Legislature(2019 - 2020)ADAMS ROOM 519
07/11/2019 01:00 PM House FINANCE
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| Audio | Topic |
|---|---|
| Start | |
| HB2001 | |
| Presentation by Larry Persily Given to Alaskan Business Leaders | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| + | TELECONFERENCED | ||
| += | HB2001 | TELECONFERENCED | |
HOUSE FINANCE COMMITTEE
SECOND SPECIAL SESSION
July 11, 2019
2:35 p.m.
2:35:58 PM
CALL TO ORDER
Co-Chair Foster called the House Finance Committee meeting
to order at 2:35 p.m.
MEMBERS PRESENT
Representative Neal Foster, Co-Chair
Representative Jennifer Johnston, Vice-Chair
Representative Dan Ortiz, Vice-Chair
Representative Andy Josephson
Representative Gary Knopp
Representative Bart LeBon
MEMBERS ABSENT
Representative Tammie Wilson, Co-Chair
Representative Ben Carpenter
Representative Kelly Merrick
Representative Colleen Sullivan-Leonard
Representative Cathy Tilton
ALSO PRESENT
Larry Persily, Self, Juneau; Senator Chris Birch;
Representative Adam Wool; Representative Louise Stutes;
Representative Zach Fields; Representative Sarah Hannan;
Representative Andi Story.
SUMMARY
HB 2001 APPROP: ERA FOR PERMANENT FUND DIVIDENDS
HB 2001 was HEARD and HELD in committee for
further consideration.
PRESENTATION BY LARRY PERSILY GIVEN TO ALASKAN BUSINESS
LEADERS
2:36:31 PM
Co-Chair Foster acknowledged Senator Chris Birch in the
audience. He reviewed the meeting agenda. He shared that
Larry Persily would deliver a presentation to help the
committee understand the considerations at hand regarding
HB 2001.
HOUSE BILL NO. 2001
"An Act making a special appropriation from the
earnings reserve account for the payment of permanent
fund dividends; and providing for an effective date."
2:37:21 PM
^PRESENTATION BY LARRY PERSILY GIVEN TO ALASKAN BUSINESS
LEADERS
2:37:32 PM
LARRY PERSILY, SELF, JUNEAU, shared that he had recently
given a presentation to a group of Alaskan business
leaders. He began with a slide showing an open letter from
Alaska business leaders (copy on file). The letter included
four beliefs pertaining to pertinent issues surrounding the
Permanent Fund Dividend. He believed businesses that had
signed the letter were concerned about the effects on the
economy due to budget cuts and the long-term effects on the
Permanent Fund from overdrawing the percent of market value
(POMV) adopted by the legislature on 2018. Discussions that
had led to the writing of the letter had not included the
legality of whether the current special session should be
held in Juneau or Wasilla.
Vice-Chair Ortiz understood that the business leaders had
come together specifically to discuss the points of the
letter.
Mr. Persily replied that the Rasmussen Foundation had
contacted as many business leaders as possible to discuss
the urgent issue of the state budget. He said that
participants had agreed on four points:
1. Legislators need to convene in a single location so
that all 60 members can vote Gov. Mike Dunleavys
budget vetoes up or down. Every legislator owes it
to the public to go on the record on this important
vote.
2. Lawmakers need to adopt and adhere to a new
Permanent Fund dividend formula that will not draw
down unsustainable amounts from the funds earnings
reserve this year, next year or in any future year.
3. The governors more than $400 million in budget
vetoes, when combined with the $190 million already
cut out of the budget by the Legislature this year,
go too far, too fast. Cuts of that size will
eliminate critical public services and result in the
loss of thousands of jobs, likely pushing Alaska
into recession. The public wants a responsible,
sustainable budget for years to come.
4. The current stalemate is bad for business and for a
healthy Alaska where Alaskans want to live and work.
The public needs decisions now, not later. and we
need decisions that look long term, overlooking
short-term politics. Nobody benefits from repeating
this debate a year from now.
Mr. Persily explained that when he gave presentation or
wrote opinion columns, he used the word we because he
believed that the state's condition was the fault of the
collective. He found it unfortunate that for the past two
generations the dividend had become political, with
candidates promising large dividends and no taxes. The
public had asked for, and depended on, programs paid for
out of the General Fund. He added that the state had drawn
from the Constitutional Budget Reserve (CBR) for over half
of its existence. He lamented that failed attempts at
economic diversification had contributed to the current
fiscal crisis.
2:43:41 PM
Mr. Persily turned to slide 2: "How did we get here
today?":
• After cutting hundreds of millions from the state
operating budget over his four years, Gov. Walker
said 'enough' and proposed an essentially flat
FY2020 budget for his successor
• Gov. Dunleavy took office, promising to restore a
full dividend of $3,000, and then proposed
cutting public services and taking over $400
million from municipalities to make it all
balance
• Legislators rejected the governor's plan, but cut
$190 million
• The Legislature has been unable to agree on a
dividend amount
• Gov. Dunleavy vetoed more than $400 million from
the budget
• The Legislature is back in special session the
second this year
Mr. Persily shared that the group brought together by the
foundation had reviewed the mitigating factors on the
slide.
2:45:18 PM
Mr. Persily addressed slide 3: "Examples of budget vetoes":
Homeless
• Homeless Services - $11 million over 80% of
funding cut. Hits to RurAL CAP $1.6 million,
Catholic Social Services $1.4 million for Brother
Francis Shelter and Clare House, $700,000 from
Covenant House, $500,000 from the AWAIC shelter.
At least 500 vulnerable adults and children will
lose shelter.
HEALTH CARE
• Behavioral Health - $6 million on top of the $6
million cut last fiscal year. Deep cuts to mental
health and substance abuse treatment programs.
• Medicaid - $50 million, on top of the
Legislature's $75 million cut, totaling almost
25% of state funding.
Mr. Persily shared that one of the executives of the
business owner group had lamented that she would not be
able to donate enough to nonprofits to fill the gaps
created by the cuts. He turned to slide 4:
EDUCATION
• Early Childhood - $8.6 million - ELIMINATED. Head
Start, early childhood education, Parents as
Teachers.
• Local school debt reimbursement - $49 million.
Pushing the debt to municipalities, hitting
property taxes.
• University of Alaska - $130 million. A 41%
reduction in state funding. The university
already has sent furlough notices to 2,500
employees. The cut in state funding means a loss
of $44 million in federal grants.
Mr. Persily said that he had educated the group on the
legislative process for considering the vetoes listed on
slide 5, What's the process this week:
• Legislature convened in special session Monday,
in Juneau (almost two-thirds of lawmakers were
there)
• In calling the special session, the governor
said, 'Work in Wasilla,' but most legislators
said no thanks
• Legal arguments both ways, not an immediate
concern
• Legislature has through the fifth day of special
session to override budget vetoes (requires
three-quarters majority)
• Is it five calendar days (ending at midnight
Friday) or is it five 24-hour days (1 p.m.
Saturday) never been tested
• End game likely will include vetoes, PFD, capital
budget
Mr. Persily felt that the group had an understanding that
the financial crisis was not comprised of distinct,
unconnected problems. He reiterated the four determinations
the group had reached, as written in the letter.
Mr. Persily moved to slide 6, "How much PFD can we
afford.":
• About $1,000 under the Legislature's budget, with
no excess draw on Permanent Fund earnings reserve
• $1,600 with an additional $400 million in budget
cuts on top of the $190 million already adopted
by legislators, or break the 5.25% Permanent Fund
draw and go to 6%
• $3,000 would leave a $1.3 billion budget gap,
requiring all of the governor's operating budget
vetoes, a minimal statewide capital budget, plus
taking an almost 7% percent-of-market-value draw
on the Permanent Fund
Mr. Persily elaborated that a shortfall of $400 million
would need to be covered through budget cuts, a three-
quarter vote to access money in the CBR, or by breaking the
5.25 percent structured POMV draw. He addressed a scenario
with a $3,000 PFD. He reported that the balance of the CBR
was approximately $2.1 billion. He relayed that the group
of business leaders felt the that a POMV draw of 7 percent
or more was irresponsible. He stated that at some point in
the relatively near future there would be trouble managing
the Permanent Fund. He stressed that if the PFD was over
$1,000 it would be necessary to determine where the funds
were coming from.
2:49:21 PM
Co-Chair Foster recognized Representatives Louise Stutes,
Adam Wool, and Zach Fields in the audience.
Mr. Persily advanced to a bar chart on slide 7 titled "Real
general fund revenue/budget history (2018 dollars per
person)," showing FY 76 to FY 18 and adjusted for inflation
(generated by the Legislative Finance Division). The bright
green portion of the chart reflected revenue with peaks in
the 1980s (with 2 million barrels per day or four times the
current production); and under the Palin administration era
oil taxes [FY 08], which had coincidentally coincided with
oil prices of $100 per barrel. He explained that the
numbers would not have been as high if oil prices had been
$40 to $50 per barrel. He pointed to agency operations and
operating capital and pointed out that the FY 18 per capita
spending level was close to the 1976 level.
2:51:00 PM
Mr. Persily turned to a bar chart on slide 8 titled "End-
of-year reserve balances." He discussed that balancing the
current budget would require drawing from state reserves
regardless of the dividend size. He noted that the state
was using Permanent Fund earnings to help pay for schools
and other public services for the first time in the past
fiscal year. He reviewed that the CBR had been a ballot
proposition approved by voters almost 30 years earlier as a
way to save some money. He noted it took a three-quarter
vote [by the legislature] to access CBR funds. The actual
CBR fund had been a political compromise. He explained that
the Senate had wanted a spending limit and the House had
not; therefore, the settlements had been invested in the
CBR and a three-quarter vote had been implemented, which
effectively worked as a spending limit. The Statutory
Budget Reserve (SBR) had been implemented by the
legislature about 10 years back and was accessible by a
simple majority. He reported the SBR was near the end of
its life, with a current balance of about $170 million.
Mr. Persily referenced the Department of Revenue (DOR)
website that showed a CBR balance of $2.1 billion as of
July 1. According to the Permanent Fund website, the
Earnings Reserve Account (ERA) was $16 billion as of June 1
(before any transfers to the principal in the current
budget). He reported that the group of business leaders had
been very concerned and was aware of the spending down of
the SBR and CBR over recent years. There had been
discussion about the need to maintain a decent CBR balance
to deal with fluctuation in oil prices. He noted that oil
prices were currently around $69 per barrel and fairly
recently prices had been closer to $60 per barrel. There
was a purpose to maintaining a balance and not overdrawing
the Permanent Fund in order to help pay for public services
and dividends wanted by Alaskans.
Mr. Persily clarified the meeting of business leaders had
not been partisan and had not included accusations or name
calling. The purpose had been to meet and discuss the
problems facing the legislature as investors and as
business owners. Discussion had also included how they
would be affected as employers and how their employees
would be affected. Additionally, they had discussed how the
budget situation impacted their ability to make long-term
decisions. He highlighted that the legislature had talked
for years about the importance of fiscal certainty and
stability for the oil and gas industry to make multibillion
dollar investments. He pointed out that non-oil and gas
businesses needed the same fiscal stability to make
investment decisions.
2:54:31 PM
Co-Chair Foster recognized Representative Sarah Hannan in
the audience.
Vice-Chair Johnston asked if additional businesses had
signed onto the original letter that had been published in
the paper.
Mr. Persily replied in the affirmative. He detailed that
the meeting had been on a Tuesday and there had been a fast
turnaround to get the advertisement produced, gather
signatures, and publish the list in the paper on Thursday.
He was aware of at least one additional signature.
Vice-Chair Johnston noted Mr. Persily had been in and out
of the building for years.
Mr. Persily affirmed he had been in and out of the building
for decades.
Vice-Chair Johnston stated that a promise had been made on
the House floor in the past several days that the
legislature was not finished. She continued that the
legislature had not been able to get veto overrides, but it
was working to come up with an agreement with the Minority
and governor on a budget that had a reduced economic impact
in comparison to the current budget. She stated the budget
contained over $600 million in cuts to services. She asked
where Mr. Persily saw the legislature getting the funds.
Mr. Persily took an oil price increase off the table and
relayed there were three options. There was currently about
$170 million remaining in the SBR, which if used to boost
the dividend could add about $275 per person depending on
the number of applicants. He considered whether it was a
good use of the money from a policy standpoint. There was
$2.1 billion in the CBR, which required a three-quarter
vote. He cautioned that if too much was taken out of the
CBR it would jeopardize cash flow for the state. The third
option was to break the 5.25 percent POMV draw. He
concluded that none of the options were great.
Representative Knopp asked if Mr. Persily was indicating
the state needed to spend within its means. He observed
that none of the options sounded good.
Mr. Persily agreed, but clarified his recommendation to
spend within the state's means included spending on the
PFD.
Representative Knopp pointed to slide 6 that addressed how
much PFD the state could afford. He looked at the second
bullet point and asked if the state could afford a $1,600
PFD if the legislature let the $400 million in vetoed
funding stand, combined with the $190 million in cuts
adopted by the legislature. He wondered if the scenario
would still involve a draw over 5.25 percent.
Mr. Persily answered that maintaining the $190 million in
cuts adopted by the legislature combined with the $400
million in vetoed funds, would mean the state could
withstand roughly a $1,600 PFD without having to exceed the
5.25 percent draw. He clarified that it was an either or
scenario - the $400 million in budget cuts could be
maintained or the 5.25 percent POMV draw could be exceeded
or go into the CBR.
2:59:33 PM
Representative Knopp surmised that if the legislature was
not willing to let the vetoes stand at $400 million or
exceed the 5.25 percent draw, it would mean spending
residual cash, which would govern the size of the dividend.
Mr. Persily answered in the affirmative. He elaborated it
was the money on the table. The decision was about how to
best spend the money for the collective future of Alaska.
Representative Knopp stated that the legislature had been
beat up for a number of years for spending down savings. He
heard it daily from the public that the legislature had
spent down $15 billion over four years. The legislature had
announced in the beginning of session that it was not
spending any more savings. He noted that the previous year
the legislature had passed the POMV draw in SB 26. He
stressed that the House Majority coalition had announced at
the beginning of session that it would not exceed the [5.25
percent] draw. He underscored that exceeding the draw would
decimate the ERA over time if it was not reigned in. He did
not see the options. He stated that services could be
sacrificed larger dividends. He asked if that route was
smart and considered it may be to a small degree. He asked
for Mr. Persily's thoughts.
Mr. Persily agreed it was the dilemma. There could be a
bigger dividend if there were cuts to grants for homeless
programs, student scholarships (where students had already
enrolled and made plans), University programs that
attracted federal dollars for research grants, Village
Public Safety Officers (VPSOs), and other programs that may
not be covered by the reverse sweep such as Power Cost
Equalization (PCE). The question was about the best way to
spend the limited dollars for the collective or individual
good. He agreed the legislature was getting beat up by a
segment of the public over the issue. He remarked it was
unfortunate the situation had come down to that.
3:02:13 PM
Representative Knopp used a hypothetical scenario where the
PCE sweep was not reversed and the fund no longer generated
$60 million that the state could spend. He remarked that it
would either leave rural Alaska "high and dry" without any
support for high energy costs or the state would pay the
price somewhere in the future. He asked if it was fair to
say that the state was in a terrible predicament in the
outyears if it tried make the funds up or assist in any
way.
Mr. Persily predicted that if PCE was not funded, people
would be delinquent on utility bills; utilities that may
have bond debts to cover or maintenance costs to cover
would not have money to do the work; and some villagers may
move to Anchorage or Fairbanks, which would exacerbate
needs for social problems if there was no available housing
or jobs. He explained that the situation would create major
problems in peoples' lives, for utilities, for investors
who had loaned money to utilities, and for communities. He
noted that people would receive a dividend.
Co-Chair Foster highlighted that PCE and the Higher
Education Fund (scholarships due to go out to thousands of
students going to college) were tied together. He cited a
recent tweet posted by the governor stating that rhetoric
on the reverse sweep is incorrect, the power of
appropriation resided solely with the legislature, and the
legislature had failed to adequately fund these programs.
He agreed the legislature had the power of appropriation
and that it needed to adequately fund programs. He
elaborated it was true when talking about the reverse sweep
and the 18 funds and programs that historically had been
considered sweepable. In that situation, a three-quarter
vote was required to appropriate the money into programs.
He highlighted four of the programs including Railbelt
energy, the Alaska Marine Highway System (AMHS) vessel
replacement, educational facilities maintenance, and the
civil legal services fund. He stated that the funds were
considered by prior governors to be sweepable. The current
administration was looking to expand the list of 18 to
sweep funds from an additional 12 or so funds including PCE
and the Higher Education Fund.
Co-Chair Foster continued that former Governor Parnell had
championed the Higher Education Fund and did not consider
it to be sweepable. He stated that the current
administration considered the fund to be sweepable and as a
result 12,000 emails had been sent to students statewide
informing them that they would not receive their
scholarship funds. His understanding was that one-third of
the tuition received by the University system went to
helping young students go to college. He stated that if the
fund was not swept (as had been the case with former
Governors Walker and Parnell), a three-quarter vote to
appropriate the funds was unnecessary. He noted that
appropriation would still require a majority vote as was
normal; however, swept funds required a three-quarter vote.
Co-Chair Foster stressed that the PCE Fund had not been
swept by governors going back to the 1980s when the program
had first been created - meaning the three-quarter vote had
not been needed. He disputed the governor's claim that the
legislature had failed to adequately fund programs. He
underscored there was more to the story; the funds had
historically not been swept and the governor had created a
new situation where a higher bar was required to fund the
programs. He explained that the governor was sweeping funds
that were normally not swept. He asked for comment by Mr.
Persily.
3:07:39 PM
Mr. Persily agreed there was more to the story that the
public was not getting. He shared it was the reason he had
purchased a newspaper in 2019 (and was considering buying a
couple more) and would be teaching journalism at University
of Alaska-Anchorage in the fall if there was a journalism
department in the fall. He reported that at the recent
meeting, the business community had discussed that all of
the impacts [of the governor's vetoes] were not known. For
example, if scholarships were not paid, which accounted for
one-third of tuition would it mean more than the budget
vetoes would be lost because students would leave the
University because they could not afford it. The CBR was
set up alone - technically, when money was taken out, it
had to be put back in. The legislature/state had paid back
some of the draws over the years, not the current last
several years. The way the law had been interpreted was
that at the end of the fiscal year certain accounts were
swept back into the CBR because it was necessary to repay
the loan.
Mr. Persily elaborated it was not possible to tell the bank
that there was money in the bank, but the state did not
want to pay its loan payment. He explained that the money
was swept up and as part of a three-quarter vote at the end
of every session and was restored at 12:01 a.m. [on July
1]. The legislature did not vote against funding PCE or to
drain the account. The problem was that PCE and perhaps
other accounts had been caught up in the political
inability to get a three-quarter vote on the CBR.
Co-Chair Foster acknowledged Representative Andi Story in
the audience.
3:10:00 PM
Representative LeBon highlighted an earlier reference to SB
26. He discussed that in the preceding year, the
legislature had identified SB 26 as a POMV product to move
the state forward on funding for the general cost of doing
business and the PFD. He asked if Mr. Persily had an
opinion about the using the POMV approach. Additionally, he
wondered if Mr. Persily had an opinion about a formula
within a formula. He stated that the formula took a five-
year average on the value of the Permanent Fund and
reasoned that the actual draw was less than 5.25 percent.
Mr. Persily replied that the legislature had debated for
years about how to deal with Permanent Fund earnings, which
people knew eventually would have to go to help pay for
public services. He agreed that SB 26 looked back five
years at the fund's realized earnings, determined an
average and took 5.25 percent of the average. He stated it
was 5.25 percent of the average, but less than 5.25 percent
of the current balance. The rationality for taking the
five-year average was to account for volatility. He stated
there would be some great [earnings] years, but it was not
that long ago that the Permanent Fund had lost about $6
billion in one year. The state did not want the uncertainty
of basing the draw - which would pay for schools,
dividends, VPSOs, homeless programs, Pre-K - on the
fluctuations of Wall Street.
Mr. Persily continued that the previous year the
legislature had discussed putting in statute or the
constitution a hard and fast allocation of the 5.25 percent
divided between services and PFDs (e.g. 50/50 for public
services and PFDs, 80 percent for public services, 80
percent for dividends). He explained it was a finite amount
of money - the more that went to dividends, the less there
was for public services and vice versa. The preceding year,
the legislature had agreed it was good fiscal policy for
the endowment to limit how much was taken out; however,
politically there had been no agreement on how to split it
between public services, community services, and the
dividend. He clarified he was not placing blame on
legislators from the past year - it was not an easy task.
3:13:23 PM
Representative Josephson referenced the governor's tweet
highlighted by Co-Chair Foster. He stated it was true that
the delivery of 30 votes for the CBR was sometimes
bargained for and he had been part of the minority that had
participated. He understood it was a social compact of
sorts. He provided a social compact scenario where a person
driving pulled over when hearing an ambulance because at
some point the ambulance could be coming for them. He
understood the need to make the accounts work and that at
some point the three-quarter vote had to be delivered. He
stated that he had not been given a concrete request for
the delivery of a three-quarter vote. He referenced that
Senator Lyman Hoffman had mentioned that in Hickel v.
Cowper there was reference to the Alaska Energy Authority
as being an independent authority linked to PCE that may be
exempt from the sweep. He stated it reminded him that the
legislature may end up in court with the administration
over three or four different matters.
Representative Josephson looked at the slide titled "How
much PFD can we afford." He stated that it struck him that
to honor the 5.25 percent draw but to sweeten the dividend,
the CBR could be used (the treasury office noted $1.2
billion to $1.4 billion was needed and the CBR contained
$2.1 billion). He remarked that some constituents
supporting the large dividend only wanted the PFD funds to
come from the ERA (resource dollars), not the CBR. He asked
for verification that Mr. Persily was reminding the
committee - even though there was a tendency to consider
going beyond a 5.25 percent draw in order to cut a deal -
that people were watching the legislature, including
lenders, banks, and bond issuers.
3:16:21 PM
Mr. Persily answered that he did not believe anyone at the
table of business leaders would be apoplectic if the
legislature drew 5.3 percent instead of 5.25 percent, in
order to have peace in the current time. However,
discussion of draws of 6 to 7 percent (and the
understanding the same problem would occur in the following
year) made people very nervous. He discussed the reverse
sweep and three-quarter vote and noted that in past years
there had been end of session negotiations (some would call
political blackmail) between the Majority and Minority to
get the three-quarter vote. For example, there had been
funds in the capital budget or programs that the Minority
would agree to a three-quarter vote for. He explained that
the negotiations had always been over budget items, not the
reverse sweep language. He stated there had been an
understanding that legislators could fight over specific
projects (e.g. a road), but they would not jeopardize
programs with the reverse sweep.
Mr. Persily addressed the CBR and agreed there was nothing
magical about $2.1 [billion] and that taking a bit of the
balance to preserve the sanctity of Alaska's fiscal future
would not destroy the economy. He recalled working for DOR
from 1997 to 2003 when the state had been running billion
dollar deficits on a budget that was about $2.4 billion
(about 40 percent of the funds came from budget reserves
and it was before many cases had settled). He reported that
the CBR had dipped below $2 billion; at the time DOR had
determined that $1.5 billion was the red line. He explained
that if the number dipped below that amount, statute
allowed the state to issue revenue anticipation notes - it
was like a paycheck loan where money was borrowed for the
short-term. He relayed that the budget had been smaller at
the time. He advised looking at a red line a bit above $1.5
billion, but he agreed there was a bit of headroom if that
was what it would take to get through the situation and
come up with a lasting plan in the future. A lasting plan
would include an allocation of the POMV between the
individual and the community.
3:19:14 PM
Representative Josephson referred back to the "How much PFD
can we afford" slide. He was concerned with the second
bullet point because he strongly believed the $400 million
in vetoed funds belonged to public safety officers,
professors, domestic violence shelters, public radio, and
more. He explained it was the reason he would have joined
in Senator Chris Birch's amendment for a $900 or $1,000
PFD. He thought there must be a deal at hand, otherwise the
proposition of vetoes and no dividend was a lose-lose
scenario. The goal was a win-win scenario.
Mr. Persily answered that the point he had tried to get at
with the business leader group had been that even if there
was no veto override, the PFD was only at $1,600. Whereas,
if the PFD was $3,000, the $400 million [in vetoes] only
amounted to less than one-third of the funds needed; there
would be serious problems to pay down a $3,000 dividend.
Vice-Chair Johnston thanked Mr. Persily for speaking about
revenue anticipation notes (or tax anticipation notes
(TANs) if the state had taxes), which was a common way for
governments to carry their cash management. She considered
that if the legislature drew down the SBR and CBR and got
to a point where it did not have the cash, it would have to
go with TANs. Her experience had been that you hoped there
was a spread - that a little money could be earned when the
money came in if the interest rate was low enough on the
tax or revenue anticipation notes.
Vice-Chair Johnston considered the option where the
legislature exceeded the structured draw from the ERA. She
stated there were a number of things done by the
legislature over the past four years that would give her
pause and could have an impact on the state's financial
standing and bond rating. She noted it appeared the state
had been able to protect its bond rating because Alaska was
very fortunate with its $65 billion [Permanent Fund] fund
balance. She wondered what would happen to the state's bond
rating if it started making unstructured draws and
potentially revenue anticipation notes.
3:22:53 PM
Mr. Persily answered that when the legislature had passed
SB 26 that established the draw limit of 5.25 percent, the
rating agencies had taken the state off their negative
watch list and indicated the action was encouraging. Based
on his conversations with individuals in public finance, he
expected that if the legislature drew 6 or 7 percent, he
believed rating agencies would have a reversal of their
encouraging news from the previous year. The agencies would
be worried about cash flow. He agreed that some interest
would have to be paid when using revenue anticipation
notes; if too much was paid, the state would be digging
itself into a deeper hole like a payday loan.
Vice-Chair Johnston referenced discussion on the House
floor earlier in the day and noted they had not had the
votes to override the vetoes in terms of a capital budget.
She remarked it was not possible to know where the price of
oil would be or what markets would be doing. She added that
many times the two went in opposite directions. She noted
that Alaska was lucky as a state because it had that
balance. She reasoned that at some point the state would
need a capital budget. She thought that at some point the
legislature would need to talk about bonding again, which
was something the state had done for a long period of time.
She considered what the cost would be if the legislature
broke the structured draw and the state was docked by
rating agencies.
Mr. Persily agreed. He elaborated that the state had a
backlog of public works needs including construction,
maintenance, and repairs. The state could use a bond issue,
which meant the creditors would determine the interest
figure based on the risk. He relayed that if the state was
financially irresponsible, it would have to pay more to
borrow the money. It was currently a good time to borrow
money as rates were very low. Legislators and others had
talked in the past couple of years about putting a bond
issue package together. He pointed out that it had to be
factored into the state's budget - if the state sold the
bonds, it would have an annual payment on the debt, which
would increase the state's spending. He noted there would
be significant benefit upfront, but the debt would have to
be paid over time.
Vice-Chair Johnston remarked that former Representative and
Senator Anna MacKinnon was currently studying the state's
debt and debt limits in a Commonwealth North study. She
found the information available on the Commonwealth North
website to be very informative.
Mr. Persily agreed the state had the capacity to take on
additional debt, but there was a question about what the
debt would fund how the state would pay for it. He stated
there was capacity to meet some of the needs that had
accumulated over the years of essentially negligible
capital budgets consisting of the federal match and not
much else.
HB 2001 was HEARD and HELD in committee for further
consideration.
Co-Chair Foster noted the next meeting was scheduled for
the following day.
ADJOURNMENT
3:27:55 PM
The meeting was adjourned at 3:27 p.m.
| Document Name | Date/Time | Subjects |
|---|---|---|
| HFIN Perlily Rasmuson slides for business leaders group (002).pdf |
HFIN 7/11/2019 1:00:00 PM |
HFIN HB 2001 presentation |
| HB 2001 Business Leaders signatories.pdf |
HFIN 7/11/2019 1:00:00 PM |
HB2001 |