1,170  and  under  the                                                                    
legislation, the  2020 PFD would  be $900. He  remarked that                                                                    
it was  popular to  use the numbers  based on  the statutory                                                                    
PFD  formula,  but he  believed  it  was more  realistic  to                                                                    
compare the amount to PFDs  previously given to Alaskans. He                                                                    
noted there was a $270  difference between the number in the                                                                    
bill and the historical average.                                                                                                
                                                                                                                                
Representative Kopp turned to slide  21 titled "HB 306 Moves                                                                    
Us  Forward." He  detailed  that the  bill  provided a  path                                                                    
toward being able to plan  for the state's future instead of                                                                    
living in a  crisis mode. He elaborated that  the bill would                                                                    
unlock  the ability  for  the state  to  improve its  credit                                                                    
ratings,  stabilize   PFD  amounts,  stabilize   the  budget                                                                    
process,  and   ultimately  assist   with  gaining   a  true                                                                    
understanding  of the  budget picture.  He  stated that  the                                                                    
legislature had  begun every budget  process in  near bedlam                                                                    
since the  drop in oil  prices. He stressed that  nobody won                                                                    
when  every  year   was  met  with  the   possibility  of  a                                                                    
government shutdown,  mass layoffs,  or new taxes.  The bill                                                                    
would   provide   a   built-in  baseline   to   work   from.                                                                    
Additionally, the bill  would provide a set  of shared facts                                                                    
about the  budget outlook.  He clarified  that the  bill did                                                                    
not take anything  off the table except  the overspending of                                                                    
the ERA and eroding the future of the state's children.                                                                         
                                                                                                                                
1:55:32 PM                                                                                                                    
                                                                                                                                
Representative Kopp turned to decisions  to be made on slide                                                                    
22 including spending priorities,  sustainability of the PFD                                                                    
and  Permanent Fund,  and other  revenue options.  He stated                                                                    
that  the options  accurately reflected  the current  fiscal                                                                    
options. He  questioned whether the legislature  was willing                                                                    
to continue the  budget debate year after  year. He wondered                                                                    
if the  legislature was interested  in raising taxes  to pay                                                                    
for dividends, which would become  necessary as soon as 2021                                                                    
due to  minimal savings.  Alternatively, he wondered  if the                                                                    
legislature  was  willing  to make  difficult  decisions  at                                                                    
present  that  would  allow  for  the  preservation  of  the                                                                    
Permanent Fund and PFD and  would provide economic stability                                                                    
and community  security. The question  was what  the highest                                                                    
and best use  of the fund was.  He asked if the  fund was to                                                                    
be used  as an ATM when  the state needed money  and whether                                                                    
it  was  considered  as  a  legacy  to  be  left  to  future                                                                    
Alaskans.                                                                                                                       
                                                                                                                                
1:56:28 PM                                                                                                                    
                                                                                                                                
Co-Chair Johnston  recognized that Representative  Knopp had                                                                    
joined the meeting.                                                                                                             
                                                                                                                                
Vice-Chair Ortiz  thanked the sponsor for  bringing the bill                                                                    
forward that  started a much  needed conversation.  He asked                                                                    
if there had been any  consultation with economists on how a                                                                    
smaller PFD may impact the state's economy.                                                                                     
                                                                                                                                
Representative  Kopp  answered that  he  was  well aware  of                                                                    
reports that had been authored  and given to the legislature                                                                    
showing  what a  reduced dividend  amount could  mean across                                                                    
Alaska. He  noted that some  of the reports did  not include                                                                    
increased state services. There  were many small communities                                                                    
in Alaska  and the numbers of  people collectively accounted                                                                    
for a  very small  percent of  the state  services received;                                                                    
however, in order  to pay a full PFD, it  would be necessary                                                                    
to  wipe  out  the   services  the  small  communities  were                                                                    
receiving.  He   confirmed  that   he  had   considered  the                                                                    
information  that had  already  been put  on  the record  in                                                                    
terms of what the dividend meant to the economy.                                                                                
                                                                                                                                
Co-Chair Johnston  noted Vice-Chair Ortiz's an  ISER report.                                                                    
She shared that the report  had been done before the massive                                                                    
growth  in the  Permanent  Fund and  PFD  had occurred.  She                                                                    
believed it was something that was forgotten.                                                                                   
                                                                                                                                
Representative  LeBon asked  if  the bill  intended for  the                                                                    
legislature to  fund the  PFD first with  20 percent  of the                                                                    
POMV and all other funding decisions would follow.                                                                              
                                                                                                                                
Representative Kopp answered that  the formula would provide                                                                    
a baseline to start from.  He explained that the legislature                                                                    
would know the  money available for state  services and what                                                                    
would go to the dividend. He  reasoned that the absence of a                                                                    
resolution  on   the  PFD  and   trying  to   reconcile  the                                                                    
plummeting energy  market and oil  prices seemed to  be what                                                                    
kept the  legislature in session  for five to six  months of                                                                    
the  year.  Structurally, the  bill  would  tackle the  most                                                                    
difficult  thing -  the PFD  -  first, which  would free  up                                                                    
bandwidth  to address  the entire  budget and  determine the                                                                    
true deficit.  He elaborated that  the $1.5  billion deficit                                                                    
was only  related to  the statutory  PFD. He  clarified that                                                                    
the deficit  was tied into  state agency  spending; however,                                                                    
the dividend was nearly twice  as large as the largest state                                                                    
agency. The  PFD was  a significant  cost factor,  which was                                                                    
addressed by the bill.                                                                                                          
                                                                                                                                
2:00:55 PM                                                                                                                    
                                                                                                                                
Representative LeBon  considered the perfect  economic storm                                                                    
taking place  that was  associated with  the decline  in oil                                                                    
prices and  production. He asked if  a $900 PFD and  a state                                                                    
income  tax was  a realistic  possibility given  the current                                                                    
economic climate.                                                                                                               
                                                                                                                                
Representative  Kopp answered  that  the state  could be  in                                                                    
trouble  in any  scenario  where it  was  paying a  dividend                                                                    
without adequate  funding. He elaborated  that there  was no                                                                    
safe formula  that could predict  what was  currently taking                                                                    
place  in   the  market.  He  referenced   the  current  PFD                                                                    
calculation by APFC that was based  on an average of five of                                                                    
the previous  six years. He  remarked that the  current year                                                                    
would  likely  shape up  to  be  tough. He  highlighted  the                                                                    
difficulty  in   coming  up  with   a  formula   that  could                                                                    
accurately predict the current market.  He relayed that if a                                                                    
dividend was  paid base  on the state's  ability to  pay, it                                                                    
would  have   to  be  done  with   the  current  legislative                                                                    
appropriation approach.                                                                                                         
                                                                                                                                
2:02:16 PM                                                                                                                    
                                                                                                                                
Representative  LeBon could  see  the day  coming where  the                                                                    
legislature may  be faced  with overdrawing  the POMV  if it                                                                    
was locked into using 20 percent  of the 5 percent POMV draw                                                                    
[for the  PFD] and/or  incorporating a  state income  tax to                                                                    
fund the  PFD. He  believed if  the PFD  was paid  first, as                                                                    
under the  bill proposal,  it would  be necessary  to figure                                                                    
out a  way to make  that happen.  He furthered that  the PFD                                                                    
would be put  at the tip of the mountain  if paying it first                                                                    
meant the possibility of instituting  a tax, overdrawing the                                                                    
ERA, or cutting agency spending.                                                                                                
                                                                                                                                
                                                                                                                                
Co-Chair  Johnston  added  that  model  scenarios  would  be                                                                    
presented  the following  day  and  committee members  would                                                                    
have the opportunity to ask more in depth questions.                                                                            
                                                                                                                                
Representative  Carpenter looked  at slides  12 and  16 that                                                                    
showed revenue versus spending projections.  He pointed to a                                                                    
handout  in members'  packets generated  by the  Legislative                                                                    
Finance  Division that  included  multiple  charts (copy  on                                                                    
file). He asked what forecast  had been used to generate the                                                                    
revenue bars on slides 12 and 16.                                                                                               
                                                                                                                                
Representative  Kopp  answered  that  the  graphs  used  the                                                                    
forecast that  had been available  when the  information had                                                                    
been compiled  about two  weeks earlier.  He noted  that oil                                                                    
prices had been higher and in the mid-$50s.                                                                                     
                                                                                                                                
Representative  Carpenter  noted  that  one  of  the  slides                                                                    
showed the  fall forecast  had been used.  He asked  for the                                                                    
percent  increase used  over time  in the  solid black  line                                                                    
reflecting the budget less dividends.                                                                                           
                                                                                                                                
Representative Kopp deferred to his staff.                                                                                      
                                                                                                                                
GRACE  IRVINE,  STAFF,  REPRESENTATIVE CHUCK  KOPP,  relayed                                                                    
that LFD would  present to the committee  the following day.                                                                    
She recognized that  the slides compiled as  recently as one                                                                    
week earlier no  longer reflected the reality  of the budget                                                                    
and updated forecasts. She deferred  the questions until the                                                                    
LFD presentation.                                                                                                               
                                                                                                                                
Representative  Carpenter  referenced  the  LFD  handout  in                                                                    
members'  packets that  listed  the annual  increase as  the                                                                    
rate  of inflation  at 2.25  percent. He  noted that  he was                                                                    
looking  at his  own chart  and believed  revenue for  FY 21                                                                    
would be  about $700  million. He  remarked that  the change                                                                    
was drastic from the current projection.                                                                                        
                                                                                                                                
2:05:06 PM                                                                                                                    
                                                                                                                                
Co-Chair Johnston agreed that there was a new day coming.                                                                       
                                                                                                                                
Representative Carpenter  referenced discussion on  the need                                                                    
to pay  a PFD the  state could  afford. He pointed  out that                                                                    
the  same logic  applied to  state spending.  He highlighted                                                                    
the need  for affordable state spending  levels. He believed                                                                    
the discussion about new revenue  and eating up a PFD needed                                                                    
to include a discussion about spending levels.                                                                                  
                                                                                                                                
Representative  Kopp  thanked Representative  Carpenter  for                                                                    
his  comments. He  recognized that  Representative Carpenter                                                                    
and Representative  LeBon had both  touched on  an important                                                                    
issue. He highlighted  that the bill was  only one important                                                                    
piece   of  a   sustainable   fiscal   plan  that   involved                                                                    
controlling state spending and looking at new revenues.                                                                         
                                                                                                                                
HB  306  was  HEARD  and   HELD  in  committee  for  further                                                                    
consideration.                                                                                                                  
                                                                                                                                
HOUSE BILL NO. 300                                                                                                            
                                                                                                                                
     "An  Act relating  to deposits  into the  dividend fund                                                                    
     and  income of  and  appropriations  from the  earnings                                                                    
     reserve account;  relating to the  community assistance                                                                    
     program; and providing for an effective date."                                                                             
                                                                                                                                
2:06:19 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  ADAM  WOOL,  SPONSOR, thanked  the  previous                                                                    
presenter for laying down some  groundwork pertaining to the                                                                    
current fiscal  situation. He noted  that the  House Finance                                                                    
Committee had heard many presentations  about the percent of                                                                    
market  value  (POMV) draw  and  the  situation that  needed                                                                    
resolution.  He remarked  that  in his  six  years with  the                                                                    
legislature, many months had been  spent trying to solve the                                                                    
dilemma of balancing revenues  with expenditures. He pointed                                                                    
out that the PFD was very much a part of the issue.                                                                             
                                                                                                                                
Representative  Wool  provided   a  PowerPoint  presentation                                                                    
titled  "HB 300  - POMV  Allocation: A  Sustainable Solution                                                                    
for Alaska"  (copy on file).  He noted that graphs  would be                                                                    
reviewed  for  the  committee  by  the  Legislative  Finance                                                                    
Division (LFD) the  following day. He relayed  that the bill                                                                    
was a  conversation starter and  was perhaps a novel  way to                                                                    
look  at the  Permanent  Fund Dividend  (PFD)  and the  POMV                                                                    
draw. He began  on slide 2 titled "The 2018  Passage of SB26                                                                    
Largely Solved  the Budget Crisis." He  highlighted that the                                                                    
POMV structure  provided a stable funding  stream to support                                                                    
state  government and  had been  a  historic compromise.  He                                                                    
characterized the passage  of SB 26 as a  paradigm shift for                                                                    
the state.  He detailed that the  state had been in  a tight                                                                    
position where  revenue had declined  very quickly,  and the                                                                    
state had  been faced with  the need  to make some  cuts. He                                                                    
elaborated that  the legislature  had made some  severe cuts                                                                    
to  the capital  and operating  budgets over  the first  few                                                                    
years. He  reviewed that  the PFD had  first been  vetoed by                                                                    
former Governor Bill  Walker to 50 percent  of the statutory                                                                    
formula and the  legislature had passed the  same amount the                                                                    
next  year.   He  expounded  that   since  that   time,  the                                                                    
legislature had  selected $1,600  as number it  believed was                                                                    
affordable in  the past couple  of years. He noted  that the                                                                    
first  couple  of  years  the number  had  been  $1,000  (50                                                                    
percent of the formula at the time).                                                                                            
                                                                                                                                
Representative Wool  discussed that the state  had gone from                                                                    
an economy  paid for with  oil (oil  had paid for  the state                                                                    
budget for many  years) and the Permanent Fund  paid for the                                                                    
PFD.  When oil  had declined,  the Permanent  Fund had  been                                                                    
tapped  to pay  for the  state  budget with  a 5.25  percent                                                                    
structured draw  (scheduled to drop  to 5 percent  in 2022).                                                                    
He  continued to  the  third  bullet point  on  slide 3  and                                                                    
stated that the  bill [SB 26] passed by the  Senate had been                                                                    
stripped down  - it had not  included a new PFD  formula and                                                                    
had not  removed the  old PFD  statute. He  referenced cries                                                                    
for  the  legislature to  follow  the  law  and pay  a  full                                                                    
statutory PFD. He pointed out  that the formula called for a                                                                    
$3,000 PFD, an  amount that had never been paid.  He noted a                                                                    
$1,200  supplemental  heating  check  had  been  distributed                                                                    
during the  Palin Administration  [in 2008] when  oil prices                                                                    
had been particularly  high. The high oil  prices had helped                                                                    
the  state  budget but  hurt  people  trying to  heat  their                                                                    
homes. He elaborated that the  state had worked to get money                                                                    
to  residents  in  different  ways,  particularly  in  rural                                                                    
Alaska where  heating oil was extremely  expensive. He noted                                                                    
the cost had  exceeded $4 per gallon in  Interior Alaska and                                                                    
heating   bills  had   skyrocketed.   He   added  that   the                                                                    
supplemental check had not been paid the following year.                                                                        
                                                                                                                                
2:10:51 PM                                                                                                                    
                                                                                                                                
Representative  Wool  continued  to   discuss  slide  2.  He                                                                    
remarked  that   people  had  been  happy   to  receive  the                                                                    
supplemental  energy check  and had  understood when  it had                                                                    
not been provided the following  year. He reiterated that SB
26 did not delete the old  [PFD} formula and did not include                                                                    
a new one. He highlighted  that the existing formula was not                                                                    
being followed  and legislators on  both sides of  the aisle                                                                    
and  the  executive  branch  were  all  calling  for  a  new                                                                    
formula.                                                                                                                        
                                                                                                                                
Representative  Wool moved  to slide  3 read  the first  two                                                                    
bullet points:                                                                                                                  
                                                                                                                                
    The amount available for the general fund equals the                                                                     
     total POMV draw less whatever is appropriated for                                                                          
     Permanent Fund Dividends                                                                                                   
    For as long as the PFD remains subject to intense                                                                        
     annual debate, the state cannot depend on a                                                                                
     predictable revenue stream                                                                                                 
                                                                                                                                
Representative   Wool  spoke   to  the   need  for   revenue                                                                    
predictability.  He noted  that the  past several  weeks had                                                                    
thrown the issue into turmoil.  He detailed that oil revenue                                                                    
had been steadily  declining for decades; the  oil price had                                                                    
fluctuated over  time and production had  been declining. He                                                                    
elaborated  that the  price  had declined  in  2014 and  had                                                                    
recently  dropped  again.  He discussed  that  the  volatile                                                                    
revenue source could not be  relied upon. He stated that the                                                                    
POMV was a much more stable revenue source.                                                                                     
                                                                                                                                
2:12:04 PM                                                                                                                    
                                                                                                                                
Representative Wool  moved to assumptions on  slide 4 titled                                                                    
"There is  no consensus  on the  size of  the dividend...but                                                                    
large   dividends   equal   large   budget   deficits."   He                                                                    
highlighted  that the  governor's  budget  proposal of  $4.6                                                                    
billion  was largely  what the  House had  passed. The  fall                                                                    
2019 revenue  forecast was  $2 billion,  but he  believed it                                                                    
would be updated soon. He  noted that the committee had been                                                                    
told  that the  forecast  for the  following  year would  be                                                                    
lower  than originally  thought  and with  recent events  it                                                                    
would  be considerably  lower. Currently,  there was  no new                                                                    
revenue. There  was a motor  fuel tax and other  small taxes                                                                    
and revenue  sources in the  works, but there was  no broad-                                                                    
based income tax or sales tax.                                                                                                  
                                                                                                                                
Representative Wool  addressed possible options on  slide 4.                                                                    
He  began with  the governor's  plan  to pay  a $3,000  PFD,                                                                    
which would cost about $1.9  billion to fully implement. The                                                                    
second option  he reviewed  was a 50/50  plan that  had been                                                                    
discussed  over  the past  year,  which  would result  in  a                                                                    
$2,400 PFD and  a deficit of $1.1 billion.  The third option                                                                    
was a  67/33 plan, which was  roughly what had been  used in                                                                    
the past  several years  and would add  to the  deficit. The                                                                    
surplus plan was  the last option on the  slide. He detailed                                                                    
that at  one point the surplus  plan had resulted in  a $700                                                                    
PFD,  which was  no longer  the case.  He stated  there were                                                                    
problems with the specific plan.                                                                                                
                                                                                                                                
2:13:31 PM                                                                                                                    
                                                                                                                                
Representative Wool turned to slide  5 and detailed that his                                                                    
proposal in  HB 300  was an  allocation model  that combined                                                                    
different ideas. He  noted that he did not  invent the model                                                                    
in  its  entirety.  He  believed  the  Anchorage  mayor  had                                                                    
mentioned  doing   a  45/45/10  POMV  split   going  to  the                                                                    
government,   PFD,   and  communities,   respectively.   The                                                                    
proposal  was a  slight  variation  with prioritizing  other                                                                    
items in  addition to  government and  the PFD.  He reviewed                                                                    
the proposal on slide 5:                                                                                                        
                                                                                                                                
        FY2021 POMV will be $3,095 million                                                                                      
                                                                                                                                
         40% designated for K-12 education ($1,238                                                                           
          million, fully funds BSA)                                                                                             
         10% designated for the University of Alaska ($310                                                                   
          million; restores FY2019 funding level)                                                                               
         10% designated for capital projects (doubles                                                                        
          recent amounts)                                                                                                       
         10% designated for a Community Dividend (expands                                                                    
          the Community Assistance" Program and replaces                                                                        
          current programs                                                                                                      
         The remaining 30% split 50/50                                                                                       
             o 15% to the General Fund                                                                                          
             o 15% to Permanent Fund Dividends ($464                                                                            
               million, about $725 each)                                                                                        
                                                                                                                                
Representative Wool elaborated on  slide 5. The first bullet                                                                    
point  identified 40  percent  for education  (approximately                                                                    
$1.2  billion in  FY 21,  which was  approximately what  had                                                                    
been  funded  in  the  current year).  The  bill  would  set                                                                    
education funding  as a percentage  of the POMV  in statute.                                                                    
Under  the  legislation,  the  University  of  Alaska  would                                                                    
receive  10 percent  of the  POMV  ($310 million  in FY  21,                                                                    
which was  close to the  $302 million  funded in FY  20). He                                                                    
stated that  both education items  were in  the constitution                                                                    
and he believed  they should be supported.  He reasoned that                                                                    
putting the  items in  the formula  guaranteed that  the two                                                                    
entities would  not have to  wonder what funding  they would                                                                    
receive on an  annual basis. He stressed that  the two items                                                                    
were very  important in growing Alaska's  future. He relayed                                                                    
that other  states that  had faced  tough times  had doubled                                                                    
down  on  their  investment  in  education.  He  added  that                                                                    
investing in  education primary  and higher  education would                                                                    
keep young people in Alaska.                                                                                                    
                                                                                                                                
Representative Wool  continued to address the  allocation of                                                                    
the POMV on  slide 5. The bill would allocate  10 percent of                                                                    
the  POMV  draw  to  capital projects,  which  would  double                                                                    
recent amounts  to approximately $300 million.  He expounded                                                                    
that in recent years capital  budgets had been funded at the                                                                    
bare minimum  of about $150  million to receive  the federal                                                                    
match. He  remarked that legislators repeatedly  heard about                                                                    
the need for a capital  budget to increase jobs for talented                                                                    
workers who were  leaving the state for  employment in other                                                                    
locations.  Additionally,  there was  a  need  to build  and                                                                    
maintain   the  state's   infrastructure  (e.g.   roads  and                                                                    
bridges).  He highlighted  that deferred  maintenance was  a                                                                    
major  problem -  the  University alone  had  $1 billion  in                                                                    
deferred maintenance.                                                                                                           
                                                                                                                                
Representative Wool  detailed that the remaining  30 percent                                                                    
of the  POMV draw would  be split 50/50 between  the General                                                                    
Fund and  the PFD. He  recognized that the amount  was lower                                                                    
than the  80/20 split proposed in  the previous presentation                                                                    
[on HB 306]; however, the  community dividend would offset a                                                                    
portion of the cut.                                                                                                             
                                                                                                                                
2:16:34 PM                                                                                                                    
                                                                                                                                
Representative Wool advanced to  an illustration on slide 10                                                                    
showing how  funds would be  allocated. He detailed  that 40                                                                    
percent of the  POMV would go to education.  He listed other                                                                    
items that  would receive funding including  the University,                                                                    
the  community  dividend,  and   30  percent  divided  50/50                                                                    
between  the General  Fund and  PFD. He  shared that  he had                                                                    
done different  variations on ways  to split the  30 percent                                                                    
(e.g. 20/10).  He believed it  was important to look  at the                                                                    
community dividend portion.                                                                                                     
                                                                                                                                
Representative Wool returned to slide  6 and stated that the                                                                    
problem with  a surplus dividend  was that no one  knew what                                                                    
it  would  be  and  there  was  fear  there  would  be  more                                                                    
spending, which would  make the PFD smaller.  He stated that                                                                    
the need  for a  statutory PFD was  agreed upon.  He relayed                                                                    
that a  20 percent POMV  (a 20/10  split instead of  a 15/15                                                                    
split) would result in a  PFD of approximately $966 (similar                                                                    
to the 80/20 split in HB 306).                                                                                                  
                                                                                                                                
                                                                                                                                
Representative Wool moved  to slide 7 and  relayed that some                                                                    
form  of the  community  dividend had  been  in place  since                                                                    
1969. He detailed that the  formula had been changed several                                                                    
times. The current formula distributed  $30 million per year                                                                    
through  the Community  Assistance Program.  The bill  would                                                                    
increase  the amount  to  $300 million  (10  percent of  the                                                                    
total POMV  draw). He noted  there were variations  he would                                                                    
explore in the analysis the  following day that would change                                                                    
the  number  to  5  percent. The  bill  would  increase  the                                                                    
borough  base from  $300,000 to  $1 million,  the city  base                                                                    
from $75,000  to $250,000, and  the base  for unincorporated                                                                    
communities from  $25,000 to $83,333. He  explained that the                                                                    
calculation  multiplied the  original  base by  thirty-three                                                                    
and  one-third.  The  left over  funding  would  be  divided                                                                    
between  all  state  residents to  determine  a  per  capita                                                                    
number (capped at $1,200 per capital in each community).                                                                        
                                                                                                                                
2:19:09 PM                                                                                                                    
                                                                                                                                
Representative Wool turned to  slide 8 and reviewed benefits                                                                    
of  a community  dividend.  He detailed  that the  community                                                                    
dividend would bring the funds  closer to the individual. He                                                                    
explained  that the  money  would not  be  distributed as  a                                                                    
check  in  residents' pockets  but  would  be money  in  the                                                                    
community. He believed  that when the PFD  had been created,                                                                    
former  Governor Jay  Hammond had  expressed desire  to take                                                                    
the money out  of the state's hands and put  it in the hands                                                                    
of  the people  because the  people  knew how  to spend  the                                                                    
money  best. He  believed  it  had worked  for  a while  and                                                                    
people had been  spending money from the  dividend since its                                                                    
inception.                                                                                                                      
                                                                                                                                
Representative  Wool  explained  that  the  bill  would  not                                                                    
eliminate a  dividend; it would  bring money  into community                                                                    
coffers  instead of  state coffers.  He highlighted  various                                                                    
communities  including  Anchorage,   Aniak,  Fairbanks,  and                                                                    
Bethel and  explained that all  communities would  receive a                                                                    
substantial  amount of  money. He  furthered that  community                                                                    
members  could solicit  community leaders  with their  needs                                                                    
and priorities  instead of people coming  to the legislature                                                                    
with a list of needs.  He stated the community leaders would                                                                    
be  responsive and  that community  members  knew what  they                                                                    
needed  best.  Additionally, there  would  be  a higher  per                                                                    
person distribution for smaller communities.                                                                                    
                                                                                                                                
Representative Wool  explained that if Anchorage  received a                                                                    
base of  $1 million, the per  capita would be a  little over                                                                    
$300  (in addition  to  the base).  He  elaborated that  the                                                                    
amount would be  slightly over $300 once the  $1 million was                                                                    
factored  in.  He  furthered that  dividing  $1  million  by                                                                    
300,000 residents resulted  in a little over  $3 per person,                                                                    
which would  be added  to the per  capita of  $300. Whereas,                                                                    
for smaller  communities that would receive  between $83,000                                                                    
to $250,000,  the money would  be divided  between residents                                                                    
in  addition to  the $300.  He elaborated  that for  smaller                                                                    
communities it meant residents would  receive $900 to $1,200                                                                    
in a community  dividend and a PFD of $700,  which was close                                                                    
to $2,000 per person.                                                                                                           
                                                                                                                                
Representative  Wool clarified  that the  $1,200 per  person                                                                    
went to  the community,  not to individuals'  bank accounts.                                                                    
He explained that residents could  benefit from the funding.                                                                    
For  example, a  community could  install energy  devices or                                                                    
buy fuel  in bulk  and sell  it at  a discount  to community                                                                    
members.  He  reiterated  that a  community  dividend  would                                                                    
bring  the money  closer  to  communities and  rural/smaller                                                                    
communities would  receive more  per capita.  He highlighted                                                                    
that it  somewhat offset  the problem of  cutting the  PFD -                                                                    
cutting the PFD  had an adverse impact  on small communities                                                                    
that had  smaller economies, less  cash, and fewer  jobs. He                                                                    
stated  that  the  community  dividend  would  provide  more                                                                    
autonomy  to communities  and would  give local  residents a                                                                    
voice on how the money was spent.                                                                                               
                                                                                                                                
2:22:10 PM                                                                                                                    
                                                                                                                                
Representative Wool  turned to slide 9  and discussed budget                                                                    
impacts of the  bill. He relayed that HB  300 would increase                                                                    
the current budget.  He detailed that the bill  would add to                                                                    
the   capital  budget,   the   University   budget,  and   a                                                                    
substantial amount  to community assistance.  He highlighted                                                                    
areas that could potentially be  decreased in the budget. He                                                                    
detailed  that   school  bond  debt   could  be   passed  to                                                                    
communities  because communities  would  be receiving  money                                                                    
[via  a community  dividend].  He noted  he  had a  complete                                                                    
table  of  every  community  and  had  included  an  excerpt                                                                    
showing examples later in the presentation [slide 14].                                                                          
                                                                                                                                
Representative  Wool continued  to list  potential decreases                                                                    
in   the  budget   including  miscellaneous   municipal  and                                                                    
university  debt  support and  a  municipal  portion of  the                                                                    
Public   Employees'   Retirement   System   (PERS)/Teachers'                                                                    
Retirement System  (TRS). He  relayed that  he had  not gone                                                                    
into  any of  the  PERS/TRS calculations  and he  understood                                                                    
that communities  strongly advocated against any  change. He                                                                    
considered that  if Anchorage received $90  million, perhaps                                                                    
it could  afford to  spend more  on PERS/TRS.  He identified                                                                    
community  block  grants as  a  budget  item that  could  be                                                                    
addressed  at   the  community   level.  He   reasoned  that                                                                    
communities knew  what they needed  best and would  have the                                                                    
funds to  provide things like  opioid treatment  and support                                                                    
homeless shelters.  He pointed  to public safety  as another                                                                    
area that  could be  decreased because  more money  would be                                                                    
available  for  communities  to  provide  their  own  public                                                                    
safety  services.  For  example, communities  could  hire  a                                                                    
village police officer.                                                                                                         
                                                                                                                                
Representative  Wool  identified transportation  maintenance                                                                    
as  an  area  of  the   budget  that  could  potentially  be                                                                    
decreased. He  referenced a budget  amendment that  had been                                                                    
offered  in   committee  on   the  Quinhagak   airport.  The                                                                    
community  could  not afford  to  maintain  its airport.  He                                                                    
explained  that  under   the  legislation,  Quinhagak  would                                                                    
receive $450,000  per year.  He explained  that some  of the                                                                    
money could be  used by communities to  maintain local rural                                                                    
airports.  He highlighted  that the  state would  save about                                                                    
$600 million if it did not pay a $1,600 PFD.                                                                                    
                                                                                                                                
2:24:05 PM                                                                                                                    
                                                                                                                                
Representative Tilton  asked how the bill  accounted for the                                                                    
state's  growing Department  of Health  and Social  Services                                                                    
(DHSS) budget.  She wondered  how the  DHSS budget  would be                                                                    
administered and taken care of.                                                                                                 
                                                                                                                                
Representative  Wool agreed  that DHSS  reflected a  growing                                                                    
portion of the budget. The  remaining 15 percent of the POMV                                                                    
in addition to oil revenue  would still be available for the                                                                    
other   budget  items.   He  had   not  allocated   to  DHSS                                                                    
separately. He agreed on its  importance and relayed that it                                                                    
would  be  paid out  of  the  budget  as under  the  current                                                                    
process.                                                                                                                        
                                                                                                                                
Representative  Tilton  asked  if the  scenario  would  mean                                                                    
communities  would  play a  bigger  role  in providing  DHSS                                                                    
services.                                                                                                                       
                                                                                                                                
Representative Wool answered  that he had not  looked at the                                                                    
particular option, but  it was not off the  table. He stated                                                                    
it would depend on how the  numbers panned out. He would not                                                                    
expect  Medicaid funding  to go  through local  communities,                                                                    
but  there  were  other  health  costs  including  treatment                                                                    
centers  and other.  He  noted that  a  sobering center  had                                                                    
recently opened  in Fairbanks. He  relayed that some  of the                                                                    
health and behavioral health items  could be funded with the                                                                    
community dividend.                                                                                                             
                                                                                                                                
2:26:02 PM                                                                                                                    
                                                                                                                                
Vice-Chair Ortiz  thanked the  sponsor for  bringing forward                                                                    
the  proposal,   which  he  believed  contained   merit.  He                                                                    
believed the  40 percent going  to education would act  as a                                                                    
spending cap. He  asked for verification the  bill would not                                                                    
allocate any  other funding sources to  education other than                                                                    
the 40 percent [of the POMV draw].                                                                                              
                                                                                                                                
Representative  Wool answered  that he  was not  thinking of                                                                    
the amount as  a cap, but as a floor.  He supposed that more                                                                    
funding  could be  provided,  not less.  He  noted that  the                                                                    
education  community would  know what  the funding  would be                                                                    
[under  the  40  percent  allocation]. He  relayed  that  40                                                                    
percent  was   slightly  less  than  the   current  funding;                                                                    
however, it would  increase over time. He  remarked that the                                                                    
POMV  was a  five-year rolling  average; therefore,  even if                                                                    
there was  a bad month  or year the  impact would not  be as                                                                    
strong (unless  there were multiple bad  years). He informed                                                                    
committee  members  that the  upcoming  graph  would show  a                                                                    
steady increase,  which he believed would  alleviate much of                                                                    
state educators' anxiety. He believed  the same was true for                                                                    
some of the other entities.                                                                                                     
                                                                                                                                
Representative  Tilton spoke  to the  increase of  community                                                                    
involvement under  the bill. She  asked how the  funds going                                                                    
to communities  and individuals  would be  administered. She                                                                    
explained  that there  were  administrative fees  associated                                                                    
with distributing community assistance funds.                                                                                   
                                                                                                                                
Representative Wool answered that  the bill would be modeled                                                                    
on  the existing  community  assistance  program. The  funds                                                                    
would  be  distributed   in  the  same  way   as  they  were                                                                    
currently, but in amplified amounts.                                                                                            
                                                                                                                                
2:28:55 PM                                                                                                                    
                                                                                                                                
Representative  Knopp highlighted  that  all  of the  fiscal                                                                    
notes talked  about designated general funds.  He noted that                                                                    
the  [state] constitution  prohibited  designated funds.  He                                                                    
supposed   they   could  probably   refer   to   it  as   an                                                                    
appropriation if  they used the  method in  the legislation.                                                                    
He reasoned that  things would be fine if  revenue grew over                                                                    
time but  considered what would  happen in the next  five or                                                                    
six years if  the markets were down and  revenue dropped. He                                                                    
noted that  the proposal  did not  include the  DHSS budget,                                                                    
which was  the largest budget  item. He provided  a scenario                                                                    
where there was an additional  $2 billion in revenue outside                                                                    
of the  POMV draw. He asked  if there would be  enough money                                                                    
left to  cover the state's  obligations to bond  debt, other                                                                    
formula  driven programs,  and DHSS.  He  wondered if  there                                                                    
would be willingness to live  with the structure if the POMV                                                                    
draw  declined  in  several  years.   He  wondered  how  the                                                                    
proposal would be implemented and  adhered to over time when                                                                    
it  was   not  possible   to  bind   the  hands   of  future                                                                    
legislatures.                                                                                                                   
                                                                                                                                
Representative Wool  replied that it  was a valid  point. He                                                                    
referenced the POMV draw implemented  under SB 26 [Permanent                                                                    
Fund legislation  passed in 2018]  that the  legislature had                                                                    
been adhering to for since  its implementation [in 2018]. He                                                                    
hoped  the  legislature  would   continue  adhering  to  the                                                                    
legislation.  He  remarked  that  the  legislature  was  not                                                                    
currently  adhering to  the PFD  formula. He  would like  to                                                                    
have HB  300 adhered to and  would like to adhere  to SB 26.                                                                    
He  hoped  the legislature  would  adhere  to the  bill.  He                                                                    
supposed that  if things got  really bad, they could  opt to                                                                    
not fund the capital budget.                                                                                                    
                                                                                                                                
Representative Knopp considered that  the bill dedicated the                                                                    
POMV draw, which he kind of  liked. He was concerned about a                                                                    
time  when   the  $3  billion   started  to  drop   and  the                                                                    
legislature was no longer happy  with funding the University                                                                    
was  receiving. He  reasoned the  legislature would  have to                                                                    
adjust the  structure under the  bill or to other  funds. He                                                                    
considered what the trickledown effect would be.                                                                                
                                                                                                                                
2:31:55 PM                                                                                                                    
                                                                                                                                
Representative  Wool  stated  that  much  of  the  bill  was                                                                    
intended  as a  conversation starter.  He had  another model                                                                    
that he  had not  included in  the presentation.  He thought                                                                    
the structure proposed in the bill  may be a tool to "get us                                                                    
on the road" that could  perhaps be revisited in five years.                                                                    
He  had another  model that  lowered the  percentage of  the                                                                    
POMV  designated for  the capital  budget and  the community                                                                    
dividend  to  5  percent  each   to  give  more  flexibility                                                                    
depending on the market.                                                                                                        
                                                                                                                                
Representative  Wool  turned to  a  bar  chart on  slide  11                                                                    
showing the PFD amount from FY  21 to FY 29 using 15 percent                                                                    
of the  POMV draw. The PFD  was calculated at $724  in FY 21                                                                    
and almost $900  in FY 29. He  moved to a chart  on slide 12                                                                    
showing  education funding  from FY  21  to FY  29 using  40                                                                    
percent of  the POMV draw.  Education funding would  be $1.2                                                                    
billion in  FY 21 and increase  up to $1.5 billion  over ten                                                                    
years.  Capital projects  (including the  University) at  10                                                                    
percent of the POMV draw were  illustrated in a bar chart on                                                                    
slide 13, beginning at $309  million in FY 21 and increasing                                                                    
to $381 million by FY 29.                                                                                                       
                                                                                                                                
2:33:25 PM                                                                                                                    
                                                                                                                                
Representative  Wool moved  to proposed  community dividends                                                                    
for  various communities  on slide  14.  The slide  included                                                                    
some larger communities  with the $1 million  base and other                                                                    
communities  with the  $250,000 and  $83,000 bases.  He used                                                                    
Anchorage as  an example  and pointed  out that  the current                                                                    
FY 20 assistance was $4.5  million, while under the bill the                                                                    
assistance  would  increase  to  $96  million  or  $328  per                                                                    
person. He  considered that  Anchorage could  do a  lot with                                                                    
the substantial sum annually, including  work on the Port of                                                                    
Anchorage and  payment towards  bond debt  reimbursement. He                                                                    
highlighted that  the community  dividend would be  $362 per                                                                    
person in  Juneau. He  pointed to  the small  communities of                                                                    
Nulato  and Gulkana  that would  hit the  cap at  $1,200 per                                                                    
capita.  He  detailed  that St.  Mary's  would  receive  the                                                                    
$83,000  base, resulting  in $765  per person.  He explained                                                                    
that the  structure would help  with the  rural/urban divide                                                                    
where  a larger  city would  receive less  per person  and a                                                                    
smaller  community  would  get  more per  person  (not  more                                                                    
total,  but more  per person).  He reasoned  that despite  a                                                                    
proposed  cut  to  the  PFD,  the  local  communities  would                                                                    
benefit and have the ability to help their residents.                                                                           
                                                                                                                                
Representative Wool shared there  would be more modeling the                                                                    
following day. He  reported that the fall  forecast had been                                                                    
used, which  would be updated  in the near future.  He noted                                                                    
there  would be  a model  where the  percentage of  the POMV                                                                    
designated  for   the  capital  budget  and   the  community                                                                    
dividend was lowered  to 5 percent each.  He elaborated that                                                                    
the  change  would bring  capital  funding  to $150  million                                                                    
(closer  to  the  current  expenditure)  and  the  community                                                                    
dividend would also receive $150  million, which was still a                                                                    
substantial  amount of  money.  He stated  that the  funding                                                                    
would help offset a PFD cut in rural Alaska.                                                                                    
                                                                                                                                
Co-Chair Johnston asked the sponsor  to model what the state                                                                    
should  be  paying  in  statute for  school  bond  debt  and                                                                    
capital program for rural villages the following day.                                                                           
                                                                                                                                
Representative Wool agreed to provide the information.                                                                          
                                                                                                                                
HB  300  was  HEARD  and   HELD  in  committee  for  further                                                                    
consideration.                                                                                                                  
                                                                                                                                
Co-Chair Johnston reviewed the schedule  for the rest of the                                                                    
week. She shared that public testimony  on HB 300 and HB 306                                                                    
would take place on Thursday afternoon.                                                                                         
                                                                                                                                
ADJOURNMENT                                                                                                                   
                                                                                                                                
2:38:45 PM                                                                                                                    
                                                                                                                                
The meeting was adjourned at 2:38 p.m.                                                                                          

Document Name Date/Time Subjects
HB 306 Bicameral Permanent Fund Working Group Report 1.20.2020.pdf HFIN 3/10/2020 1:30:00 PM
HB 306
HB 306 APFC Resolution 10.17.2018.pdf HFIN 3/10/2020 1:30:00 PM
HB 306
HB 306 LegFin Modelling 3.5.2020.pdf HFIN 3/10/2020 1:30:00 PM
HB 306
HB 306 Sponsor Statement 3.5.2020.pdf HFIN 3/10/2020 1:30:00 PM
HB 306
HB 300 Sponsor Statement 3.9.20.pdf HFIN 3/10/2020 1:30:00 PM
HB 300
HB 300 Presentation Wool POMV 3-9-20.pdf HFIN 3/10/2020 1:30:00 PM
HB 300
HB 306 Presentation 3.5.2020.pdf HFIN 3/10/2020 1:30:00 PM
HB 306
HB 306 Sectional Analysis 3.5.2020.pdf HFIN 3/10/2020 1:30:00 PM
HB 306