Legislature(2021 - 2022)ADAMS 519

05/17/2021 01:30 PM FINANCE

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                  HOUSE FINANCE COMMITTEE                                                                                       
                       May 17, 2021                                                                                             
                         1:34 p.m.                                                                                              
1:34:37 PM                                                                                                                    
CALL TO ORDER                                                                                                                 
Vice-Chair Ortiz called the  House Finance Committee meeting                                                                    
to order at 1:34 p.m.                                                                                                           
MEMBERS PRESENT                                                                                                               
Representative Neal Foster, Co-Chair                                                                                            
Representative Kelly Merrick, Co-Chair                                                                                          
Representative Dan Ortiz, Vice-Chair                                                                                            
Representative Ben Carpenter                                                                                                    
Representative Bryce Edgmon                                                                                                     
Representative DeLena Johnson                                                                                                   
Representative Andy Josephson                                                                                                   
Representative Bart LeBon                                                                                                       
Representative Sara Rasmussen                                                                                                   
Representative Steve Thompson                                                                                                   
Representative Adam Wool                                                                                                        
MEMBERS ABSENT                                                                                                                
ALSO PRESENT                                                                                                                  
Tally  Teal,  Staff,  Representative Kelly  Merrick;  Alexei                                                                    
Painter,  Director,   Legislative  Finance   Division;  Neil                                                                    
Steininger,  Director,  Office  of  Management  and  Budget,                                                                    
Office of the Governor.                                                                                                         
PRESENT VIA TELECONFERENCE                                                                                                    
Cliff Groh,  Self, Anchorage; Queen Parker,  Self, Sterling;                                                                    
Terri Lyons,  Self, Wasilla; Cammy Taylor,  Self, Anchorage;                                                                    
Cris Eichenlaub, Self, Wasilla;  Bert Houghtaling, Self, Big                                                                    
Lake;  Jean   Holt,  Self,  Palmer;  Alex   McDonald,  Self,                                                                    
Fairbanks; Charles  McKee, Self, Anchorage;  Phillip DeLand,                                                                    
Self, Anchorage.                                                                                                                
HB 70     APPROP: CAP; REAPPROP; SUPP; AMEND                                                                                    
          HB 70 was HEARD and HELD in committee for further                                                                     
HB 202    PERMANENT FUND DIVIDEND; ROYALTIES                                                                                    
          HB 202 was HEARD and HELD in committee for                                                                            
          further consideration.                                                                                                
HOUSE BILL NO. 202                                                                                                            
     "An  Act   relating  to  the  Alaska   permanent  fund;                                                                    
     relating to dividends for  state residents; relating to                                                                    
     the use of  certain state income; and  providing for an                                                                    
     effective date."                                                                                                           
1:35:50 PM                                                                                                                    
AT EASE                                                                                                                         
1:36:31 PM                                                                                                                    
REPRESENTATIVE KELLY MERRICK, SPONSOR, introduced the                                                                           
legislation. She read from the following prepared remarks:                                                                      
     Good afternoon, vice chair  Ortiz, co-chair Foster, and                                                                    
     members  of  the  House   Finance  Committee.  For  the                                                                    
     record,  Representative Kelly  Merrick, District  14 in                                                                    
     Eagle River.                                                                                                               
     Before  the  committee  is  House  Bill  202,  "An  Act                                                                    
     relating  to the  Alaska  Permanent  fund; relating  to                                                                    
     dividends  for  state  residents; relating  to  certain                                                                    
     state income."                                                                                                             
     This is  a conversation  that is  necessary as  part of                                                                    
     our  budgeting process  and long  overdue  in paying  a                                                                    
     sustainable dividend into the future.                                                                                      
     As  this   committee  is  very  aware,   the state  has                                                                    
     struggled  to pay  for both  required services  and the                                                                    
     dividend  using the  43-year-old  formula. Since  FY17,                                                                    
     with  the  actions  of   former  Governor  Walker,  the                                                                    
     dividend has been an ad hoc draw.                                                                                          
     The  2016  legislature  recognized  this  problem,  and                                                                    
     restructured our budget around  the POMV framework that                                                                    
     meets our  constitutional obligations for  services and                                                                    
     provides a type of spending cap.                                                                                           
     Legislators  have  since  had  difficult  decisions  to                                                                    
     make, as part  of our responsibility to  make our state                                                                    
     fiscally sustainable in the  long-term. There are three                                                                    
     areas we  can change  to solve our  financial problems:                                                                    
     our spending, our revenues, and the PFD.                                                                                   
     The operating budget has been  cut year after year, and                                                                    
     while  I  still  support  a  smaller  budget,  we  have                                                                    
     recognized that  the big, easy, change-making  cuts are                                                                    
     gone.  The capital  budget has  been cut  by more  than                                                                    
     When we protect the  POMV, we maintain fiscal stability                                                                    
     and  a  low-tax  environment   for  both  families  and                                                                    
     businesses. Many don't support  additional or increased                                                                    
     taxes, and my district is  one of them. That leaves the                                                                    
     Mr. Vice Chair,  and members of the  committee, we have                                                                    
     all  heard our  constituents say,  "Follow the  law, or                                                                    
     change the law." This bill changes the law.                                                                                
     While  the  foundation of  the  permanent  fund is  oil                                                                    
     money and  other resource development, the  dividend is                                                                    
     no   longer  based   on  Alaska's   natural  resources.                                                                    
     Instead,  it's based  on investments  by the  Permanent                                                                    
     Fund Corporation.                                                                                                          
     This bill goes back to  the intent of the dividend, and                                                                    
     ties it  directly to  resource development,  by setting                                                                    
     aside a portion of the  royalties received by the state                                                                    
     for   payout.  Specifically,   30%  of   the  royalties                                                                    
     currently going  to the General  Fund would be  paid to                                                                    
     Alaskans before  the general fund  receives its  cut of                                                                  
     royalties outside the POMV.                                                                                                
     There's been growing recognition  in the last few years                                                                    
     that following the 1982 dividend  statute does not make                                                                    
     our state  fiscally sustainable and  requires violating                                                                    
     the POMV spending cap. HB  202 addresses these problems                                                                    
     by repealing the current formula  and replacing it with                                                                    
     one that is simpler and sustainable.                                                                                       
1:39:32 PM                                                                                                                    
     That's the big picture,  and that's the tough decision,                                                                    
     Mr. Co-chair. I don't think  there's one person in this                                                                    
     building  who  wants  to hand  out  a  small  dividend,                                                                    
     especially  after the  last year  of business  closures                                                                  
     and  unemployment.  But  putting  Alaska  on  a  stable                                                                    
     financial track is just as important.                                                                                      
     With that, I'll have my staff, Tally Teal, go over the                                                                     
     bill in more detail.                                                                                                       
Vice-Chair Ortiz acted as chair  for part of the meeting. He                                                                    
noted   that   Representative   LeBon   and   Representative                                                                    
Rasmussen had joined the meeting.                                                                                               
1:40:03 PM                                                                                                                    
TALLY   TEAL,    STAFF,   REPRESENTATIVE    KELLY   MERRICK,                                                                    
highlighted  the two  main sections  of  the bill  beginning                                                                    
with  Section  1.  She  explained  that  Section  1  removed                                                                    
language related  to the  income available  for distribution                                                                    
of  the  Permanent  Fund  Dividend  (PFD).  She  pointed  to                                                                    
Section 7, which defined the new  PFD formula in HB 202 that                                                                    
designated  30  percent  of   all  mineral  lease  royalties                                                                    
received  by   the  state  during   that  fiscal   year  for                                                                    
distribution of dividends. She noted  that the language "may                                                                    
appropriate"  in  Section 7  rather  than   shall  was  more                                                                    
suitable   based  on   the  2018   Wielechowski  case.   She                                                                    
elucidated  that the  court decided  that  the dividend  was                                                                    
subject  to appropriation  and the  permissive language  was                                                                    
more appropriate.                                                                                                               
Vice-Chair  Ortiz  noted  that  Representative  Johnson  and                                                                    
Representative Thompson had joined the meeting.                                                                                 
1:41:19 PM                                                                                                                    
Ms.  Teal  referenced a  handout  depicting  a flowchart  in                                                                    
members' bill packets from  Co-Chair Merrick's office titled                                                                    
"HB  202"  (copy on  file).  She  pointed to  the  statutory                                                                    
definition of natural resource  income that was collectively                                                                    
referred  to   as  royalties.   The  lines   underneath  the                                                                    
definition  pointed to  the distribution  of the  royalties.                                                                    
She elaborated that  25 percent of all  royalty income would                                                                    
be deposited  into the  Permanent Fund  (PF) corpus  plus an                                                                    
additional  25 percent  from  new  fields   from oil  leases                                                                    
signed  after  December  1, 1979,  that  also  included  the                                                                    
Percent of  Market Value (POMV) payout.  She emphasized that                                                                    
the formula  reflected current law  and was unchanged  in HB
202.  She  turned  to  the second  line  that  indicated  30                                                                    
percent of all  income went to dividends and  the third line                                                                    
showed  that the  remainder was  deposited into  the General                                                                    
Fund  (GF).  She  turned  to   a  second  handout  from  the                                                                    
Legislative   Finance  Division   (LFD)   showing  a   model                                                                    
[pertaining  to  HB  202]  containing  various  graphs  with                                                                    
projections  (copy on  file). She  highlighted  that on  the                                                                    
bottom  left chart  the reserve  balances continued  to grow                                                                    
through  FY 2030.  The middle  right graph  showed that  the                                                                    
value  of the  PF continued  to  grow into  the future.  She                                                                    
continued that the top right  graph depicted a significantly                                                                    
smaller PFD under HB 202  than the current statutory formula                                                                    
but grew over time. The  top left graph showed a sustainably                                                                    
balanced  budget. She  concluded that  that the  legislation                                                                    
would create  a reasonable,  sustainable, and  stable fiscal                                                                    
1:43:48 PM                                                                                                                    
Vice-Chair Ortiz OPENED public testimony.                                                                                       
CLIFF  GROH, SELF,  ANCHORAGE  (via teleconference),  shared                                                                    
that he  had been  involved in  creating the  Permanent Fund                                                                    
Dividend  in  1982. He  believed  that  the state  needed  a                                                                    
comprehensive  strategy  to  address  the   deep  structural                                                                    
deficit   that  looked  beyond the  next  fiscal  year.  The                                                                    
comprehensive  plan should  include a  revised PFD  formula,                                                                    
protection of  the PFD from  overspending, and  new revenues                                                                    
to help  pay for public  services. He commended  the sponsor                                                                    
for introducing  legislation that recognized the  need for a                                                                    
sustainable PFD formula. However,  he believed the bill went                                                                    
too far balancing  the budget on the backs of  PFDs in order                                                                    
to  avoid collecting  taxes  from  high earning  individuals                                                                    
that  included  non-residents.  He referenced  the  upcoming                                                                    
special  session  called  by  the  governor  and  hoped  the                                                                    
legislature and  governor engage in tradeoffs  that produced                                                                    
a  fair  and sustainable  dividend formula   and legislation                                                                    
generating new revenues.                                                                                                        
Representative Rasmussen had heard  many people mention that                                                                    
the  [lower]  dividend  placed  a burden  on  the  backs  of                                                                    
children.  She   asked  about  the  level   of  funding  for                                                                    
kindergarten  through  twelfth  grade (K-12)  education  and                                                                    
felt  that  education  spending was  a  direct  benefit  for                                                                    
children and families  in the state. Mr.  Groh answered that                                                                    
the  state had  a  constitutional requirement  to fund  K-12                                                                    
education. He  indicated that  LFD had  shown that  the K-12                                                                    
budget had  been cut over the  last 8 years. He  supported a                                                                    
strong and healthy K-12 education  system and universal Pre-                                                                    
K. He was  concerned that cutting the PFD to  avoid taxes on                                                                    
high earners was not the  correct approach. He advocated for                                                                    
a revised PFD formula and additional revenues.                                                                                  
1:48:28 PM                                                                                                                    
QUEEN  PARKER, SELF,  STERLING  (via teleconference),  spoke                                                                    
against the bill.  She wanted her statutory  PFD. She agreed                                                                    
with all of those who opposed the bill.                                                                                         
1:49:37 PM                                                                                                                    
TERRI LYONS,  SELF, WASILLA (via  teleconference), testified                                                                    
against the bill. She believed  the legislature did not care                                                                    
and  would  not  follow  the   law.  She  thought  that  the                                                                    
legislature  looked  after   special  interests  first.  She                                                                    
supported  Governor  Dunleavy's  plan   for  a  50/50  split                                                                    
[between   paying  for   government  expenditures   and  the                                                                    
1:50:54 PM                                                                                                                    
AT EASE                                                                                                                         
1:51:44 PM                                                                                                                    
CAMMY   TAYLOR,   SELF,  ANCHORAGE   (via   teleconference),                                                                    
testified in  support of the  bill and  supported protecting                                                                    
the principal  of the  Permanent Fund.  She shared  that she                                                                    
was a  resident of the  state prior  to the PFD  program and                                                                    
while income tax  was still collected. She  believed that HB
202 was  sustainable and  would protect  both the  PF corpus                                                                    
and the POMV draw. She urged support for the bill.                                                                              
1:53:06 PM                                                                                                                    
CRIS   EICHENLAUB,  SELF,   WASILLA  (via   teleconference),                                                                    
testified  against  the  bill.  He believed  the  state  was                                                                    
grossly  mismanaging  its  resources.  He  did  not  support                                                                    
digging  into the  pockets  of the  people  to support  more                                                                    
government.  He  stated  that  the   PFD  was  last  on  the                                                                    
legislature's  agenda and  thought  it should  be first.  He                                                                    
emphasized that  the people of  Alaska owned  the resources.                                                                    
He  felt that  the POMV  model  would deplete  the fund.  He                                                                    
supported the  earnings model  that  had worked for 42 years                                                                    
until  the legislature  had  overspent   on  the budget.  He                                                                    
opposed the bill.                                                                                                               
Representative  Rasmussen asked  if  the  royalty split  was                                                                    
increased  from  50  to  70  percent  whether  it  would  be                                                                    
agreeable.  Mr. Eichenlaub  replied  that  he supported  the                                                                    
 non-POMV model.  He pondered what  would happen if the fund                                                                    
had a  40 percent  loss like  in 2008.  He opined  that they                                                                    
[legislature]  were putting   all  the state's  eggs in  one                                                                    
basket. He felt that a POMV model was unsustainable.                                                                            
1:57:20 PM                                                                                                                    
Representative Rasmussen  shared many  of the  concerns. She                                                                    
believed  a  stronger  spending   cap  was  needed  and  she                                                                    
believed  it should  be in  the  constitution. She  believed                                                                    
that the general feeling from  Alaskans was that the PFD was                                                                    
their share  of oil revenues.  She believed that if  the PFD                                                                    
was more  tied to mineral royalties  as in HB 202,  it would                                                                    
incentivize more production. She  asked Mr. Eichenlaub if he                                                                    
thought the bill would be  more supported if the majority of                                                                    
exclusively the resource wealth  was paid to Alaskans versus                                                                    
government.  Mr.  Eichenlaub  stressed that  the  people  of                                                                    
Alaska  owned  all the  resources.  He  believed the  people                                                                    
needed to be  paid first. He spoke to  the reason government                                                                    
could  not  be  trusted.  He thought  that  the  legislature                                                                    
needed to show some constraint.                                                                                                 
2:00:01 PM                                                                                                                    
Representative  Wool believed  that  the reason  for a  POMV                                                                    
model was  because oil revenue  dropped from $10  billion to                                                                    
under $1 billion. He reminded  the testifier that the PF had                                                                    
averaged 8  percent in earnings  over the last 40  years. He                                                                    
emphasized that Alaska was not a business it was a state.                                                                       
2:00:45 PM                                                                                                                    
Vice-Chair  Ortiz noted  that  Representative Carpenter  and                                                                    
Representative Edgmon joined the meeting.                                                                                       
BERT  HOUGHTALING,  SELF,  BIG  LAKE  (via  teleconference),                                                                    
testified  against the  bill. He  felt that  statements like                                                                    
the legislature  had cut the  budget to the max  was grossly                                                                    
misrepresentative  of the  situation. He  believed that  the                                                                    
states  healthcare  and education costs were  the highest in                                                                    
the nation  and would not  be the case  if more was  cut. He                                                                    
believed in  taxing the one  percent instead of  cutting the                                                                    
PFD. He  opined that a  statutory PFD would lift  people out                                                                    
of poverty and that a lower PFD was a tax on children.                                                                          
2:03:01 PM                                                                                                                    
JEAN HOLT, SELF, PALMER  (via teleconference), spoke against                                                                    
the bill. She believed the  bill was wrong. She thought that                                                                    
the  bill  was  being   fast  tracked  and  would  eliminate                                                                    
Alaskans   fair share  of the  states   mineral wealth.  She                                                                    
supported the governor's PFD bills  and asked legislators to                                                                    
vote no in HB 202.                                                                                                              
2:05:29 PM                                                                                                                    
ALEX   MCDONALD,  SELF,   FAIRBANKS  (via   teleconference),                                                                    
opposed the  bill. He remarked  that the  state's population                                                                    
had   not  changed   significantly,  but   the  budget   had                                                                    
increased. He  believed that the legislature  had mismanaged                                                                    
the state's  money and the  budget was bloated.  He remarked                                                                    
that the  people knew how  to spend their money  better than                                                                    
2:07:07 PM                                                                                                                    
CHARLES MCKEE,  SELF, ANCHORAGE (via  teleconference), spoke                                                                    
against the bill.  He referenced a May 4,  Alaska Daily News                                                                    
article  about  foster youth  finding  out  their money  was                                                                    
being   pocketed  by  state   agencies.   He  mentioned  his                                                                    
personal lawsuit  against the  state and  associated remarks                                                                    
that were unrelated to HB 202.                                                                                                  
2:08:48 PM                                                                                                                    
PHILLIP  DELAND,   SELF,  ANCHORAGE   (via  teleconference),                                                                    
opposed  the legislation.  He shared  that he  had lived  in                                                                    
Anchorage  his  whole  life  and   had  graduated  from  the                                                                    
University  of   Alaska.  He  believed  that   the  PFD  was                                                                    
established to compensate citizens  for ceding their mineral                                                                    
rights to the state. He stated  that the people did not have                                                                    
the rights  to minerals on  their own property.  He stressed                                                                    
that the PFD  was not the state's money but  belonged to the                                                                    
people as a share of  their mineral resources. He emphasized                                                                    
that the  Permanent Fund did  not belong to  the legislature                                                                    
and its role  was to manage the resource  for the citizenry.                                                                    
He believed the  law should be followed and  wanted full PFD                                                                    
payouts. He  felt that  the recent  lower PFDs  reflected an                                                                    
 unlawful capping   of the  dividend and  was  confiscation                                                                     
of money that belonged to Alaskans.                                                                                             
Representative Rasmussen shared that  she had also been born                                                                    
and   raised  in   Anchorage.   Currently   the  state   was                                                                    
constitutionally mandated to pay  25 percent of oil revenues                                                                    
to  the  funds   corpus.  She  asked if  he  would  be  more                                                                    
supportive of a higher  percentage of royalties dedicated to                                                                    
dividends.  Mr.  DeLand did  not  support  changing the  PFD                                                                    
formula. He supported  following the law and  not caping the                                                                    
payout. He  stated that   he could  really use  that money.                                                                     
He  did  not   believe  it  was  the   state's  decision  to                                                                    
confiscate  funds from  people's  PFDs in  recent years.  He                                                                    
supported  the  way  payments  were  currently  working.  He                                                                    
thought there was enough money  in the Permanent Fund to pay                                                                    
out statutory dividend.  He listed ways people  used the PFD                                                                    
funds and were dependent on the dividend.                                                                                       
2:13:22 PM                                                                                                                    
Representative Rasmussen agreed that  a sustainable plan was                                                                    
needed.  She  shared that  a  member  of the  committee  had                                                                    
proposed  a full  dividend during  the  budget process,  but                                                                    
staff had  pointed out that  paying a full  dividend without                                                                    
major  cuts and  taxes would  drain  the fund  within a  few                                                                    
years.  The  balance  the   committee  was  working  towards                                                                    
ensured  there  would be  a  PFD  for many  generations  and                                                                    
continued resource development.                                                                                                 
2:14:45 PM                                                                                                                    
AT EASE                                                                                                                         
2:14:59 PM                                                                                                                    
Vice-Chair Ortiz CLOSED public testimony.                                                                                       
Representative LeBon  thanked Co-Chair Merrick  for bringing                                                                    
forward  an  option for  the  committee  and legislature  to                                                                    
consider. He hoped that the  legislature could reconcile its                                                                    
differences  and acknowledged  that a  resolution would  not                                                                    
please everyone.                                                                                                                
Representative Edgmon echoed  the comments by Representative                                                                    
LeBon. He appreciated that Co-Chair  Merrick had brought the                                                                    
issue forward to  consider. He shared that he  had been born                                                                    
and  raised  in Alaska.  He  wanted  the  PFD to  be  around                                                                    
forever.  He  stressed that  72  percent  of the  governor's                                                                    
budget  was  funded  using PF  earnings.  He  reported  that                                                                    
Alaska  was the  only  state  in the  nation  and entity  in                                                                    
Western  Civilization  funding  its  government  through  an                                                                    
endowment.  He stressed  the  importance  of protecting  the                                                                    
2:17:19 PM                                                                                                                    
Representative Wool  favored the bill  and tying the  PFD to                                                                    
the performance  of oil. He  pointed to the  FY 22 to  FY 28                                                                    
projections of $333  million to $477 million  that would pay                                                                    
a PFD  and would not be  deposited into the GF.  He asked if                                                                    
there was  enough surplus in  the GF  for the out  years. He                                                                    
favored a bill  like the one proposed if  it was sustainable                                                                    
and if the  state could absorb the reduction  to the general                                                                    
Co-Chair  Merrick  replied  that  Angela  Rodell,  Executive                                                                    
Director,  Alaska  Permanent  Fund  Corporation  (APFC)  had                                                                    
spoken to the  issue - the royalties were a  small amount in                                                                    
comparison to  the remainder going  to a fund  with billions                                                                    
of dollars. She  offered that what made the  plan unique was                                                                    
that  100  percent of  the  POMV  would  be used  for  state                                                                    
services  and  would not  be  competing  with the  PFD.  She                                                                    
thought that  many people were  having a hard time  with the                                                                    
current situation  where state  services were  competing for                                                                    
funding. She  liked the  plan because  the PFD  was directly                                                                    
tied  to  oil and  mineral  development  in the  state.  She                                                                    
addressed some  of the comments  by callers.  She emphasized                                                                    
that  the  plan  paid  the   PFD  first,  before  government                                                                    
services and separated it from  the POMV draw. She addressed                                                                    
comments  regarding Alaskans   share of  the mineral  rights                                                                    
and emphasized that the bill  utilized Alaska's share of the                                                                    
mineral  rights.  She shared  that  she  was also  born  and                                                                    
raised  in Alaska  and  had  used her  PFD  money  to go  to                                                                    
college, which  she otherwise could  not afford.  She wanted                                                                    
her kids  to be  able to  have money to  go to  college with                                                                    
PFDs. She  stressed that  the plan  was about  a sustainable                                                                    
PFD. She voiced that the  other  high dollar  dividend plans                                                                    
depleted  the dividend  in  a few  years.  She reminded  the                                                                    
committee that PFDs were sent  to every resident and was not                                                                    
needs based. She stated that  many times Alaskans who relied                                                                    
on their  PFDs also needed  state services. The  state could                                                                    
not afford  to provide for Alaskans  in need and pay  a huge                                                                    
HB  202  was  HEARD  and   HELD  in  committee  for  further                                                                    
2:21:37 PM                                                                                                                    
4:01:47 PM                                                                                                                    
HOUSE BILL NO. 70                                                                                                             
     "An  Act   making  appropriations,   including  capital                                                                    
     appropriations,     reappropriations,     and     other                                                                    
     appropriations;  making   supplemental  appropriations;                                                                    
     making   appropriations   to  capitalize   funds;   and                                                                    
     providing for an effective date."                                                                                          
4:01:58 PM                                                                                                                    
Co-Chair  Merrick    relayed that  the  committee  heard  an                                                                    
overview of  HB 70 on May  4, 2021. She shared  that she had                                                                    
been working  closely with Senator Click  Bishop's office to                                                                    
craft the capital budget.                                                                                                       
Co-Chair  Foster  MOVED  to  ADOPT  the  proposed  committee                                                                    
substitute  for  HB  70, Work  Draft  32-GH1507\G  (Dunmire,                                                                    
Co-Chair Merrick OBJECTED for discussion.                                                                                       
Co-Chair   Merrick    explained   that   the    budget   was                                                                    
significantly different  than the governor's proposed  FY 22                                                                    
capital budget.                                                                                                                 
Representative Josephson  asked if the changes  included the                                                                    
governor's amendments.                                                                                                          
4:03:23 PM                                                                                                                    
TALLY  TEAL, STAFF,  REPRESENTATIVE KELLY  MERRICK, answered                                                                    
that  she  would  point  out  when  she  was  comparing  the                                                                    
Committee  Substitute  (CS)  to the  governors   amended  or                                                                    
original budget.                                                                                                                
Co-Chair  Merrick relayed  that  the meeting  was a  general                                                                    
overview and would not focus on individual projects.                                                                            
Ms.  Teal  pointed  to four  reports  from  the  Legislative                                                                    
Finance  Division in  members' packets  (copy on  file). The                                                                    
reports were labeled  1 through 4. She began  with the first                                                                    
report  [report 1]  showing  the  unrestricted general  fund                                                                    
(UGF)  expenditures  by  capital  budget  agency  summary                                                                       
governor structure  compared to  the CS. She  indicated that                                                                    
the CS  spent roughly $325  million in UGF compared  to $120                                                                    
million  in the  governors  original  budget. She  explained                                                                    
that  the  governor  had   used  2  non-traditional  funding                                                                    
sources  in   the  original  budget  that   the  legislature                                                                    
rejected. The governor proposed  using $86 million of Alaska                                                                    
Housing Finance  Corporation (AHFC)  bonds for  aviation and                                                                    
highway matching funds for  the Department of Transportation                                                                    
and  Public  Facilities.  In  addition,  he  proposed  using                                                                    
approximately  $18   million  of  the  Village   Safe  Water                                                                    
matching   funds  from   the  Department   of  Environmental                                                                    
Conservation (DEC) totaling $104  million in AHFC bonds. She                                                                    
furthered  that there  had been  $10.5 million  appropriated                                                                    
from  the  rural Power  Cost  Equalization  (PCE) funds  for                                                                    
rural  fuel projects.  Without the  non-traditional sources,                                                                    
the governors   proposed UGF spend  was about  $224 million.                                                                    
She  indicated that  the governor  proposed  a $350  million                                                                    
general obligation  (GO) bond package  in HB 93  [HB 93-G.O.                                                                    
Bonds: State Infrastructure  Projects] for capital projects.                                                                    
Many projects  in the  GO bond  bill had  been moved  to the                                                                    
capital budget.                                                                                                                 
4:06:11 PM                                                                                                                    
Ms.  Teal turned  to  report 2  showing  the capital  budget                                                                    
agency  summary    governor structure  all funding  sources.                                                                    
She  pointed to  column 4  comparing the  governors  amended                                                                    
budget to  the House  CS and reported  that $101  million of                                                                    
the  GO bond  funding was  removed and  $620 million  was an                                                                    
increase  in federal  receipt authority  but  was not   new                                                                     
funding.  She  explained  that the  committee  had  heard  a                                                                    
presentation  on  the Statewide  Transportation  Improvement                                                                    
Program  (STIP)  and  reminded  the  committee  of  the  two                                                                    
methods the  state could provide funding  for STIP projects.                                                                    
She  elaborated that  one option  was to  give one  lump sum                                                                    
appropriation; it  did not  provide legislative  oversite of                                                                    
how the  funding was  spent. The other  option was  to break                                                                    
the appropriations  into allocations  to show  what projects                                                                    
the department planned on funding  with the STIP. Prior STIP                                                                    
funding had been done both ways  and the CS version chose to                                                                    
use allocations with some   modifications.  The method added                                                                    
two  accounts: a  project acceleration  fund  and a  project                                                                    
contingency  fund. They  were separate  pots  of money  that                                                                    
allowed  for  administrative  flexibility  while  setting  a                                                                    
 more realistic  amount for each  of the appropriations. She                                                                    
stressed  that the  funding was  structured differently  and                                                                    
was  not an  increase for  the Department  of Transportation                                                                    
and Public Facilities (DOT).                                                                                                    
Vice-Chair Ortiz asked about  the project acceleration fund.                                                                    
Ms. Teal  answered that it  was in the numbers  section. She                                                                    
restated  that the  reason the  federal authority  total was                                                                    
higher was due to the new funding structure.                                                                                    
Representative  Thompson  asked  if   there  was  a  listing                                                                    
showing which  items were different than  the original bill.                                                                    
Ms.  Teal replied  in  the affirmative  and  noted that  the                                                                    
information  was  in  report  3.  She  turned  to  report  3                                                                    
containing  the Capital  Budget project  detail by  agency                                                                      
governor  structure.  She  noted  that  the  documents  were                                                                    
available  online. She  explained that  column 1  showed the                                                                    
governor's amended  budget, column 2 was  the Senate version                                                                    
CS, column 3  reflected the House CS, column  4 compared the                                                                    
governors  budget  to the  House CS,  and column  5 compared                                                                    
the  House  CS to  the  Senate  CS.  She highlighted  a  few                                                                    
projects.  She  pointed  to the  West  Susitna  Road  Access                                                                    
Project on page  1, that was originally in the  GO bond bill                                                                    
and was  funded at the  governor's request in the  amount of                                                                    
$8.5  million. She  moved to  page 2  and reported  that the                                                                    
Alaska  Travel Industry  Association  (ATIA) was  originally                                                                    
funded at $5  million but the funding was  eliminated in the                                                                    
CS  because of  funding from  the American  Rescue Plan  Act                                                                    
(ARPA) dedicated to tourism. She  referred to the $1 million                                                                    
appropriation for the  Matanuska-Susitna Arctic Winter Games                                                                    
and noted that it was not  in the governors  request but was                                                                    
included in the CS.                                                                                                             
4:11:12 PM                                                                                                                    
Representative  Wool  asked  if  the  Voice  of  the  Arctic                                                                    
appropriation  on  page 2  was  in  the governors   original                                                                    
request. Ms.  Teal replied  that the  increment had  been in                                                                    
the governor's amended budget.                                                                                                  
Ms. Teal turned  to page 6 and cited two  Department of Fish                                                                    
and  Game (DFG)  projects that  had not  been funded  in the                                                                    
capital budget  process the previous year.  The projects had                                                                    
been   included   in   HB  69   [HB   69-Approp:   Operating                                                                    
Budget/Loans/Funds]  [the  operating  budget] and  were  not                                                                    
included in the current CS.                                                                                                     
Vice-Chair  Ortiz  asked  what  specific  projects  she  was                                                                    
referring to that were not  included. Ms. Teal answered that                                                                    
the projects were the Pacific  Salmon Treaty Chinook Fishery                                                                    
Mitigation  and    the  Wildlife  Management,  Research  and                                                                    
Hunting Access projects.                                                                                                        
Representative  Josephson  cited  the  Wildlife  Management,                                                                    
Research  and Hunting  Access project  on page  6. He  asked                                                                    
whether  it   had  been  included  in   the  current  years                                                                     
operating budget.  Ms. Teal answered in  the affirmative and                                                                    
reminded the committee that  supplemental capital items were                                                                    
included in the operating budget.                                                                                               
4:13:27 PM                                                                                                                    
Ms.  Teal turned  to page  8  and pointed  to the  Statewide                                                                    
Deferred  Maintenance, Renovation,  and  Repair project  and                                                                    
noted  that the  appropriation was  slightly lower  than the                                                                    
governor's  request  due  to the  amount  available  in  the                                                                    
Alaska   Capital  Income   Fund.  She   moved  to   page  9,                                                                    
referencing the Fairbanks Youth Facility  that had been a GO                                                                    
bond project. She noted the  facility was not funded by UGF.                                                                    
She  thought  that  LFD  would  be  best  to  speak  to  the                                                                    
specifics. She  understood that  through a  bond refinancing                                                                    
$18  million   became  available  for  a   capital  project,                                                                    
therefore, the  governor chose to appropriate  the funds for                                                                    
the youth facility.                                                                                                             
Representative Rasmussen looked at  the 1167 fund source and                                                                    
asked what fund it was.                                                                                                         
ALEXEI  PAINTER,  DIRECTOR,  LEGISLATIVE  FINANCE  DIVISION,                                                                    
explained that  tobacco bonds had originally  been sold from                                                                    
the  proceeds  of  a  lawsuit  two  decades  earlier,  which                                                                    
capitalized  the Northern  Tobacco  Security Corporation,  a                                                                    
subsidiary  of   the  Alaska  Housing   Finance  Corporation                                                                    
(AHFC).  The tobacco  corporation  needed  to refinance  its                                                                    
debt, or it  could become insolvent in the  coming years due                                                                    
to  the decline  in  tobacco sales.  He  elucidated that  to                                                                    
obtain a  better rate on  the refinancing of the  tax exempt                                                                    
bond  the  proceeds could  be  appropriated  to a  qualified                                                                    
capital project under Internal  Revenue Service (IRS) rules.                                                                    
The  proceeds   were  estimated  to  be   $18  million.  The                                                                    
governor  had selected  the youth  facility because  it cost                                                                    
$18  million,  which  was  a  criterion  for  obtaining  the                                                                    
4:16:01 PM                                                                                                                    
Representative  Josephson had  further  questions about  the                                                                    
wildlife access research  and hunting project on  page 6. He                                                                    
asked about  the $10  million. Mr.  Painter deferred  to the                                                                    
Office of Management and Budget (OMB) for the answer.                                                                           
NEIL STEININGER, DIRECTOR, OFFICE  OF MANAGEMENT AND BUDGET,                                                                    
OFFICE  OF THE  GOVERNOR,  stated his  understanding of  the                                                                    
question related to  the project for $10 million  on page 6.                                                                    
He replied  that the funding  was either the  Dingle Johnson                                                                    
or  Pittman  Robertson  federal  funding  for  wildlife  and                                                                    
hunting access  projects. He reported  that the  project was                                                                    
not  related  to  the   navigability  or  statehood  defense                                                                    
project.  The  project  was  the  annual  recurring  capital                                                                    
program through DFG that built  out hunting access projects.                                                                    
Due  to  a   truncated  session  in  the   prior  year,  the                                                                    
department had  not received the  funds and it  was included                                                                    
in the  supplemental. The administration  moved some  of the                                                                    
wildlife  management  activity   funds  into  the  operating                                                                    
budget because of the characteristics of the appropriation.                                                                     
4:18:31 PM                                                                                                                    
Representative  Josephson  reasoned   that  the  transaction                                                                    
appeared typical and perfunctory and was not unique.                                                                            
Representative   Wool  asked   about  the   Fairbanks  Youth                                                                    
Facility capital  upgrade to an existing  facility. He asked                                                                    
which youth  facility it was.  Mr. Steininger  answered that                                                                    
it was the Juvenile Justice facility in Fairbanks.                                                                              
Vice-Chair Ortiz  asked about the  $10 million  for wildlife                                                                    
hunting access.  He asked  if there was  a breakdown  of the                                                                    
$10 million  expenditure. Mr.  Steininger answered  that DFG                                                                    
posted  the   solicitations  for  the  spending   after  the                                                                    
appropriation   was   made.   He  relayed   that   currently                                                                    
historical allocations were available.                                                                                          
Representative  Rasmussen stated  it  was her  understanding                                                                    
that the  project funding utilized federal  receipts and not                                                                    
UGF. Mr.  Steininger answered in  the affirmative  and added                                                                    
that  receipts from  hunting licenses  (Fish and  Game Fund)                                                                    
were used as matching funds.                                                                                                    
4:20:42 PM                                                                                                                    
Ms. Teal  moved to  page 9, under  the Department  of Health                                                                    
and Social  Services and cited  the Palmer Pioneer  Home and                                                                    
Veteran's  Home roof  replacement  increment. She  indicated                                                                    
that the project was originally in  the GO Bond bill and was                                                                    
included  in the  CS.  She  moved to  page  11 and  directed                                                                    
attention  to the  $12.5 million  line item  for the  Alaska                                                                    
Vocational  Technical Center  (AVTEC), which  was originally                                                                    
in  the  GO  Bond  legislation. She  communicated  that  the                                                                    
appropriation  was  originally  $19.5  million  but  it  was                                                                    
discovered  that  the  reduced amount  was  sufficient.  She                                                                    
advanced   to  page   12  and   referenced  the   Prosecutor                                                                    
Recruitment  and  Housing  to  Address  Sexual  Assault  and                                                                    
Sexual Abuse  of a Minor  Case Backlog project.  The project                                                                    
had originally been a supplemental  request and was included                                                                    
in the CS. She moved  to the Department of Natural Resources                                                                    
(DNR)  on page  15.  She listed  the  following 4  projects:                                                                    
Wildland  Firefighting Aircraft  Replacement, Wildland  Fire                                                                    
Engine   Replacement,   Statewide   Firebreak   Construction                                                                    
Program,  and the  Statewide  Park  Sanitation and  Facility                                                                    
Upgrades. She  relayed that they  were all initially  in the                                                                    
GO  Bond  package.  She  pointed to  one  new  project;  the                                                                    
Snowmobile Trail  Development Program and Grants,  which was                                                                    
not  included in  the governor's  original  request but  was                                                                    
included in the CS.                                                                                                             
Co-Chair  Merrick  believed  that  it was  called  the  Snow                                                                    
Tracks Program. Ms. Teal affirmed the statement.                                                                                
Ms.  Teal  referenced  the last  two  DNR  projects;  Alaska                                                                    
Wildlife Troopers Marine  Enforcement Repair and Replacement                                                                    
and Boating Upgrades, Haul Outs,  and Vessel Replacement and                                                                    
noted that they were originally GO Bond projects.                                                                               
4:22:58 PM                                                                                                                    
Ms. Teal turned the  Department of Transportation and Public                                                                    
Facilities (DOT)  projects, which accounted for  the bulk of                                                                    
the numbers section.                                                                                                            
Co-Chair Merrick  asked members  to contact her  office with                                                                    
specific questions regarding DOT.                                                                                               
Representative Josephson  looked at page 15  and asked about                                                                    
the  Arctic Strategic  Transportation  and Resource  Project                                                                    
(ASTAR)  project. He  wondered  whether it  was a  permanent                                                                    
appropriation item.                                                                                                             
Mr.  Steininger answered  that the  ASTAR  project had  been                                                                    
appropriated  in  phases  over  recent  years.  It  was  not                                                                    
permanent but  was a recurring project  requiring additional                                                                    
distinct funding.                                                                                                               
Representative  Edgmon asked  about projects  that were  not                                                                    
included.   He  asked   why  the   Alaska  Travel   Industry                                                                    
Association (ATIA)  project had been removed.  He understood                                                                    
that  the  ARPA  funding  was different  than  the  original                                                                    
appropriation  for marketing.  Ms.  Teal stated  it was  her                                                                    
understanding  that  the ARPA  funds  would  cover the  same                                                                    
expenses.  She  added  that the  original  funding  was  the                                                                    
vehicle  rental  tax  and  with  the  tourism  downturn  the                                                                    
receipts were likely insufficient.                                                                                              
4:25:29 PM                                                                                                                    
Mr. Painter interjected that  the administration directed $5                                                                    
million in  Coronavirus Aid,  Relief, and  Economic Security                                                                    
(CARES) Act funding to ATIA  for marketing Alaska as a COVID                                                                    
safe  tourism destination.  The House  added $10  million to                                                                    
ATIA from ARPA  funding as well. The funding may  not be for                                                                    
traditional  tourism  marketing  but $15  million  had  been                                                                    
directed to ATIA.                                                                                                               
Ms. Teal  pointed to  page 38 related  to two  University of                                                                    
Alaska (UA) projects and noted  that they were originally GO                                                                    
bond projects [UAA Building  Energy Performance Upgrades and                                                                    
Bartlett  and   Moore  Hall  Modernization:   Restrooms  and                                                                    
Sanitation Infrastructure].  She underlined that  the Courts                                                                    
Statewide Deferred  Maintenance item on  page 39 was  also a                                                                    
GO  bond project.  She  commented that  her  remarks on  the                                                                    
numbers  section, Section  1  of the  CS  was complete.  She                                                                    
briefly  described Section  2  as a  summary  of funding  in                                                                    
Section  1 by  agency  and Section  3  as listing  statewide                                                                    
funding by fund source.                                                                                                         
4:26:44 PM                                                                                                                    
Ms. Teal  reported that the  language section of  the budget                                                                    
began in  Section 4, on page  33 of the CS.  She highlighted                                                                    
that  Sections 7  through Section  10 were  reappropriations                                                                    
from agencies to the Alaska Capital Income Fund.                                                                                
4:28:22 PM                                                                                                                    
AT EASE                                                                                                                         
4:29:12 PM                                                                                                                    
4:29:51 PM                                                                                                                    
AT EASE                                                                                                                         
4:30:33 PM                                                                                                                    
Mr. Painter clarified that in  Section 4 the typical revised                                                                    
program  receipt   language  [Revised   Program  Legislative                                                                    
(RPL)]  referencing  AS  37.05.146(a),   (b),  and  (c)  was                                                                    
typical.  He noted  that in  subsection (e)  on page  33 the                                                                    
language  was  unusual.  He  explained  that  it  prohibited                                                                    
increasing   receipts  received   by   the  Alaska   Gasline                                                                    
Development  Corporation  (AGDC)  and was  included  in  the                                                                    
Senate version  of the bill.  He elaborated that (e)  (1) on                                                                    
page 33,  the Coronavirus  Response and  Relief Supplemental                                                                    
Appropriations  Act (CRRSAA)  funds  for  DOT were  excluded                                                                    
from the RPL  process. He turned to page 34,  Section 2 that                                                                    
listed  the  Coronavirus  State and  Local  Fiscal  Recovery                                                                    
Funds,  in  ARPA  as  excluded  from  the  RPL  process.  In                                                                    
addition, he read  the following that was  excluded from the                                                                    
RPL process:                                                                                                                    
     (3)funds appropriated by the 117 Congress                                                                                  
          (A) for infrastructure, jobs, or part of the                                                                          
               American Jobs Plan, as proposed by the                                                                           
               President of the United States, or a similar                                                                     
               bill or plan;                                                                                                    
          (B)  related to novel coronavirus disease (Covid-                                                                     
               19) or economic recovery; or                                                                                     
          (C) for natural gas pipeline expenditures.                                                                            
Mr.  Painter  noted  that subsection  (f)  stated  that  the                                                                    
exclusions  did not  apply to  prior authorizations  made in                                                                    
January 2021.                                                                                                                   
Representative  Josephson  asked   if  any  federal  funding                                                                    
received after  session ended and before  the coming special                                                                    
session  on August  2,  2021, could  not  be expended  until                                                                    
August 2. Mr. Painter answered  that the funds could also be                                                                    
appropriated in the coming special  session beginning on May                                                                    
20, 2021.                                                                                                                       
4:33:20 PM                                                                                                                    
Ms. Teal  turned to Section 5,  on page 34 of  the bill. She                                                                    
offered  that the  language was  standard language  that was                                                                    
omitted in the  prior year. Section 6  was standard language                                                                    
related  to  the  Natural  Petroleum  Reserve-Alaska  (NPRA)                                                                    
impact   grants.  She   reiterated  the   prior  information                                                                    
regarding  Section  7  through  Section  10.  She  moved  to                                                                    
Section  11  and  commented  that   the  item  had  been  an                                                                    
operating item  that was  moved to  the capital  budget. She                                                                    
pointed out that  Section 12 through Section  14 returned to                                                                    
reappropriations   to   the   Capital   Income   Fund.   She                                                                    
communicated that Section 15 through  Section 23 on pages 42                                                                    
through page  46 included reappropriations  within districts                                                                    
from lapsing  grant funds from  the Department  of Commerce,                                                                    
Community and  Economic Development  (DCCED). She  turned to                                                                    
page  46, Sections  24  through Section  26  and noted  they                                                                    
contained lapsing language and effective dates.                                                                                 
Co-Chair Merrick  asked if there  was anything  to highlight                                                                    
on report 4.                                                                                                                    
Ms.   Teal   identified   report   4   that   included   the                                                                    
reappropriations   within  district   [Section  15   through                                                                    
Section  23] and  noted  they matched  the  language in  the                                                                    
Senate CS version.                                                                                                              
Representative Josephson  cited report  1 that showed  a UGF                                                                    
spend  of  $324.6 million.  He  asked  what  it did  to  the                                                                    
surplus of a  similar amount. Mr. Painter  answered that the                                                                    
House's operating  budget included  some fund  changes using                                                                    
ARPA  dollars for  debt service  that was  discovered to  be                                                                    
unallowable.  The surplus  had  included  fund changes  that                                                                    
could  not  occur.  However,  the  same  amount  of  revenue                                                                    
replacement might be  applied to other areas  of the budget.                                                                    
He remembered  that the amount  of surplus was enough  for a                                                                    
$500  PFD assuming  the  capital budget  was  closer to  the                                                                    
governors  version.  The CS version was  $150 million higher                                                                    
so the  surplus would  be that much  less. However,  how the                                                                    
ARPA funds could be spent  was a moving target therefore, it                                                                    
was difficult to compare the Houses budget to a surplus.                                                                        
Co-Chair Merrick reminded the  committee that unique funding                                                                    
sources  were used  originally in  the  capital budget  that                                                                    
once removed, inflated the House CS.                                                                                            
Representative Wool  deduced that  the House CS  compared to                                                                    
the Senate CS and was  $155 million higher. In addition, the                                                                    
House CS  versus governors  version was  $200 million higher                                                                    
and  the  ARPA  funding  added $200  million  to  the  House                                                                    
budget. He  noted that the  Senate operating  budget numbers                                                                    
were currently  unknown, therefore  the residual  amount was                                                                    
unknown.  Mr. Painter  was  not prepared  to  speak about  a                                                                    
fiscal summary on the fly.                                                                                                      
4:38:45 PM                                                                                                                    
Vice-Chair  Ortiz referenced  Mr. Painter's  mention of  the                                                                    
recently  released   ARPA  guidelines.   He  asked   if  the                                                                    
committee  would hear  a summary  about  how the  guidelines                                                                    
changed in  relation to the  budgeting process.  Mr. Painter                                                                    
answered  that  the new  information  was  improved, and  he                                                                    
believed  the committee  would hear  from Mr.  Steininger on                                                                    
the updates.                                                                                                                    
Co-Chair Merrick  WITHDREW her OBJECTION to  the adoption of                                                                    
the CS.                                                                                                                         
There  being  NO  OBJECTION,   Work  Draft  32-GH1507|G  was                                                                    
HB  70  was   HEARD  and  HELD  in   committee  for  further                                                                    
Co-Chair  Merrick reviewed  the schedule  for the  following                                                                    
4:40:23 PM                                                                                                                    
The meeting was adjourned at 4:40 p.m.                                                                                          

Document Name Date/Time Subjects
HB 202 Fiscal Model Output REVISED (002).pdf HFIN 5/17/2021 1:30:00 PM
HB 202
HB 202 Public Testimony by 051621.pdf HFIN 5/17/2021 1:30:00 PM
HB 202
HB 202 Flowchart.pdf HFIN 5/17/2021 1:30:00 PM
HB 202
HB 202 Sectional Analysis 5.5.2021.pdf HFIN 5/17/2021 1:30:00 PM
HB 202
HB 202 Sponsor Statement 5.5.2021.pdf HFIN 5/17/2021 1:30:00 PM
HB 202
HB 70 Agency Summary HSC1 All Funds.pdf HFIN 5/17/2021 1:30:00 PM
HB 70
HB 70 AgencySummary HCS1 UGF Only.pdf HFIN 5/17/2021 1:30:00 PM
HB 70
HB 70 HCS WorkDraft vG.pdf HFIN 5/17/2021 1:30:00 PM
HB 70
HB 70 ProjectDetailByAgency HCS1 Supplemental Items Compare to Senate SCS1.pdf HFIN 5/17/2021 1:30:00 PM
HB 70
HB 70 ProjectDetailByAgency HCS1 Compare to Gov Amend Total.pdf HFIN 5/17/2021 1:30:00 PM
HB 70
HB 70 Public Testimony by 051921.pdf HFIN 5/17/2021 1:30:00 PM
HB 70
HB 202 Public Testimony by 051921.pdf HFIN 5/17/2021 1:30:00 PM
HB 202
HB 202 Public Testimony by 052121.pdf HFIN 5/17/2021 1:30:00 PM
HB 202