Legislature(2021 - 2022)ADAMS 519

05/18/2021 09:00 AM FINANCE

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                  HOUSE FINANCE COMMITTEE                                                                                       
                       May 18, 2021                                                                                             
                         9:06 a.m.                                                                                              
9:06:10 AM                                                                                                                    
CALL TO ORDER                                                                                                                 
Co-Chair Merrick called the  House Finance Committee meeting                                                                    
to order at 9:06 a.m.                                                                                                           
MEMBERS PRESENT                                                                                                               
Representative Neal Foster, Co-Chair                                                                                            
Representative Kelly Merrick, Co-Chair                                                                                          
Representative Dan Ortiz, Vice-Chair                                                                                            
Representative Ben Carpenter                                                                                                    
Representative DeLena Johnson                                                                                                   
Representative Andy Josephson                                                                                                   
Representative Bart LeBon                                                                                                       
Representative Sara Rasmussen                                                                                                   
Representative Steve Thompson                                                                                                   
Representative Adam Wool                                                                                                        
MEMBERS ABSENT                                                                                                                
Representative Bryce Edgmon                                                                                                     
ALSO PRESENT                                                                                                                  
Representative Kreiss-Tompkins, Sponsor.                                                                                        
PRESENT VIA TELECONFERENCE                                                                                                    
Denise   Koch,   Self,   Juneau;  Mike   Coons,   President,                                                                    
Association  of  Mature   American  Citizens,  Palmer;  Bert                                                                    
Houghtaling,  Self,   Big  Lake;  Chris   Eichenlaub,  Self,                                                                    
Wasilla;  Marcy  Sowers,   Self,  Wasilla;  Tiffany  Larson,                                                                    
Director,  Division   of  Spill  Prevention   and  Response,                                                                    
Department of Environmental  Conservation, Fairbanks; Nicole                                                                    
Reynolds,  Deputy  Director,  Tax  Division,  Department  of                                                                    
Revenue;  Jeffrey  Schmitz,   Director,  Division  of  Motor                                                                    
Vehicles,  Department   of  Revenue;  Andy   Mills,  Special                                                                    
Assistant to the  Commissioner, Department of Transportation                                                                    
and  Public Facilities;  Mike Coons,  President, Association                                                                    
of Mature  American Citizens,  Palmer; Ian  Laing, Executive                                                                    
Director, Institute  of the North; Angela  Rodell, Executive                                                                    
Director,  Alaska Permanent  Fund Corporation;  Ruth Kostik,                                                                    
Administrative    Services     Director,    Department    of                                                                    
Environmental Conservation.                                                                                                     
HB 104    MOTOR FUEL TAX; VEHICLE REG. FEE                                                                                      
          HB 104 was HEARD and HELD in committee for                                                                            
          further consideration.                                                                                                
HJR 1     CONST AM: PERMANENT FUND; POMV; EARNINGS                                                                              
          HJR 1 was HEARD and HELD in committee for further                                                                     
Co-Chair Merrick reviewed the agenda for the meeting.                                                                           
HOUSE BILL NO. 104                                                                                                            
     "An Act relating to vehicle registration and                                                                               
     registration fees; relating to the motor fuel tax; and                                                                     
     providing for an effective date."                                                                                          
9:06:49 AM                                                                                                                    
Co-Chair Merrick RE-OPENED public testimony.                                                                                    
9:07:05 AM                                                                                                                    
DENISE  KOCH, SELF,  JUNEAU  (via  teleconference), was  the                                                                    
former  director of  the Division  of  Spill Prevention  and                                                                    
Response  (SPAR)  within  the  Department  of  Environmental                                                                    
Conservation  (DEC).  She  strongly supported  HB  104.  She                                                                    
urged  members  to  pass  the   bill  out  immediately.  She                                                                    
supported the  entire bill but wanted  to speak specifically                                                                    
to the  refined fuel surcharge provision.  It would increase                                                                    
the revenue for SPAR. She  explained that SPAR was unique at                                                                    
DEC  because  the  division  did  not  receive  undesignated                                                                    
general  funds.  Rather, it  was  a  user fee  program.  The                                                                    
refined  fuel surcharge  was  originally  passed to  provide                                                                    
SPAR with  sustainable funding. Unfortunately, at  the time,                                                                    
the Department  of Revenue (DOR)  underestimated collections                                                                    
and did not  identify exclusions. She thought  the effect of                                                                    
passing HB 104 would be  the facilitation of SPAR's original                                                                    
Ms. Koch continued that SPAR  had a serious revenue problem.                                                                    
However, it was  not a result of  uncontrolled spending. The                                                                    
Division of Spill Prevention and  Response currently had the                                                                    
lowest amount of  staff in over 25 years. She  had worked at                                                                    
DEC over  the course  of many  years within  three different                                                                    
divisions. There  had always been  a pressure to  stay lean.                                                                    
She recalled  frequent conversations about  streamlining and                                                                    
efficiencies.  She  agreed  that  it was  good  to  apply  a                                                                    
critical  eye to  a  program making  changes  and cuts  when                                                                    
needed. However,  at the heart of  the work of SPAR  was its                                                                    
people.  Since 2015  SPAR had  eliminated 17  positions. She                                                                    
urged members  to pass  HB 104,  a sustainable  refined fuel                                                                    
surcharge bill which would help SPAR fulfill its mission.                                                                       
9:09:16 AM                                                                                                                    
MIKE  COONS,  PRESIDENT,   ASSOCIATION  OF  MATURE  AMERICAN                                                                    
CITIZENS,  PALMER  (AMAC)  (via  teleconference),  spoke  in                                                                    
opposition  to  HB 104.  He  pointed  to  a letter  sent  to                                                                    
Speaker  Stutes,  Representative  Tuck,  and  Representative                                                                    
Tilton  opposing  HB 104  from  AMAC.  The  letter  strongly                                                                    
opposed the  motor fuel tax  provisions of HB  104. Sections                                                                    
5, 6, 7, and 8 contained  the the fossil fuel tax increases.                                                                    
The  letter indicated  that the  taxes were  significant and                                                                    
punitive to Alaskans  on fixed and limited  incomes, such as                                                                    
seniors. He  suggested that  imposing more  taxes at  a time                                                                    
when the nation  and Alaska were struggling  to recover from                                                                    
the  economic adversity  resulting from  Covid-19 was  not a                                                                    
good idea.  He relayed  that such  taxes would  further hurt                                                                    
Alaska's  economy. He  also noted  that  energy taxes  would                                                                    
increase the state and local  government costs adding to the                                                                    
tax payer's burden.  He reiterated noted many  of the rising                                                                    
costs in  the nation.  He reiterated  his opposition  to the                                                                    
9:11:37 AM                                                                                                                    
BERT  HOUGHTALING,  SELF,  BIG  LAKE  (via  teleconference),                                                                    
strongly opposed HB 104. He  spoke of Alaska's economy being                                                                    
decimated  by  Draconian  lockdowns   due  to  the  COVID-19                                                                    
pandemic. He reported many  businesses losing everything. He                                                                    
suggested  that folks  such  as himself  put  many miles  on                                                                    
their vehicles  and would  see their  bills increase  by the                                                                    
thousands. If  the bill  were to  pass, he  would personally                                                                    
experience a loss  of more than $1500 per year  to cover the                                                                    
gap increase. He would be forced  to pass the increase on to                                                                    
his  customers.  He queried  the  response  by the  trucking                                                                    
industry. He  thought it was  the wrong action at  the wrong                                                                    
time. He suggested that legislators  would not use the money                                                                    
raised  by the  tax for  its intended  purpose. He  implored                                                                    
members to reject HB 104.                                                                                                       
9:13:44 AM                                                                                                                    
Representative  Josephson  commented  that  his  office  had                                                                    
looked at  the claims made  by the testifier.  The testifier                                                                    
would have to drive 180,000  miles per year consuming 18,000                                                                    
gallons of  fuel to have an  increase in taxes of  $1500. He                                                                    
thought the testifier had overstated the issue.                                                                                 
Representative Carpenter requested an at ease.                                                                                  
9:14:27 AM                                                                                                                    
AT EASE                                                                                                                         
9:16:19 AM                                                                                                                    
CHRIS  EICHENLAUB,   SELF,  WASILLA   (via  teleconference),                                                                    
opposed HB  104. He agreed  with the previous  testifier. He                                                                    
noted in the prior year an  exact match bill was offered and                                                                    
failed  to pass.  He recalled  contacting his  legislator to                                                                    
speak  in  opposition   of  the  bill.  At   the  time,  the                                                                    
legislator did  not support  the bill.  He hoped  they would                                                                    
continue to  oppose a  motor fuel tax  bill. He  argued that                                                                    
Alaska paid  the second  highest gas  prices in  the nation.                                                                    
All he  heard was that Alaska  paid the lowest tax  on motor                                                                    
fuel.  He  suggested that  if  Alaskans  paid more  in  fuel                                                                    
prices, they  should pay  less in taxes.  He thought  it was                                                                    
easier  to cut  $60  million from  the  budget, rather  than                                                                    
putting the burden on Alaskans.  The legislature was already                                                                    
taking their Permanent Fund Dividends (PFD) away.                                                                               
9:18:33 AM                                                                                                                    
Representative Rasmussen  asked how many miles  he drove per                                                                    
Mr. Eichenlaub  was retired but sympathized  with commuters.                                                                    
He estimated that a round  trip from the Mat-Su to Anchorage                                                                    
was about 100 miles.                                                                                                            
9:19:21 AM                                                                                                                    
MARCY  SOWERS, SELF,  WASILLA (via  teleconference), opposed                                                                    
the  motor  fuel tax  legislation.  She  mentioned the  high                                                                    
price  for fuel  presently. She  thought increasing  the gas                                                                    
tax  would compound  financial issues  due  to the  economic                                                                    
crisis the  state was  in. She opposed  the bill.  She asked                                                                    
members to support the voice of the people.                                                                                     
9:21:29 AM                                                                                                                    
Representative Rasmussen  asked how  many miles  her husband                                                                    
drove per year.                                                                                                                 
Ms. Sowers  was uncertain.  However, she drove  to Anchorage                                                                    
for  medical  appointments  frequently.  She  did  not  want                                                                    
things more difficult for Alaskans.                                                                                             
9:22:42 AM                                                                                                                    
Co-Chair Merrick CLOSED public testimony.                                                                                       
Co-Chair  Merrick asked  Ms. Larson  from the  Department of                                                                    
Environmental Conservation  (DEC) to  review one of  the two                                                                    
fiscal notes from the department (control code: MEOOQH).                                                                        
9:23:21 AM                                                                                                                    
TIFFANY LARSON,  DIRECTOR, DIVISION OF SPILL  PREVENTION AND                                                                    
RESPONSE,   DEPARTMENT    OF   ENVIRONMENTAL   CONSERVATION,                                                                    
FAIRBANKS (via teleconference),  indicated DEC's fiscal note                                                                    
was zero.                                                                                                                       
9:23:42 AM                                                                                                                    
Co-Chair  Merrick   directed  Ms.  Reynolds  from   the  Tax                                                                    
Division  to review  the department's  fiscal note  (control                                                                    
code: KLFPY).                                                                                                                   
9:24:01 AM                                                                                                                    
NICOLE REYNOLDS,  DEPUTY DIRECTOR, TAX  DIVISION, DEPARTMENT                                                                    
OF  REVENUE  (via  teleconference), relayed  the  department                                                                    
estimated  that the  increase in  the  fuel surcharge  would                                                                    
generate about  $1.5 million  of new revenue  in FY  22. The                                                                    
department estimated an increase  in revenue of $3.7 million                                                                    
in FY 23.  The amount of revenue would reduce  to about $3.4                                                                    
million by FY  27. The surcharge revenue  would be deposited                                                                    
into the  unrestricted general  fund. However,  the proceeds                                                                    
would  be set  aside  for the  oil  and hazardous  substance                                                                    
release prevention account.                                                                                                     
Ms.  Reynolds  continued that  as  for  the tax  and  refund                                                                    
provisions of the  bill, the department estimated  for FY 22                                                                    
there  would  be  an increase  in  designated  general  fund                                                                    
revenues  in the  amount  of  $12.2 million.  In  FY 23  the                                                                    
amount would increase to about  $31.35 million. By FY 27 the                                                                    
amount would reduce to approximately $29.7 million.                                                                             
9:25:42 AM                                                                                                                    
Representative Carpenter asked why  the revenue was doubling                                                                    
between FY 22 and FY 23.                                                                                                        
Ms. Reynolds explained  that the bill had  an effective date                                                                    
of  January 1,  2022 which  was halfway  through the  fiscal                                                                    
year. The  numbers for  FY 22 represented  half of  a fiscal                                                                    
9:26:35 AM                                                                                                                    
Co-Chair  Merrick asked  Mr. Schmitz  from  the Division  of                                                                    
Motor  Vehicles  to  review  the  department's  fiscal  note                                                                    
(control code: JLZKL).                                                                                                          
JEFFREY  SCHMITZ,  DIRECTOR,  DIVISION  OF  MOTOR  VEHICLES,                                                                    
DEPARTMENT OF  REVENUE (via teleconference),  explained that                                                                    
the fiscal  note, related  to section 3  of the  bill, dealt                                                                    
with registration  fees for electric vehicles.  It reflected                                                                    
programming costs  necessary to  alter the DMV's  system and                                                                    
anticipated   revenues  resulting   from  the   increase  in                                                                    
registration fees for electric vehicles.                                                                                        
Co-Chair  Merrick asked  Mr. Mills  from  the Department  of                                                                    
Transportation  and Public  Facilities (DOT)  to review  the                                                                    
department's fiscal note (control code: RBASY).                                                                                 
9:28:05 AM                                                                                                                    
ANDY   MILLS,  SPECIAL   ASSISTANT   TO  THE   COMMISSIONER,                                                                    
DEPARTMENT  OF  TRANSPORTATION  AND PUBLIC  FACILITIES  (via                                                                    
teleconference),  reported  the   fiscal  note  reflected  a                                                                    
decline in motor  fuel tax over several  years that impacted                                                                    
the   two  results   delivery  units   (RDU's)  within   the                                                                    
department.  He   indicated  the  Highways,   Aviation,  and                                                                    
Facilities RDU  had experienced a shortfall.  Motor fuel tax                                                                    
constituted  about one-fourth  of  the funding  for the  RDU                                                                    
that was further appropriated to  the three regional highway                                                                    
and aviation  components for  DOT: Northern  Region, Central                                                                    
Region, and South Coast Region.  The receipts the department                                                                    
received  for  the  Alaska   Marine  Highway  System  (AMHS)                                                                    
constituted about  3 percent of  funding for  AMHS. Receipts                                                                    
had  declined over  the  years due  to  hybrid and  electric                                                                    
vehicle  promulgating on  the streets.  Also,  in the  prior                                                                    
year because of Covid-19 there were  not as many cars on the                                                                    
road. There  was approximately  $4.4 million  less in  FY 21                                                                    
with  an  estimated  shortfall  in FY  22  of  $600,000.  He                                                                    
pointed  to  the list  on  the  bottom  of the  fiscal  note                                                                    
showing  what things  might be  accomplished with  increased                                                                    
motor fuel tax receipts. The list  was first seen in a slide                                                                    
presentation on the committee's first hearing of the bill.                                                                      
9:30:19 AM                                                                                                                    
Co-Chair  Merrick   directed  Ms.   Kostik  to   review  the                                                                    
department's fiscal note (control code: MEOQH).                                                                                 
RUTH  KOSTIK, ADMINISTRATIVE  SERVICES DIRECTOR,  DEPARTMENT                                                                    
OF   ENVIRONMENTAL    CONSERVATION   (via   teleconference),                                                                    
reported that  the fiscal note reflected  the funds transfer                                                                    
of the  refined fuel  surcharge from  the general  fund into                                                                    
the prevention  account of the  oil and  hazardous substance                                                                    
release prevention and response fund.                                                                                           
9:31:00 AM                                                                                                                    
AT EASE                                                                                                                         
9:32:58 AM                                                                                                                    
Co-Chair  Merrick   relayed  that   she  would   provide  an                                                                    
amendment deadline at the afternoon's meeting.                                                                                  
HB  104  was  HEARD  and   HELD  in  committee  for  further                                                                    
HOUSE JOINT RESOLUTION NO. 1                                                                                                  
     Proposing amendments to the Constitution of the State                                                                      
     of Alaska relating to the Alaska permanent fund and to                                                                     
     appropriations from the Alaska permanent fund.                                                                             
9:33:13 AM                                                                                                                    
Co-Chair Merrick OPENED public testimony.                                                                                       
MIKE  COONS,  PRESIDENT,   ASSOCIATION  OF  MATURE  AMERICAN                                                                    
CITIZENS,  PALMER  (via  teleconference),  spoke  of  people                                                                    
being frustrated  with testifying, as constituents  were not                                                                    
being  heard. He  spoke  in  support of  SJR  6 but  opposed                                                                    
HJR 1. He  wanted to see  the PFD off  the table and  out of                                                                    
legislators' hands.  He reiterated his opposition  to HJR 1.                                                                    
He  thought  the  changes  made   to  SJR 6  in  the  Senate                                                                    
Judiciary Committee strengthened the legislation.                                                                               
9:35:55 AM                                                                                                                    
BERT  HOUGHTALING,  SELF,  BIG  LAKE  (via  teleconference),                                                                    
completely opposed HJR 1. He  argued that the mineral rights                                                                    
belonged  to the  public. He  believed the  issue should  be                                                                    
brought to  a vote  of the  people to  decide how  the money                                                                    
would  be  spent in  the  future  and  the PFD  payout.  The                                                                    
legislation was an erosion of  the security of a future PFD.                                                                    
The language  in the bill suggested  the legislature "might"                                                                    
pay  a PFD,  leaving the  payout  at the  discretion of  the                                                                    
legislature. He was against anything  outside of a statutory                                                                    
PFD formula  payout. He suggested  looking at SJR  1 offered                                                                    
by  Senator Wielechowski  which  would protect  the PFD  for                                                                    
future  generations. He  did  not fully  support  SJR 6  but                                                                    
thought  it  was  better  than HJR 1.  He  did  not  support                                                                    
PFD-stealing bills.  He wondered if legislators  cared about                                                                    
the children of  Alaska. He responded to  the question asked                                                                    
earlier regarding  HB 104 and  how many miles he  drove each                                                                    
year. He reported driving over  130,000 miles per year. Some                                                                    
years  he  drove over  200,000  miles.  He did  not  believe                                                                    
legislators cared about what constituents had to say.                                                                           
9:38:22 AM                                                                                                                    
CHRIS  EICHENLAUB, SELF,  WASILLA (via  teleconference), was                                                                    
speaking  for himself  and  his  grandchildren. He  strongly                                                                    
opposed HJR 1. His grandchildren  were saving their PFD's so                                                                    
they could  attend college.  He urged  members not  to steal                                                                    
their PFDs  and encouraged legislators to  spend less money.                                                                    
He  would   be  happy  to   see  the  Permanent   Fund  grow                                                                    
9:40:01 AM                                                                                                                    
Co-Chair Merrick CLOSED public testimony.                                                                                       
9:40:17 AM                                                                                                                    
IAN LAING,  EXECUTIVE DIRECTOR, INSTITUTE OF  THE NORTH (via                                                                    
teleconference), began his  PowerPoint presentation of HJR 1                                                                    
by relaying that  the mission of the Institute  of the North                                                                    
was centered on  ensuring that Alaska did the  most with the                                                                    
resources it shared. Fiscal policy  would normally be an odd                                                                    
fit for the  institute if there was not an  eminent and real                                                                    
threat  to the  Permanent Fund  (PF) at  present. He  quoted                                                                    
Governor Jay  Hammond: "We've had  dropped in our  laps this                                                                    
monstrous  golden  goose egg.  How  we  burnish it,  how  we                                                                    
tarnish it, or crack it right  open, will leave a legacy for                                                                    
years to  come." He  brought the  quote forward  because the                                                                    
state  had  reached the  moment  in  which it  was  deciding                                                                    
whether to crack  the PF wide open. The  decision would have                                                                    
long-lasting and irrevocable consequences  for the state. He                                                                    
summarized his  presentation by saying  that in  the opinion                                                                    
of the  institute there  was nothing  more important  to the                                                                    
future of the state than  putting some form of the amendment                                                                    
on the ballot and before voters in 2022.                                                                                        
9:41:57 AM                                                                                                                    
Mr.  Laing  turned  to  slide 2:  "Sustainable  Use  of  the                                                                    
Permanent Fund." He  pointed out that HJR 1  was good policy                                                                    
and  good strategy.  He also  offered that  prioritizing the                                                                    
amendment  was   the  single   best  strategy   for  driving                                                                    
resolution of the larger fiscal challenge Alaska faced.                                                                         
9:42:25 AM                                                                                                                    
Mr. Laing continued to slide 3  to discuss an old idea whose                                                                    
time had  come. The idea  of converting  the PF to  a simple                                                                    
endowment  and limiting  spending to  a sustainable  percent                                                                    
was  an idea  older than  the sponsor  of the  bill. It  was                                                                    
proposed  by the  people who  created  the fund  immediately                                                                    
after the  fund was  created. There  was no  more thoroughly                                                                    
studied,  consistently  recommended, widely  supported,  but                                                                    
unimplemented piece of  public policy in Alaska  that he was                                                                    
aware  of in  public discourse  currently. It  had been  the                                                                    
consistent recommendation of the  board of trustees for over                                                                    
20 years.  It had also  been the fiscal conclusion  of every                                                                    
fiscal  planning  commission that  the  state  ever had.  He                                                                    
noted that some form of  the bill had been introduced almost                                                                    
40  times  over  the  years.   The  issue  had  always  been                                                                    
recognized as  the cornerstone of Alaska's  future. However,                                                                    
the  window was  closing for  the state  to make  the change                                                                    
before it  started to incur  the damage  to the PF  that had                                                                    
been speculated over the years.                                                                                                 
9:43:35 AM                                                                                                                    
Mr. Laing reviewed Alaska's number  one priority on slide 4.                                                                    
He relayed that  the fiscal problem the  state had struggled                                                                    
with the  previous 7-8  years was still  the largest  nut to                                                                    
crack. The state  had cut spending over the  last many years                                                                    
by over  40 percent  by eliminating  the capital  budget and                                                                    
trimming  agency spending  for most  agencies to  the lowest                                                                    
real  level. Over  the 7-8  years the  state had  spent its'                                                                    
non-PF savings. He wondered about the most likely outcome.                                                                      
Mr. Laing moved to slide 5  to review the high level lessons                                                                    
the  institute  had learned.  The  first  was that  Alaska's                                                                    
fiscal  politics  were  uniquely complex.  Any  other  state                                                                    
would have a slight  tension between government services and                                                                    
spending.  However, Alaska's  politics had  been complicated                                                                    
by  the  addition of  the  dividend.  Rather than  having  a                                                                    
binary  debate,  there was  a  more  complicated dynamic  to                                                                    
navigate. The  approach the state  had taken over  the prior                                                                    
7-8  years,  to  come  to some  grand  bargain,  had  proved                                                                    
elusive. Without a solution, the  state had defaulted to the                                                                    
path of  least resistance  - to spend  savings. It  was very                                                                    
difficult  to   see  a  different  result   given  the  same                                                                    
fundamental  constraints.  He  suggested  that  as  long  as                                                                    
savings were available, they would be the resolution.                                                                           
9:46:06 AM                                                                                                                    
Mr. Laing turned  to slide 6 and asserted  that, by default,                                                                    
spending down the  PF was Alaska's fiscal  plan. Although it                                                                    
was not  an outcome that  anyone wanted, it was  the product                                                                    
of the  current complicated  dynamics. It  was a  tragedy of                                                                    
the  commons as  the state  moved toward  an outcome  no one                                                                    
really wanted  - Alaska  did not  have an  effective vehicle                                                                    
for driving compromise. However,  he believed the bill could                                                                    
be the vehicle for driving compromise.                                                                                          
9:46:45 AM                                                                                                                    
Mr.  Laing reviewed  slide 7:  "Alaska is  Now an  Endowment                                                                    
State." He pointed out that  one of the major changes Alaska                                                                    
had gone through in the past  several years was that for the                                                                    
first time  it started  using the  PF to  support government                                                                    
spending. Alaska had effectively  become an endowment state.                                                                    
Oil was no longer the main  source of revenue. The state had                                                                    
moved from  reliance on oil to  65 percent to 75  percent of                                                                    
its  budget  being  supported  by the  PF.  From  a  revenue                                                                    
perspective,  it was  a massive  shift. Although  Alaska was                                                                    
operating  as  an  endowment  state, it  did  not  have  the                                                                    
protections   in  place   to  ensure   that  the   endowment                                                                    
functioned the way it needed to in the current environment.                                                                     
9:47:42 AM                                                                                                                    
Mr. Laing flipped through slide  8 which showed the problems                                                                    
with the status quo.                                                                                                            
Mr. Laing  spoke about technical  challenges on slide  9. He                                                                    
relayed  that  the PF  had  a  bifurcated structure  with  a                                                                    
protected  corpus  and  an earnings  reserve  available  for                                                                    
appropriation.  The structure  was  a  product of  political                                                                    
compromise. He asserted that the  structure was outdated and                                                                    
did not  work well in  the current environment in  which the                                                                    
state  depended on  the PF  to support  government spending.                                                                    
There were work-arounds in place such  as the 3X and 4X rule                                                                    
in the Earnings Reserve  Account (ERA). The provisions would                                                                    
allow  the  state  to  get  by  but  assumed  it  would  not                                                                    
overspend  the  PF.  He  thought it  would  be  a  difficult                                                                    
discipline to exercise moving forward.                                                                                          
Mr.  Laing  continued that  in  the  prior year  the  Alaska                                                                    
Permanent Fund  Corporation (APFC)  conducted a  study where                                                                    
they  looked  at what  the  chances  would  be, in  the  new                                                                    
environment  where the  state  was depending  on  the PF  to                                                                    
support government  spending, unable to make  its' statutory                                                                    
POMV  draw at  some point  in  the following  20 years.  The                                                                    
corporation looked back  over the last 100  years in 20-year                                                                    
increments.  They suggested  that if  the PF  performed over                                                                    
the following 20  years as it had over  the previous 20-year                                                                    
increments and drawing down the  ERA during the period would                                                                    
the state  be unable to  get money out. The  conclusion that                                                                    
the  study came  to was  that it  would be  a 50/50  chance.                                                                    
There was  a 50  percent chance the  state would  bottom out                                                                    
the  ERA  in  the  following 20  years.  The  scenario  also                                                                    
assumed  the  state  was properly  inflation  proofing  even                                                                    
though it was  not required. The lack  of inflation proofing                                                                    
would  radically  impact  the  percentage  of  failure.  The                                                                    
scenario also  assumed the state  did not overdraw  from the                                                                    
fund - a distinct risk.                                                                                                         
9:49:49 AM                                                                                                                    
Mr.  Laing  continued to  slide  10:  "Fiscal Prudence."  He                                                                    
suggested the  more obvious  issue would  be that  a smaller                                                                    
fund would  generate fewer  earnings. With  smaller earnings                                                                    
there would be more of a fiscal  gap to have to cover in the                                                                    
future. He  relayed that for  every billion the  state spent                                                                    
in the  present, $50  million in earnings  would be  lost in                                                                    
perpetuity. If  the state had  the $17 billion it  had spent                                                                    
over the  previous 7 to  8 years,  the $17 billion  would be                                                                    
making $850  million in sustainable earnings  every year. It                                                                    
could have covered  the dividend and left  the state without                                                                    
a problem.  It was a  reality the  state would have  to live                                                                    
with.  Moving  forward,  the  state   would  be  looking  at                                                                    
doubling down on the approach.  Currently, there happened to                                                                    
be $17 billion in the ERA.  Projecting forward 5 or 6 years,                                                                    
if the  state was still  having the same discussion  but had                                                                    
spent  down  the  PF  by  $17  billion,  the  gap  would  be                                                                    
$850,000.  The  problem would  not  be  any easier  to  fix.                                                                    
Rather,  it would  only become  more necessary.  The outcome                                                                    
for Alaska's  economy would  only be worse  by the  delay of                                                                    
addressing the issue.                                                                                                           
9:51:30 AM                                                                                                                    
Mr. Laing reviewed the concept  of a small fund having fewer                                                                    
earnings on  slide 11. He  suggested that with a  larger gap                                                                    
the state could  only make up the gap in  a few ways: larger                                                                    
cuts to  services; greater taxes  than the state  would have                                                                    
otherwise needed; or the elimination of dividends.                                                                              
9:51:53 AM                                                                                                                    
Mr.  Laing   turned  to   slide  12:   "An  Asset   for  ALL                                                                    
Generations." He  reported that  what brought  the Institute                                                                    
of   the  North   into  the   discussion  was   the  largest                                                                    
unrepresented constituency  - future Alaskans.  Although the                                                                    
state could overspend  from the ERA, it was  not the state's                                                                    
money to spend. The Permanent  Fund was always envisioned as                                                                    
an  asset   for  converting  non-renewable   resources  into                                                                    
renewable  wealth.  It  had   done  that  very  effectively.                                                                    
Alaskans,  through  polling, overwhelmingly  supported  that                                                                    
the PF be  used as an inheritance to be  passed on to future                                                                    
generations.  Since the  legislature created  the fund,  the                                                                    
state had brought in approximately  $150 billion in revenues                                                                    
and spent about 87.5 percent of  it on the needs of the day.                                                                    
The money had been used  to build infrastructure and created                                                                    
a stable  economy in many  ways. However, the idea  that the                                                                    
state would  spend down 13.5 percent  for future generations                                                                    
was not a legacy he wanted to leave. He skipped slide 13.                                                                       
9:53:19 AM                                                                                                                    
Mr.  Laing turned  to slide  14  to discuss  a strategy  for                                                                    
addressing  Alaska's  fiscal  challenge. The  gap  that  the                                                                    
legislature  was  trying  to  address  would  eventually  be                                                                    
closed. It  would happen one  way or another. The  sooner it                                                                    
was addressed, the  better off the state would  be. Any deal                                                                    
that was  brokered presently would  be better than  any deal                                                                    
that could be made at a  later time when there was a smaller                                                                    
fund and fewer  earnings. He suggested that the  bill was as                                                                    
much a good policy as it was a good strategy.                                                                                   
Mr. Laing  explained that when the  legislature passed HJR 1                                                                    
or  any version  of the  amendment that  protected the  real                                                                    
value of  the PF moving forward,  it would give the  state a                                                                    
deadline  for  the first  time  in  the discussion.  If  the                                                                    
legislature  put it  on the  ballot  in 2022  and went  into                                                                    
effect in 2023  or later, it would be the  point after which                                                                    
the  legislature would  no longer  allow unstructured  draws                                                                    
from the  PF. Until then  the state could overdraw  the fund                                                                    
to address  the state's short-term challenges.  The deadline                                                                    
would drive  negotiations on how else  the legislature would                                                                    
fill the gap.  He thought it was very  necessary to overcome                                                                    
the challenges  of the debate.  It would give  legislators a                                                                    
few  more years  to figure  things out  providing a  defined                                                                    
9:55:07 AM                                                                                                                    
Mr.  Laing turned  to slide  15  to talk  about timing.  The                                                                    
legislature  only had  the chance  to put  something on  the                                                                    
ballot  every  two  years. If  the  legislature  missed  the                                                                    
window failing  to put something  on the ballot in  2022, it                                                                    
would have  to go on the  ballot in 2024 and  into effect in                                                                    
2025.  If it  were the  case, he  would leave  the committee                                                                    
with  the  question  of  what  the  chances  were  that  the                                                                    
legislature would already start  to overspend from the fund.                                                                    
He asserted that  for every year legislators  failed to take                                                                    
action, they  were compromising the future  in very material                                                                    
ways.  He  urged  members support  and  encouraged  them  to                                                                    
continue to  work on a  comprehensive solution.  However, no                                                                    
matter what  happened, legislators  needed to get  some form                                                                    
of HJR 1 on  the ballot in 2022. It was the  first step to a                                                                    
sustainable  plan and  the one  piece that  everybody agreed                                                                    
Mr. Laing addressed  slide 16. He relayed  that changing the                                                                    
constitution required a  high bar for a reason,  as it meant                                                                    
amending  the  document  that   spoke  to  what  constituted                                                                    
Alaskans.  In the  context of  the PF,  Alaskans had  to ask                                                                    
themselves  what they  stood for.  The question  was whether                                                                    
Alaskans would act to protect  the long-term interest of the                                                                    
state  or  pass  the  problem onto  future  generations.  He                                                                    
suggested the question would be  answered one way or another                                                                    
-  whether through  action or  inaction. He  appreciated the                                                                    
committee's consideration of the bill.                                                                                          
9:57:32 AM                                                                                                                    
Co-Chair  Merrick  invited  Ms.  Rodell to  comment  on  the                                                                    
presentation or contribute any closing comments.                                                                                
9:57:50 AM                                                                                                                    
ANGELA  RODELL, EXECUTIVE  DIRECTOR,  ALASKA PERMANENT  FUND                                                                    
CORPORATION (via  teleconference), thought  there was  a lot                                                                    
for the  committee to  digest. She was  happy to  answer any                                                                    
9:58:15 AM                                                                                                                    
REPRESENTATIVE  KREISS-TOMPKINS, SPONSOR,  had  a couple  of                                                                    
comments.  He   thought  Mr.   Laing's  analysis   was  very                                                                    
important for  legislators to consider. He  hoped there were                                                                    
a  couple   of  consensus  take-aways  independent   of  the                                                                    
solution.  First, all  Alaskans  lose the  further down  the                                                                    
path the  state traveled.  Second, the status  quo structure                                                                    
was untenable.  The 50  percent chance of  a failure  of the                                                                    
POMV draw,  given the  current bifurcated  structure, should                                                                    
cause   some  budgetary   existential   angst.  There   were                                                                    
irrefutable  structural problems  that  were highlighted  in                                                                    
the presentation.  He hope everyone could  work together for                                                                    
a solution.                                                                                                                     
9:59:46 AM                                                                                                                    
Representative Wool  referred to  slide 13:  "Protecting the                                                                    
Permanent  Fund" He  relayed the  first three  items on  the                                                                    
list:   protecting   against    higher   taxes,   protecting                                                                    
dividends, and  protecting services. He thought  that if the                                                                    
state  wanted  to have  all  of  the services  currently  in                                                                    
place,  a statutory  dividend, and  no taxes,  the situation                                                                    
would be irreconcilable. He supported  protecting the PF and                                                                    
HJR 1  in its current  form. However, maintaining  the three                                                                    
items   he   mentioned   would  be   difficult   to   attain                                                                    
Representative  Kreiss-Tompkins responded  that even  though                                                                    
he agreed with  Representative Wool mathematically speaking,                                                                    
the  legislature  would  have   to  settle  on  a  political                                                                    
solution  that  reconciled  that  there  was  an  additional                                                                    
constituency   and   program   that   had   a   constituency                                                                    
representing each of the items he had highlighted.                                                                              
10:02:37 AM                                                                                                                   
Representative  Carpenter pointed  out  that  the one  thing                                                                    
missing  from the  briefing was  any  reference to  economic                                                                    
activity.  He  thought  increased activity  would  make  the                                                                    
budget  problem   go  away.  He  suggested   that  when  the                                                                    
legislature  was looking  at future  options  and created  a                                                                    
bubble or  conversation that excluded economic  growth, they                                                                    
were doing  a disservice. He thought  the legislature should                                                                    
be including  economic growth in the  conversation. It would                                                                    
change  the dynamics  of the  conversation. Taxes  would not                                                                    
necessarily be  needed. His point  was that  the legislature                                                                    
could not  exclude a growing  state economy from  the debate                                                                    
about taxes and spending.                                                                                                       
Co-Chair Merrick set the bill  aside and reviewed the agenda                                                                    
for the afternoon meeting.                                                                                                      
HJR  1  was   HEARD  and  HELD  in   committee  for  further                                                                    
10:04:22 AM                                                                                                                   
The meeting was adjourned at 10:04 a.m.                                                                                         

Document Name Date/Time Subjects
HB 104 Public Testimony by 051721.pdf HFIN 5/18/2021 9:00:00 AM
HB 104
HJR 1 Public Testimony by 051921.pdf HFIN 5/18/2021 9:00:00 AM