Legislature(2017 - 2018)HOUSE FINANCE 519
03/14/2017 08:30 AM House FINANCE
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| Audio | Topic |
|---|---|
| Start | |
| HB115 | |
| Amendments: Hb 115 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| += | HB 115 | TELECONFERENCED | |
| + | TELECONFERENCED |
HOUSE FINANCE COMMITTEE
March 14, 2017
3:29 p.m.
3:29:53 PM
CALL TO ORDER
Co-Chair Foster called the House Finance Committee meeting
to order at 3:29 p.m.
MEMBERS PRESENT
Representative Neal Foster, Co-Chair
Representative Paul Seaton, Co-Chair
Representative Les Gara, Vice-Chair
Representative Jason Grenn
Representative David Guttenberg
Representative Scott Kawasaki
Representative Dan Ortiz
Representative Lance Pruitt
Representative Steve Thompson
Representative Cathy Tilton
Representative Tammie Wilson
MEMBERS ABSENT
None
ALSO PRESENT
Taneeka Hansen, Staff, Representative Paul Seaton; Randall
Hoffbeck, Commissioner, Department of Revenue; David Teal,
Director, Legislative Finance Division; Chris Poag, General
Counsel, Alaska Permanent Fund Corporation.
PRESENT VIA TELECONFERENCE
SUMMARY
HB 115 INCOME TAX; PFD CREDIT; PERM FUND INCOME
HB 115 was HEARD and HELD in committee for
further consideration.
Co-Chair Foster indicated the committee would be taking up
amendments on the Permanent Fund portion of HB 115. He
invited Ms. Hansen to the table.
HOUSE BILL NO. 115
"An Act relating to the permanent fund dividend;
relating to the appropriation of certain amounts of
the earnings reserve account; relating to the taxation
of income of individuals; relating to a payment
against the individual income tax from the permanent
fund dividend disbursement; repealing tax credits
applied against the tax on individuals under the
Alaska Net Income Tax Act; and providing for an
effective date."
3:30:26 PM
^AMENDMENTS: HB 115
3:31:10 PM
Vice-Chair Gara MOVED to ADOPT Amendment 1, 30-LS0125\E.20
(Nauman, 3/9/17):
Page 2, line 1 1:
Delete "4.75"
Insert "5.25"
Page 2, line 12:
Delete "excluding"
Insert "including"
Page 2, following line 18:
Insert a new bill section to read:
"* Sec. 4. AS 37.13.140(b), added by sec. 3 of this
Act, is amended to read:
(b) The corporation shall determine the amount
available for distribution each year. The amount
available for distribution is five [5.25) percent of
the average market value of the fund for the first
five of the preceding six fiscal years, including the
fiscal year just ended, computed annually for each
fiscal year in accordance with generally accepted
accounting principles. In this subsection, "the
average market value of the fund" includes the balance
of the earnings reserve account established under AS
37.13.145, but does not include that portion of the
principal attributed to the 19 settlement of State
v. Amerada Hess, et al., IJU-77-847 Civ. (Superior
Court, First Judicial District)."
Renumber the following bill sections accordingly.
Page 2, line 23, following "ill":
Insert "principal of the fund, 0.25 percent of the
average
market value of the fund for the first five of the
preceding six fiscal years, including the fiscal year
just ended, computed annually for each fiscal year
in accordance with generally accepted accounting
principles; in this paragraph, "average market value
of the fund" has the meaning given in AS 37.13.140(b);
ill"
Page 2, line 24:
Delete "income"
Insert "amount [INCOME]"
Page 2, line 25:
Delete "ill"
Insert "Ql"
Delete "income"
Insert "amount"
Page 10, line 18:
Delete "sec. 11"
Insert "sec. 12"
Page 10, line 19:
Delete "sec. 11"
Insert "sec. 12"
Page 10, line 27:
Delete "secs. 2 - 9" in both places
Insert "secs. 2, 3, and 5 - 10" in both places
Page 10, line 29:
Delete "Sections I - 9, 1 5, and 16"
Insert "Sections I - 3, 5 - I 0, 16, and 17"
Page 10, following line 30:
Insert a new bill section to read:
"* Sec. 19. Section 4 of this Act takes effect July 1,
2019."
Renumber the following bill section accordingly.
Page 10, line 31:
Delete "sec. 17"
Insert "secs. 18 and 19"
Representative Wilson OBJECTED.
Vice-Chair Gara spoke to the amendment. He explained that
the amendment allowed for a higher dividend than previously
and provided funds for state services in a way that would
help to move the state forward. The committee had heard
testimony from the Legislative Finance Division (LFD) and
from the director of the Alaska Permanent Fund Corporation
(APFC) that a draw of 5.25 percent of the value of the
Permanent Fund (PF), which was in effect of about 4.79
percent, was a safe percentage draw. The amendment
stipulated that the draw from the earnings reserve account
(ERA) should be 5.25 percent for the first 2 years, and 5
percent after the 2-year mark. The bill reflected that 67
percent of the draw would go towards services and 33
percent would go towards paying the dividend. He mentioned
that the following amendment would increase the dividend
amount to $1250 dividend. He would speak to Amendment 2
later.
Vice-Chair Gara explained the other part of the amendment,
which would assist the state in catching up with inflation
proofing the fund. There had been no inflation proofing of
the PF for the previous 2 years. His amendment would add to
the inflation-proofing portion of the bill. Currently, the
bill indicated that once the earnings reached four times
the distribution amount the excess amount would transfer
into the principle of the fund. In addition the bill
included .25 percent in the first year regardless of
accumulating the four times amount for distribution. The
amount would equal a little over $100 million in the first
year for inflation proofing. The portion of the bill that
reflected the four times waterfall would begin immediately.
He reiterated that .25 percent for inflation proofing would
occur right away until the state reached the four times
amount.
Representative Thompson expressed concerns about the draw
of 5.25 percent. He thought the percentage was too high
even though it was only for a period of 2 years. He thought
a draw limit was imperative. He believed the legislature
was heading in the wrong direction. He noted that inflation
proofing the fund at a rate of $120 million. He had spoken
earlier about the state being behind by $547 million for
2017. If inflation proofing for 2016 was added in the state
was behind by $550 million. He supposed $120 million for
inflation proofing was better than zero. However, the
legislation would cause the state to fall further behind in
inflation proofing the fund, thus, depleting the value of
the fund as defined in statute. He did not like the
amendment.
3:35:17 PM
Co-Chair Seaton referred to the .25 percent for inflation
proofing. He reported that APFC recognized the quarter
percent being a statutory way of assuring something was
added for inflation proofing rather than waiting for the
four times the distribution mechanism that might occur
randomly at different times. The Alaska Permanent Fund
Corporation testified that the year before last inflation
proofing was only $47 million, which was less than what was
being proposed. On average inflation had been higher but
inflation proofing would be made up with the four times the
draw mechanism being proposed. The question was to do as
other plans had relying only on the four times the draw
provision which may or may not occur often or did the
legislature want to have a combination. He supported the
amendment due to an annual amount being contributed as
wells as the four times the draw provision making up a
large amount to catch up inflation if it was necessary.
Representative Pruitt thought the committee was focusing
too much on the four times the draw provision. He thought
the committee should be focusing more on what was already
in statute. He thought that what was currently in statute
worked. The budget currently being debated removed a
substantial amount of money from the ERA, which meant it
would take a considerable amount of time to reach the four
times draw. He thought the legislature was starting on a
more difficult footing to reach the goal of the provision.
He suggested .25 percent was a much smaller inflation-
proofing amount. He thought the legislature was trying to
get around inflation proofing the fund. He preferred to get
rid of the idea of the four times draw and return to
inflation proofing as the state had been - inflation
proofing every year. The truth was that if the legislature
wanted to stay away from inflation proofing, it had the
ability to do so based on the legislation in play. He
suggested the legislature stick with what had been working.
3:38:26 PM
Representative Wilson referred to Section 3, page 2, line
11. She relayed that in the current bill the state would be
taking a 4.75 Percent of Market Value (POMV), whereas,
Amendment 1 would increase the percentage to 5.25 percent.
Co-Chair Seaton responded in the affirmative.
Representative Wilson clarified that the amendment would
increase the percentage to 5.25 percent.
Co-Chair Seaton responded that the amendment would change
the percentage to 5.25 percent for 2 years.
Representative Wilson asked if following the 2 years the
percentage would drop to 5 percent indefinitely unless
another legislature changed it in the future.
Co-Chair Seaton responded that the 5 percent would apply to
FY 20 and beyond. He reported that it would be the first 5
years of the previous 6 years. It would turn out to be
about .5 percent less than that amount because the fund
would be growing. He continued that taking the 5-year
average of the previous 5 years it equaled about 4.7
percent each year. He relayed that representatives from LFD
and the Department of Revenue (DOR) were available for
questions.
Representative Wilson wanted to understand where the state
was at presently. Under current circumstances, the draw
would be equal to 4.75 percent. The amendment would be
increasing the draw to 5.25 percent for the first 2 years
and 5 percent after that. The amendment would actually
increase the draw. She understood the numbers would change
depending on what was in the fund and what happened with
the current operating budget. She was concerned that the
amendment raised the draw amount substantially from what
was currently in the bill.
Co-Chair Seaton responded that it would be a larger draw
but not that much larger. He explained that .25 percent
would equal $120 million, which would be the inflation-
proofing amount for the current year.
Representative Wilson asked for additional information
regarding the percentages based on the value of the PF. She
wanted to be able to understand the numbers more clearly.
Vice-Chair Gara explained that a draw of 5.25 percent of
the value of the PF for the first years would essentially
equal about 4.6 percent because the draw was 5.25 percent
of the average of the average of 5 of the last 6 years. The
effective rate was about 4.6 percent. The head of LFD as
well as the director of APFC testified that it [5.25
percent] was a safe amount. The amount would be reduced
after the first 2 years of the plan. The earnings reserve
account would be expected to grow with that percentage of
draw. The amendment would equal a draw from the ERA of
about $1.67 billion for public services and a dividend of
slightly over $1200, which he hoped to increase in another
amendment.
Representative Wilson asked if the amendment with a draw of
approximately $1.68 billion and a Permanent Fund Dividend
(PFD) of approximately $1200 was based on taking $4 billion
out of the fund, or if it was based on the assumption that
the $4 billion remained in the fund.
3:44:54 PM
Co-Chair Seaton indicated in the current fiscal year the
legislature would not be taking out $4 billion. There would
be a draw in FY 17 equal to $1.6 billion and there would be
a draw equal to the 5.25 percent reduced by the dividends
that were paid in FY 17. In FY 18 and FY 19, there was only
a single draw in each of the fiscal years. He referred to
the charts in the amendment packet. The first chart was the
status quo chart. The second chart reflected a draw
percentage of 4.75, the Constitutional Budget Reserve
(CBR), the ERA, and other items. The third chart
represented the POMV draw of 5.25 percent as amended for FY
18 and FY 19 and 5 percent after that time with a flat
budget. He highlighted that between the second and third
year it was the dimension and the change from 4.75 percent
to 5.25 percent and then down to 5 percent. He also pointed
out in the third chart the PF would be growing faster than
inflation. It would start out in FY 18 at 100 percent of
inflation and then it would grow to 102 percent to 103
percent all the way out through FY 26. He pointed to the
blue box that indicated the percent of real value below the
chart. Including inflation the PF was growing faster than
inflation in the plan under consideration with the
amendment included.
3:47:22 PM
TANEEKA HANSEN, STAFF, REPRESENTATIVE PAUL SEATON, pointed
out that all of the charts had the draw year starting in FY
17, which was included in the budget. There was a FY 17
draw and an FY 18 draw. The charts should accurately
reflect what was in the budget. She offered that LFD would
have to speak to whether the dollar amounts were exact.
Vice-Chair Gara thought the answers he was going to give
had been provided.
Co-Chair Foster recognized Representative Grenn had joined
the meeting.
Representative Grenn referred to the PF chart on the right-
hand side of the slide. He wondered whether the payout
percentage for FY 19 should read 5.25 percent.
Co-Chair Seaton referred to the middle yellow chart that
read "payout" on the third chart titled "HB 115 - POMV draw
amended: 5.25 percent in FY 18 and FY 19, 5 percent after.
Flat Budget." There was a POMV payout of 5 percent. In
addition, a POMV override would be in place that would end
after FY 18.
Representative Grenn clarified that it would end in FY 18.
Co-Chair Seaton responded affirmatively.
Representative Wilson was concerned with the new approach,
as it had never been used before. She was unsure why the
legislature would not use 4.5 percent to start with because
there were so many unknowns. She opposed the amendment.
Representative Thompson reported that several times DOR had
indicated a 5.25 percent draw was only safe if a draw limit
accompanied it. Based on conversations in his office with
LFD, he thought the maximum amount that could be drawn was
4.7 percent or 4.71 percent.
3:50:51 PM
RANDALL HOFFBECK, COMMISSIONER, DEPARTMENT OF REVENUE,
reported the department had testified that 5.25 percent was
aggressive but do-able with a turndown of $1.2 billion. The
percentage would be reduced from 5.25 percent to 5 percent
after 3 years, which seemed intuitively sufficient even
though the department had not modeled 5 percent. He also
noted that there would be a 3-year review to check for
sustainability. If the percentage did not appear to be
sustainable, a more suitable draw percentage would be
brought back to the legislature for consideration.
Representative Wilson MAINTAINED her OBJECTION.
A roll call vote was taken on the motion.
IN FAVOR: Gara, Grenn, Guttenberg, Kawasaki, Ortiz, Foster,
Seaton
OPPOSED: Pruitt, Thompson, Tilton, Wilson
The MOTION to ADOPT Amendment 1 PASSED (7/4).
3:52:54 PM
Co-Chair Seaton MOVED to ADOPT Amendment 2, 30-LS0125\E.13
(Nauman, 2/27/17):
Page 10, line 15:
Delete all material and insert:
"• Sec.13.AS 37.13.145(c) is repealed July 1, 2017.
* Sec. 14. AS 43.05.085; AS 43.20.012(b), and
43.20.013 are repealed January 1, 2018.
* Sec. 15. The uncodified law of the State of Alaska
is amended by adding a new section to read:
FISCAL YEAR 2017. Notwithstanding another provision of
law, the legislature may appropriate from the ERA for
fiscal year 2017 the amount by which 5.25 percent of
the average market value of the fund for fiscal years
2011, 2012, 2013, 2014, and 2015, computed annually
for each fiscal year in accordance with generally
accepted accounting principles, exceeds $695,650,000.
In this section, "average market value of the fund"
includes the balance of the earnings reserve account
established under AS 37.13.145, but does not include
that portion of the principal attributed to the
settlement of State v. Amerada Hess, et al., IJU-77-
847 Civ. (Superior Court, First Judicial District)."
Renumber the following bill sections accordingly.
Page 10, lines 27 - 28:
Delete "secs. 2 - 9 of this Act take effect
after June 30, 2017, secs. 2 - 9 of this Act are
retroactive to June 30"
Insert "sec. 15 of this Act takes effect after
June 29, 2017, sec. 15 of this Act is retroactive to
June 29"
Page 10, line 29:
Delete "Sections 1 - 9, 15, and 16"
Insert "Sections 15, 17, and 18"
Page 10, following line 30:
Insert a new bill section to read:
"* Sec. 19. Sections 1 - 9 and 13 of this Act take
effect July 1, 2017."
Renumber the following bill section accordingly.
Page 10, line 31:
Delete "sec. I 7"
Insert "secs. 19 and 20"
Representative Wilson OBJECTED.
Co-Chair Seaton explained that the amendment related to the
POMV draw in FY 17 of 5.25 percent of the market value for
the last 5 years of the preceding 6 years minus the amount
paid out already for the dividend in FY 17 ($695,650).
Since the dividend had already been taken out from the ERA
and paid out in FY 17, it did not seem appropriate to draw
the same amount from the ERA for a second time in the same
year. The amendment conformed to changes in the budget.
Currently a 5.25 percent draw existed in addition to the
amount paid out in dividends. The amendment reversed the
draw so that the legislature was not taking a double draw
of the dividend amount in FY 17.
Representative Pruitt wondered if the amendment represented
the legislation corresponding with the $1.6 billion that
was placed into the public education fund in the current
budget.
Co-Chair Seaton confirmed that Representative Pruitt was
correct.
Representative Guttenberg asked the commissioner how long
the legislature had to account for and separate the Amerada
Hess money outside of the PF in order to meet the required
settlement conditions. He had been under the impression
there was a period of time in which the conditions would
lapse or conclude.
Commissioner Hoffbeck responded that if the state began to
pay the dividend from the general fund (GF), as the current
version of the bill envisioned, there would likely be no
reason to keep the separation of the funds.
Representative Wilson commented that the bill was a
retroactive bill, which meant that it would be as if the
bill had been passed in the previous year.
Co-Chair Seaton responded that a draw could be made for FY
17. If the bill had been passed in the prior year, it would
have been the same except that the draw would have been the
full 5.25 percent. It might have been in addition to the
payout of the dividend. He was not certain and called upon
Commissioner Hoffbeck for clarification.
Commissioner Hoffbeck asked the representative to restate
her question.
3:57:05 PM
Representative Wilson was confirming that the bill was
essentially retroactive as if the bill had been passed the
previous year. She wondered about the calculation.
Commissioner Hoffbeck explained that the department was
comfortable with the FY 17 draw because it would be as if
the Alaska Permanent Fund Protection Act (APFPA) had passed
and the draws had been made in the prior year. It did not
impact the long-term modeling that had been presented in
the prior year. The dividend amount of $1022 paid in the
previous year was consistent with last year's PF bill,
which would have been $1000. He was not sure if the
dividend amount would be consistent with the current bill
once all amendments were adopted.
Representative Wilson MAINTAINED her OBJECTION.
A roll call vote was taken on the motion.
IN FAVOR: Grenn, Guttenberg, Kawasaki, Ortiz, Gara, Seaton.
Foster
OPPOSED: Pruitt, Thompson, Tilton, Wilson
The MOTION to ADOPT Amendment 2 PASSED (7/4).
3:59:40 PM
AT EASE
4:00:14 PM
RECONVENED
Vice-Chair Gara MOVED to ADOPT Amendment 3, 30-LS0125\E.33
(Nauman, 3/11/17):
Page 3, line 6:
Delete "a new subsection"
Insert "new subsections"
Page 3, line 7, following "(b)":
Insert "and (f)"
Page 3, line 10, following "(b)":
Insert "and (f)"
Page 3, following line 10:
Insert a new subsection to read:
"(f) After the appropriations under (b) of
this section, but before the appropriation under (e)
of this section, for fiscal years 2018 and 2019, the
legislature may appropriate from the earnings reserve
account an additional amount, if necessary, to provide
a dividend of at least $1,250 for each individual."
Page 10, following line 8:
Insert a new bill section to read:
"* Sec. 12. AS 43.23.025 is amended by adding a new
subsection to read:
(c) Notwithstanding (a) of this section, the
amount of each permanent Fund Dividend for fiscal
years 2018 and 2019 shall be $1,250. If the amount of
appropriations is not sufficient to provide the
dividend amount in this subsection, the commissioner
shall reduce the dividend amount under this subsection
by an equal amount for each eligible individual."
Renumber the following bill sections accordingly.
Page 10, following line 15:
Insert a new bill section to read:
"* Sec. 15. AS 37.13.145(t) and AS 43.23.025(c) are
repealed June 30, 2020."
Renumber the following bill sections accordingly.
Page 10, line 29:
Delete "l 5, and 16"
Insert "12, 14, 15, 17, and 18"
Page 10, line 31:
Delete "sec. I 7"
Insert "sec. 19"
Representative Wilson OBJECTED.
Co-Chair Seaton asked that he be added as a co-sponsor of
the amendment.
Co-Chair Foster asked that he be added as a co-sponsor to
the amendment.
Vice-Chair Gara explained that Amendment 3 incorporated a
minimum dividend of at least $1250 the first 2 years
regardless of the formula. The projected formula would be
close to the $1250 amount. The Senate's plan specified a
dividend of $1000 and the current minority leader's bill
from the previous year reflected a dividend of $1000.
However, he reported hearing from members of the public
that they would like a higher dividend, which he thought
was affordable. He referred to page 6 of the charts
attached to Amendment 1. They showed the balance of
revenues to be used for schools and public services at
about $1.66 billion the first year up to more than $2
billion by FY 25. It was projected that the numbers would
rise with a dividend of $1250 guaranteed for the first 2
years. He hoped members could support a higher dividend
amount.
Representative Thompson relayed that the amendment was for
only 2 years. He wondered after 2 years if the calculation
for the PFD would return to the statutory formula where the
dividend could reach $2500. He asked Vice-Chair Gara to
explain what would happen after 2 years.
Vice-Chair Gara directed the committee's attention to the 6
Legislative Finance Division charts associated with
Amendment 1. He highlighted that the amount of the dividend
would be $1250 for the first 2 years. After that, it was
projected by LFD and the Permanent Fund Corporation that
the dividend would rise slightly in later years with the
current formula. He relayed the payouts: 33 percent of the
POMV payout would go towards dividends and 67 percent of
the POMV payout would be used for services. The state would
no longer use the current formula, which jumped up and
down, but would use the new POMV formula.
Representative Wilson noted that affordability was
mentioned but thought it was in the context of government
rather than the people. She could only speak about what the
constituents in her district wanted - they did not want
more but wanted what belonged to them. Her constituents
voiced concerns about the calculation of the dividend and
about how it could change without their input. She did not
feel the amount was enough. It was not up to the government
to decide how much it paid the people of Alaska. There were
several moving parts to the legislation. It was difficult
to take the numbers off the chart. She appreciated the idea
of giving more to the people. However, she thought the bill
was intended for the purpose of government getting what it
wanted in spite of what it might do to individuals as well
as the economy of the state.
4:05:53 PM
Representative Thompson reflected back to the origination
of the PF. In 1979, Governor Hammond sent memos to the
Senate indicating he wanted 50 percent of the earnings to
be used to operate government, 25 percent would go towards
capital projects, and the remaining 25 percent would go to
paying Permanent Fund Dividends to the people of Alaska.
The current and future legislators would be faced with a
monumental problem of deferred maintenance. He believed
that the state needed to put about $100 million per year
into deferred maintenance, although he did not think the
state would be able to catch up. He thought the state would
be heading in the wrong direction unless it addressed a
major future problem.
4:07:16 PM
Representative Grenn reflected on Amendment 3. He asked
what the projected amount would be in FY 18 and FY 19 prior
to Amendment 3.
Vice-Chair Gara asked if Representative Grenn was asking
about the dividend or the payout.
Representative Grenn confirmed he was speaking of the
payout.
Vice-Chair Gara referred to page 4 and page 6 of the LFD
charts. He pointed out that Amendment 3 resulted in a
payout of $1.66 billion for public services and a $1250 PFD
in year 1. In the second year, the payout would be $1.683
billion with a slightly smaller dividend. He added that
without the amendment the payout would be $1.708 billion.
By year 3, it was the same.
Co-Chair Seaton noted that there was a table in the far
bottom right corner of the charts that showed the amount
that would go into the GF and the amount that would be paid
to dividends.
Representative Grenn asked for the dividend amount
projected on chart 4 and chart 6 for FY 18 and FY 19.
Vice-Chair Gara responded that without the minimum
guaranteed $1250 dividend, it was projected to be around
$1220 or $1215. The amount would be variable depending on
returns. The amendment would set the dividend at $1250.
Ms. Hansen noted that the way the amendment was drafted and
the way it was shown on the chart was slightly different.
She had not received the amendment in time to get an
updated chart. The distribution would remain 67/33 and the
amount going to the GF would remain the same with or
without the dividend floor. The amendment specified
appropriating any additional necessary funds to the
dividend for the first 2 years. It was a nominal difference
between what it would be with or without the floor. The
amount would not come directly out of what was going into
the GF.
Representative Pruitt commented that the dividend would be
about $100 higher than with keeping the current status quo
for the following 2 years. He was trying to thumb through
the various charts. It appeared that it would increase
slightly through FY 26. He also asked how the maker of the
amendment came up with the dividend of $1250 for 2 years.
He wanted to understand the maker's thinking versus going
to a different percentage.
Vice-Chair Gara responded that under any budget proposal
without the amendment the state would have to exhaust what
was left in the savings account, dip into the ERA, and then
there would no longer be funds for a dividend. In 2 years,
the savings account would be drained and spending would
ensue from the ERA, which he thought was haphazard and
jeopardized the dividend. He wanted to see a larger
dividend than the previous year, while generating enough
money to extend the savings account. He relayed that it was
a choice of either using the legal earnings from the ERA or
exhausting the savings account. He did not feel either were
great choices. He suggested there were other bills he would
like to see passed, that would raise additional revenues.
He reiterated that if only the current bill passed, the
state would have only two choices: to exhaust the state's
savings account, or to jeopardize the ERA. He asserted that
the amendment provision ensured protecting the ERA, the PF
principle, and extending the ERA and the CBR. The state was
trying not to cannibalize these funds until there was
nothing left while creating the largest dividend possible.
He thought the amendment created the right balance. He had
once wanted a $2000 dividend forever. However, he realized
that there would not be any money left over for schools,
the university, or other things he believed in. He wished
the legislature had adopted a fiscal plan much earlier.
Representative Ortiz returned to the question regarding the
minimum PFD at $1250 for the first 2 years and how it would
not impact the amount of money available to go to the GF.
He wondered where the money would come from to maintain the
PFD amount.
Ms. Hansen responded that the way that the amendment was
currently written the money would come from the ERA. There
could be a decision to appropriate it from a different
account. She explained that it was a bit complicated to
amend the distribution percentage of 67/33 for only 2
years. For drafting purposes, it was cleaner to keep the
distribution amount and if there was a need for an
additional amount (if 33 percent did not equate to $1250)
then it was easier to have a direct appropriation.
Representative Wilson WITHDREW her OBJECTION.
There being NO OBJECTION, Amendment 3 was ADOPTED.
4:16:43 PM
Co-Chair Seaton MOVED to ADOPT Amendment 4, 30-LS0125\E.3
(Nauman, 2/16/17):
Page 3, lines 22 - 28:
Delete all material.
Renumber the following bill sections accordingly.
Page 10, line 18:
Delete "sec. 11"
Insert "sec. 10"
Page 10, line 19:
Delete "sec. 11"
Insert "sec. 10"
Page 10, line 27:
Delete "secs. 2 - 9" in both places
Insert "secs. 2 - 8" in both places
Page 10, line 29:
Delete "Sections l - 9, 15, and 16"
Insert "Sections 1 - 8, 14, and 15"
Page 10, line 31:
Delete "sec. 17"
Insert "sec. 16"
Representative Wilson OBJECTED.
Co-Chair Seaton explained that the amendment removed
Section 9 from the bill. There were language changes being
made to AS 37.14.031(c). The Alaska Mental Health Trust
Fund defined the net income for calculating the mental
health trust fund's net income. The change to AS
37.14.031(c) was not necessary because the net income
remained defined in AS 37.13.140, which the statute
currently referenced. Therefore, it did not need to be
redefined and Section 9 was unnecessary.
Representative Pruitt commented that the representative had
just read Section 8. He was correct that Section 9 was
indicated on the amendment. However, Section 9 did not deal
with the mental health trust. He asked for clarification.
Ms. Hansen informed the committee that the section dealt
with the Alaska Mental Health Trust. The mental health
trust fund was managed by the APFC. At the end of the year
when the corporation determined its net income, it also
used the same method of determining the net income for the
mental health trust fund. If the legislature had deleted or
changed the definition of net income under AS 37.13.140, a
definition would have been necessary for the mental health
trust fund. The definition was being kept the same in
statute.
Representative Wilson WITHDREW her OBJECTION.
There being NO OBJECTION, Amendment 4 was ADOPTED.
4:19:23 PM
Co-Chair Seaton MOVED to ADOPT Amendment 5, 30-LS0125\E.5
(Nauman, 2/21/17).
Amendment 5 (30-LS0125\E.5)
Page 1, line 1, following "dividend;":
Insert "relating to the permanent fund;"
Page 1, following line 9:
Insert new bill sections to read:
"*Sec. 2. AS 37.05.550(b) is amended to read:
(b) The legislature may appropriate to the fund
money received by the state as Alaska marine highway
system program receipts or from a settlement or final
judicial determination of the Dinkum Sands case
(United States v. Alaska) and the North Slope royalty
case (State v. Amerada Hess, et al.) and not deposited
into the Alaska permanent fund under AS 37.13.0l0(a)
[AS 37.13.0l0(a)(l) OR (2)] or into the public 2
school trust fund under AS 3 7 .14.150.
*Sec. 3. AS 37.13 .0lO(a) is amended to read:
(a) Under art. IX, sec. 15, of the state
constitution, there is established as a separate fund
the Alaska permanent fund. The Alaska permanent fund
consists of
(1) 25 percent of all mineral lease rentals,
royalties, royalty sale proceeds, net profit
shares under AS 38.05.180(£) and (g), and
federal mineral revenue sharing payments
received by the state from mineral leases
[ISSUED ON OR BEFORE DECEMBER 1, 1979], and
25 percent of all bonuses received by the
state from mineral leases [ISSUED ON OR
BEFORE FEBRUARY 15, 1980]; and
(2) [50 PERCENT OF ALL MINERAL LEASE
RENTALS, ROYALTIES, ROYALTY SALE PROCEEDS,
NET PROFIT SHARES UNDER AS 38.05.180(f) AND
(g), AND FEDERAL MINERAL REVENUE SHARING
PAYMENTS RECEIVED BY THE STATE FROM MINERAL
LEASES ISSUED AFTER DECEMBER 1, 1979, AND 50
PERCENT OF ALL BONUSES RECEIVED BY THE STATE
FROM MIN ERAL LEASES ISSUED AFTER FEBRUARY
15, 4 1980; and
(3) any other money appropriated to or
otherwise allocated by law or former law to
the Alaska permanent fund."
Representative Thompson and Representative Wilson OBJECTED.
Co-Chair Seaton spoke to the amendment. He reported that
the amendment deleted a royalty currently going to the
principle of the PF above the constitutionally required 25
percent. The extra royalty revenue would remain in the GF
for state use. The provision was adopted in the budget for
FY 18. The amendment changed the statutory reference to be
the same.
Representative Thompson spoke to his objection. He
indicated that the royalties going to the PF principle
would be reduced by about $55 million. The amount would be
available for spending instead of placing it into the
principle of the PF so that it could grow ultimately
increasing the amount of money going into the ERA in the
future. It would increase the amount of money available for
PFDs. He opposed the amendment because he would rather see
the money placed where it could earn money for the future.
Representative Pruitt agreed with Representative Thompson.
He disagreed with putting the provision in the budget. He
wanted to ensure the long-term viability of the fund. The
money had been going into the fund since 1980. He expected
that if the legislature voted in favor of the amendment, it
would be much more difficult to reverse down the road. He
opposed the amendment. He suggested that spending the money
in the near-term meant losing the earnings potential of the
$55 million in perpetuity of the PF. Based on the earnings
in the current year it would translate to around $5 million
in one year. If the amount was compounded over the long-
term, it would equal a sizable amount. He opposed the
action.
Representative Wilson thought the legislature should be
doing more to protect the corpus of the PF. The amendment
would be doing less to protect the corpus. She asserted
that the amendment was taking "permanent" out of the PF.
Co-Chair Seaton clarified that the additional revenue of 25
percent on new leases was due to higher royalty amounts on
older leases. However, under the current production tax
structure and, in particular, the gross value reduction
(GVR), the state was not receiving additional total revenue
from new leases. There was an additional 10 percent GVR for
any lease above 12.5 percent. He suggested the state had
used the tax structure to override the value it would
receive from higher royalty amounts. Unfortunately, with
the 20 percent GVR for new oil and the additional 10
percent GVR for any lease with a higher royalty amount, the
state had circumvented its royalty. As a result the GF was
receiving less money than the state would have otherwise
received, which was why the amendment reduced the amount to
what was constitutionally required and suggested 25 percent
of net royalties.
Representative Thompson and Representative Wilson
MAINTAINED their OBJECTION.
A roll call vote was taken on the motion.
IN FAVOR: Guttenberg, Kawasaki, Ortiz, Gara, Foster, Seaton
OPPOSED: Pruitt, Thompson, Tilton, Wilson, Grenn
The MOTION to ADOPT Amendment 4 PASSED (6/5).
4:26:13 PM
AT EASE
4:26:55 PM
RECONVENED
Vice-Chair Gara indicated he would be rescinding action on
Amendment 3 due to a typo.
Vice-Chair Gard MOVED to RESCIND action on Amendment 3.
There being NO OBJECTION, it was so ordered.
Vice-Chair Gara explained that Amendment 3 was written
correctly on page 1, Line 16. The intent was to have at
least a $1250 dividend. The formula, if there were good
stock returns, could result in an even larger dividend.
However, the words "at least" were left out on Line 22. If
the formula provided for a larger dividend, the dividend
would still only equal $1250.
Vice-Chair Gara MOVED to ADOPT Amendment 3.
Representative Wilson OBJECTED.
Vice-Chair Gara MOVED to AMEND Amendment 3.
Vice-Chair Gara wanted to insert the words "at least" on
Page 1, line 22 before the number $1250. If the formula
provided for a larger dividend, then the dividend amount
would be larger.
There being NO OBJECTION, the amendment to amend Amendment
3 was ADOPTED.
Representative Wilson WITHDREW her OBJECTION to Amendment
3.
Amendment 3 as amended was ADOPTED.
4:29:23 PM
Co-Chair Seaton MOVED to ADOPT Amendment 6, 30-LS0125\E.6
(Nauman, 2/21/17):
Page 10, following line 8:
Insert a new bill section to read:
Sec. 12. AS 43 .23.055 is amended to read:
Sec. 43.23.055. Duties of the department. The
department shall
(1) annually pay permanent fund dividends
from the dividend fund
without further appropriation;
(2) subject to AS 43.23.011 and paragraph
(8) of this section, adopt
regulations under AS 44.62 (Administrative Procedure
Act) that establish procedures and time limits for
claiming a permanent fund dividend; the department
shall determine the number of eligible applicants by
October 1 of the year for which the dividend is
declared and pay the dividends by December 31 of that
year;
(3) adopt regulations under AS 44.62
(Administrative Procedure Act) that establish
procedures and time limits for an individual upon
emancipation or upon reaching majority to apply for
permanent fund dividends not received during minority
because the parent, guardian, or other authorized
representative did not apply on behalf of the
individual;
(4) assist residents of the state,
particularly in rural areas, who because of language,
disability, or inaccessibility to public
transportation need assistance to establish
eligibility and to apply for permanent fund dividends;
(5) use a list of individuals ineligible for
a dividend under AS 43.23.005(d) provided annually by
the Department of Corrections and the Department of
Public Safety to determine the number and identity of
those individuals;
(6) adopt regulations that are necessary to
implement AS 43 .23.005(d);
(7) adopt regulations that establish
procedures for the parent, guardian, or other
authorized representative of a disabled individual to
apply for prior year 4 permanent fund dividends not
received by the disabled individual because no
application was submitted on behalf of the individual;
(8) adopt regulations that establish
procedures for an individual to apply to have a
dividend disbursement under AS 37.25.050(a)(2)
reissued if it is not collected within two years after
the date of its issuance; however, the department may
not establish a time limit within which an application
to have a disbursement reissued must be filed;
(9) provide any information, upon request,
contained in permanent fund dividend records to the
child support services agency created in AS 25.27.010,
or the child support enforcement agency of another
state, for child support purposes authorized under
law; if the information is contained in an electronic
database, the department shall provide the requesting
agency with either
(A) access to the data base; or
(B) a copy of the information in the
data base and a statement certifying its contents;
(10) establish a fraud investigation unit
for the purpose of assisting the
(A) Department of Law in the
prosecution of individuals who apply for or obtain a
permanent fund dividend in violation of a provision in
AS 11, by detecting and investigating those crimes;
and
(B) commissioner to detect and
investigate the claiming or paying of permanent fund
dividends that should not have been claimed by or paid
to an individual and to impose the penalties and
enforcement provisions under AS 43.23.035.'
Renumber the following bill sections accordingly.
Page 10, line 29:
Delete "15, and 16"
Insert "12, 16, and 17'
Page 10, line 31:
Delete "sec 17"
Insert "sec. 18"
Representative Wilson OBJECTED.
Co-Chair Seaton spoke to the amendment. It clarified that
the dividend could be paid from the dividend fund without
further appropriation. Under current statute, money was
appropriated into the dividend fund but it was not clear
how the money moved from the dividend fund.
Representative Pruitt asked if the amendment allowed the
dividend to be paid out automatically if no action to
appropriate was taken by the legislature.
Co-Chair Seaton responded affirmatively.
Ms. Hansen confirmed Co-Chair Seaton was correct. She added
that the language specifying how the money moved from the
ERA to the dividend fund still indicated that the
legislature should appropriate 33 percent of the draw. The
language clarified that once the money was in the dividend
fund it did not need to be appropriated out; it would
happen automatically.
Representative Pruitt asked if it was a change from what
the state was currently doing. He asked why the language
was needed.
Ms. Hansen explained her understanding was the state had
always just appropriated the funds under the assumption
that the legislature was directed to do so. However, the
statute had not been clear. She added that LFD had flagged
the same language in the past and suggested bringing them
to the table for further clarification.
Commissioner Hoffbeck asked Representative Pruitt to repeat
his question.
Representative Pruitt asked about the need for the
language. He wondered why the committee was adding 3 words.
Commissioner Hoffbeck responded that in the past once the
money was appropriated in the dividend fund, the money was
used to pay dividends without further appropriation. He
suggested having LFD respond.
Co-Chair Foster invited Mr. Teal to the table.
DAVID TEAL, DIRECTOR, LEGISLATIVE FINANCE DIVISION,
explained the dividends had flowed out of the dividend fund
in the past. However, most statutes that created funds
would outline whether further appropriations were
necessary. He suggested that the current statute did not
contain clarifying language. The state had always just
assumed that the money would be paid out. The amendment
simply clarified what had happened in the past and allowed
it to flow out without appropriation in the future.
Representative Pruitt surmised that the amendment
eliminated ambiguity.
Mr. Teal responded, "Right."
Representative Wilson WITHDREW her OBJECTION.
There being NO OBJECTION, Amendment 6 was ADOPTED.
4:34:35 PM
Co-Chair Seaton MOVED to ADOPT Amendment 7, 30-LS0125\E.19
(Nauman, 3/9/17):
Page 3, lines 7 - 10:
Delete all material and insert:
"(e) Each year that the balance of the earnings
reserve account exceeds four times the amount
calculated for appropriation under (b) of this
section, after the appropriations under (b) of this
section, the legislature may appropriate from the
earnings reserve account to the principal of the
permanent fund the lesser of the
(1) amount by which the balance of the earnings
reserve account exceeds four times the amount
calculated for appropriation under (b) of this
section; or
(2) cumulative amount of inflation on the
principal of the fund between the current fiscal
year and June 30, 2015, less amounts transferred
after June 30, 2015, to the fund to offset the
effect of inflation on the principal of the
fund."
Representative Wilson OBJECTED.
Co-Chair Seaton reported that the new subsection AS
37.13.145(e) stated that when the ERA exceeded four times
the annual draw calculated under AS 37.13.145(b) the excess
over the amount would be appropriated into the principle of
the fund. The amendment limited the transfer from the ERA
to the principle to the lessor of the excess available or
the cumulative total inflation since June 30, 2015 minus
any inflation proofing already transferred.
Representative Pruitt preferred if the legislature did
something every year. However, recognizing that was not the
direction of the committee, he agreed the legislature
needed to do something. He cautioned future legislatures
that the provision could easily be manipulated. The
legislature could appropriate money into the CBR, into the
SBR, or various other state funds. The legislature could
use mechanisms every year to prevent it from actually
happening. There was an intent to inflation proof the fund.
He did not want to do anything to get in the way of doing
so. He spoke in cautious support of the amendment.
Vice-Chair Gara commented there had been a lot of conflict
in the legislature. He suggested that at some point
legislators needed to reach common ground. He could not
speak for all 60 members of the legislature. However, he
saw common ground regarding the current provision in both
houses and in both parties. He thought the legislature had
to make a promise to the Permanent Fund to take the
necessary measures to inflation proof the fund. The
amendment, which he would be supporting, seemed to be a
mechanism that had generated a fair amount of support from
members of both parties.
4:37:51 PM
Representative Ortiz asked how the committee arrived at 4
times the annual draw as opposed to 3 or 5 times.
Co-Chair Seaton responded that the amount had to be enough
to avoid depleting the ERA. There had to be enough volume
in the ERA to account for volatility in years when returns
were low. The amount equal to 4 times the draw was
determined to be an adequate amount. After taking out the
5.25 percent draw and accruing, 4 times the draw then the
excess could be used for additional inflation proofing. The
legislature also built in .25 percent ($120 million per
year) for inflation proofing. The intention of the
legislature was not to over-inflation proof, which was why
the date of June 30th was included as the last time the
legislature inflation proofed. It was possible once the 4
times the draw amount was reached that there would be
excess funds to reconstitute the CBR. The amendment ensured
that the state caught up with inflation and that the
formula worked at both high and low ends.
4:40:19 PM
Representative Thompson observed that the amendment placed
no additional money into the corpus once the state caught
up with inflation. He asked why. He wondered what was wrong
with more money going into the corpus of the fund. The
legislature had already decreased the royalties. He did not
see a problem with continuing to have excess flow into the
fund, which would make more money available in the future.
Co-Chair Seaton explained that he was talking about
inflation proofing. There was nothing preventing the
legislature from placing additional money into the corpus.
He mentioned the legislature adding $3 billion into the
Public Employee Retirement System and the Teachers
Retirement System a few years prior. He thought to include
language that stipulated putting any excess funds into the
corpus would limit future legislatures. The amendment would
ensure that that the state was caught up 100 percent with
inflation proofing the fund. It would be up to the
legislature at the time to determine what to do with the
excess.
Vice-Chair Gara agreed with Representative Thompson that if
the legislature approved the plan, there would still not be
enough money for a capital budget. He did not think it
generated that much money. As the member from Fairbanks
noted the state was way behind on deferred maintenance. He
had heard estimates for the university's deferred
maintenance of about $1 billion. The state was no longer
building energy projects, renewable projects, or upgrading
diesel power in rural Alaska. The excess would allow the
state to catch up with deferred maintenance and other
things that had been placed on hold. He thought the amount
of 4 times the draw made sense because the earnings reserve
of the PF went up and down. Even with a good stock market
year, if the PF did not cash in its stocks, no money went
into the ERA. There had been years where there was a minus
1500 percent change in the earnings of the PF. Even with a
large PF, the dividend had been around $900 the previous
few years. He thought the amount of 4 times the draw would
ensure that there was about $10.5 billion or $11 billion in
the ERA. There would be cushion room in case there were
years of poor earnings.
Representative Wilson noted that her party affiliation had
less to do with the decisions that she was making. She was
making the right decisions for her constituents no matter
what party she represented and no matter the party
affiliation of her constituents. She requested that members
discontinue referring to other members' party affiliation
as if it had more to do with the decision legislators were
making. She thought it was inappropriate. She wanted people
to know that it was about judging the legislation and
amendments before the committee. She asked that the
references halt.
Representative Pruitt appreciated Representative Thompson's
comments about the words, "lessor of the." they made a
substantial shift in his view of the amendment. He asserted
that the language had the potential to severely water down
the intent. He thought he had heard that the legislature
wanted to make sure it had the ability to fund above and
beyond the POMV draw whether for capital projects or
deferred maintenance. He thought the intent was to keep a
confined POMV amount. He believed it would be better to
protect the money from the legislature by placing it into
the corpus. He was uncertain if he would offer to amend the
amendment to remove the three words, "lessor of the." He
argued that it was a large change from what had been
discussed over the last year and a half. He thought there
should be further discussion on the issue.
4:48:34 PM
Representative Wilson asked what the difference (in terms
of dollars) would be if the language stated "higher of the"
rather than "lessor of the."
Ms. Hansen responded that it would be difficult to speak to
her question because it would depend on returns each year.
If the language changed to "greater of" the state would
potentially dip into the cushion created with the amount of
4 times the draw. If the language stipulated the amount in
excess of 4 times the draw, then the 4 times would remain
in the ERA for a cushion for bad years. Anything extra
would go into the principle. If the term "lessor of" 4
times the draw or "the amount necessary for inflation
proofing" was used, the state could still transfer the
excess. She provided an example of the use of the term
"greater of." If the state did not inflation proof for 5
years and the amount in excess of the draw was only $100
million, the state would have to dip into its cushion. She
suggested LFD could perhaps speak to the probability of the
particular wording being triggered in the following few
years.
4:50:46 PM
Representative Wilson wondered if the alternative would be
to change the amount through an appropriation if the
legislature thought the amount was too low.
Ms. Hansen responded that it was always an option of the
legislature. She was unclear about the representative's
comment about the legislature thinking the amount was too
low.
Representative Wilson remarked that the "lessor of"
indicated doing the least that needed to be done but was
not what was necessarily best for the state.
Ms. Hansen explained that the language meant that the state
would get up to the full value of any inflation proofing
that was missed as long as the value was in the amount
above the cushion.
Co-Chair Seaton provided an example of the state having $50
million over the 4 times amount of the draw. If the
amendment specified the greater amount and there was $3
billion of inflation proofing to catch up the statute would
require the legislature to wipe out the 4 times amount
because the state would have to have the greater amount of
accumulated inflation or the amount in excess. It would be
the greater amount and the state would only have $50
million over the 4 times amount. However, the state would
dip $2 billion into the 4 times amount leaving less that
the 4 times amount available for future volatility and
conservative management which was why the amendment used
"lessor of." If the amount of inflation proofing was
available over the 4 times amount the state would catch it
up 100 percent.
Representative Guttenberg liked that the amendment
established a set of rules. He asked about the intent of
Line 11 of the amendment. He asked if it included the
interest that the state would have accumulated had it
inflation proofed the fund every year.
Co-Chair Seaton responded that the intent of the amendment
was that if the state did not inflation proof the fund $200
million 3 years previously, it would be the effect of
having not inflation proofed the fund. The amendment would
recapture all of the earnings as if the state had inflation
proofed every year.
4:55:51 PM
Vice-Chair Gara thought the amendment mimicked the current
rule, which was to inflation proof up to the amount needed
to inflation proof the PF. In a year where the state had a
significant amount of excess money, additional money could
be placed in the fund. The amendment specified that once
the amount equaled 4 times the amount of the draw, then the
amount needed for inflation proofing would be placed in the
fund. It was not mandatory in current law, nor was it
mandatory under the proposed language to put in more money.
In statute, it would specify that the amount placed in the
fund would be equal to the amount needed for inflation
proofing.
Representative Pruitt appreciated the committee
facilitating the conversation. He referred to the .25
percent inflation proofing which was expected to be lower
than actual inflation in the current year. If the state
saved the amount of 4 times the draw, it would make-up for
those times the state had not hit the number. Following the
discussion, he better understood the intent of the
amendment. The intent was for the legislature to maintain
the inflation proofing mechanism into the future.
Representative Wilson WITHDREW her OBJECTION.
There being NO OBJECTION, Amendment 7 was ADOPTED.
4:58:27 PM
Co-Chair Seaton reported he would not be offering Amendment
8, 30-LS0125\E.1 (Nauman, 2/16/17), Amendment 9, 30-
LS0125\E.2 (Nauman, 2/16/17), and Amendment 10, 30-
LS0125\E.9 (Nauman, 2/23/17). He explained that they were
technical amendments that were incorporated into Amendment
1.
Co-Chair Foster announced that Co-Chair Seaton would not be
offering Amendments 8, 9, and 10.
Representative Pruitt MOVED to ADOPT Amendment 11, 30-
LS0125\E.34 (Nauman, 3/11/17):
Page 1, line 1, following "dividend;":
Insert "relating to procurement by the Alaska
Permanent Fund Corporation;"
Page 1, following line 9:
Insert new bill sections to read:
"* Sec. 2. AS 36.30.015 is amended by adding a new
subsection to read:
(1) The board of trustees of the Alaska
Permanent Fund Corporation shall adopt
regulations to govern the procurement of
supplies, services, and professional
services. The regulations must be similar to
the procedures described in this chapter and
in regulations adopted under this chapter.
Notwithstanding any other provisions of this
subsection, the Alaska Permanent Fund
Corporation shall comply with the five
percent preference under AS 36.30.321(a) and
the requirement that contracts for legal
services be approved by the attorney general
under (d) of this section.
* Sec. 3. AS 36.30.990(1) is amended to read:
(1) "agency"
(A) means a department, institution,
board, commission, division, authority,
public corporation, the Alaska Pioneers'
Home, the Alaska Veterans' Home, or other
administrative unit of the executive branch
of state government;
(B) does not include
(i) the University of Alaska;
(ii) the Alaska Railroad
Corporation;
(iii) the Alaska Housing Finance
Corporation;
(iv) a regional Native housing
authority created under AS 18.55.996 or
a regional electrical authority created
under AS 18.57.020;
(v) the Department of
Transportation and Public Facilities,
in regard to the repair, maintenance,
and reconstruction of vessels, docking
facilities, and passenger and vehicle
transfer facilities of the Alaska
marine highway system;
(vi) the Alaska Aerospace
Corporation;
(vii) the Alaska Retirement
Management Board;
(viii) the Alaska Seafood
Marketing Institute;
(ix) the Alaska children's trust
and the Alaska Children's Trust Board;
(x) the Alaska Industrial
Development and Export Authority;
(xi) the Alaska Permanent Fund
Corporation;"
Renumber the following bill sections accordingly.
Page 10, line 18:
Delete "sec. 11
Insert "sec. 13"
Page 10, line 19:
Delete "sec. 11"
Insert "sec. 13"
Page 10, line 22, following "REGULATIONS.":
Insert "(a)"
Page 10, following line 24:
Insert a new subsection to read:
"(b) The commissioner of revenue and the
Alaska Permanent Fund Corporation may adopt
regulations, policies, and procedures necessary
to implement this Act. The regulations, policies,
or procedures may not take effect before the
effective date of the law implemented by the
regulation, policy, or procedure."
Page 10, line 27:
Delete "secs. 2 - 9" in both places
Insert "secs. 4 - 11 "in both places
Page 10,line 29:
Delete "Sections 1 -9, 15, and 16"
Insert "Sections 1, 4 - 11, 17, and 18"
Page 10, line 31:
Delete "sec. 17"
Insert "sec. 19"
Co-Chair Seaton OBJECTED for discussion.
Representative Pruitt spoke to the amendment. He explained
that over the previous two years there had been discussion
about potentially needing to use the earnings reserves,
which could be placed in the GF. There had been a need for
APFC to manage and bring about the greatest return.
Currently, the corporation was restricted because of the
procurement code. He had asked Ms. Rodell if she felt it
was necessary for the corporation to be placed outside of
the state procurement code like other state entities such
as Alaska Industrial Development and Export Authority
(AIDEA), Alaska Seafood Marketing Institute (ASMI), and the
Aerospace Corporation. Presently, in order for the Alaska
Permanent Fund Corporation to contract with a consultant,
the director would have to go through the procurement
process. If she needed to make an immediate decision for
the corporation regarding an investment, by the time the
procurement process was completed an investment opportunity
might be missed.
Co-Chair Seaton relayed that there was a board member from
APFC in the room. He suggested that that person come to the
table.
Commissioner Hoffbeck was also a board member of the APFC.
He confirmed that the concern had to do with being able to
respond to opportunities for investments that were time
sensitive. Stricter procurement regulations could lead to
missed opportunities. The Alaska Permanent Fund Corporation
and the board of trustees had made the request for several
years. It had been in a bill that was introduced in the
previous year but was stripped out. The administration had
not included it in the bill in the current year because of
wanting to focus strictly on the PF. However, the
administration believed APFC should have the tool.
5:03:35 PM
Vice-Chair Gara pointed to line 11. He commented that the
state provided for a local preference in state agency
spending by allowing a vendor to charge 5 percent more than
a competitor. He wondered if the APFC was required to
comply with the 5 percent preference. He wondered if it met
the APFC goal of providing the state the maximum investment
returns - hiring someone that charged 5 percent more.
Commissioner Hoffbeck responded he would have to think
about the legislator's question. The intent was for an
investment to benefit the state. He was uncertain that the
circumstances would be such that the corporation would be
looking at multiple vendors and one getting a 5 percent
preference over another. More importantly, the corporation
could quickly select a vendor and move on. The attorney
from APFC could perhaps provide a more detailed answer.
Vice-Chair Gara was missing something. He relayed that the
commissioner had indicated that the corporation wanted to
have the ability to do things more nimbly and quickly. He
referenced Section 2, which stipulated the PF would comply
with a 5 percent preference. He wondered about potential
impacts of using the words, "shall comply." He wondered
about the impacts of having to hire someone who charged 5
percent more for investment services when trying to
maximize the returns on the PF.
Commissioner Hoffbeck could not think of a situation where
the state would have competing fund managers performing the
exact same work where the 5 percent would come into play.
The language was developed by the PF, adopted by the Senate
Finance Committee the previous year, and included in the
bill. He suggested directing the question to APFC for a
more detailed answer.
CHRIS POAG, GENERAL COUNSEL, ALASKA PERMANENT FUND
CORPORATION, replied that if the state scored 2 proposals,
one of them being experience and one of them being cost,
one of them being from in state and one from out-of-state,
the in-state Alaska bidder would receive a 5 percent
scoring preference. If they scored equally the same, the
in-state Alaska bidder would succeed and issue a notice for
intent to award. He relayed that APFC was one of the
agencies that requested waivers from the Alaska preference
requirement because most of the services and goods the
corporation procured were not available in Alaska. The
corporation would have to deal with the issues of waivers
and requests for alternative procurements when it asked for
authorization to adopt its own procurement code.
Vice-Chair Gara asked if the 5 percent preference was a
scoring preference rather than a 5 percent cost to the PF.
Mr. Poag believed it was a scoring preference. He noted
that when the corporation had drafted the language a few
years prior it wanted to follow the model that other
corporations had pursued. Other corporations had also used
the 5 percent preference. It was clearly a policy call by
the legislature. If the legislature thought costs should be
the driving factor above all other factors, then the
provision could be removed and the highest scoring entity
would be chosen.
5:09:20 PM
Vice-Chair Gara was more comfortable with a 5 percent
scoring preference rather than a 5 percent additional cost.
Mr. Poag would look further at the statutory site.
Co-Chair Seaton pointed out that it seemed like the bill
was allowing for the procurement of supplies and other
things as well as acquiring services of professional
consultants. He thought the corporation would be able to
set its entire panoply of procurements, which might vary
between supplies and professional services.
Vice-Chair Gara wanted to support the amendment, but he
wanted to make sure he understood it. He asked if the
corporation had to adopt regulations that encompassed
services along with the 5 percent preference. He thought
the corporation would have to comply with services as well.
He also wanted to confirm that there was a 5 percent
scoring preference as opposed to a 5 percent additional
cost preference. He suggested that it was just a service
preference. An example of services was the use of an
investment company in Anchorage, McKinley Capital. In the
past, the company had contracted with APFC. He wanted to
know if they were receiving a 5 percent cost preference or
a 5 percent scoring preference.
Mr. Poag responded that there were 2 parts to Vice-Chair
Gara's question. He referenced statute 36.33.21(a). He
explained that cost was one of the items that was scored.
The score attributed to cost received a 5 percent
preference. Often costs could be 20 percent or more of the
scoring criteria. Therefore, the one criterial would get a
5 percent preference, which would give a benefit to the
pricing of an Alaska bidder under the statute. It was not a
5 percent price bump. He spoke to Vice-Chair Gara's
reference to McKinley Capital. He noted that it was only
for services the corporation procured to help the
corporation with investment transactions. The procurement
did not apply to the corporation when it made investments.
It would not make sense to apply it to APFC. The
corporation chose managers that were best suited to fill
the mandate with the best price and track record. He did
not believe there was a concern with the particular bidder
the representative mentioned. He reiterated that a 5
percent scoring preference applied to cost criteria.
5:12:30 PM
Representative Guttenberg assumed the corporation had a
portfolio of fund managers and investment brokers. He asked
Mr. Poag provide an example of the procurement code
hindering the corporation from the ability to achieve the
best for the PF.
Mr. Poag could not put his finger on a specific example
where the corporation lost out on an investment opportunity
due to the state's procurement code. He clarified that the
standard timeline to give notice for public procurement
under the state's procurement code was 21 days. Once the
corporation made its selection there had to be a 10-day
award period. Some of the investments came to the
corporation on a shortened timeframe. If the corporation
needed to procure a consultant to help evaluate the
transaction, there would be an issue with timing. The goal
of the amendment was not to avoid using a procurement
process. The goal was to draft a procurement process that
was tailored to the function of the corporation. The Alaska
Legislature created the PF with a single myopic vision,
which was to invest and manage the assets of the fund.
However, the procurement code that applied to the
corporation (the state statute, state regulations, and the
state administrative manual) was a one-size-fits-all code.
It had caused problems for the corporation in the past. The
corporation was also one of the agencies that requested
alternative procurement more than other agencies because
most of the goods and services the corporation was
procuring did not fit neatly within the normal categories.
He was unable to identify a specific investment the
corporation had lost. However, as an example, in the
previous day the corporation had made a decision to
consider an investment, which was supposed to close at the
end of the month. Sometimes investments took place within a
shortened timeframe. In his specific example, the
corporation did not need the help of a vendor to evaluate
the investment. However, the need occurred from time-to-
time. He reported that the ARM Board had over 10 pages in
the regulations. The corporation would use a similar model
to adopt a regulation packet substantially similar to the
state's procurement code, but tailored to meet the
corporation's need.
5:15:10 PM
Representative Kawasaki asked if APFC was currently exempt
from the procurement code as it pertained to acquiring
income producing assets, investments, and investment
authority.
Mr. Poag referenced AS 36.30.850.15. He read from the
statute:
(15) a contract that is a delegation, in whole or in
part, of investment powers or fiduciary duties of
(A) the Board of Trustees of the Alaska Permanent
Fund Corporation under AS 37.13
Mr. Poag confirmed that the Board of Trustees of APFC was
exempt from the procurement code. When the corporation made
investment decisions and needed the help of a fiduciary or
delegated authority to an outside manager, it was exempt
from the procurement code.
Representative Kawasaki was looking at APFC's suggested
procurement delegation regulation changes. The staff of
APFC recommended that the corporation create its own
procurement processes. He thought a corresponding statute
would be necessary to change the process completely. He
asked if the statute change was necessary.
Mr. Poag was not sure about Representative Kawasaki's
question concerning referencing a statute. The amendment
identified APFC as one of the agencies that had the
authority not to comply with the standard state procurement
code, but to adopt a code substantially similar to the
state procurement code. The Alaska Permanent Fund
Corporation was asking to be added to the list of agencies
that were exempt from the state's procurement code. The
amendment included language that required the APFC to adopt
by regulation of a code substantially similar to the state
procurement code.
Representative Kawasaki was unsure if he liked the
amendment. The committee had just had a debate about
another corporation, the Alaska Seafood Marketing Institute
(ASMI), which was also exempt from the state procurement
code. He reported that ASMI presently employed 7 people
out-of-state, which he thought was a result of the entity
operating outside of the state procurement code. He did not
think it was appropriate for the change to be in the bill
at the current time.
Co-Chair Seaton WITHDREW his OBJECTION.
There being NO OBJECTION, Amendment 11 was ADOPTED.
Co-Chair Foster indicated the committee would be
adjourning, but the remaining amendments for HB 115 would
be heard, as well as HB 31, on the following day at 1:30
p.m.
ADJOURNMENT
5:18:51 PM
The meeting was adjourned at 5:18 p.m.
| Document Name | Date/Time | Subjects |
|---|---|---|
| HB 115 Amendment Packet .pdf |
HFIN 3/14/2017 8:30:00 AM |
HB 115 |