Legislature(2003 - 2004)

06/23/2004 09:10 AM JUD

Audio Topic
* first hearing in first committee of referral
+ 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.]                                                                                                                    

Document Name Date/Time Subjects