Legislature(2017 - 2018)GRUENBERG 120

03/29/2018 03:15 PM STATE AFFAIRS

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Audio Topic
03:21:57 PM Start
03:22:23 PM Confirmation(s):
03:23:13 PM Presentation: Alaska Permanent Fund Governance by Angela Rodell, Chief Executive Officer
04:09:23 PM Presentation(s): Fiscal Plans Overview by Leg. Finance Div.
04:44:08 PM Adjourn
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ Presentations: TELECONFERENCED
- AK Permanent Fund Governance by Angela Rodell,
Chief Exec. Officer
- Fiscal Plans Overview by Leg. Finance Div.
- Overview of Permanent Fund Proposals in the
Legislature by Reid Magdanz & Rob Ervine,
Legislative Staff
+ Confirmation Hearings: State Commission for TELECONFERENCED
Human Rights; State Board of Parole; Personnel
Board; Police Standards Council; Public Office
Commission; Public Defender
+= SCR 17 APRIL 2018:SEXUAL ASSAULT AWARENESS MONTH TELECONFERENCED
<Bill Hearing Canceled>
+ HB 83 TEACHERS & PUB EMPLOYEE RETIREMENT PLANS TELECONFERENCED
<Bill Hearing Canceled>
+ Bills Previously Heard/Scheduled TELECONFERENCED
                       ALASKA STATE LEGISLATURE                                                                               
               HOUSE STATE AFFAIRS STANDING COMMITTEE                                                                         
                            March 29, 2018                                                                                      
                               3:21 p.m.                                                                                        
                                                                                                                                
MEMBERS PRESENT                                                                                                               
                                                                                                                                
Representative Jonathan Kreiss-Tomkins, Chair                                                                                   
Representative Chris Tuck                                                                                                       
Representative   Adam Wool                                                                                                      
Representative   Chris Birch                                                                                                    
Representative DeLena Johnson                                                                                                   
                                                                                                                                
MEMBERS ABSENT                                                                                                                
                                                                                                                                
Representative Gabrielle LeDoux, Vice Chair                                                                                     
Representative Gary Knopp                                                                                                       
Representative Andy Josephson (alternate)                                                                                       
Representative Chuck Kopp (alternate)                                                                                           
                                                                                                                                
OTHER LEGISLATORS PRESENT                                                                                                     
                                                                                                                                
Representative Jennifer Johnston                                                                                                
                                                                                                                                
COMMITTEE CALENDAR                                                                                                            
                                                                                                                                
CONFIRMATION(S):                                                                                                                
                                                                                                                                
State Commission for Human Rights                                                                                             
                                                                                                                                
      Christa Bruce-Kotrc - Ketchikan                                                                                           
      Megan Mackiernan - Nome                                                                                                   
      Freddie Olin IV - Anchorage                                                                                               
                                                                                                                                
      - CONFIRMATION(S) ADVANCED                                                                                                
                                                                                                                                
State Board of Parole                                                                                                         
                                                                                                                                
      Sarah Possenti - Fairbanks                                                                                                
                                                                                                                                
      - CONFIRMATION(S) ADVANCED                                                                                                
                                                                                                                                
Personnel Board                                                                                                               
                                                                                                                                
      Alfred Tamagni, Sr. - Anchorage                                                                                           
                                                                                                                                
      - CONFIRMATION(S) ADVANCED                                                                                                
                                                                                                                                
Police Standards Council, Alaska                                                                                              
                                                                                                                                
      Michael Craig - Anchorage                                                                                                 
      Justin Doll - Anchorage                                                                                                   
      David Knapp -Palmer                                                                                                       
      Larry Nicholson - Kodiak                                                                                                  
                                                                                                                                
      - CONFIRMATION(S) ADVANCED                                                                                                
                                                                                                                                
Public Offices Commission, Alaska                                                                                             
                                                                                                                                
      Anne Helzer - Anchorage                                                                                                   
                                                                                                                                
      - CONFIRMATION(S) ADVANCED                                                                                                
                                                                                                                                
Public Defender                                                                                                               
                                                                                                                                
      Quinlan Steiner - Anchorage                                                                                               
                                                                                                                                
      - CONFIRMATION(S) ADVANCED                                                                                                
                                                                                                                                
PRESENTATION(S):  ALASKA PERMANENT FUND GOVERNANCE BY ANGELA                                                                    
RODELL, CHIEF EXECUTIVE OFFICER                                                                                                 
                                                                                                                                
      - HEARD                                                                                                                   
                                                                                                                                
PRESENTATION(S): FISCAL PLANS OVERVIEW BY LEG. FINANCE DIV.                                                                     
                                                                                                                                
      - HEARD                                                                                                                   
                                                                                                                                
PRESENTATION(S):  OVERVIEW OF PERMANENT FUND PROPOSALS IN THE                                                                   
LEGISLATURE BY REID MAGDANZ AND ROB ERVINE, LEGISLATIVE STAFF.                                                                  
                                                                                                                                
      - SCHEDULED BUT NOT HEARD                                                                                                 
                                                                                                                                
SENATE CONCURRENT RESOLUTION NO. 17                                                                                             
Proclaiming April 2018 as Sexual Assault Awareness Month.                                                                       
                                                                                                                                
      - BILL HEARING CANCELED                                                                                                   
                                                                                                                                
HOUSE BILL NO. 83                                                                                                               
"An  Act  relating   to  new  defined  benefit   tiers  in  the  public                                                         
employees'    retirement   system   and   the   teachers'    retirement                                                         
system;   providing  certain   employees   an  opportunity   to  choose                                                         
between  the  defined   benefit  and  defined   contribution  plans   of                                                        
the public employees' retirement system and the teachers'                                                                       
retirement system; and providing for an effective date."                                                                        
                                                                                                                                
      - BILL HEARING CANCELED                                                                                                   
                                                                                                                                
PREVIOUS COMMITTEE ACTION                                                                                                     
                                                                                                                                
No previous action to record                                                                                                    
                                                                                                                                
WITNESS REGISTER                                                                                                              
                                                                                                                                
ANGELA RODELL, Chief Executive Officer (CEO)                                                                                    
Alaska Permanent Fund Corporation (APFC)                                                                                        
Juneau, Alaska                                                                                                                  
POSITION STATEMENT:  Gave a PowerPoint presentation entitled                                                                  
"Alaska Permanent Fund Governance".                                                                                             
                                                                                                                                
DAVID TEAL, Director                                                                                                            
Legislative Finance Division                                                                                                    
legislative Agencies & Offices                                                                                                  
Juneau, Alaska                                                                                                                  
POSITION STATEMENT:  Gave a presentation entitled "Fiscal Plans                                                               
Overview".                                                                                                                      
                                                                                                                                
ACTION NARRATIVE                                                                                                              
                                                                                                                                
3:21:57 PM                                                                                                                    
                                                                                                                                
CHAIR  JONATHAN   KREISS-TOMKINS    called  the  House   State  Affairs                                                       
Standing     Committee    meeting     to    order    at    3:21    p.m.                                                         
Representatives    Kreiss-Tomkins,    Wool,   Birch,   and   Tuck  were                                                         
present  at the  call  to order.   Representative   Johnson  arrived  as                                                        
the meeting was in progress.                                                                                                    
                                                                                                                                
^CONFIRMATION(S):                                                                                                               
                           CONFIRMATION(S):                                                                                 
                  State Commission for Human Rights                                                                         
                        State Board of Parole                                                                               
                            Personnel Board                                                                                 
                  Police Standards Council, Alaska                                                                          
                  Public Offices Commission, Alaska                                                                         
                            Public Defender                                                                                 
                                                                                                                              
3:22:23 PM                                                                                                                    
                                                                                                                                
CHAIR  KREISS-TOMKINS   announced  that  the  first  order of  business                                                         
would   be  the   confirmation   hearings   for   the  [governor's    11                                                        
appointments] to various boards and commissions.                                                                                
                                                                                                                                
CHAIR  KREISS-TOMKINS   stated  that  all  the  names  were  circulated                                                         
to  the committee  members.    If any  member  had  expressed  a desire                                                         
to  hold a  confirmation  hearing  for  any  appointee,  the  committee                                                         
would have held a hearing; however, no names were singled out.                                                                  
                                                                                                                                
[CHAIR  KREISS-TOMKINS    reminded  committee   members   that  signing                                                         
the  reports  regarding  appointments   to boards  and  commissions   in                                                        
no  way  reflects  individual  members'   approval  or  disapproval   of                                                        
the  appointees  and  that  the nominations   are merely  forwarded   to                                                        
the  full  legislature  for  consideration   during  the joint  session                                                         
of the House and Senate for the purposes of confirmation.]                                                                      
                                                                                                                                
3:22:38 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE   WOOL  made  a  motion   that  the  names  of  nominees                                                         
before  the  House  State Affairs  Standing   Committee  for  the State                                                         
Commission   for  Human  Rights,  State  Board   of  Parole,  Personnel                                                         
Board,    Police   Standards    Council,    Alaska,    Public   Offices                                                         
Commission,   and   Public   Defender   be  forwarded   to   the  joint                                                         
session  of  the House  and  Senate  for consideration.    There  being                                                         
no objection,   the names  of the  appointees  were  advanced  from  the                                                        
House State Affairs Standing Committee.                                                                                         
                                                                                                                                
^PRESENTATION:    ALASKA   PERMANENT    FUND   GOVERNANCE   BY   ANGELA                                                       
RODELL, CHIEF EXECUTIVE OFFICER                                                                                               
                         PRESENTATION(S):                                                                                   
     ALASKA PERMANENT FUND GOVERNANCE BY ANGELA RODELL, CHIEF                                                               
                         EXECUTIVE OFFICER                                                                                  
                                                                                                                              
                                                                                                                              
3:23:13 PM                                                                                                                    
                                                                                                                                
CHAIR  KREISS-TOMKINS   announced  that  the  final  order of  business                                                         
would  be three  presentations:    a  presentation   by Angela  Rodell,                                                         
Chief  Executive   Officer  on Alaska   Permanent  Fund  Governance;   a                                                        
presentation   by David  Teal  on Fiscal  Plans  Overview;   and third,                                                         
an  Overview  of  Permanent   Fund  Proposals  in  the  Legislature   by                                                        
Reid Magdanz and Rob Ervine, legislative staff.                                                                                 
                                                                                                                                
3:23:48 PM                                                                                                                    
                                                                                                                                
ANGELA  RODELL,   Chief  Executive  Officer  (CEO),   Alaska  Permanent                                                         
Fund  Corporation  (APFC),  introduced   herself.    She described   the                                                        
presentation    as  being   focused   primarily    on  the   governance                                                         
aspect,   including   the   duties  and   management   of   the  Alaska                                                         
Permanent  Fund  (PF).   She  expressed  a  willingness  to  answer  any                                                        
questions members may have about the corporation.                                                                               
                                                                                                                                
3:24:26 PM                                                                                                                    
                                                                                                                                
MS.  RODELL  turned  to slide  2, titled  "1969:  The  Debate  Begins,"                                                         
which read as follows [original punctuation provided]:                                                                          
                                                                                                                                
square4 Alaska receives $900 million in Prudhoe lease sale bonuses.                                                             
   square4 Debate on Use of Royalties                                                                                           
        square4 Fund State Infrastructure and Social Programs                                                                   
        square4 Establish a Development Bank                                                                                    
        square4 Create an Investment Fund                                                                                       
                                                                                                                                
MS.  RODELL  said  that  in 1969  when  Alaska  received  $900  million                                                         
in Prudhoe  lease  sale  bonuses,  the  unrestricted  operating  budget                                                         
for  the  State  of  Alaska   was  $178  million.    This   was  a huge                                                         
windfall  to the  state.   She  reminded  members  that in  1969 Alaska                                                         
had  only  been  a state  for  10  years.   Discussions   were  held  as                                                        
part  of  the  statehood   debate  on  how  the   state  would  support                                                         
itself.   There  were  significant  demands  and the  $900  million  was                                                        
quickly   spent  on  projects   throughout   Alaska.    That  level   of                                                        
spending  concerned   legislators  and  a debate  began  about  whether                                                         
the  royalty  - a  non-renewable   resource  -  would  be available   to                                                        
benefit   future   generations,   especially    since  the   value   was                                                        
unknown.                                                                                                                        
                                                                                                                                
MS.  RODELL  highlighted   that  the  debate  was  around  three  uses;                                                         
first,  to fund  state  infrastructure  and  social  programs;  second,                                                         
to  establish    a  development   bank;   and   third,  to   create   an                                                        
investment fund.                                                                                                                
                                                                                                                                
3:25:59 PM                                                                                                                    
                                                                                                                                
MS.  RODELL  turned  to slide  3,  titled  "The Alaska  Constitution,"                                                          
which read as follows [original punctuation provided]:                                                                          
                                                                                                                                
      Over  four   decades   ago,   in  1976,   Alaskans    in  an                                                              
      historic  vote amended  the  Constitution  of  the State  of                                                              
      Alaska by  a margin  of 75,588  to  38,518  and created  the                                                              
      Alaska Permanent Fund.                                                                                                    
                                                                                                                                
      Alaska Constitution Article IX, Section 15 Section 15.                                                                    
      Alaska Permanent Fund                                                                                                     
                                                                                                                                
      At  least  twenty-five    percent  of   all  mineral   lease                                                              
      rentals,   royalties,   royalty   sale  proceeds,    federal                                                              
      mineral  revenue  sharing  payments  and  bonuses  received                                                               
      by the  state  shall be  placed  in a  permanent  fund,  the                                                              
      principal   of  which   shall   be  used   only  for   those                                                              
      income-producing   investments    specifically   designated                                                               
      by law  as eligible  for  permanent  fund  investments.  All                                                              
      income  from  the permanent   fund  shall  be  deposited  in                                                              
      the general fund unless otherwise provided by law.                                                                        
                                                                                                                                
MS.  RODELL,   reviewing   the   slide,  stated   that   the  fund   was                                                        
created   through   a  constitutional    amendment   approved   by   the                                                        
voters  in 1976  by a  margin of  75,588  to 38,518.   She  pointed  out                                                        
that  there  was   not  uniformity  in  the   decision  to  create   the                                                        
fund.    Some people   felt  very strongly   that  the  funds  could  be                                                        
used for other purposes rather than an investment fund.                                                                         
                                                                                                                                
MS.  RODELL,  referring   to  the  paragraph   on  slide  3,  commented                                                         
that  the  language   within  the   [Alaska]  Constitution   was  quite                                                         
simple.  She read the paragraph [as above].                                                                                     
                                                                                                                                
3:27:16 PM                                                                                                                    
                                                                                                                                
CHAIR  KREISS-TOMKINS   asked   whether  there  has  been   a point   in                                                        
time  where more  than  25 percent  of royalties   have been  deposited                                                         
into the Permanent Fund (PF).                                                                                                   
                                                                                                                                
MS.   RODELL   answered   yes.     She   explained   that   as  leases,                                                         
including  terms   and royalties,   have  been  reviewed  and  approved                                                         
over   the   years    by   legislative   bodies,    there   have   been                                                         
determinations   within  those  statutes.    She  said  she would  cite                                                         
the  specific   statute   that   allows  the   Alaska  Permanent   Fund                                                         
Corporation   (APFC)   to  designate   royalties   in   excess  [of   25                                                        
percent]   to the  PF  depending   on  when  the  lease  agreement   was                                                        
entered, or which field was leased.                                                                                             
                                                                                                                                
3:28:28 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE   BIRCH  commented   that  he  was  one  of  the  75,518                                                         
votes that established the PF.                                                                                                  
                                                                                                                                
3:28:41 PM                                                                                                                    
                                                                                                                                
MS.  RODELL  stated  that the  first  deposit  of $734,000  came  in  in                                                        
February   1977,  which  was  managed   by the   Alaska  Department   of                                                        
Revenue   (DOR),  because   APFC  did  not  form   as  the  entity   for                                                        
managing   the  PF  until  1980.    The   allowable  investments   were                                                         
initially  fixed  income  bond  investments  but  over  the  years that                                                         
list   expanded.     Currently,   the  direction   is   to  follow   the                                                        
prudent investment rule.                                                                                                        
                                                                                                                                
MS.  RODELL   reviewed  slide  5,   titled  "The  Corporation,"   which                                                         
read as follows [original punctuation provided]:                                                                                
                                                                                                                                
      The  Alaska   State  Legislature   passed   SB161   in  1980                                                              
      establishing  the  Alaska  Permanent  Fund  Corporation  and                                                              
      providing:                                                                                                                
                                                                                                                                
         square4 a sound management structure to maximize the                                                                   
           Fund's ability to generate investment returns                                                                        
         square4 a Board of Trustees entrusted with fiduciary                                                                   
            oversight. APFC's Mission To manage and invest                                                                      
            the assets of the permanent fund and other funds                                                                    
            designated by law.                                                                                                  
                                                                                                                                
MS. RODELL reported that currently, the APFC has                                                                                
responsibility for one other fund it manages, which is the                                                                      
Alaska Mental Health Trust Authority (AMHTA) principal.                                                                         
                                                                                                                                
3:30:17 PM                                                                                                                    
                                                                                                                                
MS.  RODELL  turned  to  slide  6, titled  "Fiduciary,"   and  remarked                                                         
that  although  we often  use the  term  "fiduciary"  and know  what  it                                                        
means,  it can  be  difficult  to pinpoint  or  define  the term.    She                                                        
read  from  slide   6,  stating  a  fiduciary   was  "relating   to  the                                                        
responsibilities    of   a  person   or   organization   that   manages                                                         
property or money belonging to another person or organization.                                                                  
                                                                                                                                
3:31:03 PM                                                                                                                    
                                                                                                                                
MS.  RODELL  turned  to  slide  7, titled,   "AS 37.13.120   Investment                                                         
Responsibilities Mandates Use of the Prudent Investment Rule."                                                                  
She  said  this  is  where  you  will  find  the  mandate   to  use  the                                                        
prudent investment rule.  She read:                                                                                             
                                                                                                                                
       The  Rule  requires  the  test  of  fiduciary   conduct  be                                                              
      undertaken   from  a  portfolio   formulation   perspective                                                               
      without  considering  the  subsequent   performance  of  the                                                              
      portfolio.     Formulation      means     assembling     and                                                              
      maintaining   a   portfolio    of   assets   with   a   risk                                                              
      tolerance    suitable     for     the    purposes,     term,                                                              
      distribution  requirements,   and other  conditions   of the                                                              
      trust."                                                                                                                   
                                                                                                                                
MS.  RODELL  commented   that  it  was  important   to  understand   how                                                        
these  two  relate  to  one another:   "The  Prudent  Investment  Rule"                                                         
and  fiduciary  conduct  be undertaken  from  a portfolio   formulation                                                         
perspective.    The  prudent  investment   rule  requires  the  APFC  to                                                        
take  a  perspective   of   construction   of  the  portfolio   without                                                         
consideration   to subsequent   performance.    She  acknowledged  that                                                         
this  might  seem  counter  to  what  one  would  expect.   She  stated                                                         
that  rather  one  should   assemble  a  portfolio   of assets   with  a                                                        
risk  tolerance   that  the  investor  believes  is  suitable   for  the                                                        
purposes,  term,  distribution   requirements,   and  other  conditions                                                         
of the trust which generates the return on investment.                                                                          
                                                                                                                                
3:32:06 PM                                                                                                                    
                                                                                                                                
MS.   RODELL   explained    that   when   discussing    how  the   APFC                                                         
structures  its  portfolio  and  conducts  its  asset  allocation,   the                                                        
reason  is not  to  drive returns.    Otherwise  an  argument  could  be                                                        
made  that [investments]   should  be 100  percent  in private  equity,                                                         
which  has  the  highest   returns  for   2017,  or  in  public  equity                                                         
because  it  has  higher  returns   and  better  liquidity.    However,                                                         
the  APFC  does not  do  that;  instead,  it  assembles  the  portfolio                                                         
and   asset   allocation    with   an   eye   towards    what   is   the                                                        
corporation's   risk  tolerance.    That  risk  tolerance  must  be  set                                                        
in  terms  of  the  purpose  of  the  fund,  which   is to  hold  these                                                         
funds   in  trust   in   perpetuity   for   all   current   and  future                                                         
generations   of  Alaskans.    She  stated   that  different  types   of                                                        
risks  can  be  taken,  depending  on  the  terms,  if  the  [investor]                                                         
knows  that  he/she  will have  ten  years  to ride  through  different                                                         
business  cycles.    She identified   it as  a different  risk  profile                                                         
than if one needs the money in six months.                                                                                      
                                                                                                                                
3:33:16 PM                                                                                                                    
                                                                                                                                
MS.  RODELL  related  that  the distributions   requirement   feed into                                                         
that  assumption   of  term,  such   as  the  length  of  time   of  the                                                        
investment,   and any  other  conditions  of  the trust  imperative   to                                                        
the objective of the trust.                                                                                                     
                                                                                                                                
3:33:37 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE    BIRCH  asked   for   clarification   on   differences                                                         
between  a  fiduciary  and  a trustee.    He  further  asked  what sort                                                         
of competency expectations exist for one or both.                                                                               
                                                                                                                                
MS.  RODELL  responded  that  she  is a  fiduciary  and  her  portfolio                                                         
managers  are  considered  fiduciary  since  they  have been  entrusted                                                         
with  those  responsibilities;   however,  the  trustees  have  an even                                                         
higher  standard  since  they  are  the  ones  who will  ultimately   be                                                        
held  responsible  for  the  delegations  and  actions  of staff.    The                                                        
trustee   has  a  higher   legal   standard   and  has   the  right   to                                                        
delegate  certain  responsibilities.    Backing  up  to the  definition                                                         
of  fiduciary,   she  indicated   that   she  and  her   managers  have                                                         
certain  responsibilities   in  managing  certain   day-to-day  trades,                                                         
which  is  what  makes  them  fiduciary.    She  pointed  out  that  the                                                        
external   managers   have   a   fiduciary   standard;   however,    the                                                        
trustees are responsible for the trust itself.                                                                                  
                                                                                                                                
MS.  RODELL said  that  the statutes  have  requirements  for  the APFC                                                         
Board  of  Trustees   in  terms   of  qualifications.     She  reviewed                                                         
qualifications   that  the  four  public  members   of the  board  must                                                         
have:   recognized   competence   and   wide  experience    in  finance                                                         
investments   or  other  business  management   related  fields.     The                                                        
other  two members   of the  Board  of Trustees  are  the  Commissioner                                                         
of   Revenue   and  another   member   of   the   Governor's   cabinet;                                                         
currently that is Commissioner Andrew Mack.                                                                                     
                                                                                                                                
3:35:36 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE   TUCK  offered  his belief  that  the  trustees  have  a                                                        
fiduciary    responsibility,     but   they    are   not    necessarily                                                         
fiduciaries.    He related  his  understanding  that  any trust  can  be                                                        
sued but wondered if a fiduciary could also be sued.                                                                            
                                                                                                                                
MS.  RODELL related  her  understanding   that all  fiduciaries  can  be                                                        
held  personally  liable   to the  extent  that  criminal  activity   is                                                        
associated  with  the  failure.   She  explained  that  tests  apply  to                                                        
a  failure  as a  fiduciary,   whether  it was  through  circumstances                                                          
beyond  his/her  control  or  if it  was  knowingly  and intentionally                                                          
a violation of that duty.                                                                                                       
                                                                                                                                
3:36:39 PM                                                                                                                    
                                                                                                                                
MS.  RODELL  reviewed   slide  8,  titled  "APFC's   Governance,  which                                                         
read as follows [original punctuation provided]:                                                                                
                                                                                                                                
      Key determinates of APFC's governance success include:                                                                    
                                                                                                                                
   square4 an effective independent management and organizational                                                               
      structure,                                                                                                                
   square4 the adherence to accountability measures,                                                                            
   square4 defined legal and regulatory responsibilities,                                                                       
   square4 established policies and procedures,                                                                                 
   square4 being a leader in establishing best practice                                                                         
      standards.                                                                                                                
                                                                                                                                
3:37:13 PM                                                                                                                    
                                                                                                                                
MS.  RODELL,  turned  to  slide  9, titled   "Perspective."    She                                                              
turned  to  slide  10,  titled  "The  Pew Charitable   Trusts  Oct                                                              
2016,"  and  said  to  give  members  a  sense  of  how  the  APFC                                                              
operates  in  this  word  of  sovereign   wealth  funds,  that  in                                                              
October  2016  "The  Pew Charitable   Trusts"  wrote  a report  on                                                              
sovereign   wealth   funds   and  the   movement   from  volatile                                                               
severance  taxes  to a  sustained  revenue  model.   She recalled                                                               
that  the   APFC  sent   the  report  to   the  committee.     She                                                              
paraphrased from slide 9, which read:                                                                                           
                                                                                                                                
      "Governments   use   sovereign   wealth   funds,  so-called                                                               
      because  they are  established   by a  sovereign  nation  or                                                              
      U.S.  state,  to  deposit   a  portion  of  revenue   in  an                                                              
      investment  account   intended  to  generate   returns  that                                                              
      will be  used  to  achieve  a specific   public  purpose  or                                                              
      set of goals."                                                                                                            
                                                                                                                                
MS.  RODELL  stated  that  one  of  the  today's  challenges   has been                                                         
that  "a  specific  asset  or  set of  goals"  is  under  debate.    She                                                        
said  that recognizing   that  is the  challenge  for  Alaska,  and  how                                                        
the  APFC  governs  and  manages  its sovereign   wealth  fund,  is  key                                                        
to understanding   why  the APFC's  Board  of Trustees  has  taken some                                                         
of the actions it has taken to date.                                                                                            
                                                                                                                                
3:38:35 PM                                                                                                                    
                                                                                                                                
CHAIR   KREISS-TOMKINS    pointed   out   that   there   was   a  much-                                                         
publicized    legal   analysis   from   the   Legislative   Legal    and                                                        
Research  Services   counsel,  relating   to what   constitutes  public                                                         
purpose  or benefit.    He recalled  a bill  before  the House  Finance                                                         
Committee   and legal   speculation  on  whether  that   would  lead  to                                                        
the  fund  being taxable.    He  asked  whether  the APFC  has  had  its                                                        
own  counsel  currently  or  previously  explore  that  question  or  if                                                        
she had thoughts or commentary on that question.                                                                                
                                                                                                                                
MS.  RODELL  answered  that  the  APFC  has not  had  separate  counsel                                                         
and   has  relied    on  the   Department   of   Law   (DOL)   for   the                                                        
department's   interpretation.    The DOL  has reached  out  to private                                                         
counsel  in  instances  in  which  it  lacks  the specific   expertise.                                                         
She  related  the APFC's  understanding   was  that it  is unclear   how                                                        
that  would  "play out."    However,  she said,  the  APFC  universally                                                         
agreed  that  the  APFC  is an  asset  of  the  sovereign  that  is  the                                                        
State   of  Alaska.     What  that  asset   gets  used   for  may  have                                                         
potential  tax  consequences   if the  federal  government   interprets                                                         
that  [public  purpose]   is for  private   benefit  and  not  a public                                                         
benefit.   She  pointed  out  that sometimes   a lot  of attention   has                                                        
been  paid  to  this  and  sometimes  not.    Thus,  the  APFC  has  not                                                        
seen   the  need  to   get  private   letter   rulings   or  additional                                                         
opinions  on  this.   The  legislature  appropriates   the earnings   of                                                        
the  PF and  that is  where  it stops  for APFC,  she  said.   The APFC                                                         
does  not make  the determination   as to  what the  earnings  are used                                                         
for.                                                                                                                            
                                                                                                                                
3:41:12 PM                                                                                                                    
                                                                                                                                
CHAIR  KREISS-TOMKINS   asked  whether  the DOL  or  outside  law firms                                                         
that  the  executive   branch  has  retained  explored   this  question                                                         
and  come  to  different   conclusions   than  Legislative   Legal   and                                                        
Research Services attorneys have expressed.                                                                                     
                                                                                                                                
MS.  RODELL  related  her  understanding   that  over  the years  there                                                         
have  been  differences  of  opinions  expressed,  but  she  thought  it                                                        
had  been years  ago.   She acknowledged   that at  one time  there  may                                                        
have   been   a   potential   disagreement    between    the   DOL   and                                                        
Legislative Legal and Research Services on the matter.                                                                          
                                                                                                                                
3:42:00 PM                                                                                                                    
                                                                                                                                
MS.  RODELL  said the  APFC  thought  it might  be helpful  to  pass  on                                                        
Pew  Recommendations   for  US State  Policy  Makers   with respect   to                                                        
sovereign   wealth  funds.    She  turned  to  slide  11,  titled  "Pew                                                         
Recommendations    for  US  State   Policy   Makers,"   which  read   as                                                        
follows [original punctuation provided]:                                                                                        
                                                                                                                                
      1. Identify the purpose of their state's sovereign                                                                        
      wealth fund and clearly articulate its goals in law.                                                                      
      2. Establish policies for the governance, investment,                                                                     
      and public  disclosure  of the  funds  activities  in  law.                                                               
      3.   Provide   statutory    or   constitutional    guidance                                                               
      regarding withdrawals from the principal.                                                                                 
      4. Be aware of volatility in interest earnings from                                                                       
      the fund.                                                                                                                 
                                                                                                                                
MS.  RODELL   reviewed   the  first   point   and  reported   that   the                                                        
statute  surrounding   the  PF  do  articulate   clear  goals   for  the                                                        
fund  and  for  the  corporation.     Reading  point  2,  she  reported                                                         
that  the  APFC  has  clear   guidance  in  its  statute   for  how  the                                                        
trustees  will  govern,  on  investments,  and  with  its  disclosures.                                                         
For  example,  the  APFC must  make  annual  disclosures  by  September                                                         
30 of  each  year as  to the  performance  of  the fund.  The  APFC  has                                                        
oversight   in   statute   by  the  Legislative    Budget   [and  Audit                                                         
Committee]   and all  board  materials   are distributed   to  the LB&A                                                         
committee.    Turning  to  point  3,  she  offered  that  the  APFC  has                                                        
had   statutory   guidance   in  the   past  and   continues   to  urge                                                         
statutory   guidance  in  the  future  with  respect   to  withdrawals.                                                         
Finally,   the   APFC   has  had   numerous   discussions    on  market                                                         
volatility,   which  has   been  apparent  in   the  market  in  recent                                                         
weeks.                                                                                                                          
                                                                                                                                
3:43:54 PM                                                                                                                    
                                                                                                                                
MS.  RODELL  reviewed   slide  12,  titled,  "Best   Practices,"  which                                                         
read as follows [original punctuation provided]:                                                                                
                                                                                                                                
      "By establishing   independent  entities  to  oversee  their                                                              
      sovereign  wealth   funds,  New  Zealand  and   Alaska  have                                                              
      ensured  prudent  governance,  monitoring,   and disclosure                                                               
      of  their  financials   and   management   practices.   They                                                              
      stand  as examples   of  many  of  the best  practices   for                                                              
      sovereign      wealth       funds      domestically       or                                                              
      internationally."                                                                                                         
                                                                                                                                
MS.  RODELL pointed  out  that Norway  was  not listed  on  this slide.                                                         
The  APFC felt  proud to  "get the  shout  out."   She said  she thinks                                                         
it is  important  for  Alaskans  to know  the APFC  was recognized   for                                                        
its  governance  and in  how the  state  established  and continues   to                                                        
have oversight governance monitoring of the fund.                                                                               
                                                                                                                                
3:44:50 PM                                                                                                                    
                                                                                                                                
MS.   RODELL   turned   to   slide   14,   titled   "Resolution   17-01                                                         
Inflation  Proofing,"   which read  as follows  [original   punctuation                                                         
provided]:                                                                                                                      
                                                                                                                                
      ¦ AS  37.13.145   (c)   provides  the   inflation  proofing                                                               
      mechanism  which is  calculated  at  the end  of the  fiscal                                                              
      year.  Historically,   the  Legislature   has  included   an                                                              
      estimated   amount  in  the   language   of  the  operating                                                               
      budget to fulfill this statutory obligation.                                                                              
                                                                                                                                
      ¦ The  Board  of  Trustees  emphasized   the  importance  of                                                              
      inflation  proofing  by  unanimously   adopting  Resolution                                                               
      17-01 during their September 2017 Annual Meeting.                                                                         
                                                                                                                                
           Directing  APFC  to  identify  and pursue  legislative                                                               
           support  for  inflation   proofing   the  Principal  of                                                              
           the   Alaska    Permanent   Fund   to   preserve    the                                                              
           purchasing power for all generations as stated in                                                                    
           AS 37.13.020.                                                                                                        
                                                                                                                                
MS.  RODELL   stated  that  the   Board  of  Trustees   identified   two                                                        
things  that  have  caused  increasing   concern.   In  September,   the                                                        
Board  of Trustees  passed  Resolution   17-01 on  inflation-proofing.                                                          
This  came   about  due  to  three  years   of  non-appropriation    for                                                        
inflation-proofing   of  the  PF  and protecting   at  least  a portion                                                         
of  the  fund  for   future  generations,   she  said.    She  said   it                                                        
directed  the  APFC to  identify  and pursue  legislative   support  for                                                        
inflation-proofing    the  principal   of   the  PF  to   preserve   the                                                        
purchasing power for all generations as stated in AS 37.13.020.                                                                 
                                                                                                                                
3:45:58 PM                                                                                                                    
                                                                                                                                
MS.  RODELL  turned  to  slide  15,  titled  "Resolution   18-01  Rules                                                         
Based  Legal  Framework  for Fund  Transfers,"  which  read  as follows                                                         
[original punctuation provided]:                                                                                                
                                                                                                                                
      "Alaska  has  a  long  tradition   of  following   a  rules-                                                              
      based   system   for   Permanent   Fund   withdrawals    and                                                              
      savings.   Since    the   Fund's    inception,    with   the                                                              
      exception   of  certain    one  time   deposits   into   the                                                              
      corpus,  the  State   has  adhered   to  a  combination   of                                                              
      constitutional  and  statutory   law to  manage  cash  flows                                                              
      into and  out of  the Fund,  as well  as those  between  the                                                              
      corpus and earnings reserve.                                                                                              
                                                                                                                                
MS.  RODELL   stated   that  earlier   in   the  month   the  Board   of                                                        
Trustees  went  further  and passed  Resolution  18-01  to  encourage  a                                                        
rules-based  framework   for fund  transfers.   This  goes back  to  the                                                        
desire  to have  a known  distribution  requirement   for policy.    She                                                        
paraphrased the resolution.                                                                                                     
                                                                                                                                
MS.  RODELL,  turning  to  slide  16,  titled  "Resolution  18-01  Best                                                         
Practices,"    which    read   as   follows    [original    punctuation                                                         
provided]:                                                                                                                      
                                                                                                                                
        Adherence  to a  rules-based  system  for  Fund transfers                                                               
      is a basic  element  of best  practices  for  management  of                                                              
      sovereign   wealth  funds.   The  International    Forum  of                                                              
      Sovereign  Wealth  Funds, of  which  the Permanent  Fund  is                                                              
      a  member,  has  adopted   a  set  of   Generally  Accepted                                                               
      Principles   and   Practices,    including    that,   "There                                                              
      should   be  clear   and   publicly   disclosed   policies,                                                               
      rules,  procedures,  or  arrangements  in  relation  to  the                                                              
      fund's  general   approach   to  funding,   withdrawal   and                                                              
      spending  operations   on   behalf  of   the  government."1                                                               
      "Such  a   system   helps   provide   a  clear   basis   for                                                              
      deriving   the  expected    time   horizon   and  efficient                                                               
      investment   policy   for   the   savings,    and  promotes                                                               
      macroeconomic stability and accountability."2 ?"                                                                          
                                                                                                                                
MS.  RODELL strongly  urged  members  to  continue  to follow  a rules-                                                         
based  system,  whether  it  is one  currently   in statute  or  one  to                                                        
come.   She related  her  understanding   that it  is perfectly  within                                                         
the   legislature's   purview   to   adjust   the   rules   over  time;                                                         
however,  having  an  adherence  to a  rules-based  system  is  a basic                                                         
element of best practices for the APFC.                                                                                         
                                                                                                                                
3:47:32 PM                                                                                                                    
                                                                                                                                
MS.  RODELL  directed   attention  to  slide  17,  titled   "Resolution                                                         
18-01,   be   it   resolved,"   which   read   as   follows   [original                                                         
punctuation provided]:                                                                                                          
                                                                                                                                
      1) The  Board  of Trustees  believes   that adherence   to a                                                              
      legally  established    rules-based   framework   governing                                                               
      Fund  transfers  is  warranted   and  necessary,   and  such                                                              
      transfers should not occur ad hoc;                                                                                        
      2)  The  Board  of  Trustees   acknowledges   and   supports                                                              
      that with  the fiscal  challenges   facing the  State  a new                                                              
      rules-based  framework  established   in  law for  the  Fund                                                              
      is likely necessary;                                                                                                      
      3) The  Board of  Trustees  expresses  appreciation   to all                                                              
      stakeholders     involved     in    the    difficult     and                                                              
      timeconsuming    task   of  proposing,    evaluating,    and                                                              
      deliberating   a  new  rules-based   framework   to   govern                                                              
      Fund transfers;                                                                                                           
      4) The  Board  of  Trustees   and  staff  of the  Permanent                                                               
      Fund will  continue  to  provide  support  to  stakeholders                                                               
      to develop  a  new  rules-based  framework   established  in                                                              
      law to govern Fund transfers; and                                                                                         
      5) That  the  Board   of  Trustees  directs  the  Executive                                                               
      Director  to  distribute  this  Resolution  and  Resolution                                                               
      2017-1  (regarding   inflation-proofing)    to  the  Members                                                              
      of  the  30th  Alaska   State  Legislature   and   offer  to                                                              
      testify  in support  of the  need  to follow  a rules-based                                                               
      framework.                                                                                                                
                                                                                                                                
3:47:34 PM                                                                                                                    
                                                                                                                                
MS.  RODELL  said she  was  pleased  to distribute   the resolution   to                                                        
the  committee   and  glad  to  have  the  opportunity  to  testify   in                                                        
support   of the   need  to  follow  a  rules-based   framework.     She                                                        
reiterated    that   for   the   APFC   to   perform    its   fiduciary                                                         
responsibilities   and  follow   the  prudent  investment   rule,  that                                                         
part was a requirement on distribution.                                                                                         
                                                                                                                                
3:48:30 PM                                                                                                                    
                                                                                                                                
CHAIR  KREISS-TOMKINS,   in terms  of a  rules-based  framework,  asked                                                         
to  have her  comment  on the  value  of rules  being  in the  [Alaska]                                                         
Constitution  versus  in  statute.   He further  asked  her  to comment                                                         
as  manager  protecting   the  real   value  of  the  fund  for  future                                                         
generations, how those two things differed.                                                                                     
                                                                                                                                
MS.  RODELL  answered   that  there   is  need  for  flexibility.     By                                                        
putting   the  language   "at  least   twenty-five   percent"   in   the                                                        
Alaska   Constitution,   it  was  recognized   the   statute  would   be                                                        
inflexible   as to  the  minimum   amount  that  would  go  to  the  PF.                                                        
However,  there  may  be  times when  more  than  25  percent  would  be                                                        
deposited.    Further,  there  was a  recognition  that  times  change,                                                         
so  the  income   was  directed   to  the  general   fund  (GF)  unless                                                         
otherwise  provided  by  law.   This could  mean  that the  legislature                                                         
could  statutorily   direct  the  income  to  the  PFD  or other  fund,                                                         
such  as the  constitutional  budget  reserve  (CBR)  account  to allow                                                         
flexibility since circumstances change.                                                                                         
                                                                                                                                
MS.  RODELL said  that  looking  forward,  the legislature   must weigh                                                         
carefully    the   decision    between    what   is    immoveable    and                                                        
unchangeable   because  the   constitutional   language  has  not  been                                                         
touched   since  its  inception   in  1976.    Remember,   this  debate                                                         
started  in  1969  so it  took  seven  years  before  a constitutional                                                          
amendment  was  formulated  and  adopted.   Again,  the constitutional                                                          
language   has  not  been  touched   since  then.     Alaska  does   not                                                        
change   its  constitution    easily   or  lightly   she   said.     She                                                        
highlighted    that  as   potential   changes   are   drafted,   it   is                                                        
important to remember that aspect.                                                                                              
                                                                                                                                
MS.   RODELL   recommended   that   what   should   stay  in   statute,                                                         
arguably,  are  the  things  that should  remain  flexible.    She said                                                         
she  would argue  that  might be  the purpose  and  expense  of the  PF.                                                        
The  legislature   needs  this  flexibility   because   things  change,                                                         
and  the  state   has  numerous   needs  and  unforeseen   events  that                                                         
future  legislatures   might   need  to  consider  or  be  required   to                                                        
adjust how the PF is used.                                                                                                      
                                                                                                                                
3:51:31 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE    BIRCH    said   he   reviewed   the   constitutional                                                          
amendment   recently.    He  read  a portion   of Alaska   Constitution                                                         
Article   IX,  Section  15,  "All   income  from  the   permanent  fund                                                         
shall   be  deposited   into   the  general   fund   unless   otherwise                                                         
provided  by law."   He  recalled  from  an earlier  briefing  that  the                                                        
PF  and  earnings  account  is  $65  billion,  but  the  corpus  of  the                                                        
fund  is $40  billion,  of which  $16 billion  has  been deposited   per                                                        
the  constitutional  provision.    He related  his  understanding  that                                                         
since  1976,   the  legislature   has   supplemented   that  amount   to                                                        
build  the  corpus  of the  fund  to $40  billion.    He asked  whether                                                         
that was accurate.                                                                                                              
                                                                                                                                
MS.  RODELL  responded  that  was  correct.    She clarified   that  $16                                                        
billion  represented  the  lease  royalty  payment  with approximately                                                          
$7  billion   in  special  appropriations.      She  recalled  that   at                                                        
times   after  dividends   and  inflation-proofing    the   legislature                                                         
would  sweep  out  the account  and  deposit  it  to  the principal   of                                                        
the  fund.     An  additional    $16  billion   came  from   inflation-                                                         
proofing appropriations, she said.                                                                                              
                                                                                                                                
3:52:55 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE   BIRCH   recalled   that  last  year   the  legislature                                                         
attempted   to adopt   an  inflation-proofing   measure.    He  further                                                         
asked whether Ms. Rodell had a sense of the amount of inflation-                                                                
proofing required to protect the fund into perpetuity.                                                                          
                                                                                                                                
MS.  RODELL   answered  that   the  fiscal  year  (FY)   19  Governor's                                                         
Proposed   Budget  restored   appropriations   for  inflation-proofing                                                          
for  FY 16,  FY 17,  and FY  18 in  the amount  of  approximately  $1.4                                                         
billion.    In  addition,  a  separate  appropriation   for  FY  19  was                                                        
estimated  to  be $942  million.   She explained   the calculation   was                                                        
based  on  the actual   inflation  rate,  CPI  [Consumer  Price  Index]                                                         
as  published,  which  is calculated   on the  principal  or  corpus  of                                                        
the  fund.    It  was  not  based  on  the  entire  assets  under  APFC                                                         
management.    She  compared   the  FY 16  inflation-proofing    of  $47                                                        
million  appropriation   with the  $942 million  for  FY 19.   This  was                                                        
due  to  the  rise  of inflation   and  the  growth  of  the fund,   but                                                        
primarily  indicates   how  inflation  has  shifted  in  the  last four                                                         
years,  she  said.   This  created  a  need  for  a larger  deposit   to                                                        
maintain   the  purchasing  power   of  the  $40  billion,  which  then                                                         
becomes   $42  billion;  thus,   the  inflation-proofing    calculation                                                         
would   be  done   on   the  $42   billion.     She   highlighted    the                                                        
compounding effect that happens.                                                                                                
                                                                                                                                
3:55:26 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE    BIRCH   said  that   it   strikes   him  as   a  very                                                         
reasonable  thing  to  do  since  any realized   earnings  or  gains  of                                                        
the  corpus  of the  PF are  subject  to  appropriation  and  statutory                                                         
management.    He related   his understanding   that  the earnings   are                                                        
subject  to  appropriation   and  statutory  management.    He  offered                                                         
his  belief  that if  the  legislature  does  not  inflation-proof   the                                                        
PF,  the  fund will  not  grow,  other  than  the  25  percent  that  is                                                        
deposited.                                                                                                                      
                                                                                                                                
MS.  RODELL  answered   yes.    She  referred  to  the  25  percent   in                                                        
statute  and  stated  that  AS  37.13.010(a)   outlines  the  different                                                         
percentages    of    the    Alaska    PF.       She   paraphrased     AS                                                        
37.13.010(a)(2),    which  read   as  follows   [original   punctuation                                                         
provided]:                                                                                                                      
                                                                                                                                
       (2)   50   percent   of   all   mineral   lease    rentals,                                                              
      royalties,  royalty   sale  proceeds,   net  profit   shares                                                              
      under  AS  38.05.180(f)   and  (g),   and  federal   mineral                                                            
      revenue  sharing  payments   received   by  the  state  from                                                              
      mineral  leases  issued  after  December   1, 1979,  and  50                                                              
      percent  of  all   bonuses  received   by  the  state   from                                                              
      mineral leases issued after February 15, 1980; and                                                                        
                                                                                                                                
3:56:42 PM                                                                                                                    
                                                                                                                                
MS.  RODELL  said  that  answers  Chair  Kreiss-Tomkin's   question   of                                                        
whether  more  than   25 percent   has  been  deposited  into   the  PF.                                                        
Statutes    have   been    written    to   do   that;    however,    the                                                        
appropriations last year reduced it to the 25 percent, she said.                                                                
                                                                                                                                
3:57:01 PM                                                                                                                    
                                                                                                                                
CHAIR  KREISS-TOMKINS  referred   to one  of the  resolutions  the APFC                                                         
passed  and  whether  it was  fair to  assume  that  the APFC  Board  of                                                        
Trustees  supported   retroactive  inflation-proofing    of the  PF  for                                                        
the years that the legislature failed to do so.                                                                                 
                                                                                                                                
MS.  RODELL   answered   yes,  the   APFC  does   support   retroactive                                                         
inflation-proofing of the PF.                                                                                                   
                                                                                                                                
3:57:42 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE   WOOL  referred  [to  slide  12, "Best  Practices"]   to                                                        
other  countries   that  have   sovereign  wealth   funds.    He  asked                                                         
whether  Alaska  was the  only one  that  paid a  dividend  and whether                                                         
it mattered.                                                                                                                    
                                                                                                                                
MS.  RODELL  offered  to clarify  that  she  did not  mean  to indicate                                                         
that  Norway  has  poor  governance  of  its funds;   however,  she  was                                                        
happy  that  Alaska  received  the recognition.    She  responded  that                                                         
Alaska   is  the  only  one  that   currently  pays   out  a  dividend.                                                         
North  Dakota  set  up  its legacy  fund  when  it  had  the  shale  oil                                                        
boom  but   place  a  moratorium   on   the  dividend   program.     She                                                        
recalled   that  North  Dakota   decided  not  to  pay  out  any  funds                                                         
until  the   fund  was  five  years   old.    She  was  unsure  of   the                                                        
status,   but  North   Dakota   was  considering   whether   to  pay   a                                                        
dividend and had expressed an interest in Alaska's PF.                                                                          
                                                                                                                                
3:58:59 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE   WOOL  asked whether   if a  fund produces   wealth  and                                                        
3 percent  or  4 percent  was  drawn  from it,  it  really  matters  how                                                        
those funds are used.                                                                                                           
                                                                                                                                
MS.  RODELL answered  yes.   She  acknowledged  that  while  we may  all                                                        
care  as individual   Alaskans,  the  APFC must  be  indifferent  as  to                                                        
the  use.    She provided   an  example,  such  that  with  the  Public                                                         
Employees   Retirement  System  (PERS)   and the  Teachers   Retirement                                                         
System  (TRS),   the  focus  is   to  provide  an  annual   beneficiary                                                         
payment,   not  on   how  the   beneficiaries   would   use  it.     She                                                        
suggested  the  PF as a  similar  concept,  which is  to ask,  "What  is                                                        
the number,  what  is the  bogey,  is it  that you  need us  to hit,  to                                                        
target, so."                                                                                                                    
                                                                                                                                
4:00:37 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE    WOOL,   in  terms   of   inflation-proofing,    asked                                                         
whether  if  the bogey  was  lower,  for  example,  at  2 percent,   the                                                        
inflation-proofing   would   be taken  care  of  since  it  would  be  a                                                        
lower number.  He asked whether it is that simple.                                                                              
                                                                                                                                
MS.  RODELL  answered   that  she  wished  it  was  that  simple.    The                                                        
reason  that it  is not  that simple  is  because  of the  construct  of                                                        
the  earnings  reserve  account   (ERA)  versus  the principal   of  the                                                        
PF.   So long  as the  state  was able  to take  an  ad hoc  draw up  to                                                        
100   percent  of   the  ERA,   the   APFC  must   always   request   an                                                        
appropriation   for inflation-proofing    the PF,  in  order  to ensure                                                         
that  the   principal   can  capture   back  some  of   its  purchasing                                                         
power.                                                                                                                          
                                                                                                                                
4:01:34 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE     WOOL   asked    for   further    clarification     on                                                        
inflation-proofing    the  PF.    He  asked   if  Alaska  had  one   PF,                                                        
instead   of  the   fund   being  separated   into   an  ERA   and   the                                                        
principal  of  the fund,  if it  would be  accurate  that it  would  not                                                        
be   necessary   to  inflation-proof    the   fund   so  long   as   the                                                        
legislature did not take off too much.                                                                                          
                                                                                                                                
MS. RODELL responded that was correct.                                                                                          
                                                                                                                                
4:02:00 PM                                                                                                                    
                                                                                                                                
CHAIR  KREISS-TOMKINS   asked   to  cover  the  merits  of  ERA  corpus                                                         
structure versus an endowment model.                                                                                            
                                                                                                                                
MS.  RODELL  answered   that  from  the  APFC's  standpoint,   there  is                                                        
very  little  merit  to  the ERA  corpus  structure.    She  elaborated                                                         
that  for ease  of  managing  the investments,   having  one  fund with                                                         
a  strict  endowment  payout  would  be  a  very  clean  approach.    It                                                        
would  meet   the  criteria,  previously   discussed,   such  that   the                                                        
APFC  could   build  a  portfolio   that  recognizes   the  purpose   to                                                        
payout  "x"  percent.    We  know  the  terms   into  perpetuity,  with                                                         
some having a different term from the corpus.                                                                                   
                                                                                                                                
4:03:09 PM                                                                                                                    
                                                                                                                                
MS.  RODELL  explained  that  the  APFC  currently  manages  the  PF  as                                                        
if  "both  buckets"  have  the  same  term,  but  the debate   over  the                                                        
past  three  years  makes  it very  clear  that  both  accounts  do  not                                                        
have   the   same   terms.     She   stated   that   the   distribution                                                         
requirement   has changed  considerably;   however,   [the state]  does                                                         
not  yet have  a requirement.    She said  she understood   the merits,                                                         
from  the  state's  policy  perspective,   of the  reason  to  keep  the                                                        
ERA and the principal separate.                                                                                                 
                                                                                                                                
4:03:41 PM                                                                                                                    
                                                                                                                                
CHAIR  KREISS-TOMKINS   asked  whether  the  perceived  merit  would  be                                                        
that  the legislature  has  a "big  pot of  money"  that it  can access                                                         
when needed.                                                                                                                    
                                                                                                                                
MS.   RODELL   answered   yes;   but  the   legislature   also   has   a                                                        
limitation  to  the  amount  of funds  it  could  access.   She  stated                                                         
one  of  the  fears  she  has  heard  expressed  over  making   it "one                                                         
pot"  was "oh,  my  goodness,  now you're  really  going  to  spend  all                                                        
of  the  principal"   without  recognizing,   as  Representative   Wool                                                         
pointed   out,  setting  the  balance   between  not   overdrawing   and                                                        
being able to recoup what you spend.                                                                                            
                                                                                                                                
4:04:31 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE   BIRCH  thanked  Ms.  Rodell  for  the  great  briefing                                                         
and the work being done on behalf of all Alaskans.                                                                              
                                                                                                                                
CHAIR KREISS-TOMKINS concurred.                                                                                                 
                                                                                                                                
4:04:51 PM                                                                                                                    
                                                                                                                                
The committee took an at-ease from 4:04 p.m. to 4:09 p.m.                                                                       
                                                                                                                                
^PRESENTATION(S): FISCAL PLANS OVERVIEW BY LEG. FINANCE DIV.                                                                    
                                                                                                                                
                         PRESENTATION(S):                                                                                   
            FISCAL PLANS OVERVIEW BY LEG. FINANCE DIV.                                                                      
                                                                                                                                
4:09:23 PM                                                                                                                    
                                                                                                                                
CHAIR  KREISS-TOMKINS   announced  the  next  order  of business  would                                                         
be  a  presentation:     Fiscal  Plans  Overview   by  the  Legislative                                                         
Finance Division.                                                                                                               
                                                                                                                                
4:09:41 PM                                                                                                                    
                                                                                                                                
DAVID   TEAL,   Director,    Legislative   Finance    Division   (LFD),                                                         
Legislative  Agencies  &  Offices,  introduced  himself.   He  began  by                                                        
describing  fiscal   plans.   He  said that  this  is  about  the fifth                                                         
or  sixth iteration   of developing   fiscal  plans,  noting  that they                                                         
tend  to   go  in  cycles;   that  each   time  the  state   faces   low                                                        
revenues,  people   want  a fiscal  plan.    In  the past,  oil  prices                                                         
have recovered, and fiscal planning has been set aside.                                                                         
                                                                                                                                
4:10:41 PM                                                                                                                    
                                                                                                                                
MR.  TEAL offered  his  belief  that  ideally  fiscal  plans  should  be                                                        
developed  when  the  state  has  lots  of  revenue;  however,   it  has                                                        
never  worked  that  way.   Back  to  the  question  of  what  a fiscal                                                         
plan   is,   he   recalled   an   individual    asked   during   public                                                         
testimony,   "So  why  don't  you  just  say  what  you  mean?   Fiscal                                                         
plan,  that's  just bureaucrat   speak  for -  you want  to tax  me  and                                                        
take  my  [Permanent  Fund   Dividend]  PFD."    He  acknowledged  that                                                         
that  was  not far  from  the truth.    He said  that  fiscal  planning                                                         
addresses  revenue,  spending,   and use  of  reserves  to balance   the                                                        
budget.    The  three  options  to  balance  the  budget  or  the three                                                         
legs  of  fiscal   planning  are  to  use  the  Permanent   Fund  (PF),                                                         
reduce government services, and reduce spending.                                                                                
                                                                                                                                
4:12:04 PM                                                                                                                    
                                                                                                                                
MR.  TEAL advised  that  to  compare  the fiscal  plans  would  be very                                                         
difficult   because   the   only  fleshed-out    fiscal  plan   is   the                                                        
governor's  fiscal  plan.    He submitted  a  plan  last year,  revised                                                         
it,   and   resubmitted    it  this    year.     Although    individual                                                         
legislators   have  their  ideas  about  a fiscal  plan,  neither  body                                                         
has  reached  consensus.    He  offered  his belief   that people  were                                                         
waiting   for   the   House   and  thought    perhaps   it   may  reach                                                         
consensus, but it has not yet.                                                                                                  
                                                                                                                                
4:13:02 PM                                                                                                                    
                                                                                                                                
MR.  TEAL  stated  that fiscal  plans  evolve  over  time.    The House                                                         
could  have a  fiscal  plan now,  which  could  change  in a  week or  a                                                        
month  and the  Senate  has not  yet come  forward  with a  fiscal plan                                                         
this  year.   The  Senate  might  argue  that  it  still  has  a fiscal                                                         
plan  in  SB 26,  which  is  pending  in conference   committee,  where                                                         
it  now  resides.    Some  senators   would  like  to  "tweak"   it  but                                                        
there  is not  any real  consensus.    He related  that  the  LFD has  a                                                        
model  designed  to help  the legislature   with fiscal  planning.    It                                                        
allows  many  user  inputs   to  be changed.     He  characterized   the                                                        
model  as complicated,   so he  did not  bring  it today.    He offered                                                         
to  speak   on  some   of  the   elements,   specifically   use  of   PF                                                        
earnings.                                                                                                                       
                                                                                                                                
4:14:01 PM                                                                                                                    
                                                                                                                                
MR.  TEAL said  that to  get into  the model,  the  various  taxes that                                                         
could  be imposed,   what can  be done  with  spending  cuts  or growth                                                         
rates  on expenditures   - gets  long and  involved.   The  focus today                                                         
is  really  on the  use  of  PF earnings,   he said.    One reason   was                                                        
that  it  is  by far  the  most  powerful   tool  the  legislature   has                                                        
since  the  fiscal   deficit  runs  about   $2.6  billion.    Using   PF                                                        
earnings,   as  proposed   by  the  governor,   would  close  about   $2                                                        
billion   of  that  gap.    Taxes  at  most  would   raise  about  $700                                                         
million,  he  said.   Thus,  using  [PF earnings]   represents  the  key                                                        
tool in fiscal planning.                                                                                                        
                                                                                                                                
MR.  TEAL pointed  out  that  one thing  the  model  indicates  is that                                                         
balancing  the  budget  without  using the  PF earnings  would  be very                                                         
difficult.     He  said,  "We   cannot  make  it  work   without  using                                                         
earnings."    Another  thing  the model  indicates   is the  difficulty                                                         
in  agreeing  on  a  more  comprehensive   plan   - meaning   reserves,                                                         
expenditures,   and revenue.    He offered  that  the  problem  was  not                                                        
that   there  are   not  solutions;    instead,   there  are   lots   of                                                        
solutions.                                                                                                                      
                                                                                                                                
4:15:37 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE    WOOL   referred   to   the   $2.6   billion   deficit                                                         
mentioned  and  that  the  governor's  fiscal   plan would  address   $2                                                        
billion.    He  said  if  the  PF  balance  is  $60  billion,   and  the                                                        
legislature  takes  a  5 percent  POMV  [percent  of  market  value]  if                                                        
the  deficit   would   really  be  $3   billion.     He  asked  him   to                                                        
identify the error.                                                                                                             
                                                                                                                                
MR.  TEAL   answered  that   Representative   Wood   had  not  made   an                                                        
error.  He explained  that  under  the governor's   POMV plan,  as with                                                         
most  of the  POMV plans,  there  is a payout.    Under the  plan, only                                                         
$2  billion  goes  for  public  services  and  the  remainder   goes  to                                                        
dividends, he said.                                                                                                             
                                                                                                                                
MR.  TEAL stated  that  LFD has  been looking  at  the use  of earnings                                                         
reserve   account  (ERA).    He  clarified   that  this  did  not  mean                                                         
using the PF since it is not available to the legislature.                                                                      
                                                                                                                                
4:16:56 PM                                                                                                                    
                                                                                                                                
MR.  TEAL  said that  given  that  the  legislature   has been  arguing                                                         
about  POMV  payouts  for  four or  five  years,  one  may infer  there                                                         
is  some  deep-seated  opposition   to  using  the  PF  earnings  or  at                                                        
least   irreconcilable   differences   in   plans.    He   offered   his                                                        
belief  that  most of  the  differences  did  not really  matter  much;                                                         
in  fact,  the plans  are  similar  in  concept  although  they  differ                                                         
in  detail.   For  instance,  most  of  the POMV  plans  have  a "five-                                                         
year  lookback,"  which  is generally  agreed  upon  as resulting  in  a                                                        
stable  payout.   He  pointed  out  the earlier  discussion   about  the                                                        
dangers   of  POMV  versus   earnings.     He  deferred   to  the  next                                                         
presenters   to  discuss   this  as  part  of  their   overview   of  PF                                                        
proposals.    He  offered  to come  back  for  their  presentation   and                                                        
answer any questions that arise.                                                                                                
                                                                                                                                
4:18:33 PM                                                                                                                    
                                                                                                                                
MR.  TEAL  stated  that  the  five-year  lookback   provides  stability                                                         
for  government  since  it  is difficult   to start  up  a program   and                                                        
decide  not to  fund it  the next  year  since people  move  on and  the                                                        
infrastructure    is  gone  so   programs   tend  to  last   awhile   in                                                        
government.    He  turned  to  the  discussions   on the  payout  rate.                                                         
He  related  that  it  was  a narrow   range,  with  one  plan  using  4                                                        
percent,  but  most  plans use  between  4.5  percent  to 5.25  percent                                                         
payout.                                                                                                                         
                                                                                                                                
MR.  TEAL  offered  that  there  has been  some  confusion  about  what                                                         
would  be  sustainable   and some  of  this  comes  from  the  [Alaska]                                                         
Permanent  Fund  [Corporation]  (APFC)  comments.    He suggested  that                                                         
the  math  was simple.    For example,   if the  PF  earns 6.5  percent                                                         
interest  and  inflation   was  2.25  percent,  it  would  result  in  a                                                        
4.25  percent  sustainable   payout,  he  said.   Given  the  lookback,                                                         
the  nominal  payout   of  4.25  percent  would   not  be  paid  on  the                                                        
current  value,   but on  the  six-year   lookback;  thus,  the  payout                                                         
would  basically   be  based  on  the  PF  balance   three  years  ago.                                                         
Since  the  PF  continues   to  grow,  the  effective  payout   rate  is                                                        
always  lower  than  the  nominal  rate.    He characterized   it  as  a                                                        
"25  basis  points"  difference;  therefore,   the state  could  afford                                                         
a  4.5  percent  payout,   which  is  clearly  sustainable,   based   on                                                        
inflation.                                                                                                                      
                                                                                                                                
4:20:32 PM                                                                                                                    
                                                                                                                                
MR.  TEAL  said  the  APFC  has  also  said  that  its target   rate  of                                                        
return  is a  real  rate of  5 percent.    Again, that  would  indicate                                                         
that  the  legislature  could  have  a  5 percent   sustainable  payout                                                         
which  based  on the  lookback,  could  go to  5.25  percent  and still                                                         
be  sustainable.    He related  that  his  attitude  has  been  that  it                                                        
does  not  really  matter  since   it is  not  a  big  range.    Pick  a                                                        
number.   They  all  work.   He explained   the difference,   which  was                                                        
that  picking  a low  number  would result  in  a lower  payout  in  the                                                        
early  years,  but  because  of  the  lower  payout  the  overall  fund                                                         
increases  so  future  payouts  would  be higher.    The reverse  would                                                         
be  to  pick  a  high  number   now,  which  would   result  in  higher                                                         
payouts;  however,   the fund  would  not  grow  as fast  resulting   in                                                        
the "lines crossing" in about 20 years.                                                                                         
                                                                                                                                
MR.  TEAL  emphasized   that  the  real   argument  over  the  POMV   is                                                        
inter-generational   equity.    He  said,   Do you  want  more  now,  or                                                        
do you want more left for future generations?                                                                                   
                                                                                                                                
4:21:53 PM                                                                                                                    
                                                                                                                                
CHAIR   KREISS-TOMKINS   asked  whether   he  had   a  sense  of  other                                                         
sovereign wealth funds and what the median POMV payout is.                                                                      
                                                                                                                                
MR.  TEAL answered   that other  sovereign   wealth  funds fall  within                                                         
the  same  ranges.     He reminded  that  Ms.  Rodell  briefly  touched                                                         
on  the  key  point,  which   was  that  a  4.25  percent  payout  rate                                                         
might  be  deemed  sustainable;   however,   the  large  deficit  would                                                         
remain.    In  fact,   the  deficit  would   be  large  enough   with  a                                                        
payout  that   low,  that  the  Constitutional   Budget   Reserve  Fund                                                         
(CBR)  would be  depleted  in a  couple of  years,  at which  point  the                                                        
state would need to implement a tax, spend, or use reserves.                                                                    
                                                                                                                                
4:22:51 PM                                                                                                                    
                                                                                                                                
MR.  TEAL  offered  to  compare  some  options.    The  easiest  option                                                         
for  the legislature   would  be  to agree  to  a 4.25  percent  payout                                                         
and  take  an  ad  hoc  draw,  which  is  essentially  a  4.25  percent                                                         
payout  plus $800  million.   However,  that  does  not work,  he said.                                                         
The  difference  between  using  4.25 percent  or  5.25 percent  payout                                                         
does  not  matter  either,  since  it  would  only  affect  the  ad  hoc                                                        
draw.   The  ad  hoc  draw  at 5.25  percent  would  be  lower  because                                                         
the  stated  payout was  higher.   "But  you  simply  cannot  do ad  hoc                                                        
draws  and   have  a  sustainable   fund,"  he   said.    Instead,   the                                                        
legislature  must  pick  a sustainable   payout  and stick  to  it.   He                                                        
predicted   that  if  the  legislature   uses  ad  hoc  draws  it  will                                                         
result  in  the reserves   being  drained,  which  will  mean  that  the                                                        
legislature did not protect the PF.                                                                                             
                                                                                                                                
4:23:40 PM                                                                                                                    
                                                                                                                                
CHAIR   KREISS-TOMKINS   asked   for  Mr.   Teals   viewpoint   on   the                                                        
constitutional amendment to prohibit ad hoc draws.                                                                              
                                                                                                                                
MR.  TEAL responded  that  it was  a tough  question  because  statutes                                                         
clearly  cannot  prevent  ad  hoc draws.   He  said  that the  [Alaska]                                                         
Constitution   is the  only way  to prevent   ad hoc  draws.   The only                                                         
safe  way to  have the  PF support  government  or  dividends  would  be                                                        
to put  it in  the [Alaska]  Constitution;   however,  it then  becomes                                                         
very  inflexible  and means  the  legislature  cannot  take  any ad  hoc                                                        
draws.    There   may  come  a  time  when   an  ad  hoc  draw  becomes                                                         
necessary.                                                                                                                      
                                                                                                                                
MR.  TEAL said  that the  provision  in  Alaska's  Constitution  to  set                                                        
up   the   PF  has   worked   well   for   many   years   because    the                                                        
constitutional   language  is  vague.   It  requires  a  minimum  of  25                                                        
percent  be  deposited  in the  fund,  but it  does  not set  a maximum                                                         
amount,  nor  does it  specify  what  to do  with the  funds  except  to                                                        
invest it.                                                                                                                      
                                                                                                                                
MR.  TEAL  related  that  Alberta  [Canada]  used  to  have a  heritage                                                         
PF,  which  was larger   than Alaska's   PF, but  Alberta  invested   in                                                        
infrastructure   by building  government   buildings.   Unfortunately,                                                          
there  was  not  any   return  on  its  investment.     By  comparison,                                                         
Alaska  very  wisely   stuck  to  financial  investments   rather  than                                                         
infrastructure   in  Alaska  with  little  or  no  cashflow  return   to                                                        
the PF.                                                                                                                         
                                                                                                                                
4:25:52 PM                                                                                                                    
                                                                                                                                
MR.  TEAL  acknowledged   that  he felt  "a  little  nervous"   about  a                                                        
constitutional   amendment,   but  it  would   provide  the  only  real                                                         
protection   the fund  can  have.    It would  assume,   in many  ways,                                                         
the state would go to an endowment plan.                                                                                        
                                                                                                                                
MR.  TEAL  mentioned  testimony  before  the  House  Finance  Committee                                                         
on  a bill  creating  an endowment.    He offered  his  belief  that  it                                                        
was  obvious  that either  the  public does  not  understand  endowment                                                         
theory  at all,  or  the public  has  a great  fear  of government,   or                                                        
both.   The  testifiers  expressed  concern  that  having an  endowment                                                         
instead   of   a  separate   ERA,   [the   legislature]   would   begin                                                         
spending the corpus of the fund.                                                                                                
                                                                                                                                
MR.  TEAL  further  acknowledged   it could  happen  since  spending   5                                                        
percent  without   earning  5  percent.   Earnings   might  be  low  for                                                        
several  years  which might  mean  dipping  into  principal.   However,                                                         
in  the  long   run  the  fund  would   grow,  dependent   on  managers                                                         
picking  a  sustainable  yield  and  the endowment   earning  enough  to                                                        
make  the payout  plus  inflation.   He  predicted  an endowment  would                                                         
continue  to  grow  and spin  off  5 percent.    In fact,  that  is  the                                                        
reason  universities  and  foundations  use  endowment  theory  instead                                                         
of  trying   to   run  off   earnings.     "Earnings   are   inherently                                                         
unstable," he said.                                                                                                             
                                                                                                                                
4:27:52 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE   WOOL  referred   to  slide  3,  to  the  amendment   to                                                        
language  added  to the  Alaska  Constitution  at the  time  the PF  was                                                        
created.    He  recapped   that  it  sets  the  minimum  amount   to  be                                                        
placed  in a PF,  but  it does not  set  the maximum,  nor  does it  say                                                        
what  to do with  the  earnings.   He suggested  if  the PF  was a true                                                         
endowment   model  and   it  established   a  draw,   but  it  did   not                                                        
indicate    what   to   do   with   it,   that    could   make   people                                                         
uncomfortable.     As the  legislature   has  been  having  discussions                                                         
on  constitutional   amendments,   how  to  divide   the  earnings   has                                                        
created  some  discomfort.    Although   education  was  listed  in  the                                                        
Alaska   Constitution,   it  does   not  indicate   how   much  funding                                                         
should  go towards   education,  he said.    He acknowledged   that  the                                                        
chair was interested in endowments and constitutions.                                                                           
                                                                                                                                
CHAIR   KREISS-TOMKINS   agreed   that  he   was  very   interested   in                                                        
constitutions.                                                                                                                  
                                                                                                                                
REPRESENTATIVE   WOOL  highlighted   that  the  provision  provides    a                                                        
lot of latitude.                                                                                                                
                                                                                                                                
4:29:06 PM                                                                                                                    
                                                                                                                                
MR.  TEAL directed  attention  to  the last  clause  on slide  3, which                                                         
read,  "...unless   otherwise   provided  by  law."  He  stated   it  is                                                        
provided by law that the ERA is part of the PF.  He said:                                                                       
                                                                                                                                
      It is  not  in  the general   fund;  it resides   by law  in                                                              
      the permanent  fund.    Easy to  change.   But  it does  not                                                              
      change  the   fact  that   the  entire   earnings  reserve,                                                               
      despite  the  fact  that  it  is  considered   part  of  the                                                              
      permanent   fund,  is  fully   subject   to  appropriation.                                                               
      And,  of  course,   that's  the  underlying   problem,   all                                                              
      along, but  it wouldn't   matter if  that  earnings  reserve                                                              
      were in  the general  fund  or it stays  where  it is.   The                                                              
      point is,  it  can be  spent at  any  time, in  any  amount,                                                              
      with a simple majority.                                                                                                   
                                                                                                                                
4:30:24 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE    BIRCH  said   that  the  legislators    and  governor                                                         
would  need  to decide,   and each  person  probably   has a  different                                                         
opinion.    He  offered   his  belief  that  appealing   (indisc.)   the                                                        
approach  was  reasonable  and  would  provide  a  steady,  predictable                                                         
draw  on an  annual  basis.   He related   his understanding   that  the                                                        
Alaska  Supreme  Court  last year  decided  that a  dividend  was not  a                                                        
birthright   but was  basically   "a line  item  in  the  budget."    He                                                        
offered   his  belief  that  if   the  state  cannot   reduce  spending                                                         
appropriately,   that  [the legislature]   has  an obligation   to meet                                                         
that  financial   obligation.     He  wondered   what  was  wrong  with                                                         
paying  the state's  bills  first  and if  money was  left  over to  pay                                                        
a dividend  for  those  who need  it, that  the legislature   should  do                                                        
that.    He  asked  whether  any  work  has  been  done  on  a  "needs-                                                         
based"  dividend,   or  perhaps   a  way  to  meet  the  needs   of  the                                                        
25,000  Alaskans   that are  in  poverty  [without   it].   He  said  he                                                        
has  frequently  heard   the argument   that  the  people  who  rely  on                                                        
the PFD.                                                                                                                        
                                                                                                                                
4:32:23 PM                                                                                                                    
                                                                                                                                
MR.  TEAL   responded   that  if   the  legislature   could   reach   an                                                        
agreement   on   payout,   which   seemed    likely,   the   split   for                                                        
dividends  was  "a  big deal."    He said  that  there  was not  a real                                                         
economic   government  rationale   for  dividends.   "We are  the  only                                                         
sovereign  wealth  fund  that pays  dividends,"  he  said.   He offered                                                         
his  belief  that  paying  dividends   is  a political   decision  with                                                         
large  fiscal  impacts,   because  every   dollar  spent  on  dividends                                                         
increases   the  deficit   by   a  dollar.     That  "dividend   split"                                                         
becomes  a real  fiscal  issue.   He related  a scenario  in  which  the                                                        
state  had an  $800 million  deficit  and  added  that, coincidentally                                                          
the  state is  paying out  $800  million  in dividends.   If  the state                                                         
asked  a  consultant  for  ideas,  the  consultant  would  advise  that                                                         
it does  not  make sense  to  pay out  a dividend,   which no  one else                                                         
in  the world  does.   He  suggested  the  answer  was  too  easy since                                                         
the solution to the scenario would be not to pay dividends.                                                                     
                                                                                                                                
MR.  TEAL  recalled  previous  proposals   ranging  from  not  paying  a                                                        
PFD  if  the  state  has  a deficit,   to paying   a full  PFD  despite                                                         
having  a deficit.    He said  that  there was  not  a right  answer  to                                                        
this  question.    He acknowledged   that  some  people  have  grown  to                                                        
rely  on  the PFD  and  so  it becomes   a political   decision.   Some                                                         
constituents   may  not understand   the  fiscal  situation,   but they                                                         
certainly  understand   that the  PFD  arrives  in October.    They  may                                                        
threaten  that  they  better  receive  their  dividend  in October,   or                                                        
they  will  not  vote  for  the  incumbent   legislator  who  voted   to                                                        
reduce  or eliminate  it.   He  cautioned  the public  against  blaming                                                         
legislators    for  any   vote   related   to   the   PFD  since   each                                                         
legislator  must  vote  for  what  he/she  believes  to  be right.    He                                                        
reiterated   that  there   was  not   any  right  or   wrong  on  these                                                         
dividends   so  long  as   the  legislature   understands   that  every                                                         
dollar  paid out  for the  PFD adds  to  the deficit  by a  dollar;  and                                                        
the  legislature  must  find  a  way to  address  the  larger  deficit.                                                         
He said it was not easy.                                                                                                        
                                                                                                                                
4:36:10 PM                                                                                                                    
                                                                                                                                
CHAIR  KREISS-TOMKINS,   with respect  to  ongoing  discussions  in  the                                                        
Capitol  building,   asked  for  his speculation   on  the  probability                                                         
of  an  ad  hoc  draw  by  the  legislature  in  the  next  two  budget                                                         
cycles.     In  response   to  Mr.  Teal,   he  added   that  he  would                                                         
consider anything greater than 5.25 percent of POMV.                                                                            
                                                                                                                                
MR.  TEAL  asked  for  clarification    on whether   last  year's  draw                                                         
that  was  not  taken  was  considered.    He  reminded  the  committee                                                         
that  SB 26  has  been  before  the conference   committee  for  over  a                                                        
year  and  if it  was  acted  upon  would  have  an effective   date  in                                                        
2018.   He asked  whether  that  would be  considered  an ad  hoc draw.                                                         
He  suggested   that  if  it  happened,   it  would   be  considered   a                                                        
double  draw.    He wondered   whether  procedurally   the House  would                                                         
be able  to  get a  super majority   vote on  the budget,  and  if not,                                                         
that  the chances  of an  ad hoc  draw continue  to  rise as  time goes                                                         
on.   He  speculated   that  the  only way  to  avoid  it  would  be  to                                                        
have  a draw  in 2018,  which  some  people  would consider   an ad  hoc                                                        
draw.     He  reiterated    this  was   speculation   rather   than   an                                                        
opinion.                                                                                                                        
                                                                                                                                
4:38:30 PM                                                                                                                    
                                                                                                                                
MR.  TEAL recommended   if  the legislature   wanted  to move  forward,                                                         
it  should  "get  out  of the  weeds"  and  focus  on  the  goals.    He                                                        
advised  members  that  his  office  has  run the  model  to  the point                                                         
that  his staff  can  show  [outcomes].   He  related  that  people  get                                                        
very  lost in  the  individual  details  of  the plan.   He  reiterated                                                         
that  the payout  is not  critical  since  it represents  between  $100                                                         
million  to  $200  million  per year,  which  would  not  be  enough  to                                                        
close   the   deficit   or   to   move   the   legislature    into   the                                                        
unsustainable   range.   He said,  "Pick  a  number.   They  all work."                                                         
He  further  suggested   that  members   focus  on  goals  and   try  to                                                        
figure  out  how  to measure  whether   a fiscal  plan  is  successful.                                                         
That  would  not  happen   by examining   the  details  of  the  fiscal                                                         
plan but by developing a broad fiscal plan.                                                                                     
                                                                                                                                
4:39:51 PM                                                                                                                    
                                                                                                                                
MR.  TEAL outlined  one  measure  that the  agency  uses to  assess  how                                                        
well  a fiscal  plan works  was  by determining   whether it  maintains                                                         
the  real  value  of  the PF.    He  said  it represents   a key  model                                                         
output  for  the  agency,  which  is linked  to  the  sustainable  ERA.                                                         
When  the  agency   examines  the  PF,  the   agency  reviews  the   ERA                                                        
combined   with  the  corpus  of  the   fund.    The  state  should   be                                                        
maintaining   the inflation-adjusted    value of  the  combine  the  ERA                                                        
and the corpus of the fund.                                                                                                     
                                                                                                                                
MR.  TEAL attested  that  the legislature   cannot  maintain  that with                                                         
ad hoc  draws  or unsustainable   draws.   The health  of the  PF means                                                         
examining  the  health  of the  ERA since  the legislature   cannot  use                                                        
the corpus of the PF.                                                                                                           
                                                                                                                                
4:40:46 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE   BIRCH  expressed  an  interest  in  hearing  the final                                                         
presentation,   an  Overview   of  Permanent   Fund  Proposals   in  the                                                        
Legislature by Reid Magdanz and Rob Ervine, legislative staff.                                                                  
                                                                                                                                
CHAIR  KREISS-TOMKINS  stated  it  may make  sense  to hold  off on  the                                                        
presentation.                                                                                                                   
                                                                                                                                
4:41:54 PM                                                                                                                    
                                                                                                                                
MR.  TEAL  reiterated   that  in  evaluating   a  model,  the  division                                                         
first   reviews   the  health   of  the   CBR,   which  is   linked   to                                                        
deficits.    Next,  it  looks  to the  PFD,  which  there  is  no right                                                         
answer  on.    The  state  can  pay  a higher   PFD  if the  state   has                                                        
taxes or by implementing other things.                                                                                          
                                                                                                                                
MR.  TEAL  said  some  people   might  argue  that  having  any  broad-                                                         
based  tax required   to balance  a  successful  fiscal  plan  means  an                                                        
unsuccessful  fiscal  plan.   He  suggested  that  he had provided   the                                                        
divisions   measures   of success,  but  each  legislator  should  have                                                         
his/her   own  measures.     If  the  legislature   can  agree  on   the                                                        
goals,  it  would  find  that  the  details  are  not as  important   as                                                        
they  seem to  be in some  of the  fiscal  plans.   Some get  wedded  to                                                        
a  specific  payout   rate,  or  a  linkage,   but  a  successful  plan                                                         
would  consist  of picking  a rate,  paying  the rate,  and  not taking                                                         
ad  hoc draws  on the  fund,  and paying  a  PFD that  members  believe                                                         
is  affordable.     He  said   it  would  not   "kill"  one  to   pay  a                                                        
dividend  once,  but  it  cannot  be done  long-term.    He  emphasized                                                         
that  the key  was to  look ahead  at the  sustainability   of a fiscal                                                         
plan instead of asking, "How do we get out of here?"                                                                            
                                                                                                                                
4:43:46 PM                                                                                                                    
                                                                                                                                
CHAIR  KREISS-TOMKINS   announced   that  the  final  presentation,   an                                                        
Overview  of  Permanent  Fund  Proposals  in  the Legislature   by Reid                                                         
Magdanz and Rob Ervine was held over.                                                                                           
                                                                                                                                
4:44:08 PM                                                                                                                    
                                                                                                                                
ADJOURNMENT                                                                                                                   
                                                                                                                                
There  being  no further  business   before  the committee,   the House                                                         
State  Affairs  Standing   Committee  meeting  was  adjourned   at 4:44                                                         
p.m.