Legislature(2019 - 2020)ADAMS 519
03/10/2020 01:30 PM House FINANCE
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| Audio | Topic |
|---|---|
| Start | |
| HB306 | |
| HB300 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| *+ | HB 300 | TELECONFERENCED | |
| *+ | HB 306 | TELECONFERENCED | |
| + | TELECONFERENCED |
HOUSE FINANCE COMMITTEE
March 10, 2020
1:33 p.m.
1:33:04 PM
CALL TO ORDER
Co-Chair Foster called the House Finance Committee meeting
to order at 1:33 p.m.
MEMBERS PRESENT
Representative Neal Foster, Co-Chair
Representative Jennifer Johnston, Co-Chair
Representative Dan Ortiz, Vice-Chair
Representative Ben Carpenter
Representative Andy Josephson
Representative Gary Knopp
Representative Bart LeBon
Representative Kelly Merrick
Representative Colleen Sullivan-Leonard
Representative Cathy Tilton
Representative Adam Wool
MEMBERS ABSENT
None
ALSO PRESENT
Representative Jennifer Johnston; Representative Chuck
Kopp; Grace Irvine, Staff, Representative Chuck Kopp;
Representative Adam Wool, Sponsor.
SUMMARY
HB 300 PERM FUND: APPROPS FR EARNINGS RESERVE
HB 300 was HEARD and HELD in committee for
further consideration.
HB 306 PFD/GF APPROPS; EARNINGS RESERVE
HB 306 was HEARD and HELD in committee for
further consideration.
Co-Chair Foster reviewed the meeting agenda.
HOUSE BILL NO. 306
"An Act relating to deposits into the dividend fund
and income of and appropriations from the earnings
reserve account; establishing a permanent fund
dividend task force; and providing for an effective
date."
1:33:04 PM
REPRESENTATIVE JENNIFER JOHNSTON, shared that the bill
built on the work done by the Permanent Fund Working Group
and continued a conversation seeking a sustainable
Permanent Fund for future generations. She shared that it
had been an honor to serve as co-chair of the working group
with Senator Click Bishop. The group was comprised of four
members of the House and four members of the Senate and
included House Finance Committee members Representative
Merrick and Representative Wool. She reported that while
the working group had not come to an agreement on the ideal
Permanent Fund Dividend (PFD) amount, they all agreed the
Permanent Fund needed to grow and be protected from effects
of inflation.
Co-Chair Johnston elaborated that the majority of the
working group agreed on the need to live within the
framework of SB 26 [Permanent Fund legislation passed in
2018] or the percent of market value (POMV). She referenced
slide 5 of a presentation to the committee given by
Department of Revenue Deputy Commissioner Mike Barnhill on
the afternoon of March 9 [titled "HB 259 Supplemental
Permanent Fund Dividend"(copy on file)]. She read the third
bullet point on slide 5: "Structured (i.e., statutory)
solution to the PFD is important to reducing annual fiscal
uncertainty." She relayed that HB 306 started the
conversation on how to address the structure and move away
from the uncertainty that had existed for a number of
years.
Co-Chair Johnston relayed that the Permanent Fund Working
Group had modeled many different scenarios, none of which
had completely eliminated the deficit. The scenario
proposed in HB 306 had come the closest [to eliminating the
deficit] at the time. She highlighted that the current
fiscal outlook for world markets had changed dramatically
over the past couple of days. She looked forward to the
committee's conversations that would account for the
current market and looking into the future. She stated that
like recent conversations on the House floor regarding HCR
13, common ground was most often found on the topic of
ensuring the Permanent Fund was protected for future
generations.
Co-Chair Foster handed the gavel to Co-Chair Johnston.
1:37:06 PM
REPRESENTATIVE CHUCK KOPP, introduced a PowerPoint
presentation titled "HB 306: A Path Forward" (copy on
file). He began on slide 2 and expressed gratitude to the
Permanent Fund Working Group. He detailed that the group's
work over the interim had brought them to the current point
and showed that the legislature could reach consensus on an
important topic like protecting the Permanent Fund. He
moved to shared goals for Alaska on slide 3 including
healthy and safe communities, a thriving private sector, an
efficient government that upheld the law, and a strong,
growing Permanent Fund.
Representative Kopp moved to slide 4 titled "Why Protect
the Permanent Fund." He detailed that historic investments
in the fund had allowed it to grow from the initial
$734,000 deposit to $68 billion as of several days earlier.
He noted an update was likely needed. He elaborated that
there had been recent discussion on the House floor about
the growth of the fund, a sustainable draw, fiscal
solvency, and the state's creditworthiness. He noted that
the fund could be ephemeral at times, but it could be
helpful to discuss the ways it had played into the state's
shared history, outside of paying a PFD. He believed it was
an opportunity to celebrate the fund's success, recognizing
that the Permanent Fund would continue to have a major
impact on Alaskan life.
1:39:17 PM
Representative Kopp addressed goals for Alaska and how the
Permanent Fund supported the goals on slide 5. He believed
the outcomes listed on the slide were useful whenever
concerns were vocalized about the POMV being a raid or
theft. He expounded that fund earnings had helped the state
respond to the opioid epidemic, the rise in crime, the 2018
earthquake, and the 2019 wildfire season. He continued that
earnings had allowed Alaskans' tax burden to remain low
despite the drop in oil prices. Additionally, the POMV had
acted as the most effective spending cap in decades. He
stated that the accomplishments further underscored the
need to keep the fund strong.
Representative Kopp moved to slide 6 and addressed how the
state had been funding its services. The slide began with
1912 through statehood and present day and highlighted how
the fund's earnings had become integral to running the
state over time. In 1912, funding had come from industry
taxes and an income tax. By 1977, significant oil revenue
began to flow into Alaska. The income tax had been repealed
in 1980 and in 2013 when oil prices dropped dramatically,
the state had responded by cutting billions in the
operating budget. The state's need to address the
mathematical tension in its budget with the dividend and
the POMV was continuing.
Representative Kopp moved to slide 7 and discussed that
deposits into the Permanent Fund had allowed the fund to
grow. He detailed that deposits into the fund including a
combination of mineral royalties and non-royalty
legislative appropriations plus inflation proofing, had
caused the fund to grow to roughly $66.7 billion. He
pointed out that previous legislatures had understood the
importance of growing the fund in the long-term, which had
been done at the expense of short-term benefits through
appropriations.
1:41:34 PM
Representative Kopp reviewed how the POMV worked on slide
8. He explained that the Alaska Permanent Fund Corporation
(APFC) calculated the total value of the Permanent Fund
(principal and earnings) and then calculated 5.25 percent
of the fund's value over the first five of the last 6
years. He noted the draw was set at 5.25 percent for FY 19
through FY 21 and 5 percent thereafter. The result became
the maximum amount the state could spend from the Earnings
Reserve Account (ERA). Lastly, the legislature appropriated
the specified amount to pay for dividends and state
services.
Representative Kopp turned to slide 9 and discussed how to
keep the Permanent Fund strong. He stated that in addition
to the appropriations made to the fund's principal, there
was more that could be done to support the fund's strength.
Other ways to keep the fund strong included supporting and
abiding by the POMV structure, paying out an affordable
dividend, and supporting APFC's work to recruit and retain
great investors. He acknowledged Co-Chair Johnston for her
work helping APFC with its ability to recruit and retain
some of the best investors in the country, which Alaska had
benefitted from.
1:42:52 PM
Representative Kopp turned to slide 10 titled "Why Act
Now?" He believed the legislature had kicked the can down
the road long enough. He clarified he was not laying the
blame on anyone. He continued that the state's savings were
nearly exhausted and with oil at such low prices, oil could
not be expected to bail the state out of the $1.5 billion
structural deficit. He highlighted that any new revenues
would not solve the deficit in the current year. He noted
that oil was currently around $34 per barrel and the
forecast indicated prices heading into the $20s.
Representative Kopp reviewed a slide addressing the need to
change state statutes on slide 11. He explained there was a
mathematical tension between revenues and costs. The change
in statute was needed due to the gap illustrated on the
slide. The slide showed the revenue picture paired with the
state's expense picture in the governor's FY 21 budget and
the size of the gap necessary to pay the statutory
dividend. He continued that the gap caused unnecessary
stress and uncertainty across the state. He noted that
attempts to reduce the gap with $1.5 billion in cuts and
cost shifting had not worked well. He detailed that
legislators had heard from all of their communities on the
devastating effects of absorbing the costs or having their
share of petroleum property tax or fisheries tax clawed
back to the state (actions taken to pay the whole
dividend). He pointed out that if the gap occurred again in
the following year, the state would have no savings to fill
it. He expressed gratitude to Mr. Barnhill for underscoring
the issue in his presentation the previous day.
Representative Kopp shared that according to Fitch ratings
(one of the three largest credit rating agencies in the
U.S. other than Moody's and Standard and Poor's), the
state's desire to pay a full statutorily calculated PFD
elevated the state's fixed cost burden and reduced its
ability to respond to future economic weakness, as revenue
growth was expected to be modest. He stated the Coronavirus
and downward spiral of oil were contributing to a state of
future economic weakness. He noted that Fitch had made the
statement five or six months back.
1:45:25 PM
Representative Kopp turned to a graph showing the UGF
revenue/budget status quo on slide 12. The graph
illustrated the amount left unknown if no change was made
in the current year. The top dotted line represented a
budget with a statutory PFD and the gap between the budget,
less dividends. He noted the gap was significant and
$1.5 billion would be required to balance the budget. He
highlighted that in the following year, the legislature
could spend the remaining $500 million in savings and still
have a deficit exceeding $1 billion. He reported that under
the status quo, the annual gap would exceed the state's
savings and would result in a crippling tax burden.
Representative Kopp moved to slide 13 and addressed the two
elements of the HB 306 plan, including an 80/20 split of
the POMV and the review of the plan's effectiveness by the
Permanent Fund Task Force within six years. He explained
that the timeframe had been selected because it had taken
since 2014 to present day to evaluate the situation. He
detailed that under the 80/20 split, of the $3.1 billion in
FY 21, 80 percent would go to fund state obligations
(education, public safety, transportation) and 20 percent
went to dividends.
Representative Sullivan-Leonard looked at slide 13. She was
trying to determine how the 80/20 formula had been decided
upon. She believed the task force had received many
different proposals.
Co-Chair Johnston clarified that the Permanent Fund Working
Group was different than the Permanent Fund Task Force that
would review the plan's effectiveness in six years under
the proposed legislation.
Representative Sullivan-Leonard asked if the 80/20 POMV
split was a result of the working group or had been formed
independently.
Representative Kopp answered that much of the working
group's effort was incorporated in the bill. He elaborated
that the 80/20 split was a starting point for the
conversation as laid out by Co-Chair Johnston. He shared
that the committee would be presented with different
modeling scenarios - it was possible to look at the split
in many different ways. He explained that the bill began
with the 80/20 split because it worked the best for Alaska
out of the scenarios that had been available at the time of
the bill's introduction, which the modeling would show.
Representative Sullivan-Leonard noted that the proposal
brought forward by her Mat-Su representative was very
different from the bill's proposal. She was trying to
figure out who the author of the proposal was. She asked if
Co-Chair Johnston had proposed the 80/20 split in the bill.
Co-Chair Johnston that she had been a co-chair on the
Permanent Fund Working Group, and the 80/20 split had been
one of the scenarios the group had modeled. She elaborated
that it was one of the few scenarios that provided a
glidepath of sustainability.
Representative Sullivan-Leonard asked who had brought the
proposal forward.
1:49:28 PM
Co-Chair Johnston answered that the House Rules Committee
had brought the bill forward via herself as the vice-chair
and the committee chair Representative Kopp.
Representative Sullivan-Leonard shared that she was trying
to determine who brought the proposal forward. She asked if
it had been Senator Bishop or another group. She noted
there had been people tasked to work on different modeling.
Co-Chair Johnston answered that she, Representative Kopp,
and the majority of the House Rules Committee had brought
the proposal forward. She detailed that two things had been
brought forward with the Permanent Fund Working Group: 1)
the need to maintain the structured draw and 2) agreement
on the modeling presented to the group. She added that it
was possible to use numbers from the past week in modeling,
but it may not contain all of the nuances currently
occurring in the world markets.
Representative Kopp added that the bill was informed by the
working group but authored by himself with the assistance
of Co-Chair Johnston. He added that he was proud to be the
author of the legislation. He turned to slide 15 and
detailed that under the bill, a Permanent Fund Task Force
would review and evaluate the Permanent Fund and PFD after
six years. The task force would include three House
members, three Senate members, and an appointee by the
governor. He elaborated that the task force was charged
with giving Alaskans a performance review for HB 306 and
the Permanent Fund. The task force would consider the
effectiveness of the plan and determine whether the
Permanent Fund continued to be sustainable. The goal was
for the task force to evaluate whether a change was
necessary (the same thing legislators had been evaluating
since 2014). He stated that 2026 had been chosen in order
for legislators to have a full two-year legislature to
consider the recommendations (the 35th legislature).
1:51:40 PM
Representative Kopp turned to a graph on slide 16 and
discussed the impact of the plan on UGF revenue/budget. He
noted the graph had been produced by LFD to illustrate the
plan's performance under the FY 21 budget. He relayed that
LFD would provide testimony to the committee regarding the
bill and could address impacts on a more detailed level. He
pointed to the significant difference between the budget
gap under the status quo compared to the bill. He pointed
out that while a modest draw from savings would need to
occur, the gap would be far more easily filled with
reductions or revenues than the $1.5 billion gap under the
status quo. He continued that state savings also had a much
longer life under the proposed scenario.
1:52:43 PM
Representative Kopp advanced to slide 17 and spoke to the
impacts of state savings. The slide included a bar chart
showing the ERA growth under HB 306. He highlighted that
under the bill proposal the ERA grew and the CBR provided a
glidepath of about six years to allow the legislature to
look at new revenues/spending reductions.
1:53:16 PM
Representative Kopp looked at slide 18 that illustrated the
difference between the traditional statutory PFD and the
PFD under the proposed scenario in HB 306. Under the
legislation, the PFD was roughly $900. He turned to slide
19 to show how the amount compared to historical PFDs. He
pointed to the black line reflecting the PFD (in nominal
dollars) and noted the volatility over time. The slide also
showed the average dividend over time.
Representative Kopp moved to slide 20 and highlighted that
the average past PFD amount was $1,170 and under the
legislation, the 2020 PFD would be $900. He remarked that
it was popular to use the numbers based on the statutory
PFD formula, but he believed it was more realistic to
compare the amount to PFDs previously given to Alaskans. He
noted there was a $270 difference between the number in the
bill and the historical average.
Representative Kopp turned to slide 21 titled "HB 306 Moves
Us Forward." He detailed that the bill provided a path
toward being able to plan for the state's future instead of
living in a crisis mode. He elaborated that the bill would
unlock the ability for the state to improve its credit
ratings, stabilize PFD amounts, stabilize the budget
process, and ultimately assist with gaining a true
understanding of the budget picture. He stated that the
legislature had begun every budget process in near bedlam
since the drop in oil prices. He stressed that nobody won
when every year was met with the possibility of a
government shutdown, mass layoffs, or new taxes. The bill
would provide a built-in baseline to work from.
Additionally, the bill would provide a set of shared facts
about the budget outlook. He clarified that the bill did
not take anything off the table except the overspending of
the ERA and eroding the future of the state's children.
1:55:32 PM
Representative Kopp turned to decisions to be made on slide
22 including spending priorities, sustainability of the PFD
and Permanent Fund, and other revenue options. He stated
that the options accurately reflected the current fiscal
options. He questioned whether the legislature was willing
to continue the budget debate year after year. He wondered
if the legislature was interested in raising taxes to pay
for dividends, which would become necessary as soon as 2021
due to minimal savings. Alternatively, he wondered if the
legislature was willing to make difficult decisions at
present that would allow for the preservation of the
Permanent Fund and PFD and would provide economic stability
and community security. The question was what the highest
and best use of the fund was. He asked if the fund was to
be used as an ATM when the state needed money and whether
it was considered as a legacy to be left to future
Alaskans.
1:56:28 PM
Co-Chair Johnston recognized that Representative Knopp had
joined the meeting.
Vice-Chair Ortiz thanked the sponsor for bringing the bill
forward that started a much needed conversation. He asked
if there had been any consultation with economists on how a
smaller PFD may impact the state's economy.
Representative Kopp answered that he was well aware of
reports that had been authored and given to the legislature
showing what a reduced dividend amount could mean across
Alaska. He noted that some of the reports did not include
increased state services. There were many small communities
in Alaska and the numbers of people collectively accounted
for a very small percent of the state services received;
however, in order to pay a full PFD, it would be necessary
to wipe out the services the small communities were
receiving. He confirmed that he had considered the
information that had already been put on the record in
terms of what the dividend meant to the economy.
Co-Chair Johnston noted Vice-Chair Ortiz's an ISER report.
She shared that the report had been done before the massive
growth in the Permanent Fund and PFD had occurred. She
believed it was something that was forgotten.
Representative LeBon asked if the bill intended for the
legislature to fund the PFD first with 20 percent of the
POMV and all other funding decisions would follow.
Representative Kopp answered that the formula would provide
a baseline to start from. He explained that the legislature
would know the money available for state services and what
would go to the dividend. He reasoned that the absence of a
resolution on the PFD and trying to reconcile the
plummeting energy market and oil prices seemed to be what
kept the legislature in session for five to six months of
the year. Structurally, the bill would tackle the most
difficult thing - the PFD - first, which would free up
bandwidth to address the entire budget and determine the
true deficit. He elaborated that the $1.5 billion deficit
was only related to the statutory PFD. He clarified that
the deficit was tied into state agency spending; however,
the dividend was nearly twice as large as the largest state
agency. The PFD was a significant cost factor, which was
addressed by the bill.
2:00:55 PM
Representative LeBon considered the perfect economic storm
taking place that was associated with the decline in oil
prices and production. He asked if a $900 PFD and a state
income tax was a realistic possibility given the current
economic climate.
Representative Kopp answered that the state could be in
trouble in any scenario where it was paying a dividend
without adequate funding. He elaborated that there was no
safe formula that could predict what was currently taking
place in the market. He referenced the current PFD
calculation by APFC that was based on an average of five of
the previous six years. He remarked that the current year
would likely shape up to be tough. He highlighted the
difficulty in coming up with a formula that could
accurately predict the current market. He relayed that if a
dividend was paid base on the state's ability to pay, it
would have to be done with the current legislative
appropriation approach.
2:02:16 PM
Representative LeBon could see the day coming where the
legislature may be faced with overdrawing the POMV if it
was locked into using 20 percent of the 5 percent POMV draw
[for the PFD] and/or incorporating a state income tax to
fund the PFD. He believed if the PFD was paid first, as
under the bill proposal, it would be necessary to figure
out a way to make that happen. He furthered that the PFD
would be put at the tip of the mountain if paying it first
meant the possibility of instituting a tax, overdrawing the
ERA, or cutting agency spending.
Co-Chair Johnston added that model scenarios would be
presented the following day and committee members would
have the opportunity to ask more in depth questions.
Representative Carpenter looked at slides 12 and 16 that
showed revenue versus spending projections. He pointed to a
handout in members' packets generated by the Legislative
Finance Division that included multiple charts (copy on
file). He asked what forecast had been used to generate the
revenue bars on slides 12 and 16.
Representative Kopp answered that the graphs used the
forecast that had been available when the information had
been compiled about two weeks earlier. He noted that oil
prices had been higher and in the mid-$50s.
Representative Carpenter noted that one of the slides
showed the fall forecast had been used. He asked for the
percent increase used over time in the solid black line
reflecting the budget less dividends.
Representative Kopp deferred to his staff.
GRACE IRVINE, STAFF, REPRESENTATIVE CHUCK KOPP, relayed
that LFD would present to the committee the following day.
She recognized that the slides compiled as recently as one
week earlier no longer reflected the reality of the budget
and updated forecasts. She deferred the questions until the
LFD presentation.
Representative Carpenter referenced the LFD handout in
members' packets that listed the annual increase as the
rate of inflation at 2.25 percent. He noted that he was
looking at his own chart and believed revenue for FY 21
would be about $700 million. He remarked that the change
was drastic from the current projection.
2:05:06 PM
Co-Chair Johnston agreed that there was a new day coming.
Representative Carpenter referenced discussion on the need
to pay a PFD the state could afford. He pointed out that
the same logic applied to state spending. He highlighted
the need for affordable state spending levels. He believed
the discussion about new revenue and eating up a PFD needed
to include a discussion about spending levels.
Representative Kopp thanked Representative Carpenter for
his comments. He recognized that Representative Carpenter
and Representative LeBon had both touched on an important
issue. He highlighted that the bill was only one important
piece of a sustainable fiscal plan that involved
controlling state spending and looking at new revenues.
HB 306 was HEARD and HELD in committee for further
consideration.
HOUSE BILL NO. 300
"An Act relating to deposits into the dividend fund
and income of and appropriations from the earnings
reserve account; relating to the community assistance
program; and providing for an effective date."
2:06:19 PM
REPRESENTATIVE ADAM WOOL, SPONSOR, thanked the previous
presenter for laying down some groundwork pertaining to the
current fiscal situation. He noted that the House Finance
Committee had heard many presentations about the percent of
market value (POMV) draw and the situation that needed
resolution. He remarked that in his six years with the
legislature, many months had been spent trying to solve the
dilemma of balancing revenues with expenditures. He pointed
out that the PFD was very much a part of the issue.
Representative Wool provided a PowerPoint presentation
titled "HB 300 - POMV Allocation: A Sustainable Solution
for Alaska" (copy on file). He noted that graphs would be
reviewed for the committee by the Legislative Finance
Division (LFD) the following day. He relayed that the bill
was a conversation starter and was perhaps a novel way to
look at the Permanent Fund Dividend (PFD) and the POMV
draw. He began on slide 2 titled "The 2018 Passage of SB26
Largely Solved the Budget Crisis." He highlighted that the
POMV structure provided a stable funding stream to support
state government and had been a historic compromise. He
characterized the passage of SB 26 as a paradigm shift for
the state. He detailed that the state had been in a tight
position where revenue had declined very quickly, and the
state had been faced with the need to make some cuts. He
elaborated that the legislature had made some severe cuts
to the capital and operating budgets over the first few
years. He reviewed that the PFD had first been vetoed by
former Governor Bill Walker to 50 percent of the statutory
formula and the legislature had passed the same amount the
next year. He expounded that since that time, the
legislature had selected $1,600 as number it believed was
affordable in the past couple of years. He noted that the
first couple of years the number had been $1,000 (50
percent of the formula at the time).
Representative Wool discussed that the state had gone from
an economy paid for with oil (oil had paid for the state
budget for many years) and the Permanent Fund paid for the
PFD. When oil had declined, the Permanent Fund had been
tapped to pay for the state budget with a 5.25 percent
structured draw (scheduled to drop to 5 percent in 2022).
He continued to the third bullet point on slide 3 and
stated that the bill [SB 26] passed by the Senate had been
stripped down - it had not included a new PFD formula and
had not removed the old PFD statute. He referenced cries
for the legislature to follow the law and pay a full
statutory PFD. He pointed out that the formula called for a
$3,000 PFD, an amount that had never been paid. He noted a
$1,200 supplemental heating check had been distributed
during the Palin Administration [in 2008] when oil prices
had been particularly high. The high oil prices had helped
the state budget but hurt people trying to heat their
homes. He elaborated that the state had worked to get money
to residents in different ways, particularly in rural
Alaska where heating oil was extremely expensive. He noted
the cost had exceeded $4 per gallon in Interior Alaska and
heating bills had skyrocketed. He added that the
supplemental check had not been paid the following year.
2:10:51 PM
Representative Wool continued to discuss slide 2. He
remarked that people had been happy to receive the
supplemental energy check and had understood when it had
not been provided the following year. He reiterated that SB
26 did not delete the old [PFD} formula and did not include
a new one. He highlighted that the existing formula was not
being followed and legislators on both sides of the aisle
and the executive branch were all calling for a new
formula.
Representative Wool moved to slide 3 read the first two
bullet points:
• The amount available for the general fund equals the
total POMV draw less whatever is appropriated for
Permanent Fund Dividends
• For as long as the PFD remains subject to intense
annual debate, the state cannot depend on a
predictable revenue stream
Representative Wool spoke to the need for revenue
predictability. He noted that the past several weeks had
thrown the issue into turmoil. He detailed that oil revenue
had been steadily declining for decades; the oil price had
fluctuated over time and production had been declining. He
elaborated that the price had declined in 2014 and had
recently dropped again. He discussed that the volatile
revenue source could not be relied upon. He stated that the
POMV was a much more stable revenue source.
2:12:04 PM
Representative Wool moved to assumptions on slide 4 titled
"There is no consensus on the size of the dividend...but
large dividends equal large budget deficits." He
highlighted that the governor's budget proposal of $4.6
billion was largely what the House had passed. The fall
2019 revenue forecast was $2 billion, but he believed it
would be updated soon. He noted that the committee had been
told that the forecast for the following year would be
lower than originally thought and with recent events it
would be considerably lower. Currently, there was no new
revenue. There was a motor fuel tax and other small taxes
and revenue sources in the works, but there was no broad-
based income tax or sales tax.
Representative Wool addressed possible options on slide 4.
He began with the governor's plan to pay a $3,000 PFD,
which would cost about $1.9 billion to fully implement. The
second option he reviewed was a 50/50 plan that had been
discussed over the past year, which would result in a
$2,400 PFD and a deficit of $1.1 billion. The third option
was a 67/33 plan, which was roughly what had been used in
the past several years and would add to the deficit. The
surplus plan was the last option on the slide. He detailed
that at one point the surplus plan had resulted in a $700
PFD, which was no longer the case. He stated there were
problems with the specific plan.
2:13:31 PM
Representative Wool turned to slide 5 and detailed that his
proposal in HB 300 was an allocation model that combined
different ideas. He noted that he did not invent the model
in its entirety. He believed the Anchorage mayor had
mentioned doing a 45/45/10 POMV split going to the
government, PFD, and communities, respectively. The
proposal was a slight variation with prioritizing other
items in addition to government and the PFD. He reviewed
the proposal on slide 5:
FY2021 POMV will be $3,095 million
• 40% designated for K-12 education ($1,238
million, fully funds BSA)
• 10% designated for the University of Alaska ($310
million; restores FY2019 funding level)
• 10% designated for capital projects (doubles
recent amounts)
• 10% designated for a Community Dividend (expands
the Community Assistance" Program and replaces
current programs
• The remaining 30% split 50/50
o 15% to the General Fund
o 15% to Permanent Fund Dividends ($464
million, about $725 each)
Representative Wool elaborated on slide 5. The first bullet
point identified 40 percent for education (approximately
$1.2 billion in FY 21, which was approximately what had
been funded in the current year). The bill would set
education funding as a percentage of the POMV in statute.
Under the legislation, the University of Alaska would
receive 10 percent of the POMV ($310 million in FY 21,
which was close to the $302 million funded in FY 20). He
stated that both education items were in the constitution
and he believed they should be supported. He reasoned that
putting the items in the formula guaranteed that the two
entities would not have to wonder what funding they would
receive on an annual basis. He stressed that the two items
were very important in growing Alaska's future. He relayed
that other states that had faced tough times had doubled
down on their investment in education. He added that
investing in education primary and higher education would
keep young people in Alaska.
Representative Wool continued to address the allocation of
the POMV on slide 5. The bill would allocate 10 percent of
the POMV draw to capital projects, which would double
recent amounts to approximately $300 million. He expounded
that in recent years capital budgets had been funded at the
bare minimum of about $150 million to receive the federal
match. He remarked that legislators repeatedly heard about
the need for a capital budget to increase jobs for talented
workers who were leaving the state for employment in other
locations. Additionally, there was a need to build and
maintain the state's infrastructure (e.g. roads and
bridges). He highlighted that deferred maintenance was a
major problem - the University alone had $1 billion in
deferred maintenance.
Representative Wool detailed that the remaining 30 percent
of the POMV draw would be split 50/50 between the General
Fund and the PFD. He recognized that the amount was lower
than the 80/20 split proposed in the previous presentation
[on HB 306]; however, the community dividend would offset a
portion of the cut.
2:16:34 PM
Representative Wool advanced to an illustration on slide 10
showing how funds would be allocated. He detailed that 40
percent of the POMV would go to education. He listed other
items that would receive funding including the University,
the community dividend, and 30 percent divided 50/50
between the General Fund and PFD. He shared that he had
done different variations on ways to split the 30 percent
(e.g. 20/10). He believed it was important to look at the
community dividend portion.
Representative Wool returned to slide 6 and stated that the
problem with a surplus dividend was that no one knew what
it would be and there was fear there would be more
spending, which would make the PFD smaller. He stated that
the need for a statutory PFD was agreed upon. He relayed
that a 20 percent POMV (a 20/10 split instead of a 15/15
split) would result in a PFD of approximately $966 (similar
to the 80/20 split in HB 306).
Representative Wool moved to slide 7 and relayed that some
form of the community dividend had been in place since
1969. He detailed that the formula had been changed several
times. The current formula distributed $30 million per year
through the Community Assistance Program. The bill would
increase the amount to $300 million (10 percent of the
total POMV draw). He noted there were variations he would
explore in the analysis the following day that would change
the number to 5 percent. The bill would increase the
borough base from $300,000 to $1 million, the city base
from $75,000 to $250,000, and the base for unincorporated
communities from $25,000 to $83,333. He explained that the
calculation multiplied the original base by thirty-three
and one-third. The left over funding would be divided
between all state residents to determine a per capita
number (capped at $1,200 per capital in each community).
2:19:09 PM
Representative Wool turned to slide 8 and reviewed benefits
of a community dividend. He detailed that the community
dividend would bring the funds closer to the individual. He
explained that the money would not be distributed as a
check in residents' pockets but would be money in the
community. He believed that when the PFD had been created,
former Governor Jay Hammond had expressed desire to take
the money out of the state's hands and put it in the hands
of the people because the people knew how to spend the
money best. He believed it had worked for a while and
people had been spending money from the dividend since its
inception.
Representative Wool explained that the bill would not
eliminate a dividend; it would bring money into community
coffers instead of state coffers. He highlighted various
communities including Anchorage, Aniak, Fairbanks, and
Bethel and explained that all communities would receive a
substantial amount of money. He furthered that community
members could solicit community leaders with their needs
and priorities instead of people coming to the legislature
with a list of needs. He stated the community leaders would
be responsive and that community members knew what they
needed best. Additionally, there would be a higher per
person distribution for smaller communities.
Representative Wool explained that if Anchorage received a
base of $1 million, the per capita would be a little over
$300 (in addition to the base). He elaborated that the
amount would be slightly over $300 once the $1 million was
factored in. He furthered that dividing $1 million by
300,000 residents resulted in a little over $3 per person,
which would be added to the per capita of $300. Whereas,
for smaller communities that would receive between $83,000
to $250,000, the money would be divided between residents
in addition to the $300. He elaborated that for smaller
communities it meant residents would receive $900 to $1,200
in a community dividend and a PFD of $700, which was close
to $2,000 per person.
Representative Wool clarified that the $1,200 per person
went to the community, not to individuals' bank accounts.
He explained that residents could benefit from the funding.
For example, a community could install energy devices or
buy fuel in bulk and sell it at a discount to community
members. He reiterated that a community dividend would
bring the money closer to communities and rural/smaller
communities would receive more per capita. He highlighted
that it somewhat offset the problem of cutting the PFD -
cutting the PFD had an adverse impact on small communities
that had smaller economies, less cash, and fewer jobs. He
stated that the community dividend would provide more
autonomy to communities and would give local residents a
voice on how the money was spent.
2:22:10 PM
Representative Wool turned to slide 9 and discussed budget
impacts of the bill. He relayed that HB 300 would increase
the current budget. He detailed that the bill would add to
the capital budget, the University budget, and a
substantial amount to community assistance. He highlighted
areas that could potentially be decreased in the budget. He
detailed that school bond debt could be passed to
communities because communities would be receiving money
[via a community dividend]. He noted he had a complete
table of every community and had included an excerpt
showing examples later in the presentation [slide 14].
Representative Wool continued to list potential decreases
in the budget including miscellaneous municipal and
university debt support and a municipal portion of the
Public Employees' Retirement System (PERS)/Teachers'
Retirement System (TRS). He relayed that he had not gone
into any of the PERS/TRS calculations and he understood
that communities strongly advocated against any change. He
considered that if Anchorage received $90 million, perhaps
it could afford to spend more on PERS/TRS. He identified
community block grants as a budget item that could be
addressed at the community level. He reasoned that
communities knew what they needed best and would have the
funds to provide things like opioid treatment and support
homeless shelters. He pointed to public safety as another
area that could be decreased because more money would be
available for communities to provide their own public
safety services. For example, communities could hire a
village police officer.
Representative Wool identified transportation maintenance
as an area of the budget that could potentially be
decreased. He referenced a budget amendment that had been
offered in committee on the Quinhagak airport. The
community could not afford to maintain its airport. He
explained that under the legislation, Quinhagak would
receive $450,000 per year. He explained that some of the
money could be used by communities to maintain local rural
airports. He highlighted that the state would save about
$600 million if it did not pay a $1,600 PFD.
2:24:05 PM
Representative Tilton asked how the bill accounted for the
state's growing Department of Health and Social Services
(DHSS) budget. She wondered how the DHSS budget would be
administered and taken care of.
Representative Wool agreed that DHSS reflected a growing
portion of the budget. The remaining 15 percent of the POMV
in addition to oil revenue would still be available for the
other budget items. He had not allocated to DHSS
separately. He agreed on its importance and relayed that it
would be paid out of the budget as under the current
process.
Representative Tilton asked if the scenario would mean
communities would play a bigger role in providing DHSS
services.
Representative Wool answered that he had not looked at the
particular option, but it was not off the table. He stated
it would depend on how the numbers panned out. He would not
expect Medicaid funding to go through local communities,
but there were other health costs including treatment
centers and other. He noted that a sobering center had
recently opened in Fairbanks. He relayed that some of the
health and behavioral health items could be funded with the
community dividend.
2:26:02 PM
Vice-Chair Ortiz thanked the sponsor for bringing forward
the proposal, which he believed contained merit. He
believed the 40 percent going to education would act as a
spending cap. He asked for verification the bill would not
allocate any other funding sources to education other than
the 40 percent [of the POMV draw].
Representative Wool answered that he was not thinking of
the amount as a cap, but as a floor. He supposed that more
funding could be provided, not less. He noted that the
education community would know what the funding would be
[under the 40 percent allocation]. He relayed that 40
percent was slightly less than the current funding;
however, it would increase over time. He remarked that the
POMV was a five-year rolling average; therefore, even if
there was a bad month or year the impact would not be as
strong (unless there were multiple bad years). He informed
committee members that the upcoming graph would show a
steady increase, which he believed would alleviate much of
state educators' anxiety. He believed the same was true for
some of the other entities.
Representative Tilton spoke to the increase of community
involvement under the bill. She asked how the funds going
to communities and individuals would be administered. She
explained that there were administrative fees associated
with distributing community assistance funds.
Representative Wool answered that the bill would be modeled
on the existing community assistance program. The funds
would be distributed in the same way as they were
currently, but in amplified amounts.
2:28:55 PM
Representative Knopp highlighted that all of the fiscal
notes talked about designated general funds. He noted that
the [state] constitution prohibited designated funds. He
supposed they could probably refer to it as an
appropriation if they used the method in the legislation.
He reasoned that things would be fine if revenue grew over
time but considered what would happen in the next five or
six years if the markets were down and revenue dropped. He
noted that the proposal did not include the DHSS budget,
which was the largest budget item. He provided a scenario
where there was an additional $2 billion in revenue outside
of the POMV draw. He asked if there would be enough money
left to cover the state's obligations to bond debt, other
formula driven programs, and DHSS. He wondered if there
would be willingness to live with the structure if the POMV
draw declined in several years. He wondered how the
proposal would be implemented and adhered to over time when
it was not possible to bind the hands of future
legislatures.
Representative Wool replied that it was a valid point. He
referenced the POMV draw implemented under SB 26 [Permanent
Fund legislation passed in 2018] that the legislature had
been adhering to for since its implementation [in 2018]. He
hoped the legislature would continue adhering to the
legislation. He remarked that the legislature was not
currently adhering to the PFD formula. He would like to
have HB 300 adhered to and would like to adhere to SB 26.
He hoped the legislature would adhere to the bill. He
supposed that if things got really bad, they could opt to
not fund the capital budget.
Representative Knopp considered that the bill dedicated the
POMV draw, which he kind of liked. He was concerned about a
time when the $3 billion started to drop and the
legislature was no longer happy with funding the University
was receiving. He reasoned the legislature would have to
adjust the structure under the bill or to other funds. He
considered what the trickledown effect would be.
2:31:55 PM
Representative Wool stated that much of the bill was
intended as a conversation starter. He had another model
that he had not included in the presentation. He thought
the structure proposed in the bill may be a tool to "get us
on the road" that could perhaps be revisited in five years.
He had another model that lowered the percentage of the
POMV designated for the capital budget and the community
dividend to 5 percent each to give more flexibility
depending on the market.
Representative Wool turned to a bar chart on slide 11
showing the PFD amount from FY 21 to FY 29 using 15 percent
of the POMV draw. The PFD was calculated at $724 in FY 21
and almost $900 in FY 29. He moved to a chart on slide 12
showing education funding from FY 21 to FY 29 using 40
percent of the POMV draw. Education funding would be $1.2
billion in FY 21 and increase up to $1.5 billion over ten
years. Capital projects (including the University) at 10
percent of the POMV draw were illustrated in a bar chart on
slide 13, beginning at $309 million in FY 21 and increasing
to $381 million by FY 29.
2:33:25 PM
Representative Wool moved to proposed community dividends
for various communities on slide 14. The slide included
some larger communities with the $1 million base and other
communities with the $250,000 and $83,000 bases. He used
Anchorage as an example and pointed out that the current
FY 20 assistance was $4.5 million, while under the bill the
assistance would increase to $96 million or $328 per
person. He considered that Anchorage could do a lot with
the substantial sum annually, including work on the Port of
Anchorage and payment towards bond debt reimbursement. He
highlighted that the community dividend would be $362 per
person in Juneau. He pointed to the small communities of
Nulato and Gulkana that would hit the cap at $1,200 per
capita. He detailed that St. Mary's would receive the
$83,000 base, resulting in $765 per person. He explained
that the structure would help with the rural/urban divide
where a larger city would receive less per person and a
smaller community would get more per person (not more
total, but more per person). He reasoned that despite a
proposed cut to the PFD, the local communities would
benefit and have the ability to help their residents.
Representative Wool shared there would be more modeling the
following day. He reported that the fall forecast had been
used, which would be updated in the near future. He noted
there would be a model where the percentage of the POMV
designated for the capital budget and the community
dividend was lowered to 5 percent each. He elaborated that
the change would bring capital funding to $150 million
(closer to the current expenditure) and the community
dividend would also receive $150 million, which was still a
substantial amount of money. He stated that the funding
would help offset a PFD cut in rural Alaska.
Co-Chair Johnston asked the sponsor to model what the state
should be paying in statute for school bond debt and
capital program for rural villages the following day.
Representative Wool agreed to provide the information.
HB 300 was HEARD and HELD in committee for further
consideration.
Co-Chair Johnston reviewed the schedule for the rest of the
week. She shared that public testimony on HB 300 and HB 306
would take place on Thursday afternoon.
ADJOURNMENT
2:38:45 PM
The meeting was adjourned at 2:38 p.m.
| Document Name | Date/Time | Subjects |
|---|---|---|
| HB 306 Bicameral Permanent Fund Working Group Report 1.20.2020.pdf |
HFIN 3/10/2020 1:30:00 PM |
HB 306 |
| HB 306 APFC Resolution 10.17.2018.pdf |
HFIN 3/10/2020 1:30:00 PM |
HB 306 |
| HB 306 LegFin Modelling 3.5.2020.pdf |
HFIN 3/10/2020 1:30:00 PM |
HB 306 |
| HB 306 Sponsor Statement 3.5.2020.pdf |
HFIN 3/10/2020 1:30:00 PM |
HB 306 |
| HB 300 Sponsor Statement 3.9.20.pdf |
HFIN 3/10/2020 1:30:00 PM |
HB 300 |
| HB 300 Presentation Wool POMV 3-9-20.pdf |
HFIN 3/10/2020 1:30:00 PM |
HB 300 |
| HB 306 Presentation 3.5.2020.pdf |
HFIN 3/10/2020 1:30:00 PM |
HB 306 |
| HB 306 Sectional Analysis 3.5.2020.pdf |
HFIN 3/10/2020 1:30:00 PM |
HB 306 |