Legislature(2003 - 2004)
06/23/2004 09:10 AM House JUD
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
ALASKA STATE LEGISLATURE
HOUSE JUDICIARY STANDING COMMITTEE
June 23, 2004
9:10 a.m.
MEMBERS PRESENT
Representative Lesil McGuire, Chair
Representative Tom Anderson, Vice Chair
Representative Jim Holm
Representative Dan Ogg
Representative Ralph Samuels
Representative Les Gara
Representative Max Gruenberg
MEMBERS ABSENT
All members present
OTHER LEGISLATORS PRESENT
Representative Mike Hawker
Representative Ethan Berkowitz
Representative Bill Stoltze
Representative Mike Chenault
Representative John Coghill
Representative Paul Seaton
Representative David Guttenberg
COMMITTEE CALENDAR
HOUSE JOINT RESOLUTION NO. 103
Proposing amendments to the Constitution of the State of Alaska
relating to an appropriation limit.
- MOVED HJR 103 OUT OF COMMITTEE
HOUSE JOINT RESOLUTION NO. 101
Proposing amendments to the Constitution of the State of Alaska
relating to and limiting appropriations from the Alaska
permanent fund based on an averaged percent of the fund market
value.
- MOVED HJR 101 OUT OF COMMITTEE
HOUSE JOINT RESOLUTION NO. 102
Proposing amendments to the Constitution of the State of Alaska
relating to and limiting appropriations from the Alaska
permanent fund based on an averaged percent of the fund market
value and relating to permanent fund dividend payments.
- MOVED HJR 102 OUT OF COMMITTEE
PREVIOUS COMMITTEE ACTION
BILL: HJR103
SHORT TITLE: CONST AM: APPROPRIATION LIMIT
SPONSOR(S): RULES BY REQUEST OF THE GOVERNOR
06/22/04 (H) READ THE FIRST TIME - REFERRALS
06/22/04 (H) JUD, FIN
06/23/04 (H) JUD AT 9:00 AM CAPITOL 120
BILL: HJR101
SHORT TITLE: CONST. AM: PERM FUND P.O.M.V.
SPONSOR(S): RULES BY REQUEST OF THE GOVERNOR
06/22/04 (H) READ THE FIRST TIME
06/22/04 (H) JUD, FIN
06/23/04 (H) JUD AT 9:00 AM CAPITOL 120
BILL: HJR102
SHORT TITLE: CONST. AM: PERM FUND P.O.M.V.; DIVIDENDS
SPONSOR(S): RULES BY REQUEST OF THE GOVERNOR
06/22/04 (H) READ THE FIRST TIME - REFERRALS
06/22/04 (H) JUD, FIN
06/23/04 (H) JUD AT 9:00 AM CAPITOL 120
WITNESS REGISTER
CHERYL FRASCA, Director
Office of Management & Budget (OMB)
Office of the Governor
Juneau, Alaska
POSITION STATEMENT: Briefly introduced HJR 103, HJR 101, and
HJR 102; presented HJR 103 on behalf of the administration, and
responded to questions; responded to comments and questions
during discussion of HJR 102.
BOB BARTHOLOMEW, Chief Operating Officer
Alaska Permanent Fund Corporation (APFC)
Department of Revenue (DOR)
Juneau, Alaska
POSITION STATEMENT: Provided comments and responded to
questions during discussion of HJR 101; responded to questions
during discussion of HJR 102.
WILLIAM A. CORBUS, Commissioner
Department of Revenue (DOR)
Juneau, Alaska
POSITION STATEMENT: Responded to comments and questions during
discussion of HJR 101; presented HJR 102 on behalf of the
administration, and responded to questions.
JAMES BALDWIN, Senior Assistant Attorney General
Opinions, Appeals, & Ethics
Office of the Attorney General
Department of Law (DOL)
Juneau, Alaska
POSITION STATEMENT: Responded to questions during discussion of
HJR 102.
ACTION NARRATIVE
TAPE 04-87, SIDE A
Number 0001
CHAIR LESIL McGUIRE called the House Judiciary Standing
Committee meeting to order at 9:10 a.m. Representatives
McGuire, Anderson, Holm, Ogg, Samuels, and Gara were present at
the call to order. Representative Gruenberg arrived as the
meeting was in progress.
HJR103 - CONST AM: APPROPRIATION LIMIT
HJR101 - CONST. AM: PERM FUND P.O.M.V.
HJR102 - CONST. AM: PERM FUND P.O.M.V.; DIVIDENDS
Number 0125
CHAIR McGUIRE announced that the committee would take up HOUSE
JOINT RESOLUTION NO. 103, Proposing amendments to the
Constitution of the State of Alaska relating to an appropriation
limit; HOUSE JOINT RESOLUTION NO. 101, Proposing amendments to
the Constitution of the State of Alaska relating to and limiting
appropriations from the Alaska permanent fund based on an
averaged percent of the fund market value; and HOUSE JOINT
RESOLUTION NO. 102, Proposing amendments to the Constitution of
the State of Alaska relating to and limiting appropriations from
the Alaska permanent fund based on an averaged percent of the
fund market value and relating to permanent fund dividend
payments.
CHAIR McGUIRE asked the committee to focus on the constitutional
aspects of the resolutions, and noted that HJR 103, HJR 101, and
HJR 102 mirror other pieces of legislation that passed the House
earlier in the year.
Number 0231
CHERYL FRASCA, Director, Office of Management & Budget (OMB),
Office of the Governor, mentioned that HJR 103 is the same as
HJR 9, though is slightly different than the resolution being
introduced in the Senate; that HJR 101 is similar to HJR 26; and
that HJR 102 contains the same formula found in HB 298, though
it is a constitutional amendment, contains a requirement that
permanent fund dividends (PFDs) be at least $1,000 or 50 percent
of "the payout" - whichever is greater - and contains a 10-year
sunset provision. She suggested that the sunset provision will
allow future legislatures to assess the formula's efficacy.
[The committee then began discussion specific to HJR 103; HJR
101 and HJR 102 were discussed later in the meeting.]
HJR103 - CONST AM: APPROPRIATION LIMIT
[Contains reference to HJR 9, the resolution that HJR 103
mirrors.]
Number 0365
CHAIR McGUIRE asked the committee to focus attention on HJR 103
first.
REPRESENTATIVE SAMUELS asked what the differences are between
HJR 103 and the version of HJR 9 that passed the House Judiciary
Standing Committee.
Number 0397
CHERYL FRASCA, Director, Office of Management & Budget (OMB),
Office of the Governor, relayed that the House Finance Committee
changed HJR 9, adding debt service as an exclusion, and that a
four-year sunset was added on the House floor; HJR 103 now
mirrors the version of HJR 9 that passed the House.
REPRESENTATIVE GARA turned attention to page 3, line 28, of HJR
103 and asked how the amount listed - $3,400,000,000 - relates
to the amount actually appropriated minus the exclusions listed
in proposed Article IX, Section 16(d).
MS. FRASCA said it is approximately $362 million above the
amount being appropriated for fiscal year (FY) 05.
CHAIR McGUIRE noted that members' packets include a copy of SJR
103.
MS. FRASCA added that members' packets also include a comparison
between the version of HJR 9 that passed the House - what became
HJR 103 - and the version that was before the Senate - what
became SJR 103 - and sectional analyses of both versions.
Number 0677
REPRESENTATIVE GARA made a motion to adopt Amendment 1, labeled
23-GH2167\A.2, Cook, 6/22/04, which read:
Page 1, lines 9 - 10:
Delete "the lesser of
(1) seventy-five percent of"
Page 1, line 11:
Delete "(A)"
Insert "(1)"
Page 1, line 14:
Delete "(B)"
Insert "(2)"
Page 2, line 1:
Delete "; or"
Insert "."
Page 2, lines 2 - 4:
Delete all material.
Page 3, line 16:
Delete "."
Insert ";"
Page 3, following line 16:
Insert a new paragraph to read:
"(15) that portion of an appropriation for
elementary or secondary public school operations that
exceeds the amount appropriated for the immediately
preceding fiscal year for elementary or secondary
public school operations."
Number 0683
CHAIR McGUIRE objected for the purpose of discussion.
REPRESENTATIVE GARA offered his understanding that HJR 103 says
that spending may only increase by three-quarters of the rate of
inflation and the rate of population growth, or by the
percentage of change in personal income. He explained that
Amendment 1 would change the proposed constitutional spending
cap - currently outlined in proposed Article IX, Section 16(a) -
such that spending shall not go above the rate of inflation and
population growth, but will allow the legislature to increase
spending in order to account for such. He shared his concern
that if, in real dollars, on a per-person basis, the legislature
provides less and less money every year for public services, it
will become very difficult to make appropriate changes to
Alaska's public education system, and opined that spending
should keep pace with inflation and population growth. He also
explained that Amendment 1 would add another item - a paragraph
(15) - to the list of exemptions in proposed Article IX, Section
16(d), regarding certain appropriations for elementary or
secondary public school operations, so that class size could be
reduced without exceeding the proposed spending cap.
REPRESENTATIVE GRUENBERG offered his understanding that
Amendment 1 would also delete the provision - in proposed
Article IX, Section 16(a) - pertaining to an increase based on
the percentage rate of change in personal income.
REPRESENTATIVE GARA concurred, adding that he did not see how a
change in personal income can be accurately measured in Alaska,
particularly given that currently there is no state income tax.
REPRESENTATIVE GRUENBERG suggested dividing Amendment 1 such
that the portion adding a new paragraph (15) to proposed Article
IX, Section 16(d), be considered separately.
REPRESENTATIVE GARA said he has no objection to dividing
Amendment 1 in that manner.
Number 0939
REPRESENTATIVE GRUENBERG made a motion to divide Amendment 1.
There being no objection, Amendment 1 was divided into Amendment
1A - which would make the aforementioned changes to proposed
Article IX, Section 16(a) - and Amendment [1B] - which would add
a new paragraph (15) to proposed Article IX, Section 16(d).
Number 0979
REPRESENTATIVE GARA made a motion to adopt Amendment 1A.
CHAIR McGUIRE objected for the purpose of discussion.
MS. FRASCA said that the administration's concern is that
revenues don't automatically rise based on inflation and
population growth, and this raises the question of how to fund a
budget higher than what's been predicted thus far. With regard
to the question of how changes in personal income would be
calculated, she explained that federal income tax information
would be used as the data source, adding that other states have
used changes in personal income in their calculations. She
indicated that it is the administration's preference to tie the
state's ability to spend money to how well citizens are doing in
terms of their income.
REPRESENTATIVE GARA pointed out, however, that there is no
relationship between the state's revenue, which is currently
based on oil revenue and might in the future be based on gas-
pipeline revenue, and personal income. He opined that they
should understand and accept the reality that people live with
inflation, that schools suffer from inflation, and that senior
services suffer from inflation.
Number 1156
A roll call vote was taken. Representatives Gara and Gruenberg
voted in favor of Amendment 1A. Representatives Ogg, Samuels,
Holm, Anderson, and McGuire voted against it. Therefore,
Amendment 1A failed by a vote of 2-5.
Number 1199
REPRESENTATIVE GARA made a motion to adopt Amendment 1B.
Number 1204
CHAIR McGUIRE objected.
REPRESENTATIVE OGG said, "Question."
REPRESENTATIVE GARA mentioned that he has a legislative research
report that speaks to the issue of how far education funding has
lagged behind inflation - approximately $50 million over the
last five years. He said he is worried that with a spending
cap, education funding will suffer unless the legislature has
the ability to exempt funding increases based on class size.
MS. FRASCA offered her belief that education is a priority of
the governor and is one of the first things that gets funded.
She added, "We don't just have more revenues just because we may
have a spending limit; ... the challenge will be to prioritize,
into the future, the use of those revenues, and it's the
foundation formula that's going to allow ... the future
increases, not the spending limit ...."
REPRESENTATIVE GRUENBERG suggested that another reason to
support adoption of Amendment 1B is because the proposed
constitutional amendment is illogical as currently written. He
drew attention to page 3, lines 8-9, and noted that the language
therein specifies that appropriations of money from tuition of
the University of Alaska is exempt, and this is a large part of
what supports the university; in addition, the language on page
2, line 31, exempts federal money, which can include money for
[military] base children and money for Native children. He
opined that it is illogical to "exempt them and not to exempt
other educational funding," adding that such is neither fair nor
consistent.
REPRESENTATIVE GARA concluded by saying that because the No
Child Left Behind Act of 2001 (NCLB Act) is an underfunded
mandate and thus the state is going to struggling under it, and
because Amendment 1A was not adopted and thus funding will go up
less than the rate of inflation and population growth, it is
very important to exempt school funding increases from the
calculation that determines the spending cap.
Number 1342
A roll call vote was taken. Representatives Gara, Gruenberg,
and McGuire voted in favor of Amendment 1B. Representatives
Ogg, Samuels, Holm, and Anderson voted against it. Therefore,
Amendment 1B failed by a vote of 3-4.
REPRESENTATIVE GRUENBERG asked to be listed as a cosponsor of
Amendment 1B.
Number 1439
REPRESENTATIVE GARA made a motion to adopt Amendment 2, to
replace the language currently in HJR 103 with:
* Section 1. Article IX, sec. 16, Constitution of
the State of Alaska, is repealed and readopted to
read:
Section 16. Appropriation Limit. General fund
appropriations by the legislature shall not exceed
anticipated revenue.
* Sec. 2. The amendment proposed by this resolution
shall be placed before the voters of the state at the
next general election in conformity with art. XIII,
sec. 1, Constitution of the State of Alaska, and the
election laws of the state.
REPRESENTATIVE GARA recapped the current language in HJR 103 and
noted that the concept of Amendment 2 was introduced by
Representative Berkowitz on the House floor. Representative
Gara offered his belief that people will understand the concept
that the state must not spend more money than it has; Amendment
2 could be looked upon as a "balanced budget" amendment to the
Alaska State constitution, and its language does not include the
host of exemptions currently listed in HJR 103. He went on to
describe the concept embodied in Amendment 2 as short, clean,
and a little bit regal.
CHAIR McGUIRE mentioned that she'd had a similar amendment
drafted, and relayed that according to conversations she's had
with Legislative Legal and Research Services, there are some
potential problems with the concept.
MS. FRASCA asked how "general funds" would be defined. She said
that according to her interpretation of the language in
Amendment 2, the monies in the Constitutional Budget Reserve
Fund (CBRF) would not be considered general funds and therefore
use of the CBRF would not be permitted under the proposed
spending limit.
CHAIR McGUIRE noted that Amendment 2 makes no exception for
amounts in or transferred from the permanent fund, and this lack
could create problems.
MS. FRASCA remarked that Amendment 2 does not take into account
"general fund match" or "general fund mental health."
CHAIR McGUIRE offered her belief that the language currently in
HJR 103 goes a long way towards the concept embodied in
Amendment 2.
Number 1567
REPRESENTATIVE GARA made a motion to amend Amendment 2, to make
it conceptual and to say, "state appropriations shall not exceed
state revenues". There being no objection, Amendment 2 was
amended.
REPRESENTATIVE SAMUELS cautioned against making a conceptual
constitutional amendment. He asked whether anticipated earnings
of the permanent fund would be included in the calculation
proposed by Conceptual Amendment 2, as amended.
REPRESENTATIVE HOLM asked who would be calculating anticipated
revenue. He offered his belief that under Conceptual Amendment
2, as amended, it will be difficult to fund the Public
Employees' Retirement System (PERS) and the Teachers' Retirement
System (TRS).
REPRESENTATIVE OGG noted that Conceptual Amendment 2, as
amended, does not address the issue of debt, and asked how the
proposed change differs from the existing constitution.
REPRESENTATIVE GARA pointed out that staff at Legislative Legal
and Research Services can help draft appropriate language to
satisfy a conceptual amendment should the committee adopt such;
opined that the principle of the permanent fund should not be
counted as revenue; and offered his belief that the Alaska State
Constitution currently has no real spending restrictions, with
the exception of the principal of the permanent fund, and has a
current spending cap far exceeding the amount that has been
spent for many years and is thus considered unenforceable.
REPRESENTATIVE OGG offered his understanding that the Alaska
State Constitution already prohibits spending more money than is
taken in and, thus, adopting Conceptual Amendment 2, as amended,
would be redundant and not accomplish anything.
MS. FRASCA offered her understanding that the Alaska State
Constitution currently says that the state cannot incur debt
without a vote of the people, adding that this has been
interpreted as a requirement for a balanced budget - spending
cannot exceed revenues. For this reason, the governor's budget
identifies the revenues that will support the administration's
proposed spending.
CHAIR McGUIRE reiterated that she's had conversations with
Legislative Legal and Research Services during which potential
problems with concepts such as that proposed via Conceptual
Amendment 2, as amended, were highlighted. She suggested that
perhaps the House Finance Committee could better address this
issue.
REPRESENTATIVE GARA, noting that both a spending cap and a
balanced budget requirement already exist in the Alaska State
Constitution, opined that there is no need to clutter up the
Alaska State Constitution with another spending cap.
The committee took an at-ease from 9:40 a.m. to 9:45 a.m.
Number 1867
A roll call vote was taken. Representatives Gara and Gruenberg
voted in favor of Conceptual Amendment 2, as amended.
Representatives Ogg, Samuels, Holm, Anderson, and McGuire voted
against it. Therefore, Conceptual Amendment 2, as amended
failed by a vote of 2-5.
Number 1873
REPRESENTATIVE SAMUELS moved to report HJR 103 out of committee
with individual recommendations and the accompanying fiscal
notes. There being no objection, HJR 103 was reported from the
House Judiciary Standing Committee.
HJR101 - CONST. AM: PERM FUND P.O.M.V.
[Contains mention of HJR 102 and HJR 26.]
Number 1905
CHAIR McGUIRE asked the committee to focus attention on HJR 101.
She noted that the concept embodied in HJR 101 was heard in
committee during the regular session.
REPRESENTATIVE OGG asked for clarification regarding the
constitutional language being deleted by HJR 101.
Number 1957
BOB BARTHOLOMEW, Chief Operating Officer, Alaska Permanent Fund
Corporation (APFC), Department of Revenue (DOR), said that the
Alaska State Constitution says that all income received from the
permanent fund shall be deposited in the general fund unless
otherwise provided by law, and that in 1980, the legislature
passed a statute stating that all income from the permanent fund
will be retained in an earnings account - within the permanent
fund - available for appropriation. In response to another
question, he said that the record reflects that the intent of
the constitutional language was to provide the legislature with
the maximum flexibility in determining the appropriate use of
the earnings.
REPRESENTATIVE OGG asked whether it would be fair to say that
the change proposed via HJR 101 would limit the legislature's
ability to utilize the earnings of the permanent fund.
MR. BARTHOLOMEW offered that the proposed change will limit the
amount of money that can be appropriated each year, not how that
money can be utilized. He said that the board of trustees of
the Alaska Permanent Fund Corporation (APFC) recommends this
change because the permanent fund is invested for the long term,
with one goal being to protect the principal and another goal
being to generate earnings for use by the legislature. These
goals will be more easily met if it is known how much money is
going to be used every year. In addition, one way to protect a
large pool of money is to protect it against inflation and, to
that end, the board recommends constitutionally limiting
appropriations from the earnings of the permanent fund to a
sustainable yield so as not to erode the pool's purchasing
power.
MR. BARTHOLOMEW mentioned that if the formula proposed were used
currently, $1.3 billion would be available each year for
appropriation. He relayed the board's belief that the current
rules, which were written 25 years ago, may no longer work in
today's volatile, capital-market world. The change proposed by
HJR 101 will allow both the legislature and the public to know
what to expect from the permanent fund.
REPRESENTATIVE OGG asked how much money the legislature could
appropriate under the current constitutional language.
MR. BARTHOLOMEW estimated that if using realized income in the
calculation, it would be close to $2 billion before permanent
fund dividends (PFDs) are paid, and close to $1.4 billion after
PFDs are paid. He pointed out, however, that if income
currently unrealized becomes realized, the amount would change.
He added that it is the professional investment managers hired
by the board who determine when income becomes realized, and
this produces some volatility with regard to the amount that's
available for appropriations. He opined that the changes
proposed via HJR 101 would eliminate that volatility.
MR. BARTHOLOMEW suggested that by getting caught up in the
debate over how appropriated funds are to be used, people are
losing sight of the fact that there are some things that can be
done to help protect the permanent fund for the future when
markets go down or become volatile. He reiterated that the
board of trustees is seeking to protect the permanent fund and,
to that end, is recommending the changes proposed in HJR 101.
CHAIR McGUIRE remarked that the proposal is a sound management
approach, and surmised that people are finally beginning to
realize that.
Number 2301
MR. BARTHOLOMEW, in response to a question, relayed his
understanding that there is an attorney general's opinion that
says the legislature may only appropriate the permanent fund's
realized income.
REPRESENTATIVE SAMUELS asked how HJR 101 differs from HJR 26.
MR. BARTHOLOMEW offered his understanding that the two
resolutions are very similar and contain the same concept and
objectives. In response to another question, he said that all
earnings are reinvested immediately and so "income" is available
on paper; in other words the act of reinvesting earnings does
not [preclude them from being considered realized income].
TAPE 04-87, SIDE B
Number 2373
REPRESENTATIVE GRUENBERG said his concern is that the investment
managers might choose to sell assets in order to make more funds
available for appropriation.
MR. BARTHOLOMEW said that concern is one reason to adopt a
percent-of-market approach; the buying and selling of assets
under a percentage of market value (POMV) proposal is separate
and has no affect on what's available for distribution. Another
option would be for the legislature to set an amount it wants as
a spending limit on the permanent fund and then adjust statutes
accordingly. In response to a question, he relayed that in
1996, when there was a large accumulation of unrealized gains,
the board of trustees went through an eight- or nine-month
deliberative process in order to determine whether to realize a
portion of those gains and include it in the dividend formula.
CHAIR McGUIRE mentioned that there is a concern that the board
of trustees could be making management decisions based on
political agendas.
Number 2209
WILLIAM A. CORBUS, Commissioner, Department of Revenue (DOR),
noted that recently passed legislation prevents the governor
from removing board of trustee members except for cause.
REPRESENTATIVE GARA mentioned that Legislative Legal and
Research Services is drafting an amendment for him which he
hopes to offer as a compromise solution that all members and the
community can accept. He went on to say:
There is debate ... among all of us on how much should
go into a dividend: some of us want a bigger
dividend, some of us want a smaller dividend, some of
us want it in the [Alaska State] Constitution, some of
us don't, some of us want a public vote. I don't know
where that's going to go. We might come out of this
special session, if we just focus on the proposals
that have been made so far, with nothing. The ... two
places where there seems to be consensus is, some
version of POMV for managing the permanent fund seems
appropriate, with maybe some tweaks here or there, ...
[so] maybe we stick a clean POMV on the ballot ...;
the other part that there is growing consensus on
across party lines ... is that we need to reinstate
some sort of municipal revenue sharing through maybe a
community dividend, and so the governor has proposed -
and many of the rest of us have proposed - a portion
of the POMV proceeds to be used for a community
dividend, whether it's 5 percent, 10 percent, [or] 7.5
percent. ...
I would like everybody to think about this: a clean
POMV proposal on the ballot, plus the 5 or 7.5 or 10
percent for a community dividend. [Those are] ... the
parts that I think we can all agree on. Maybe [there
could be] a separate advisory vote or separate bill on
the dividend amount - my preference is [to use] the
current dividend formula, but leave that ... whole
dividend thing to the side. I want people to consider
a proposal that would address the parts I think we can
come out of here with some consensus on. ...
[Commissioner] Corbus, do you have any thoughts about
whether or not the administration might support
something like that if we can't forge consensus on
something bigger?
COMMISSIONER CORBUS replied: "I think so; I think that ...
there are two proposals on the table: pure POMV, and then the
enshrinement of the dividend - and 45 percent of the payout to
education, 5 percent to the municipal revenue sharing." We're
just looking for a solution," he added.
Number 2094
REPRESENTATIVE GARA asked whether the administration would be
amenable to just a clean POMV and include in it a provision for
a community dividend.
COMMISSIONER CORBUS replied: "The administration has made two
proposals; if [the] legislature has a counter proposal to make,
we certainly would consider it."
REPRESENTATIVE GARA said he might support the POMV proposal as
written, but he does have a couple of reservations, one of them
being that the market could take a downturn for a long period of
time, for example, 20 years. He asked whether the APFC has
considered adding to the POMV proposal a provision that says the
legislature may not dip into the principal at all or may not dip
into the principal by more than 1 or 2 percent. He asked what
amount the POMV formula would yield during a 20-year market
downturn.
MR. BARTHOLOMEW said that the board has considered the issue of
what happens in prolonged down markets under a 5 percent
spending limit, and that is why the board has agreed to adopt
statutory "guardrails" which would provide, in a prolonged down
market, a mechanism by which to trend down payouts to keep pace
with the market. The concept of leaving the protection of
principal in the Alaska State Constitution has been complicated
by well-meaning actions over the last 15 years of the
legislature. If the permanent fund had been left alone, where
all the earnings that hadn't been spent had been accumulated in
an earnings account, there would be $7 billion in there; that's
how much the permanent fund has earned in excess of the
protection of inflation.
MR. BARTHOLOMEW explained that if that amount had been in an
earnings account, he suspected that there wouldn't be any worry
about near-term down markets because there would be a cushion.
However, the legislature swept those reserves into principal and
they are now locked up; this has created a near-term problem,
but only for the next 2-4 years, wherein there is a risk of
going to a reduced or a zero payout. For this reason, the board
is suggesting a guardrail/safeguard to protect the fund such
that the payout won't be taken to zero or be at risk. And
although the risk is small, if Alaska's economy depends on a
dividend or a dividend is used for public services, then if
things go wrong at the wrong time, it could result in an
economic crises.
MR. BARTHOLOMEW relayed that one of the debates that took place
in the House Finance Committee was whether the aforementioned
guardrails should be in statute or in the Alaska State
Constitution, and that committee decided that the best place
would be in statute.
Number 1883
REPRESENTATIVE GARA asked what the majority of institutional
funds use as their POMV percentage.
MR. BARTHOLOMEW said that approximately 80 percent of
institutional funds use between 4 and 5.5 percent. He indicated
that those funds that used higher percentages during the bull
market are now in trouble. He explained that the 5 percent
figure chosen by the board and director is more conservative
than it might first appear because the permanent fund uses a
five-year average; this neutralizes the volatility of both up
and down markets, and results in about a 4.6- or 4.7-percentage
rate of payout. He also noted that most funds pay out the
expenses of managing the fund before calculating the payout; the
legislature, on the other hand, calculates those costs as part
of the permanent fund's payout percentage. Thus, he opined, the
proposal of a POMV set at 5 percent is very practical,
reasonable, and appropriate.
REPRESENTATIVE OGG offered his understanding that under HJR 101,
there is no mandate to spend 5 percent; the legislature, in
fact, could choose to spend a much smaller percentage.
MR. BARTHOLOMEW concurred.
REPRESENTATIVE GRUENBERG opined that the proposal before the
committee would allow investment mistakes or investment actions
based on political agendas to be covered up, thus reducing the
public accountability of the fund's managers.
COMMISSIONER CORBUS said he does not see the proposal in that
light.
MR. BARTHOLOMEW offered his belief that both currently and in
the past, the permanent fund has been managed with as much
disclosure and transparency as possible. How the permanent fund
is invested is dictated by statute and the transparency of
monthly reports ensures that any inappropriate investments are
readily visible. Under the proposal, as an additional
safeguard, it would still up to the legislature to decide
whether to dip into principal. He offered his belief that there
are several safeguards in place addressing Representative
Gruenberg's concerns.
REPRESENTATIVE SAMUELS offered his opinion that the state should
follow the example set by the majority of other funds and adopt
a POMV proposal.
Number 1550
REPRESENTATIVE GARA made a motion to adopt Conceptual Amendment
1, "to add into HJR 101 also the community dividend at 7.5
percent, and then leave the rest of the POMV proceeds up to the
legislature to allocate among dividends and other services."
Number 1533
REPRESENTATIVE SAMUELS objected. He opined that it would be
more appropriate to have a clean POMV resolution - such as is
proposed via HJR 101 - and then perhaps alter HJR 102 by
stripping out the PFD and education funding provisions. He
noted that the concept embodied in HJR 102 has not yet been
debated in the House Judiciary Standing Committee.
REPRESENTATIVE GARA said he would like to see a municipal
revenue sharing provision in HJR 101 because if HJR 102 is not
adopted by the legislature, the community dividend provision in
it will not go before the voters. By placing all the things
that members can agree on in HJR 101, it won't matter if HJR
102, which contains provisions that members aren't yet agreeing
on, fails. He suggested that it will ultimately be cleaner to
put the municipal revenue sharing provision in HJR 101 and then
pass both it and the POMV proposal. He then calculated that a
7.5 percent municipal revenue sharing dividend would put about
$90 million into the municipal revenue sharing program,
approximately equaling what it was 10 years ago, and offered his
belief that Governor Walter J. Hickel once said that there are
approximately 40 communities relying either exclusively or
almost exclusively on municipal revenue sharing until that
provision was vetoed by the [current] governor last year.
REPRESENTATIVE GARA mentioned that even Anchorage has felt the
absence of municipal revenue sharing via an increase in property
taxes. By instituting a municipal dividend, Anchorage could get
some relief from property taxes as well as enjoy an increase in
education funding. He went on to say:
With the understanding that [Legislative Legal and
Research Services] ... is drafting the 7.5 percent
community dividend provision for [HJR] 101, I would
still move the conceptual amendment of POMV plus a 7.5
percent community dividend. In effect, unless we
change the permanent fund dividend formula, that would
leave the ... the excess earnings available for
expenditure on ... whatever the legislature determined
it should be spent on. But just address the community
dividend here.
Number 1398
REPRESENTATIVE HOLM offered his belief that in his borough, the
community dividend has been eaten up 100 percent by the
Teachers' Retirement System (TRS) and Public Employees'
Retirement System (PERS) problem, and remarked that this problem
has yet to be addressed. He characterized adopting the POMV
approach such that the state won't be able to pay for the PERS
and TRS problem as "hedging our bet." He remarked that although
he doesn't have a problem with the POMV approach, he does have a
problem with not being able to fund that which the state has
already contracted to fund, and suggested that for some areas of
the state any funds they receive from a municipal dividend will
go to pay for the PERS and TRS shortage rather than for other
needed services.
REPRESENTATIVE OGG recalled that the House did pass out a clean
POMV resolution, and suggested that they should do so again. He
characterized Conceptual Amendment 1 as cluttering up the
current proposal, said he is not willing to pass on such to the
other body, and suggested altering HJR 102 instead.
CHAIR McGUIRE said she admires Representative Gara for coming
forward with proposed amendments as an attempt at finding
consensus, adding that she agrees with his summation of what
members have consensus on.
REPRESENTATIVE GARA offered his belief that a POMV proposal with
a community dividend provision will address Representative
Holm's concern regarding funding the PERS and TRS shortages, and
still leave money for other needed municipal services. The
proposed changes to the constitution will not preclude other
items from being funded via statutory provisions.
Number 1103
REPRESENTATIVE GARA withdrew Conceptual Amendment 1, and made a
motion to adopt in its stead as Amendment 1 an amendment labeled
23-GH2168\A.1, Cook, 6/23/04, which read:
Page 1, line 1:
Delete "and limiting"
Page 1, line 2, following "fund":
Insert "and limiting those appropriations"
Page 1, line 15:
Delete "a new subsection"
Insert "new subsections"
Page 2, following line 3:
Insert a new subsection to read:
"(c) Each fiscal year at least seven and one-
half percent of the total amount available for
appropriation under (b) of this section shall be
appropriated as State aid to municipalities and other
communities. The balance remaining available may be
appropriated for other public purposes, including a
program of dividend payments for residents of the
State established by law."
Number 1101
REPRESENTATIVE ANDERSON objected.
REPRESENTATIVE OGG expressed a concern that such a change could
result in the legislature being forced to fund a municipal
dividend at the expense of education funding.
CHAIR McGUIRE remarked that such is a concern with enshrining
the permanent fund in any fashion, that it could result in
something being funded at the expense of some other needed
service.
Number 0992
A roll call vote was taken. Representatives Gara and McGuire
voted in favor of Amendment 1. Representatives Ogg, Gruenberg,
Samuels, Holm, and Anderson voted against it. Therefore,
Amendment 1 failed by a vote of 2-5.
Number 0988
REPRESENTATIVE SAMUELS moved to report HJR 101 out of committee
with individual recommendations and the accompanying fiscal
notes. There being no objection, HJR 101 was reported from the
House Judiciary Standing Committee.
HJR102 - CONST. AM: PERM FUND P.O.M.V.; DIVIDENDS
[Contains mention of HJR 101.]
Number 0961
CHAIR McGUIRE asked the committee to focus attention on HJR 102,
and noted that the concept embodied in it has not yet been heard
by this committee.
Number 0947
WILLIAM A. CORBUS, Commissioner, Department of Revenue (DOR),
relayed that the concept embodied in HJR 102 was put forth in
response to the opinions and resolutions that came out of the
"Conference of Alaskans" in Fairbanks and from numerous Alaskans
who have expressed a desire that the [permanent fund dividend
(PFD)] be constitutionally guaranteed. If one assumes that HJR
102 was in effect for fiscal year (FY) 05 and that there was
approximately $1.4 billion available, this would result in a PFD
of approximately $1,000, in about $564 million - 45 percent -
being available for education funding, and in about $63 million
- 5 percent - being available for municipalities.
COMMISSIONER CORBUS relayed that page 2, lines 4-11, outlines
that 50 percent of amounts available for appropriations shall go
into a dividend program; that 45 percent shall go to public
education; and that 5 percent shall go to municipalities. The
resolution also guarantees a minimum PFD of $1,000; that
language can be found on page 2, lines 12-17, in subsection (d)
of proposed Article IX, Section 15. Should 50 percent of the
amount available for appropriation not yield a $1,000 PFD, then
monies for public education and municipalities shall be reduced
in order to fund the shortfall. A final change is the addition,
in Article XV of the Alaska State Constitution, of a proposed
Section 30, which contains transition and repeal provisions with
the repeal language specifying July 1, 2014.
CHAIR McGUIRE posed a hypothetical situation in which a
shortfall in the PFD program was so great that even monies
destined for education and municipalities would not be
sufficient to fund the shortfall, and asked whether the
legislature might have to institute some form of tax in order to
ensure that people got a $1,000 PFD.
COMMISSIONER CORBUS said he didn't know the answer to that but
would do some research on the issue.
CHAIR McGUIRE said this is an important point, noting that if
the legislature is required constitutionally to make a certain
payout, whether it be for PFDs, municipalities, or education,
there is a danger that future legislatures may have to institute
some form of tax in order to meet that constitutional
requirement.
Number 0562
CHERYL FRASCA, Director, Office of Management & Budget (OMB),
Office of the Governor, said that it is certainly not the
governor's intention to institute a tax in order to guarantee a
$1,000 PFD. She offered her belief that under the percentage of
market value (POMV) framework, the probability of not being able
to pay a $1,000 PFD from 50 percent of available funds is
unlikely; the advantage of the POMV framework is its stability
going forward, particularly when compared to the volatility of
the current practice wherein there is only 24 percent certainty
that a 2005 PFD will be $1,000.
CHAIR McGUIRE, notwithstanding that point, said that someone
should still think through what would have to happen, what steps
the legislature would have to take, in the aforementioned
hypothetical situation if a $1,000 PFD is constitutionally
guaranteed.
REPRESENTATIVE GARA said that regardless of what's being
guaranteed - PFD, municipal dividend, education funding - they
should probably include "some sort of out" in case the permanent
fund experiences a fiscal crises; for example, a provision
saying something along the lines of "guarantee these things, but
if there is a crises, ... with a two-thirds vote of the
legislature, you could do something else." He offered his
understanding that similar provisions are already in many parts
of the Alaska State Constitution.
REPRESENTATIVE HOLM asked whether there are any legal rulings
regarding the constitutionality of having a repeal provision in
the Alaska State Constitution.
MS. FRASCA replied:
We had a ratification of the original 1982
constitutional spending limit - it was brought back
before voters in ... four years, in 1986. So that's
not quite a sunset. There are term requirements, or
requirements for actions in a certain period of time;
for example, every ten years we vote on a
constitutional conventions, every ten years - I
believe - judges are up for ... retention, and so
there are some time requirements in the [Alaska State]
Constitution for certain acts. ... The [Department of]
Law did not raise any red flags over that.
Number 0319
REPRESENTATIVE GRUENBERG asked why a repeal provision was not
included in HJR 101.
COMMISSIONER CORBUS indicated that HJR 101 was brought forth by
the board of trustees of the Alaska Permanent Fund Corporation
(APFC), who chose not to include such, and that the
administration considered that resolution - that simply
establishes a POMV methodology - as strictly a management tool
for the permanent fund. He noted that not everyone is convinced
that enshrining the PFD in the Alaska State Constitution, as is
proposed via HJR 102, is such a good idea, and so HJR 102
includes a repeal provision for subsections that address how
appropriated funds are to be distributed.
REPRESENTATIVE OGG noted that the Alaska State Constitution
prohibits the dedication of funds, and asked why the
administration is proposing a constitutional amendment counter
to that restriction.
MS. FRASCA replied:
While the [Alaska State] Constitution does speak very
clearly against dedicated funds, I would suggest to
you that the practice of designating fund sources
throughout the budget has, in essence, dedicated
revenues to certain purposes. So in the practical
sense ... it's appropriate, if you're going to
dedicate, that it be in the [Alaska State]
Constitution. So this is the way to dedicate funds.
Having said that, one of the reasons, from a policy
point of view, is that ... if we're going to start
using the permanent fund ... earnings for purposes
other than what we've been using them for - to pay
dividends - there is a strong expectation on the part
of voters that they're going to get to have a say in
that. And so we linked up those reasons and put them
into the proposed constitutional amendment, which has
to go to the voters for their approval, so it's a way
for them to have that say.
TAPE 04-88, SIDE A
Number 0001
REPRESENTATIVE OGG offered his understanding that passage of HJR
102 will preclude the legislature from utilizing [permanent fund
revenues] for government services and expenses that do not
qualify as one of the three items listed in the resolution, and
asked whether that is the governor's intent even though, in
times of declining state revenue, such a change might result in
some form of taxation being instituted to pay for needed
government services.
Number 0128
BOB BARTHOLOMEW, Chief Operating Officer, Alaska Permanent Fund
Corporation (APFC), Department of Revenue (DOR), offered his
belief that the POMV proposal will allow the legislature to
have, over time, the maximum amount available in order to
balance out the needs of current and future generations. He
declined to comment, however, on the policy issues surrounding
how the legislature might choose to have the proposed
constitutional amendment apportion out the funds available for
appropriation.
COMMISSIONER CORBUS replied:
It's a tough call, the $1,000 minimum. The issue is:
are we going to break the logjam and get some action
as far as accessing the permanent fund. This is one
proposal to break that logjam, and under the set of
circumstances you've suggested, maybe that wouldn't be
so good. But looking at the overall picture, we think
this is a prudent thing to do to access the permanent
fund, to make money available to help pay for the cost
of government. And this is one way to do it.
MS. FRASCA added:
What this scenario does is it also provides about $560
million of relief, if you will, to what currently is
supported by general funds, ... and that's the K-
12/university education. ... So in terms of the
pressure, if we have your scenario and in the future
there is a real dramatic drop in our state revenue, at
least then there's some cushion ... to help with what
we've been paying for with general fund dollars. ...
It's a tough call.
MS. FRASCA went on to relay that there had been discussion
regarding whether the sunset [repeal provision] should be five
years, but it was decided that although ten years is a long
time, it could provide the needed time for future economic-
development revenues to come in. She said it is not [the
administration's] intention to set up a circumstance in which an
income tax must be instituted, adding that the administration
has considered oil taxes, "transient accommodation taxes," and
other user-benefit/user-pay type taxes.
Number 0372
REPRESENTATIVE OGG pointed out, however, that even if a portion
of the permanent fund revenues go towards education funding,
there is still the state's current fiscal gap to be dealt with,
and surmised that that is where any freed up GF monies will go,
and thus there won't really be the cushion as described by Ms.
Frasca, particularly if GF revenues decrease due to various
circumstances. He suggested that during times of economic
downturns, what's being proposed essentially says that it is
more important to put $1,000 in a child's pocket than it is to
educate that child, with the only other option being to
institute an income tax in order to pay for one or both of those
things. Is that where the administration wants to be, he asked.
CHAIR McGUIRE said that Representative Ogg is touching on some
of the basic, philosophical concerns that some members have with
the concept of enshrining the PFD and other uses of permanent
fund revenues in the Alaska State Constitution, regardless of
the specific amounts or formula; members have those concerns
because there is no way to predict what the state's economy is
going to look like in the future. She added that from a
traditional constitutional perspective, she is troubled with the
concept of placing a sunset on a provision of the Alaska State
Constitution, and disagrees with the notion that constitutional
language regarding judicial retention is similar.
REPRESENTATIVE GRUENBERG asked whether enshrining the PFD in the
Alaska State Constitution would make receiving a PFD a
constitutional right.
Number 0600
JAMES BALDWIN, Senior Assistant Attorney General; Opinions,
Appeals, & Ethics; Office of the Attorney General; Department of
Law (DOL), offered his belief that it would become an
entitlement, whereas currently PFDs are subject to
appropriation.
REPRESENTATIVE GRUENBERG asked whether making receiving a PFD an
entitlement in that fashion would cause the courts to consider
them differently with regard to such things as residency and
equal protection.
MR. BALDWIN said he didn't think so, but it would be hard to
say, since "these cases" are based on one-at-a-time type
analyses by the courts.
REPRESENTATIVE GRUENBERG said:
My recollection is, some of the cases have proceeded
from the premise that lesser constitutional
protections are involved because [PFDs] are not a
right. My question is, if this becomes a
constitutional right, might that not subject ...
legislative classifications to a higher level of
scrutiny, from a constitutional perspective?
MR. BALDWIN said it's possible, but that's just speculation at
this point.
CHAIR McGUIRE asked Mr. Baldwin to come back to the legislature
with a legal opinion on this issue.
REPRESENTATIVE HOLM asked whether an entitlement to a PFD would
have the same weight as the right to free speech, for example,
adding, "I really have a problem with the idea that we enshrine
a right to a check."
Number 0774
REPRESENTATIVE GARA, addressing Commissioner Corbus, said:
We've talked about solving the fiscal gap, and ...
frankly I believe the administration has wiped most of
the options that we need to consider off the table and
so all we're talking about is the permanent fund. You
know, there's been a lot of discussion about what do
we do if there's not enough permanent fund money
available to help us fund schools or something like
that. And I will tell you, I would say, I'm happy the
administration has finally jumped on board and said we
need to take another look at the economic limit factor
- the elf - the exemptions that many of us think are
quite overbroad in our tax structure, so thank you for
finally coming aboard. But on the other hand, I think
there's a fair argument to be made that as we sit here
and do nothing about it this year, we're giving away
about [$500 million to $700 million in] income that we
could stick into our savings account. ... I can't tell
you how frustrated that makes me. ...
If the administration thinks that it can push ... its
proposal of a 50 percent dividend, then so be it and I
can't stop it. If the administration thinks that we
need room for compromise, [then] according to the
[APFC], the current dividend formula, over the long
term, projected as well as we can project it, would
produce roughly a 70 percent dividend. If we did
that, that would leave about $375 million available
for public services. ... Would the administration
consider something closer to a split that reflects the
long term average of the current dividend formula,
assuming that left available about $375 million of
permanent fund money, and then just let us figure out
what to do for the rest? Would it consider that?
COMMISSIONER CORBUS replied:
I don't know that I could say what the administration
would do. Certainly it is concerned that a sizable
proportion of the permanent fund payout under the POMV
be made available to help pay for the cost of
government. We have proposed [that] 50 percent be
made available. We would be interested, if the
legislature has other proposals, but I'm not prepared
to say what would be acceptable.
Number 0960
REPRESENTATIVE GARA, addressing Mr. Bartholomew, said:
You did an April projection that showed what you
thought a 50-50 split would compare to, [under] the
current dividend formula, ... over the long term. ...
Is it fair to say, ... projecting long term into the
future, [that] the current dividend formula would
produce roughly a dividend ... equal to something like
a 70-30 split, something close to that?
MR. BARTHOLOMEW replied that given the volatility inherent in
the current formula, that percentage is really hard to measure.
He added, however, that it would be appropriate to say that it
could fall into a range between 60 and 70 percent, though it
could also vary between 30 and 80 or 90 percent. In response to
another question, he acknowledged that he'd produced a chart for
Representative Gara that showed a projection of between 60 and
70 percent, with the long-term projection staying at around 70
percent. He noted, however, that that projection was based on
one analysis, and that there are other analyses out there that
have a long term projection of between 60 and 70 percent but
closer to 60 percent. He added that those were the numbers that
were shared at the Conference of Alaskans. He offered his
belief that the reality would fall somewhere in between those
two projections and would be extremely volatile compared to a
POMV formula.
Number 1127
REPRESENTATIVE GARA made a motion to adopt Amendment 1, labeled
23-GH2176\A.2, Cook, 6/22/04, which, with handwritten changes,
read:
Page 2, line 3, following "year.":
Insert "An appropriation from the fund shall be
made for each fiscal year to be used for a program of
dividend payments to State residents established by
law. The amount appropriated for the dividend program
shall equal at least the amount that would have been
used for the dividend program under AS 37.13.140 and
37.13.145, as those statutes read on January 1, 2004,
or the entire amount that may be appropriated from the
fund under this subsection, whichever is less."
Page 2, lines 8 - 9:
Delete all material.
Page 2, line 10:
Delete "(2)"
Insert "(1)"
Delete "and"
Page 2, line 11:
Delete "(3)"
Insert "(2)"
Delete "."
Insert "; and" after "percent"
Page 2, line 12:
Insert "(3) the remainder may be made available
for public services authorized by law."
Page 2, line 27:
Delete "Sections 15(c) and (d)"
Insert "Section 15(c)"
Number 1147
REPRESENTATIVE SAMUELS objected.
REPRESENTATIVE GARA explained that Amendment 1 would say that
the dividend shall be at least $1,000 and no less than what is
provided for under current law. He surmised that the public
probably doesn't want a substantial reduction in their PFDs, and
offered his belief that the administration's current proposal
could result - three or four years down the road - in a PFD that
is about $400 less than what current law provides for, and then
- long term - in a PFD that is about $650 less than what current
law provides for. He went on to say:
I personally think that asking somebody with very
little money, perhaps a senior citizen, to pay as much
as somebody who has just purchased a brand new Land
Rover is not a fair way to balance the budget,
especially when we're, in my view, so badly under-
taxing oil at current oil prices. ... It's a fairness
issue. ... If you agree not to reduce the [PFD] below
what the current formula provides, you still make
quite a substantial amount of money available for
public services. ... The bill as written right now
says a certain amount goes into public education, but
the amount the current provision puts in is less
[than] the money we put into public education right
now anyway, so there's no guarantee of additional
education funding under this proposal.
But by doing what I propose, you still make about $375
million or more available for the services you've
discussed but also protect the [PFD] at the same time,
at the current rate. I think the public could accept
that, I think I could accept that, and I think that
would require us to go to the next step and say, what
else besides the [permanent fund] are we going to use
to fund public services.
REPRESENTATIVE GARA, in response to a question, said his intent
in offering Amendment 1 is to ensure that the PFD is at least as
much as the current formula provides for but at no less than
$1,000 just as the governor proposes.
Number 1309
A roll call vote was taken. Representative Gara voted in favor
of Amendment 1. Representatives Ogg, Gruenberg, Samuels, Holm,
Anderson, and McGuire voted against it. Therefore, Amendment 1
failed by a vote of 1-6.
Number 1323
REPRESENTATIVE GARA made a motion to adopt Amendment 2, labeled
23-GH2176\A.3, Cook, 6/22/04, which, with handwritten changes,
read:
Page 2, line 3, following "year.":
Insert "An appropriation from the fund shall be
made for each fiscal year to be used for a program of
dividend payments to State residents established by
law. The amount appropriated for the dividend program
shall equal the lesser of
(1) seventy percent of the amount that may
be appropriated from the fund under this subsection or
the amount that would have been used for the dividend
program under AS 37.13.140 and 37.13.145, as those
statutes read on January 1, 2004, whichever is
greater; or
(2) the entire amount that may be
appropriated from the fund under this subsection."
Page 2, lines 8 - 9:
Delete all material.
Page 2, line 10:
Delete "(2)"
Insert "(1)"
Delete "and"
Page 2, line 11:
Delete "(3)"
Insert "(2)"
Delete "."
Insert "; and" after "percent"
Page 2, line 12:
Insert "(3) the remainder may be made available
for public services authorized by law."
Page 2, line 27:
Delete "Sections 15(c) and (d)"
Insert "Section 15(c)"
Number 1339
CHAIR McGUIRE objected.
REPRESENTATIVE GARA explained that Amendment 2 does essentially
the same thing as Amendment 1, but provides for a more certain
70-30 split, which, he offered, would make $375 million
available for public services, would protect the PFD at roughly
a bit more than it would be under the current formula, and would
direct the legislature to seek any additional needed funding
from sources other than the permanent fund.
CHAIR McGUIRE surmised that in its philosophical underpinnings,
Amendment 2 is similar to Amendment 1.
Number 1355
A roll call vote was taken. Representatives Gara and Gruenberg
voted in favor of Amendment 2. Representatives Ogg, Samuels,
Holm, Anderson, and McGuire voted against it. Therefore,
Amendment 2 failed by a vote of 2-5.
Number 1382
REPRESENTATIVE GARA made a motion to Adopt Amendment 3, labeled
23-GH2176\A.4, Cook, 6/22/04, which read:
Page 2, line 3, following "year.":
Insert "Except for appropriations for a program
of dividend payments for residents of the State
established by law, no appropriations shall be made
from the fund for a fiscal year unless, during that
fiscal year, the amount of State funding for operation
of elementary and secondary public schools is
increased by at least the amount necessary to offset
inflation, based upon increases during the second
preceding calendar year in consumer prices for most
State residents."
Page 2, line 17, following ".":
Insert "However, no appropriations shall be made
under (c) of this section unless those appropriations
are permitted to be made under (b) of this section."
Number 1387
REPRESENTATIVE SAMUELS objected.
REPRESENTATIVE GARA explained that Amendment 3 would guarantee
that school funding is protected from inflation. He remarked
that many, including the governor, have offered POMV proposals
that talk about public education but don't put a single extra
penny into school funding than is being put into it right now.
As currently written, HJR 102 would put in about $300 million
less into public education than last year's budget did, he
remarked, and so it doesn't do anything to protect schools from
the harm caused by inflation or protect them from further
increases in class sizes. In other words, he added, Amendment 3
says, "If we're going to talk about education, let's do
something about education," and "before you spend any of the
POMV money on public services, you have to make sure that
education funding has gone up at least the amount of inflation
over the prior year." Inflation is a real problem that schools
face, and they should be protected in at least that regard, he
concluded.
REPRESENTATIVE OGG remarked:
This is very laudable; it sure is a goal you'd like to
get to, to make sure your education system is funded
well and that we provide for our students and our
future leaders the best education we can do. And
money certainly helps that. But the underpinning here
creates a problem. If we go to a period like we did
in 1987, where the oil price dropped [and] 30,000
people left Anchorage, ... this amendment would say
that we would still have to increase education funding
by the inflation proofing. So we would be providing
more funding for schools for less students. This just
doesn't take into account that circumstance, and I'll
have to oppose it.
REPRESENTATIVE HOLM agreed with Representative Ogg, adding that
at some point there might be a need to increase funding for
public safety instead of public education, and so those choices
should be made at the legislative level rather than at the
constitutional level.
Number 1516
REPRESENTATIVE GARA suggested to Representative Ogg that they
simply make a change in the resolution such that fiscal crises
could be addressed via a two-thirds vote of the legislature.
CHAIR McGUIRE asked whether Amendment 3 would be taking into
account the foundation formula, which addresses student
population decreases.
REPRESENTATIVE GARA remarked:
We are so far behind on school funding that we can't
even address the issue that we need to address, which
is a base-student salary for entry-level teachers.
Our class sizes are far, far too large in most urban
areas - far too large. So I don't think it would harm
our public policy at all to have school funding ... go
up with inflation. If we felt it was going up too
much, then I would agree to allow a provision ... to
be added to say, "We don't have to increase that money
if two-thirds of the legislature agrees." That would
be the out; that would be the out where we deal with
the crises that Representative Ogg mentions. So it's
a good point, but I think it is addressed by the two-
thirds-vote out.
REPRESENTATIVE ANDERSON said that he although he doesn't agree
that all classrooms are overcrowded, he does agree that the
offsetting of inflation is important.
REPRESENTATIVE OGG said he did not disagree that perhaps
classrooms are overcrowded or that school funding has been
inadequate, but suggested that the "out" that Representative
Gara speaks of should really be a statutory fix rather than a
constitutional one, otherwise it is in essence saying that the
legislature can "go in and mess with" the [Alaska State]
Constitution with a two-thirds vote. He opined that such a
constitutional provision would be different than what currently
happens regarding the Constitutional Budget Reserve Fund (CBRF),
and would be evidence of a parliamentarian system of government,
not a constitutional system. He reiterated that he cannot
support Amendment 3.
REPRESENTATIVE GARA said that those were good points, and that
he plans on introducing something similar on the House floor
with perhaps some modifications that will address Representative
Ogg's concerns.
Number 1719
REPRESENTATIVE GARA then withdrew Amendment 3, and offered the
following comments:
I don't think that you can come up with a perfect way
to protect our schools, for some of the reasons you
discussed and some of the reasons I discussed, but the
current system - which lets school funding fall behind
inflation almost every year until there's a crises
every once in a while and we come back and we do
something about it - is unacceptable to me. ... And I
also have a huge amount of heartache with those who
... are using what I think is a Trojan horse by saying
the money's going to go to education when in fact we
know that [we'll] be putting less money into education
through these proposals than we already put in. So
... I think the use of the words, "education" are
there to appeal to the public and hope the public
doesn't notice that it provides for less money than we
already put in. And so if we're going to use the
term, "education", I want something real to happen
with education funding, and we can deal with [that]
... on the House floor.
CHAIR McGUIRE said she appreciates Representative Gara's
withdrawing Amendment 3 at this time to work on it, since there
does seem to be some support for its basic concept, the idea
that education has been underfunded and has not kept up with
inflation.
Number 1777
REPRESENTATIVE SAMUELS made a motion to adopt Amendment 4,
labeled 23-GH2176\A.1, Cook, 6/22/04, which read:
Page 1, line 3:
Delete "and relating to permanent fund dividend
payments"
Insert ", relating to permanent fund dividend
payments, and limiting state taxes on the incomes of
individuals"
Page 2, following line 17:
Insert a new subsection to read:
"(e) The State may not levy or collect a tax for
a year on the income of an individual in an amount
that exceeds the amount of the dividend for that same
year paid to a resident as the result of
appropriations made under (c)(1) and (d) of this
section."
Page 2, line 27:
Delete "and (d)"
Insert "(d), and (e)"
Number 1782
REPRESENTATIVE GRUENBERG objected, and offered his belief that
Amendment 4 is unconstitutional and out of order because it will
change the title of the resolution, significantly expanding it
to include a limitation on state income taxes, and thus make it
fall outside the scope of the governor's proclamation. He asked
Chair McGuire for a ruling.
REPRESENTATIVE SAMUELS remarked that Legislative Legal and
Research Services has relayed to him that arguments could be
made on various sides of the issue.
The committee took an at-ease from 11:19 a.m. to 11:27 a.m.
CHAIR McGUIRE relayed that the director of Legislative Legal and
Research Services told her that there is relatively little risk
that Amendment 4 would fall outside the scope of the governor's
proclamation, that traditionally legislatures have had broad
powers to interpret and deal with the subjects of proclamations;
the director also relayed that if the committee wished she would
draft a "savings clause" which would say that should any portion
of the resolution be found unconstitutional, the remainder of
the resolution would still be valid.
REPRESENTATIVE GRUENBERG mentioned that perhaps Mr. Baldwin's
opinion might differ from that of the director of Legislative
Legal and Research Services.
REPRESENTATIVE SAMUELS said he feels strongly that the change
proposed by Amendment 4 constitutes good public policy, adding
that if the PFD is enshrined in the Alaska State Constitution
and citizens end up being taxed in order to pay out a PFD, it
will create a chasm between "those that pay and those that get."
He said he disagrees with the concept of enshrining the PFD into
the Alaska State Constitution to begin with because of the
potential for having to institute a tax in order to meet that
constitutional obligation, opining that such will cause huge
problems.
Number 1999
REPRESENTATIVE SAMUELS then withdrew Amendment 4, and said he
would work on it some more and that he would do more research on
the issue of how a constitutionally mandated PFD will be paid
for in times of economic downturns. He again expressed disfavor
with enshrining the PFD in the Alaska State Constitution.
CHAIR McGUIRE said Representative Samuels raises a good point,
and indicated that perhaps a solution might be forthcoming from
the administration.
REPRESENTATIVE GRUENBERG relayed that his objection to Amendment
4 was based on parliamentary procedure and not on the merits of
the amendment.
REPRESENTATIVE GARA asked Representative Samuels to also give
consideration to perhaps structuring his proposed tax cap based
on a percentage rather than on a certain dollar amount.
REPRESENTATIVE OGG said he is happy that Representative Samuels
withdrew Amendment 4, and mentioned that altering the Alaska
State Constitution without enough consideration could rend its
very fabric.
Number 2154
REPRESENTATIVE ANDERSON moved to report HJR 102 out of committee
with individual recommendations and the accompanying fiscal
notes. There being no objection, HJR 102 was reported from the
House Judiciary Standing Committee.
ADJOURNMENT
Number 2164
The House Judiciary Standing Committee meeting was recessed at
11:35 a.m. to a call of the chair. [The meeting was never
reconvened.]
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