Legislature(2021 - 2022)ANCH LIO DENALI Rm
06/02/2021 01:00 PM House JUDICIARY
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| Start | |
| HJR7 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| += | HJR 7 | TELECONFERENCED | |
| + | TELECONFERENCED |
ALASKA STATE LEGISLATURE
HOUSE JUDICIARY STANDING COMMITTEE
Anchorage, Alaska
June 2, 2021
1:01 p.m.
MEMBERS PRESENT
Representative Matt Claman, Chair
Representative Liz Snyder, Vice Chair
Representative Harriet Drummond (via teleconference)
Representative David Eastman (via teleconference)
Representative Christopher Kurka (via teleconference)
Representative Sarah Vance (via teleconference)
MEMBERS ABSENT
Representative Jonathan Kreiss-Tomkins
COMMITTEE CALENDAR
HOUSE JOINT RESOLUTION NO. 7
Proposing amendments to the Constitution of the State of Alaska
relating to the Alaska permanent fund, appropriations from the
permanent fund, and the permanent fund dividend.
- HEARD & HELD
PREVIOUS COMMITTEE ACTION
BILL: HJR 7
SHORT TITLE: CONST. AM: PERM FUND & PFDS
SPONSOR(s): RULES BY REQUEST OF THE GOVERNOR
02/18/21 (H) READ THE FIRST TIME - REFERRALS
02/18/21 (H) STA, JUD, FIN
04/20/21 (H) STA AT 3:00 PM GRUENBERG 120
04/20/21 (H) Heard & Held
04/20/21 (H) MINUTE(STA)
05/04/21 (H) STA AT 3:00 PM GRUENBERG 120
05/04/21 (H) Heard & Held
05/04/21 (H) MINUTE(STA)
05/06/21 (H) STA AT 3:00 PM GRUENBERG 120
05/06/21 (H) Moved CSHJR 7(STA) Out of Committee
05/06/21 (H) MINUTE(STA)
05/10/21 (H) STA RPT CS(STA) 4DNP 2NR 1AM
05/10/21 (H) DNP: CLAMAN, EASTMAN, VANCE, TARR
05/10/21 (H) NR: STORY, KREISS-TOMKINS
05/10/21 (H) AM: KAUFMAN
05/14/21 (H) FIRST SPECIAL SESSION BILL
05/14/21 (S) FIRST SPECIAL SESSION BILL
05/24/21 (H) JUD AT 1:00 PM GRUENBERG 120
05/24/21 (H) Heard & Held
05/24/21 (H) MINUTE(JUD)
05/26/21 (H) JUD AT 1:00 PM GRUENBERG 120
05/26/21 (H) Heard & Held
05/26/21 (H) MINUTE(JUD)
06/02/21 (H) JUD AT 1:00 PM ANCH LIO DENALI Rm
WITNESS REGISTER
COMMISSIONER LUCIA MAHONEY, Commissioner
Department of Revenue
Juneau, Alaska
POSITION STATEMENT: Answered questions pertaining to CSHJR
7(STA).
MIKE BARNHILL, Deputy Commissioner
Department of Revenue
Juneau, Alaska
POSITION STATEMENT: Answered questions pertaining to CSHJR
7(STA).
ALEXEI PAINTER, Legislative Fiscal Analysist
Legislative Finance Division
Juneau, Alaska
POSITION STATEMENT: Offered a PowerPoint presentation entitled,
"Analysis of Governor's Fiscal Plan."
ACTION NARRATIVE
1:01:43 PM
CHAIR MATT CLAMAN called the House Judiciary Standing Committee
meeting to order at 1:01 p.m. Representatives Claman, Snyder,
Eastman (via teleconference), Kurka (via teleconference), and
Drummond (via teleconference) were present at the call to order.
Representatives Vance (via teleconference) arrived as the
meeting was in progress.
HJR 7-CONST. AM: PERM FUND & PFDS
[Contains discussion of SJR 6.]
1:03:04 PM
CHAIR CLAMAN announced that the only order of business would be
HOUSE JOINT RESOLUTION NO. 7, Proposing amendments to the
Constitution of the State of Alaska relating to the Alaska
permanent fund, appropriations from the permanent fund, and the
permanent fund dividend. [Before the committee was CSHJR
7(STA).]
CHAIR CLAMAN informed the committee that he spoke with
Commissioner Mahony about the Harvard model. He noted that the
Department of Revenue (DOR) provided an article published by a
Harvard publication, The Harvard Crimson, titled "Harvard Will
Draw Further from the Endowment FY2022 Than Planned, Citing
Strong Market Returns" [hard copy included in the committee
packet]. Additionally, DOR provided a page from the Harvard
Endowment that reported the actual amount that Harvard relies on
for its endowment - 37 percent - which differs from testimony
from a previous hearing.
1:05:06 PM
REPRESENTATIVE SNYDER referred to a presentation from a previous
meeting. She pointed out that according to the governor's plan,
revenue generation would begin in 2024 using bridge funding from
the Earnings Reserve Account (ERA). She questioned why the
operations are presented in that order and suggested that rather
than overdraw significantly from the ERA, it would be fiscally
advantageous to "bite the bullet" and address the need for
revenue generation sooner rather than "kick that ... can down
the road" for three to four years.
1:06:45 PM
[Due to technical difficulties, invited testifiers participating
via Microsoft Teams were inaudible.]
1:09:28 PM
The committee took a brief at-ease.
1:10:11 PM
[Due to technical difficulties, invited testifiers participating
via Microsoft Teams were inaudible.]
1:11:53 PM
The committee took an at-ease from 1:11 p.m. to 1:18 p.m.
1:18:55 PM
CHAIR CLAMAN reminded the committee that the question was
directed to Commissioner Mahoney.
1:19:39 PM
REPRESENTATIVE SNYDER restated her question, noting that after
having a chance to think on the information from the first
hearing, she noticed that the governor's plan would need large
cuts and additional revenue; however, new revenue wouldn't be
added until three years later. She asked why that is a more
fiscally responsible position than "biting the bullet" and
initiating revenue generation as soon as possible, which would
reduce the need for a large draw on the ERA.
1:21:14 PM
COMMISSIONER LUCIA MAHONEY, Commissioner, Department of Revenue,
said the department recognizes that it will take time for the
legislature and the administration to decide and agree upon new
revenue. She added that it could take another year to implement
that revenue. She conveyed that the purpose is to reflect on
the timeframe that is required.
REPRESENTATIVE SNYDER thanked her for recognizing the
possibility [of moving forward with new revenue solutions]. She
asked if DOR had recommendations on new revenue options and
asked about existing revenue ideas.
COMMISSIONER MAHONEY responded that the department is exploring
some new tax-type revenue measures; however, she said she could
not go into details at this time because they have not been
reviewed by the Department of Law (DOL).
REPRESENTATIVE SNYDER noted that in previous presentations on
this topic, the additional $150 million in 2024 and the $300
million in 2025 and subsequent years were presented as possibly
being achieved through cuts. She asked if Ms. Mahoney had
recommendations on where the cuts might come from.
COMMISSIONER MAHONEY explained that it is the governor's
position that the administration would constantly be looking for
opportunities to reduce spending and identify opportunities for
improvement. She referenced her previous presentation and noted
that there could be potential reduction in the state's
contribution to retirement accounts. Additionally, she
mentioned that DOR had reviewed the DLWD population estimates
and found the state population is declining. She added that
because some of the formulas incorporate population as a
variable, those programs could also see reduction.
1:26:08 PM
CHAIR CLAMAN invited questions from the committee.
1:26:41 PM
CHAIR CLAMAN inquired about the possibility of a measure to make
revenue from state gaming. He questioned whether there was a
proposal for a gaming change to statute that would allow
gambling beyond pull-tabs and how much that could generate.
1:27:18 PM
COMMISSIONER MAHONEY relayed that they are working with a
consultant who is working with stakeholders to gather
information about potential gaming in Alaska communities.
Regarding the revenue estimate, she said that the administration
is awaiting information from the consultant.
CHAIR CLAMAN asked if there is presently a revenue measure
before the legislature that was proposed by the governor.
COMMISSIONER MAHONEY said she is not aware of any.
CHAIR CLAMAN asked if the legislature could anticipate seeing
one or more revenue measures introduced by the governor in
advance of the second special session.
COMMISSIONER MAHONEY reported that revenue measures would be
included in the agenda items for the special session in August.
She stated she would need to consult with the governor to
confirm the direction.
CHAIR CLAMAN said he is aware of those measures on the call. He
shared his understanding that Commissioner Mahoney could not say
whether there would be any proposals from the governor by the
August special session.
COMMISSIONER MAHONEY answered that she is hopeful [those
measures] would be discussed, adding that decision would be part
of the overall plan for the [special] session.
1:29:39 PM
REPRESENTATIVE KURKA stated his understanding that one of the
items is a proposal for a constitutional amendment that would
require any new tax to be approved by the voters, which is
similar to the proposal that would require voter approval to
change the PFD formula. He suggested combining these
discussions and proposals into the same amendment.
1:31:10 PM
COMMISSIONER MAHONEY pointed out that there are several
constitutional amendments that are on the call, including a
constitutional amendment that would establish an appropriation
limit, a constitutional amendment that would prohibit new state
taxes without a vote of the people, and a constitutional
amendment pertaining to the Permanent Fund. She said the intent
is to include all these amendments in a comprehensive plan and
to discuss them in tandem.
REPRESENTATIVE KURKA suggested including a discussion on the
proposal to require voter approval to change the PFD [Permanent
Fund Dividend] formula.
COMMISSIONER MAHONEY responded that the amendment changes
regarding the PFD formula that the governor recently proposed
would be considered as part of the call.
REPRESENTATIVE KURKA sought to clarify that if the legislature
does not address these items during the current special session,
they would be discussed in the second special session.
COMMISSIONER MAHONEY answered yes.
1:33:08 PM
REPRESENTATIVE EASTMAN asked whether all portions of the
governor's plan could be brought together into a single
Amendment Resolution.
COMMISSIONER MAHONEY deferred the question to Mr. Barnhill.
1:33:57 PM
MIKE BARNHILL, Deputy Commissioner, Department of Revenue, noted
that the Committee Substitute (CS) for SJR 6(JUD) represents all
portions of the plan coming together. He said that proposal
would constitutionalize the percent of market value (POMV)
formula at no more than 5 percent of the five-year lagging
market average. Additionally, it would constitutionalize the
allocation between the PFD and government spending, a dedication
to Power Cost Equalization (PCE), and to place the balance of
the PCE fund into the permanent fund. He clarified that those
elements could be considered if the committee were to prepare a
new CS for CSHJR 7(STA) [similar to CSSJR 6(JUD)].
1:36:13 PM
REPRESENTATIVE EASTMAN referred to a question that had been
addressed in a previous hearing. He stated his concern that
even if the constitutional language were to go forward and be
put into law, at some point, the future Alaska State Legislature
could potentially say, "yeah, we just don't want to do that,"
and not enforce the language. He said that future legislatures
could determine that PCE is not a priority. He asked what the
governor's position is on that today.
COMMISSIONER MAHONEY deferred the question to Mr. Barnhill.
1:37:40 PM
MR. BARNHILL referred to CSSJR 6(JUD), and directed attention to
language on page 2 [lines 7-11], which read as follows:
(d) Each year, the legislature shall appropriate a
portion of the amount appropriated under (b) of this
section for power cost equalization. The amount
appropriated shall be the amount necessary to equalize
the cost of power in the State, according to State
law, but may not exceed fifty percent of the amount
appropriated under (b) of this section.
MR. BARNHILL noted that the proposal for the phrase "shall
appropriate" to be inserted into the constitution should address
Representative Eastman's question. He shared his understanding
that future legislatures shouldn't be able to circumvent that
language if inserted into the constitution. He noted that the
word "shall" was used twice and probably reflects an intention
to limit, if not make impossible, the ability of the legislature
to circumvent making an appropriation for PCE.
1:39:15 PM
CHAIR CLAMAN shared his understanding that Mr. Barnhill had said
that CSSJR 6(JUD) has all the components of the fiscal plan
going forward, but Chair Claman noted that it doesn't have any
revenue component. He said that his understanding is that there
are four parts to the plan, one of which being revenue, and
asked Mr. Barnhill whether it isn't fair to say that CSSJR
6(JUD) doesn't have any revenue components.
MR. BARNHILL answered that is correct. He clarified that CSSJR
6(JUD) contains all the constitutional components of the
governor's plan. He said there remains a role for the
legislature in that revenues don't materialize in the amount
forecasted in the scenario placed before the committee in ten,
twenty, or even five years. The legislature will always retain
its ability to enact statutes to raise revenue, he explained.
Similarly, with respect to PCE, he said that the legislature has
the role through statute of deciding how to equalize the cost of
power throughout the state. He concluded that those are two
elements of the government's plan that are not in a
constitutional resolution because discretion is preserved for
the legislature to legislate on those matters.
CHAIR CLAMAN surmised that the legislature would have to make a
proposal that, regarding revenue, the governor has been
unwilling to do.
1:41:02 PM
REPRESENTATIVE EASTMAN asked Mr. Barnhill, based on the
drafter's intent of the word "shall" in the bill, what the
remedy is if the legislature decided not to follow that language
and appropriate a minimal amount.
MR. BARNHILL said this conversation is starting to get into
DOL's territory. He shared his understanding that whenever
there's a possible constitutional violation, the people of
Alaska can bring litigation to enforce the constitution, adding
that the people do so with some frequency.
1:42:37 PM
CHAIR CLAMAN announced that the committee would now be hearing a
presentation on the governor's financial plan.
1:43:37 PM
ALEXEI PAINTER, Legislative Fiscal Analysist, Legislative
Finance Division, offered a PowerPoint presentation entitled,
"Analysis of Governor's Fiscal Plan." He began on slide 2,
"Overview of LFD Fiscal Modeling," which read as follows
[original punctuation provided]:
? Legislative Finance's fiscal model is designed to
show policy makers the longer-term impact of fiscal
policy decisions
? The baseline assumptions are that current budget
levels are maintained, adjusted for inflation. This
allows legislators to see the impact of their policy
choices
? All long-term models are extremely sensitive to
assumptions and inputs
1:47:28 PM
MR. PAINTER proceeded to slide 3, "Overview of LFD Fiscal Model
(cont.)," which read as follows [original punctuation provided]:
Revenue Assumptions
? LFD's baseline revenue assumptions are the
Department of Revenue's Spring Revenue Forecast This
assumes $61 oil in FY22, growing with inflation in
future years DNR oil production forecast projects
that Alaska North Slope production will increase from
459.7 thousand barrels per day in FY22 to 565.5
thousand barrels per day in FY30
? For the Permanent Fund, we assume actual FY21
returns through the April 30 APFC statement and
Callan's 6.20% assumption for FY22 and beyond
MR. PAINTER moved to slide 4, "Overview of LFD Fiscal Model
(cont.)," which read as follows [original punctuation provided]:
Spending Assumptions
? For agency operations, we are currently using the
Senate's first committee substitute as our baseline
($3,872.7 million UGF), growing with inflation of 2.0%
This budget is used because it did not include any
one-time fund sources present in other versions of the
budget, so it represents a reasonable starting point.
? For statewide items, our baseline is to assume that
all items are funded to their statutory levels This
includes School Debt Reimbursement, the REAA Fund,
Community Assistance, and the PFD We also include a
baseline Fund Transfers amount that represents the
ongoing cost of DEC's Spill Prevention and Response
program
? For the capital budget, we assume the Senate's first
committee substitute ($176.7 million UGF) growing with
inflation of 2.0% This budget is used because it
represents the Governor's original amended request
without one-time fund sources
? For supplementals we assume $50.0 million per year.
This is based on the average amount of supplemental
appropriations minus lapsing funds each year
1:51:17 PM
MR. PAINTER proceeded to slide 5, "LFD Baseline Spending
Assumptions," which depicted a table of the baseline spending
assumptions. He noted that the funding spikes and falls because
of oil tax credits based on the spring forecast.
1:52:13 PM
CHAIR CLAMAN asked for clarification that the oil tax credits
will show on the "Statewide (full funding)" line of the table as
opposed to the "Agency Ops (SCS1)" line of the table.
MR. PAINTER answered yes.
1:52:28 PM
MR. PAINTER continued explaining slide 5. He said that total
budget is $4.7 billion in F Y22, and overall, it grows a little
slower than inflation because of the tax credits falling off.
He explained that this table is the starting point.
MR. PAINTER proceeded to slide 6, "Comparison of Governor's 10-
Year Plan to LFD Baselines," which depicted a table that
compares the division's baseline to the governor's 10-year plan.
He explained that for FY 22, the two plans are close but there
are some differences, such as the Agency Operations.
MR. PAINTED advanced to slide 7, "Comparison of LFD Baseline to
Governor's 10-Year Plan (cont.)," which read as follows
[original punctuation provided]:
? Governor's plan calls for permanently funding School
Debt Reimbursement and REAA Fund capitalization at 50%
of statutory levels
? Calls for $65.7 million less UGF agency operations
spending in FY22 than original Senate budget, plus
$100 million of additional reductions in each of FY23
and FY24
? Uses 1.5% growth in agency operations versus 2.0%
inflation beyond FY24
? No assumed supplementals or fund transfers
? This level of budget reductions is not unattainable,
but would require significant policy choices to
realize
1:57:10 PM
REPRESENTATIVE SNYDER asked for confirmation that on slide 6,
which refers to the differences between the two plans, these
differences are not assuming any revenue generation, but instead
relying on reductions.
MR. PAITNER responded that slide 6 is just depicting the budget
side, not revenue.
REPRESENTATIVE SNYDER asked Mr. Painter to speak on the
difference between 1.5 percent and 2 percent inflation beyond FY
24. She asked what is driving the difference, what is more
realistic, and what factors play in to seeing one and not the
other.
MR. PAINTER responded that the governor's 10-year plan is to
hold the growth of agency operations below the level of
inflation. This has been achieved over the past 5 or 6 years
and the FY 22 budget in both bodies' versions as well as the
governor's version are comparable to, for example, the FY 18
budget in nominal terms. The assumption, he said, is that the
budget would be reduced, and growth would be held below
inflation, which would require either holding large items such
as Medicaid below inflation, holding the education budget below
inflation, or holding the Agency Operations below inflation.
REPRESENTATIVE SNYDER shared her understanding that the
committee had been reassured that [the budget] would be
increased according to inflation at least to achieve that
"flatness". She asked Mr. Painter to clarify whether that
understanding is correct.
MR. PAINTER said yes, adding that the governor's plan is to hold
spending growth slightly below inflation.
2:01:08 PM
REPRESENTATIVE EASTMAN recalled that the House and Senate
versions of the budget differ significantly regarding the
reverse sweep. He asked Mr. Painter that if the senate version
of the budget omitted that language [regarding the reverse
sweep], could it then contain appropriations from funds that may
not necessarily be capitalized upon if the reverse sweep isn't
included in the final version of the budget.
MR. PAINTER responded that the reverse sweep was included in the
House version of the budget but the vote on it failed. The
Senate's version did not include that language and therefore
there was no vote taken. He explained that that language can be
added in conference committee, but if it is not added and not
voted on, it's possible that some of those appropriations that
are in both versions of the budget from "sweepable" accounts
could not take effect.
REPRESENTATIVE EASTMAN said he wanted to confirm that the
passage of the reverse sweep is a foundation of this
conversation.
2:03:04 PM
CHAIR CLAMAN asked Mr. Painter about the 2 percent and 1.5
percent inflation rate. He questioned how Legislative Finance
Division (LFD) came up with the 2 percent figure.
MR. PAINTER stated that the 2 percent is the officially adopted
inflation rate from Callan and Associates, which is the
investment consultant the state uses for the PFD. He said that
that number has been 2.25 percent for several years; however,
it's being reduced. He shared that that number is in line with
the federal targets and the division feels that that is a
reasonable assumption to use.
CHAIR CLAMAN asked Mr. Painter if inflation rates did pick up,
whether that would cause a similar change in the overall number.
MR. PAINTER answered yes, in the division's modeling that uses
inflation as a basic growth rate, if there was a higher
inflation assumption, it would increase the baseline for future
years.
CHAIR CLAMAN referenced slide 6 of Mr. Painter's presentation.
He noted that the Agency Operations figure on the top line of
the table changes from $65.7 million in FY 22 to $182 million in
FY 23. He shared his understanding that it reflects "the
governor's goal of reducing by another approximately $150
million for the FY 23 budget."
MR. PAINTER said it's about $100 million reduction. The reason
it differs is because the baseline is increasing with inflation,
so not only is the governor decreasing the budget, but it's also
not growing from inflation as well.
CHAIR CLAMAN asked Mr. Painter, moving from FY 23 to FY 24,
whether that reflects another $150 million reduction.
MR. PAINTER conveyed that it is truly $100 million but also not
doing the inflationary growth. He said that it is a semantic
question of, "are you reducing it by $100 million below last
year's level, or are you reducing it by $150 million below last
year's level adjusted for inflation." He shared that either one
would be an accurate description of the governor's plan.
CHAIR CLAMAN asked for clarification on whether the $150 million
reduction can be thought of as a reduction from the prior year
adjusted upward for inflation, or $100 million reduction also
adjusted for inflation.
MR. PAINTER said that is how the comparisons appear.
CHAIR CLAMAN asked whether the $150 million is all in Agency
Operations or if it is the statewide capital or any of the other
differences.
MR. PAINTER said he understands that to be true but declined to
speak for the administration on that matter.
CHAIR CLAMAN asked whether it's true based on the analysis that
LFD is working with.
MR. PAINTER answered yes.
CHAIR CLAMAN asked whether that means, for FY 23 and FY 24, if
the state was unable to achieve those reductions in each of
those years and also add in the revenue proposals that are in
some of the governor's plans, the state would be at a $500
million to $600 million revenue need to keep the budget
balanced, not a $300 million revenue need.
MR. PAINTER stated that that is correct. If the budget is not
reduced as the governor is proposing and the PFD is
constitutionalized so that it is no longer "a lever" that can be
used to balance the budget, it would come down to revenue
increases of that size in order to balance the budget.
2:08:03 PM
MR. PAINTER continued on slide 8, "Analysis of Governor's
Comprehensive Fiscal Plan," which read as follows [original
punctuation provided]:
? Governor uses OMB 10-year plan for spending, which
has nearly $5 billion less spending over FY22-30 than
current policies reflected in LFD baseline
? Adds $300 million in new revenue (or additional
budget reductions) beginning midway through FY24
? Constitutionalizes PFD at 50% of POMV draw
MR. PAINTER advanced to slide 9, "Fiscal Model: Governor's PF
Plan with LFD's Baseline Spending Assumptions," and explained
that this shows some results of the fiscal modeling that has
been done. He explained that the graphs on the slide depict a
situation in which only the revenue portion of the governor's
plan and not the spending side. He explained that without
spending reductions, there would still be a significant deficit.
The graph on the right relates to budget reserve balances, and
the graph on the left compares the unrestricted general fund
(UGF) to the budget, he said. In this scenario, if there are
not budget reductions, it would result in an "unfilled budget
hole" in FY25 and beyond.
2:10:37 PM
CHAIR CLAMAN asked Mr. Painter for clarification on whether the
dotted line that reflects the budget that includes the dividend
is assuming the 50/50 split dividend that's estimated to be
$2,300.
MR. PAINTER responded yes, that represents the $300 million
revenue, but not the spending.
2:11:12 PM
MR. PAINTER continued on slide 10, "Fiscal Model: Governor's PF
Plan with Governor's Spending Plan," which depicted numbers that
are very similar to those from the administration, he said. He
explained that the graphs on this slide show a scenario where
the governor's spending reduction is implemented, in addition to
spending reductions. The surplus deficit numbers start out with
deficit of $1.4 billion but shrink rapidly towards achieving a
balanced budget in FY27. He explained that the CBR balance seen
on the graph on the right starts growing as the surplus goes
into the CBR in those years. He noted that the division's
modeling matches the administration's numbers when the
aforementioned assumptions are also considered.
MR. PAINTER continued to slide 11, "Fiscal Model: Governor's PF
Plan with Governor's Spending Plan," and explained that the
governor's plan works fiscally if the budget reductions in
revenue are agreed upon based on the current revenue forecast.
The division's modeling on slide 10 shows that if those things
occur, the 50/50 dividend and constitutionalizing the PCE plan
balance the budget. He added that if oil revenue is lower than
the spring forecast, there would need to be more budget
reductions or more new revenue to balance the budget as compared
to what is seen in the governor's plan. He continued that the
state is unable to achieve the spending reductions that the
governor is proposing, more revenue would need to be included in
order to make up for it. He explained that the legislature has
four main levers to balance the budget: drawing from savings
accounts, reduce the PFD, reduce the budget, or increase
revenue. The governor's plan removes the first two options. If
there is reduced plan below the forecast, he said, then the
latter two options would be the only ones available. Without
ERA access or significant savings balances, the legislature
would be forced to act swiftly to resolve any fiscal imbalances
in the future.
MR. PAINTER made a correction that slide 9 does not include the
$300 million in new revenue, but it simply represents the 50/50
plan with no other policy intervention.
2:15:53 PM
REPRESENTATIVE SNYDER pointed out that in a previous
presentation by the commissioner, the projected surplus was $393
million by FY 30; she asked if that surplus corresponds with the
projections provided by LFD's models. Additionally, she offered
her understanding that the calculation of $393 million was based
off the assumption that some existing debt would be paid off,
including school bond debt and oil tax credits. She predicted
that there may be future debt that would eat into that surplus.
She asked if it's reasonable to expect a surplus based on
historical accumulation of debt.
MR. PAINTER said with the governor's spending assumptions, LFD's
modeling shows a surplus of $395 million in FY 30, which is
almost exactly the same. Regarding debt, he clarified that new
credit cannot be earned for oil tax credits, so it's just a
matter of when that's paid off. He explained that in the
baseline assumption, which assumes that the statute is followed
and $114 million is paid this year followed by $117 million next
year and so forth, [the oil tax credit] would be paid off in FY
27. Regarding school debt reimbursement, he noted that the
moratorium on new debt was extended through FY 25. He
acknowledged that LFD's modeling is low for school bond debt
reimbursement due to the assumption that no new debt comes in
after the moratorium is lifted. He speculated that if the
moratorium is allowed to lift in FY 25, there would be new debt
added on in future years. Nonetheless, he pointed out that in
the governor's plan, the legislature would only fund half of
that, so the amount would be relatively small. Another factor
that has been discussed by the administration, he said, is using
bonding to make up for restrained capital budgets, which would
also reduce the surplus.
2:20:24 PM
CHAIR CLAMAN returned to slide 9 and remarked
So, the difference between the governor's budget line
and the revenue projections, if we had $300 million in
new revenue starting in FY 25, would that be a
balanced budget on this slide?
MR. PAINTER responded no, there would still be a deficit.
CHAIR CLAMAN questioned whether the current amount that [the
legislature] owes to the CBR is $11-12 billion.
MR. PAINTER said after the books are closed on FY 21, the
current estimate is $11 billion or $12 billion assuming that the
sweep is reversed.
CHAIR CLAMAN in reference to Representative Snyder's earlier
question to DOR about the $3 million bridge draw, inquired about
the pros and cons to passing revenue first from a fiscal policy
perspective.
MR. PAINTER relayed from a purely fiscal, nonpolitical
perspective, the sooner any intervention is done the better,
because more would be left in savings. He opined that waiting
would be a political call not a fiscal call. Nonetheless, he
said [the legislature] would not want to balance the FY 22
budget given the delay in revenue coming on. He added that if
something were passed now, it could "come online" by midway
through FY 23, versus postponing for another year or two and
waiting even longer for the revenue.
2:24:10 PM
MR. PAINTER noted that the joint document, titled "OMB and LFD
Fiscal Model Assumptions" [included in the committee packet], is
a "handy" reference to see the differences that the governor is
proposing in terms of spending. He added that the document lays
out all the assumptions, which clearly illustrates those
differences against the baseline.
2:24:48 PM
CHAIR CLAMAN directed attention to the last row on that document
and asked Mr. Painter to highlight the key differences between
LFD assumptions and DOR assumptions pertaining to the dividend.
MR. PAINTER responded that he is not aware of any significant
differences. He noted that on the number of eligible
applicants, LFD has been assuming that the same number of
applicants received the dividend in FY 22 as in FY 21.
Additionally, LFD is assuming that the Department of Labor &
Workforce Development's (DLWD's) population growth forecast
holds true in subsequent years. He said he's not sure if DOR is
using DOL's forecast, as it is slightly dated.
CHAIR CLAMAN pointed out that there is an actuarial evaluation
on retirement as of September 2020 on OMB and December 2020 on
LFD. He asked if there is a significant difference in those.
MR. PAINTER confirmed that there is [a significant difference.]
He explained that in FY 20, there were actuarial losses because
the earnings were about 2 percent versus the actuarially assumed
7.3 percent; therefore, using the draft numbers that would
likely be adopted in two weeks of the ARM Board meeting, the
numbers end up being the same in FY 22, very close in FY 23, and
farther apart in FY 24-30 - about $40 million in FY 24 to $66.8
million higher in FY 30.
CHAIR CLAMAN asked which number is higher.
MR. PAINTER reported that LFD's number is higher because LFD is
incorporating the FY 20 actuarial loss.
CHAIR CLAMAN sought verification that LFD's [model] shows a
better picture of retirement than OMB.
MR. PAINTER clarified that LFD is using draft numbers and OMB is
using official numbers, which means that currently, LFD has a
less optimistic picture that shows more spending. If the same
pattern held true with the FY 21 actuarial results, which are
going to be positive, OMB would have a more pessimistic
assumption and in December, LFD would switch to a more
optimistic assumption. He emphasized that LFD's ability to use
unofficial numbers indicates that LFD's numbers are currently
higher; however, he offered his belief that next year that would
be in the opposite.
2:28:49 PM
CHAIR CLAMAN invited comments or observations from DOR.
2:29:10 PM
COMMISSIONER MAHONEY acknowledged that the majority of
differences between the two models relate to the spending plan.
She relayed that the governor is focused on continuing to reduce
spending. Additionally, she pointed out that in regard to
calculating the POMV revenue, both LFD and DOR used
approximately $77.6 billion. She noted that yesterday that
number was $80.6 billion, which indicates that it is already up
$3 billion from the end of April, which suggests that when these
numbers are recalculated, the POMV would continue to increase.
Furthermore, she recognized that there are differences in some
non-policy-related assumptions. Her plan, she said, is to work
with both OMB and LFD to come to a consensus on some [smaller
item] assumptions, such as inflation, to "take the noise" out of
this analysis, so that in the future, conversations could be
focused more on the policy aspect of the governor's plans.
2:31:29 PM
CHAIR CLAMAN returned to the statement that 70 percent of
Harvard University is funded through its endowment. He asked if
Commissioner Mahoney had performed additional research on that
figure.
COMMISSIONER MAHONEY acknowledged that she had speculated that
the Harvard endowment funded 70 percent of Harvard University's
operating budget; however, this past year, it was 37 percent.
She directed attention to a document, titled "Harvard Will Draw
Further from Endowment in FY20222 Than Planned, Citing Strong
Market Returns" [hard copy included in the committee packet],
which addresses the reasons why Harvard decided to make the
overdraw. She expounded that the article recognizes that
Harvard, like many colleges, experienced deficits during the
pandemic, but the objective of increasing their draw to 2.5
percent more was about strong market returns. She said the CFO
and VP of Finance were quoted saying that the draw "is
consistent with their intent on distributing as much as they
responsibly can of the endowment to support all of the endowed
research and teaching activities vital to their mission." In
closing, she maintained that the unstructured draw from the
Permanent Fund, which the governor is proposing, does not
compromise the principal or the inflation proofing of the fund.
2:33:53 PM
CHAIR CLAMAN announced that CSHJR 7(STA) was held over.
2:35:41 PM
ADJOURNMENT
There being no further business before the committee, the House
Judiciary Standing Committee meeting was adjourned at 2:35 p.m.