Legislature(1999 - 2000)
02/20/1999 10:04 AM House STA
| Audio | Topic |
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
HOUSE STATE AFFAIRS STANDING COMMITTEE
February 20, 1999
10:04 a.m.
MEMBERS PRESENT
Representative Jeannette James, Chair
Representative John Coghill
Representative Scott Ogan
Representative Jim Whitaker
Representative Bill Hudson
Representative Beth Kerttula
Representative Harold Smalley
MEMBERS ABSENT
All members present
OTHER HOUSE MEMBERS PRESENT
Representative Sharon Cissna
COMMITTEE CALENDAR
HOUSE BILL 89
"An Act authorizing an advisory vote on the use of the Alaska
permanent fund earnings reserve account; relating to certain
procedures for the special election; and providing for an effective
date."
- HEARD AND HELD
HOUSE BILL 90
"An Act making a special appropriation from the earnings reserve
account of the Alaska permanent fund to the constitutional budget
reserve fund; and providing for an effective date."
- HEARD AND HELD
HOUSE BILL 91
"An Act relating to taxation, including taxation of income of
individuals, estates, and trusts; and providing for an effective
date."
- HEARD AND HELD
(* First public hearing)
PREVIOUS ACTION
BILL: HB 89
SHORT TITLE: ADVISORY VOTE ON PF EARNINGS RESERVE ACCT
SPONSOR(S): RULES BY REQUEST OF THE GOVERNOR
Jrn-Date Jrn-Page Action
2/10/99 192 (H) READ THE FIRST TIME - REFERRAL(S)
2/10/99 192 (H) STATE AFFAIRS, FINANCE
2/10/99 192 (H) 2 FISCAL NOTES (GOV)
2/10/99 192 (H) GOVERNOR'S TRANSMITTAL LETTER
2/18/99 (H) STA AT 8:00 AM CAPITOL 102
2/20/99 (H) STA AT 8:00 AM CAPITOL 102
BILL: HB 90
SHORT TITLE: APPROP: EARNINGS RES. TO BUDGET RESERVE
SPONSOR(S): RULES BY REQUEST OF THE GOVERNOR
Jrn-Date Jrn-Page Action
2/10/99 193 (H) READ THE FIRST TIME - REFERRAL(S)
2/10/99 193 (H) STATE AFFAIRS, FINANCE
2/10/99 193 (H) 2 FISCAL NOTES (REV)
2/10/99 193 (H) GOVERNOR'S TRANSMITTAL LETTER
2/18/99 (H) STA AT 8:00 AM CAPITOL 102
2/20/99 (H) STA AT 8:00 AM CAPITOL 102
BILL: HB 91
SHORT TITLE: INCOME TAX: INDIV/ESTATES/TRUSTS
SPONSOR(S): RULES BY REQUEST OF THE GOVERNOR
Jrn-Date Jrn-Page Action
2/10/99 196 (H) READ THE FIRST TIME - REFERRAL(S)
2/10/99 196 (H) STATE AFFAIRS, FINANCE
2/10/99 196 (H) FISCAL NOTE (REV)
2/10/99 196 (H) GOVERNOR'S TRANSMITTAL LETTER
2/18/99 Text (H) STA AT 8:00 AM CAPITOL 102
2/20/99 (H) STA AT 8:00 AM CAPITOL 102
WITNESS REGISTER
WILSON CONDON, Commissioner
Department of Revenue
P.O. Box 110400
Juneau, Alaska 99811-0400
Telephone: (907) 465-2300
POSITION STATEMENT: Provided information on HB 89, HB 90,
and HB 91.
PATRICK CASEY, Student
University of Alaska Fairbanks
2154 Noah Court
North Pole, Alaska 99705
Telephone: (907) 488-6729
POSITION STATEMENT: Supports HB 89 and funding the University
of Alaska-Fairbanks.
ANDREE MCLEOD
3721 Young Street
Anchorage, Alaska 99508
Telephone: (907) (907) 561-8595
POSITION STATEMENT: Testified on HB 91.
ANDY HARRINGTON
4624 Stanford Drive
Fairbanks, Alaska 99709
Telephone: (907) (907) 479-3990
POSITION STATEMENT: Testified on House Bills 89, 90 and 91.
MICHAEL COONS
P.O. Box 4229
Palmer, Alaska 99645
Telephone: (907) 745-6779
POSITION STATEMENT: Testified on House Bills 89, 90 and 91.
JOE SONNEMAN
324 Willoughby Avenue
Juneau, Alaska 99801
Telephone: (907) 463-2624
POSITION STATEMENT: Testified on House Bill 91.
BRIAN BRUNDIN
1430 Crescent Avenue
Anchorage, Alaska 99508
Telephone: (907) 561-0023
POSITION STATEMENT: Testified in opposition of HB 91.
CARL BENSON
1551 Farmers Loop Road
Fairbanks, Alaska 99709
Telephone: (907) 479-6912
POSITION STATEMENT: Testified in support of HB 91.
REMY HOLDSWORTH
P.O. Box 244
Palmer, Alaska 99645
Telephone: (907) 746-6856
POSITION STATEMENT: Testified in opposition to HB 91.
GREG YOUNG
P.O. Box 34337
Juneau, Alaska 99803
Telephone: (907) 789-3146
POSITION STATEMENT: Testified on House Bills 89, 90 and 91.
PAM KARALUNAS
P.O. Box 73893
Fairbanks, Alaska 999707
Telephone: (907) 479-7089
POSITION STATEMENT: Testified supports the Governor's proposals,
House Bills 89, 90 and 91.
CLARENCE FURBUSH
HC01 Box 6001
Palmer, Alaska 99645
Telephone: (907) 745-3357
POSITION STATEMENT: Testified on House Bills 89, 90 and 91.
KELLY LUDWIG
P.O. Box 20253
Juneau, Alaska 99802
Telephone: (907) 586-3704
POSITION STATEMENT: Testified on House Bills 89, 90 and 91.
DAVID KARALUNAS
P.O. Box 73893
Fairbanks, Alaska 999707
Telephone: (907) 479-7089
POSITION STATEMENT: Testified supports the Governor's proposals,
House Bills 89, 90 and 91.
PHILLIP FURBUSH
HC01 Box 6001
Palmer, Alaska 99645
Telephone: (907) 745-3357
POSITION STATEMENT: Testified on House Bills 89, 90 and 91.
GORDON EPPERLY
P.O. Box 34358
Juneau, Alaska 99803
Telephone: (907) 789-5659
POSITION STATEMENT: Testified on HB 91.
HARRY JENKINS
210 Tenth Avenue
Fairbanks, Alaska 99701
Telephone: (907) 456-4905
POSITION STATEMENT: Testified on House Bills 89, 90 and 91.
BERTHA "B" JARVI
P.O. Box 72250
Fairbanks, Alaska 99707
Telephone: (907) 451-1500
POSITION STATEMENT: Testified on House Bills 89, 90 and 91.
RUDOLPH VETTER
P.O. Box 70342
Fairbanks, Alaska 99707
Telephone: (907) 457-05329
POSITION STATEMENT: Testified on House Bills 89 and 91.
NIILO KOPONEN
710 Chen Ridge
Fairbanks, Alaska 99709
Telephone: (907) 455-6263
POSITION STATEMENT: Testified on House Bills 89, 90 and 91.
MIKE PRAX
1015 Meadow Rue
North Pole, Alaska 99705
Telephone: (907) 488-2400
POSITION STATEMENT: Testified on House Bills 89, 90 and 91.
NANCY BAKER
49 Timberland Drive
Fairbanks, Alaska 99709
Telephone: (907) 452-2624
POSITION STATEMENT: Testified on House Bills 89, 90 and 91.
BONNIE WILLIAMS
1335 Sunny Slope
Fairbanks, Alaska 99709
Telephone: (907)
POSITION STATEMENT: Testified on House Bills 89, 90 and 91.
NANCY WEBB
469 Panorama Drive
Fairbanks, Alaska 99712
Telephone: [not provided]
POSITION STATEMENT: Testified on House Bills 89, 90 and 91.
DAVID WILLIAMS
1335 Sunny Slope
Fairbanks, Alaska 99709
Telephone: (907) 455-6652
POSITION STATEMENT: Testified on House Bills 89, 90 and 91.
WILLIAM RENO
HC33, Box 2984R
Wasilla, Alaska 99654
Telephone: (907) 373-6757
POSITION STATEMENT: Testified on House Bills 89, 90 and 91.
REPRESENTATIVE ETHAN BERKOWITZ
Alaska State Legislature
Capitol Building, Room 404
Juneau, Alaska 99801
Telephone: (907) 465-4919
POSITION STATEMENT: Reported that the three-quarter requirement
for the CBR is open for discussion.
ACTION NARRATIVE
TAPE 99-5, SIDE A
Number 0001
CHAIR JEANNETTE JAMES called the House State Affairs Standing
Committee meeting to order at 10:04 a.m. Members present at the
call to order were Representatives James, Coghill, Whitaker,
Kerttula and Smalley. Representatives Ogan and Hudson arrived at
approximately 10:06 a.m.
HB 89 ADVISORY VOTE ON PF EARNINGS RESERVE ACCT
HB 90-APPROP: EARNINGS RES. TO BUDGET RESERVE
HB 91-INCOME TAX: INDIV/ESTATES/TRUSTS
CHAIR JAMES announced HB 89, "An Act authorizing an advisory vote
on the use of the Alaska permanent fund earnings reserve account;
relating to certain procedures for the special election; and
providing for an effective date" HB. 90, "An Act making a special
appropriation from the earnings reserve account of the Alaska
permanent fund to the constitutional budget reserve fund; and
providing for an effective date," and HB 91, "An Act relating to
taxation, including taxation of income of individuals, estates, and
trusts; and providing for an effective date" are before the
committee and Commissioner Condon is prepared to give us a
presentation today on another portion of their funding plan.
Number 0021
WILSON CONDON, Commissioner, Department of Revenue, remarked that
he would first briefly address questions that were posed to him at
the previous hearing of House Bills 89, 90 and 91. He stated,
"Madam Chair, you raised the question of the role of state
government in the economy overall, what proportion of the economy
does it represent. And looking at the state's economy, the way
economists measure the size of an economy, gross state product -
the best data that I could come with was 1994 data, preliminary
data for 1995 and estimated data for 1996. Let's just take the
estimate for 1996 because it's going to be close enough to get a
rough picture. Gross state product in 1996 was estimated to be
just little shy of $26 billion of which sixteen and one-half was
the net of oil and gas. Oil and gas thereby comprises of about
$9.4 billion, just a little under 40 percent of our gross state
product. Seafood, a little over a billion dollars, forest products
$275 million, mining $420 million, tourism $575 million. And, I
won't read down through all the rest of it - a major one being
construction, however, at about a billion two."
COMMISSIONER CONDON continued, "And when you look at the public
sector, a portion of all the gross state product, the federal
government is $1.9 billion, state and local governments together
$2.6 and that's comes to $4.4 billion out of a $25 billion economy
in measuring it from the perspective of gross state product.
Obviously the state budgets and local government budgets are larger
than that, but if you think about how dollars get counted in terms
of coming up with the gross state product, I think the easiest way
to think about that is the government buying utility services and
utility services that the government buys count in the utility
sector, they don't count in the government's portion of calculation
of the gross state product. Obviously the government gets a
utility bill and pays it. And, who gets credited for the
contribution that the utility..."
CHAIR JAMES commented that it's similar to the RSAs.
COMMISSIONER CONDON replied it absolutely is.
CHAIR JAMES noted the presence of Representatives Hudson and Ogan.
Number 0111
COMMISSIONER CONDON provided information on per capita expenditures
by a list of states. By looking at the census bureau's compilation
of state expenditures (rounded numbers): Delaware is $4,650.00,
Montana $3,650.00, New Hampshire $2,830.00, Oregon $3,820.00,
Florida $2,560, Nevada $3,100.00, South Dakota $28,000.00, Texas
$2,500.00, Washington $4,000.00, and Wyoming $4,500.00.
COMMISSIONER CONDON stated, "As you look at those states, you
definitely have an apples and oranges comparison among them. Some
of them fund a lot of their state schools out of the state budget,
some don't. I think only one of them doesn't really have a county
jail system that being Delaware - it's part of their correction's
program. Some have relatively much larger state police
responsibilities, and some are organized in a way so that county
sheriffs and local police departments can take care of almost all
the policing in the state. So, as you compare those, those numbers
don't really fairly compare one of those states to the other."
COMMISSIONER CONDON said he believes that covers the items that
were requested of him.
CHAIR JAMES asked what the cost per capita is in Alaska.
COMMISSIONER CONDON replied he is unable to answer that question.
CHAIR JAMES mentioned that's another question the committee would
like to have on the record.
REPRESENTATIVE OGAN remarked, "I have a question, and I guess it
would depend on this general fund revenues, or the off-budget
issues, including the permanent fund..."
CHAIR JAMES asked, for the cost per capita? She indicated that was
a good question because a lot of comparisons to the Lower 48 have
been made over the years and then stated, "If we're talking about
the amount of money that it's costing per capita, that we ought to
relate those to the kinds of services that we have provided for,
... such as AIDA [Alaska Industrial Development Association],
Alaska Housing [Finance Corporation], those are investments that we
have, and they generally make money. And the spending that they do
is going to be included in some of these areas. The railroad is
another one. So I think it would be exclusive of investments, and
the total amount that we spend for goods and services to provide
government for the people. And, I don't know how you would be
separate that out, I've never tried it."
Number 0190
REPRESENTATIVE HUDSON indicated that, in Alaska, we make a terrible
mistake of trying to compare ourselves on a per capita basis with
other states because of our responsibility to our landmass, it's 20
percent of the size of the United States, and a major portion of
our population is people who are living in rural Alaska - and
really under third-world condition in some instances. It's good to
do this but it also good to make certain that you put some factors
in there to show reality.
CHAIR JAMES agreed with Representative Hudson. She explained, "The
only reason for doing it is, if we suddenly lost all of our income
from resource development, which I feel we might if we don't
prudently go forward into the future. It takes money to make
money, and if we lay off all the folks in the Department of Natural
Resources, who have the responsibility of managing our resources,
we likely could do that. And if we lost all of our money, from
resource development, the amount of money that it would take for us
to mange ourselves would be taxable money. And, where would the
tax come from? So, I think that number is important, and maybe we
can somehow divvy up the cost of government that is allocated to
resource development and maybe take that over to side."
CHAIR JAMES referred to a conversation she had on the subsistence
issue. She said, "What do we do if the federal government comes in
and takes over subsistence. Do we just go away and let go with
this thing, of course not. We want to be sure that we have enough
people in [the Department of] Fish and Game to oversee the federal
government to be sure that they're not depleting our resources
because we have a responsibility to do that too. Does that mean we
need more people in [the Department of] Fish and Game, or less
people than we have currently? ... There just questions that I
think are important for us to think about when we're thinking of
the future of our state. And, we were designed to make money from
our resources, and let's not forget that."
Number 0236
COMMISSIONER CONDON summarized what he said at the previous
hearing. He said, "Someone ... made the suggestion that maybe
we're crying wolf, and this a slide I made some time ago asking
that very same question. Because, if you go back a decade, the
Institute of Social and Economic Research at the University of
Alaska told us that we were right on the brink, and that we were
going to have a $1 billion gap very soon and that we actually would
reach a position where we couldn't continue to do what we're doing
in fiscal year 1992. And that didn't happen, and why was that?
And the reasons were a couple, first of all we got lots more in the
way of settlement payments from the oil and gas disputes that were
then on the table when were predicted - it (indisc.) projected that
we get $2.2 billion, well actually, by the time we get to fiscal
year 2000, projecting that the total deposits in the Constitutional
Budget Reserve Fund will be $5.1 billion. We had an unexpected
spike in oil prices with the Mid-East war, and at the time we were
producing oil at the rate of two million barrels a day. So, that
when we got that spike, it was worth a lot to us. But now, as I
showed you the other day, our oil production has dropped by 40
percent from where it was when ISER (Institute of Social and
Economic Research) did their study in 1988-89, so even if we got a
wonderful spike in prices today, we're in a situation where we
cannot continue to do what we've been doing."
Number 0283
COMMISSIONER CONDON further stated, "The price situation ... has
been such that the average disposition price, for that oil produced
in our North Slope, has been about $16.50 a barrel at the
destination where most of it's been marketed and refined in Alaska
- west coast. That shows you the ups-and-downs of prices over the
years since 1986. It shows you where we think we are going to be
on an average over this year of our oil prices. As you may know -
have once again dipped below $10.00. And taking that, the set of
projections that we think are responsible and likely now, we see
ourselves depleting our constitutional budget reserve fund in 2002
or 2003, and so that's why were all here on this sunny Saturday
morning."
COMMISSIONER CONDON continued, "The question of course is, since we
have until 2003, perhaps shouldn't we wait? Why should we act
now? ... I think the important point to make is that, if we take a
series of steps now that balance our budget - the kinds of steps
we'd have to take three years from now - they simply would be much
smaller steps than what we'd have to take three years from now -
whether we turned to budget cuts, taxes, or turned to the permanent
fund to pay for a portion of public services that your and my
government provides - acting now means that, the actions that we
have to take, will be much less drastic."
Number 0320
COMMISSIONER CONDON continued, "I talked about a set of principles
which, some of which, all of us are going to have to agree with,
and maybe a couple which we won't. It's hard to argue with - that
we ought to balance the budget on a sustainable basis. It's hard
to argue that the budget reductions must be responsible. There may
be some of who don't believe that maintaining the healthy permanent
fund dividend ought to be a high priority, and others of us will.
Growing the state savings accounts is an insurance policy for a
bright future for Alaskans. If the taxation power should be used
to balance the budget, again it's hard to argue that any new tax
shouldn't be fair and broad-based. And, then we had no change to
the permanent fund, or the dividend program, without a vote of the
people. And that's obviously a political pledge that the Governor
has made, and is important to his solution. We talked about..."
REPRESENTATIVE OGAN interjected that he would like to add to the
list, no new taxes without a vote of the people.
COMMISSIONER CONDON continued, "And we talked about budget cuts,
and where - again breaking the budget down into some fairly
distinct pieces. Obviously, one you actually go about making
budget decisions, you break it down into much smaller pieces than
that, but in terms of thinking about where a billion-dollar deficit
might fit in, that picture shows you again, of course state
government - the use of non-profits to provide government services,
local schools, local government assistance, the safety net and
formula programs by which the government provides money or services
directly to people through formula programs and our support of the
university."
COMMISSIONER CONDON reiterated, "We just said a couple of things
about the permanent fund, and that's what you asked me to address
in a little more detail today. We looked at that graphic, which is
one that was prepared by the permanent fund and has been used by
them to show the importance of the oil revenue versus permanent
fund income in the total fiscal picture of Alaska, and the fact
that the permanent fund as a source of revenue has eclipsed - oil
revenue in the state's revenue picture."
COMMISSIONER CONDON referred to a series of slides that he has on
the basic mechanics of the permanent fund. He explained, "The
market value of the fund at the beginning of this calendar year,
seven weeks ago, was about $25.3 billion and that $25.3 billion -
you can think of several different ways. The important way to
think about it from the perspective of what the constitution
provides, is that the principal of the fund can't be spent by the
legislature. And the principal of the fund, on January 1, 199, was
$18.6 billion, and the income that had accumulated in the fund was,
$6.7 billion."
Number 0387
REPRESENTATIVE HUDSON remarked, "I just wanted to make certain, as
you give this, that you indicate what percentage, of what dollar
value of that $18.6 consists of monies that were put in there above
and beyond the constitutional requirements by the legislature."
COMMISSIONER CONDON noted that actually is his very next slide.
CHAIR JAMES asked if the $6.7 billion is unrealized income, or is
some of that income included in the earnings reserve account, or is
it exclusive of the earnings account?
COMMISSIONER CONDON said an upcoming slide breaks down the $6.7
billion.
COMMISSIONER CONDON addressed the $18.6 billion. He said, "The
principal is deposited into the fund as a result of dedicated
mineral royalties, or as a result of actions taken by the
legislature. And the legislature has taken actions which - and
they do every year appropriate the amount back that is required to
inflation proof the fund. In addition, the legislature [sound
lost--teleconferencing network] money from the earnings or income
account of the fund back to the principal and then [sound lost--
teleconferencing network] into the principal of the permanent fund.
And, so in the breakdown ... you see that it's almost two-thirds of
the money that is in the permanent fund now was put there on a
discretionary basis by the legislature. The constitutional
dedication has put just a little over the third of the money into
the fund. The actions by the Alaska [State] Legislature, to save
for the future, accounts for almost two-thirds of what you see in
the principal of the fund today."
Number 0429
COMMISSIONER CONDON referred to the income. He said, "The income
today, if you look at the audited financial statement of the Alaska
permanent fund, you will see that, for purposes of accounting the
earnings reserve account includes both realized and unrealized
income. All of the income, that has accumulated in the fund,
realized and unrealized, is included in the earnings reserve
account for purposes of calculating the dividend, we look only to
realized income. And, realized income includes interest, and
dividends, and profits that result in the sale of assets. And, the
sum of those is what constitutes realized income. Unrealized
income is any increase in market value that has occurred over the
purchase price of an asset that's currently held by the fund, and
it is turned into realized income only when the asset is sold - and
the income is realized. And so, the total earnings reserve
account, in terms of what the fund reports, under generally
accepted accounting principals, includes both realized and
unrealized income. But only realized income is used for purposes
of calculating the dividend."
REPRESENTATIVE HUDSON asked, "As well as the inflation proofing.
Does the realized income..."
COMMISSIONER CONDON replied, "In the past, the realized income has
been looked to, to see whether there's enough of it available after
paying the dividend to inflation proof the fund under the formula
that sits in the statutes. Now that the generally accepted
accounting principals, applicable to accounting for the fund have
changed, I'm not sure that that's the way you would necessarily do
it in the future."
Number 0470
COMMISSIONER CONDON continued his testimony, "Now, there is another
way to look at the total assets that are in the fund, other than
principal and the income which are depicted over on the left-hand
side of the slide, and that's how it's invested. And some of it is
invested in real-estate, some of it in fixed income, instruments or
bonds, and some of it in stocks. And all of the principal,
(indisc.) fund are invested together. There isn't a separate
investment pool that constitutes realizing other investments
(indis.--teleconferencing network) constitutes unrealizing that
another investment (indis.--network interference) that constitutes
principal. All of the (indis.--network interference) are invested
together in the asset allocation that you see over on the right-
hand side of the diagram and if you break them down into principal
and income, you see the same amount divided up according to that
accounting convention. And, that is an aspect of how the fund
works, that lots of folks sometimes get confused about."
CHAIR JAMES asked if the 3.9 percent of gains are from stocks.
COMMISSIONER CONDON replied, "Most of them, but not all of them.
There are unrealized gains applicable to fixed income, bonds that
were purchased - and if they were purchased when interest rates
were high, and we've had a decline in interest rates, then the
market value of the bond will have gone up and that would be an
unrealized gain until the bond is sold. Similarly, in terms of the
real-estate investments that the fund has made, many of them, in
fact most of them have appreciated in value, and there are
unrealized gains that pertain to - they're not huge, but they're
there."
CHAIR JAMES asked Commissioner Condon if the 3.9 percent is broken
down.
COMMISSIONER CONDON replied no.
CHAIR JAMES suggested he put that on his list to get back to the
committee with.
REPRESENTATIVE HUDSON stated, "I'm trying to get the correlation in
my mind between the removal of the $3.9 billion, from the
unrealized gains of the permanent fund, to this new account that
the Governor is proposing here. What effect would that have, if
any, upon the 18.6 - or upon the realized gain? Or would it have
any at all."
Number 0511
COMMISSIONER CONDON replied, "First of all, it would have no effect
on the 18.6. The 18.6 is inviolate, and is constitutionally
protected. The Governor's proposal is to move $4 billion out of
the combined 2.8 and 3.9 out of the income account and into the
constitutional budget reserve fund. And, of course, if the
legislature authorized doing that, appropriated the money, then it
would obviously reduce the sum of those two by $4 billion. The
mechanics that are available for doing that - we're certain that it
can be done, but we are not certain about other different ways one
might do it. And, there are ways that we know for sure that you
could do it are relatively more expensive than the ways we hope you
could do it that would be much less expensive."
CHAIR JAMES called for an at-ease at 10:35 a.m. due to problems
with the teleconferencing network. She called the committee back
to order at 10:38 a.m.
Number 0542
CHAIR JAMES noted the presence of Representative Burkowitz.
REPRESENTATIVE HUDSON asked Commissioner Condon, "If we remove the
$3.9, or $4 billion, would the realized gains - I understand that,
depending on the market conditions and things of this nature would
fluctuate somewhat, but are the realized gains predicated on the
$18.6 billion in the principal, or are they predicated upon the
combination of the 18.6 and the 3.9."
COMMISSIONER CONDON replied, "None of the proposed use of permanent
fund money is predicated on the 18.6, except that you can't touch
it. And, if the markets should drop significantly - tomorrow, then
you very well might not be able to do what the Governor proposes
because you can't touch that 18.6 in principal."
COMMISSIONER CONDON continued, "The question that you asked, while
we were off-the-record, about the effect of this on the dividend,
and I'll start off by saying when I worked for the State of the
Alaska ... I was in the Attorney General's Office, ... I was
testifying to the legislature about something I was working on, and
I said, 'I didn't know,' and I was scolded roundly for it at the
meeting. I don't know the answer for sure to this question because
the question of whether or not the taking money that - taking money
out of the unrealized gains portion of the fund would constitute an
income recognition event for purposes of calculating the dividend
is something which our external auditor and outside council are
looking at it for us until we absolutely know what we think the
answer is, I have to violate the rule that my boss told me I
couldn't violate."
Number 0577
REPRESENTATIVE OGAN asked a question on the oil settlements. He
said, "I know you're intimately familiar with oil settlements - how
much potentially do we have due still. I mean I know we're funding
litigation that - about $4 or $5 million a year through the
Attorney General's Office on the these oil settlement cases.
What's the potential income of that in the near future - to close
those out?"
COMMISSIONER CONDON replied, "We projected a little over $100
million a year over the next five years. We believe that's a
responsible projection. As a matter of policy, we're hoping that
that becomes very close to zero after the next five years because
we would like to have a situation where the rules are such that
everybody knows what they owe in royalties and taxes and that they
pay them. On out into the future, the appropriation of money to
the Department of Law, or the Department of Revenue, or the
Department of Natural Resources to make sure that we continue to
collect what we're supposed is going to be important. Even if we
don't have large litigations, it's going to be important to stay on
top of that or we will once again have them."
CHAIR JAMES announced that Representative Cissna has also joined
us.
COMMISSIONER CONDON pointed out, "The next slide is the dividend,
and this is a slide that is intended to show you how the dividend
amount is calculated. And the way that you figure out what the
dividend you start off with the realized income, and we talked
about that on the income slide, and you add up the - you're going
to figure out what the dividend that would be payable in the fall
of 1998 is going to be - you add up the realized income for fiscal
years 94, 95, 96, 97 and 98, and you multiply that sum by ten and
one-half percent. And that is the amount of money that the Alaska
permanent fund sends to the state treasury for the dividend
program. And, there are some - out of that amount of money the
Permanent Fund Division is paid, we have to pay dividends for
applicants from previous years who have successfully appealed and
so on, so there are some adjustments that are made that I don't
need to go into, but, you then end up with an amount of money
that's divided by this year's eligible applicants and that's how
you end up with the dividend that was paid of $1,540.88. Then the
sum, of the realized income, for the last five years, multiplied by
10.5 percent, make some relatively small adjustments and divide it
by the number of applicants."
Number 0620
REPRESENTATIVE WHITAKER referred to the numbers Commissioner Condon
provided relating to the earnings reserve account. He asked,
"After inflation proofing, the number that you utilized was $350
million throughout the numbers. Was that number predicated upon
the five-year average as well?"
COMMISSIONER CONDON remarked he is not exactly sure what
Representative Whitaker is referring to.
REPRESENTATIVE WHITAKER reiterated the earnings reserve account,
after the dividend was paid, and using your numbers, at roughly
$900 million, after inflation proofing at roughly $350 million,
there was roughly $450 million to be utilized as we saw fit, we
being the legislature, as either being held or put back in the
corpus of the permanent fund.
Number 0634
COMMISSIONER CONDON added, "But that really doesn't have anything
to do with this formula. What I said is you have a $25 billion
asset and if you were thinking about it - setting these formulae to
one side for a moment and you just thought, 'Gee, I'm the Whitaker
Foundation, my family has done fabulously well, and I'm now
managing a $25 billion endowment which is going to support
wonderful things around the world.' If you were running that
endowment, you would say to yourself, 'I probably can get a 5
percent of the value of my endowment out..."
TAPE 99-5, SIDE B
Number 0001
COMMISSIONER CONDON continued, "[Five percent of $25 billion] is
$250 million. And then you can say, 'But I have a Permanent Fund
Dividend Program that I pay to Alaskans through my foundation and
it is going to pay out about $900 million.' I like that $900
million a year figure that comes out of the formula, and so if I do
pay out $900 million in my dividend program from my foundation,
then what I'll have left is about $350 million that I could spend
and still preserve the purchasing power of my fund."
CHAIR JAMES said, "I think we're talking apples and oranges here
because my numbers that I had - that he was listing, I believe was
about $890 million for the permanent fund dividends, $423 million
for inflation proofing, and what was left over was like $1.2
billion from this current year's earnings. Those are the numbers
I got from Legislative Finance. But you were talking about a
different tally. Then there's more in that 1.2 plus another 1.2 -
similar from the years - there's over $2 billion in debt after the
payment of dividends. ... But I think the numbers you are going
with was a different configuration of numbers than..."
COMMISSIONER CONDON explained that he was simply talking about what
you could expect over the long term and not what happened this
year.
REPRESENTATIVE WHITAKER noted that that was his question. Are we
looking at a projection of what we can very conservatively
anticipate, or are we simply looking at what occurred last year and
saying that is not something we can expect year after year, after
year.
COMMISSIONER CONDON replied that he thinks over the long run you
could. He said he hesitates to use the word 'conservatively,' but
would use the word 'reasonably' - expect to be able spend 5 percent
of the current market value of the trust fund.
CHAIR JAMES remarked these are important questions because this is
a complicated issue.
REPRESENTATIVE WHITAKER indicated, "It's fair to say that the
numbers that you have utilized - the $350 million is a 5 percent
number as opposed to an actual performance number."
COMMISSIONER CONDON replied that's correct. He went on to say,
"Well, I'm prepared to defend that number" [laughter].
Number 0063
COMMISSIONER CONDON further stated, "Another question that comes up
is inflation proofing and we shouldn't spend a lot of time on this
... but understand it even if we later forget it. And, that is,
what the legislature inflation proofs has been over time the
principal of the fund. Remember that the fund includes the
principal and the income. But the policy choice that the
legislature made, was to inflation proof the principal of the fund,
and what they do - it's to give you an example for the inflation
proofing that took place for this last year - the change in the
consumer price index, percentage change over calendar 1997. What's
in the formula that's in the statute was used on June 30, 1998 to
inflation proof the fund at that point. So, what's going to happen
on June 30, 1999, you'll look at the change in the consumer price
index that occurred during 1998, and multiply it by the value of
the principal on June 30, 1999, and appropriate that amount from
the earnings reserve into the principal. And that is what you as
the legislature have been doing year after year - so, that's how
you have inflation proofed the fund set forth in a formula in the
statute, you reference it in your appropriation, but that's what
you do."
Number 0127
PATRICK CASEY, Student, University of Alaska Fairbanks, appeared
before the committee to represent the university. He said, "I'm
not only a husband, I'm going to be a future father in two months,
and one of the things I'm concerned with is the future of Alaska,
for not only me - I'm a student also, not only for me, for my son
that's going to be here in two months."
MR. CASEY stated, "HB 89 has its merits, first off, all it's well
written, it's simple so the people statewide can understand what
they're asking for and what it's going to be taken from. Secondly,
we have to answer a question, we have to do something. My
classroom, where I'm going to school, we have eight or nine
students in my classrooms, and granted it's great for me and my
personal relationship with my instructors and stuff, it's not good
for the university. We're losing students left and right, and a
lot of it is because of funding. We can talk about the 'doom and
gloom' of the past, but I don't want to do that anymore. We've got
a whole new energy with our university with the president. He's
come up with a nice idea - a good idea for funding. The students
are energized about this, for the first time in a long time. I'm
here to say that I support the president a 100 percent of what he's
asking for. Now it comes down to the question of how we're going
to fund this. What he's asking for - this new increase into the
budget - and that's where this bill, 89 comes into play. Like I
said, it has it's merits."
MR. CASEY continued, "Recently I heard of a McDowell Report that
talked about the college-age students from 18 to around 29 - 60
percent of them said would support using the permanent fund in some
way, and some way of using some taxation too. That's a big group
of people, especially with the new energy the students are having
these days, there's more voters now. We had an increase in voter
registration in my campus, and I know across all the campuses with
this. I've been fighting apathy for years - as some people on this
panel that know me, can attest to. The apathy started to change
and I think that President Hamilton's legislation request is part
of that. I see something in play."
MR. CASEY further stated, "Also I see new facilities on Alaska's,
I'm not going to say it's all bad. We've got wonderful new
facilities, we've got wonderful research going on, we've got
wonderful programs that's coming into play. And what we've done in
the past with the limited funding we've had, just imagine what we
could do for the future of Alaska if we had more funding. We can
invest in the new millennium fabulously, and it would be a
wonderful thing if it happens."
MR. CASEY concluded, "There's a quote in this article that the
Letter to Editor is talking about how equating Alaskans and the
permanent fund with a parent giving their child an allowance
without any kind of work done for the allowance. It comes a time
when we have to quit being spoiled and start thinking about what we
can do for our future."
Number 0180
ANDREE MCLEOD testified via teleconference from Anchorage. She
stated, "As a resident, I'm being asked to consider paying taxes
for the running of government. I need to be assured that
government is using its assets and resources to provide services to
the public in the most economical and efficient manner. The
monumental task before you of setting policy in order to create a
sustainable source of revenue to help balance the state budget is
not envied and very much appreciated. Having obtained an economics
degree under my belt, the UAA (University of Alaska-Anchorage)
economics professor have trained me well in thinking incrementally
and on the margin. In that spirit, I offer my comments which deals
with my interaction with Alaska government as a state employee,
off-and-on since 1984, and recently while advocating for the 'youth
risk behavior survey', being conducted legally. A challenge
present that has to be addressed is better accounting of monies
received and better accountings of monies expended."
MS. MCLEOD provided an example, "While I was addressing surveys
conducted in schools dealing with private family affairs, states
(indisc.) written parental permission have to be obtained. John
(indisc.) has stated there's no money available to get that
permission. I asked him the simple question of how much funding is
budgeted for conducting the 'youth risk behavior survey' -
depending on who was asked, the amount varied. ... Having recently
been employed with DOT [Department of Transportation and Public
Facilities], I do offer some way to do this, the state accounting
system AKSAS has an application imbedded within it that keeps track
of all federal dollars received because of federal audit
requirement. That's the time and equipment reporting of AKSAS, and
every dollar spent on time and equipment is accounted for. This
quantification lends itself as a management tool as well."
Number 0222
ANDY HARRINGTON testified via teleconference from Fairbanks. He
said, "The Governor's plan may not be the best of all possible
plans, but it's the best one I've seen, possibly because it's the
only one that I've seen, nobody else has put up a contender and
that would be my first point. I think that if there is some other
plan, some better plan, it needs to be put on the table really
quickly because people need to be able to digest it and give their
comments on it."
MR. HARRINGTON further stated, "Reluctantly I do think that there
does need to be a statewide tax. It's been a nice long vacation,
almost 20 years, but it is time to clean up the dished and the
cocktail peanuts and get back to our responsibilities - I think as
citizens and taxpayers. When I get done here, I hope to take my
two sons sledding - I've got one son who gets down to the bottom of
the hill in his sled, gets a nice glide, pulls the sled back up to
the top of the hill. I have another son who gets down to the
bottom and even after the glide is gone he keeps on jerking his
body in an attempt to try to squeeze two or three more feet of
glide out of the sled. And I think that that's kind of the
position that we are in. The sooner we face up to the fact that
we've got to pull the sled up to the top of the hill the better."
MR. HARRINGTON continued, "I think we should accompany this tax
with both budget reductions and with a suitable appropriation from
the earnings reserve account. I slightly prefer an income tax to
a sales tax because I think it's not as regressive and I also think
that, at least those Alaskan tax payers who itemize can deduct
their state tax from their federal income tax. I respect the
Governor for putting the plan forward and for keeping his word to
let the people decide about this appropriation from the earnings
reserve account and I think that even the people who would -- I
think that we should be given an opportunity to vote on it and I
would urge the legislature to take that action."
Number 0248
MICHAEL COONS testified via teleconference from Palmer. He stated,
"I sent written testimony and I'd like to have that put in the
record [on file]. Governor Knowles tax proposal as I've seen it is
basically hitting special interest and is full of loopholes. What
my wife and I would like to see is a flat tax which would be fair
and across the board. Why should workers get or lose breaks
because of our choices. People that have got children, people that
don't have children, married versus single, low paying or high
paying jobs. I work for a living and work hard for a living - if
I make $100 thousand next year I'll be happy but I'll end up paying
more taxes. I'm married - no kids, I'm going to be paying more
taxes than somebody that's married with four kids. I have a real
problem with this special interest aspect that only certain people
are going to get hit higher with taxes and other people aren't."
MR. COONS concluded, "I agree with HJR 1 - I would like to see an
advisory vote that, for the people to vote on as far as any income
tax. But, making it an advisory vote that if less than 51 percent
of the registered voters out, that the vote is no. I'd also like
to see that if any of you are talking about anything as far as
taxes, that we have a sundown aspect with it, and during that four
or five years that we have it, a constitutional change to where the
voters must have at least 51 percent of the registered voters
turnout in order to make any vote valid."
MR. COONS concluded, "I'd like to make sure that this thing is
going to be educated to the voters on a neutral base, not a
political rhetoric, I would like to see something in writing, in
the papers, on TV, and in radio saying what we're going to be
doing, why we're going to do it, when we're going to do it, where
we're going to do it, and who's going to be impacted."
Number 0286
JOE SONNEMAN appeared before the committee to testify on HB 89. He
mentioned he had earned a PHD in government finance and said, "I'm
just going to talk about a narrow aspect which is how the permanent
fund - which is an equal amount to everybody, how it impacts people
as they receive it, and also how, if you would draw $4 billion and
that would, in my estimation, mean a likely drop also as an equal
amount, how that would affect Alaskan's of different income
groups."
MR. SONNEMAN continued, "And I have a very simple chart showing
relationships of - these are actually different square inches -
that you see the numbers; 99, 53, 21 and 11, and I'm just going to
add little circles of 2.5 square inches to each. So, that you can
see that adding these equal amounts makes a bigger percentage
difference to those with lower incomes. And then I'd also like to
show you how a loss affects that, and which would happen. I believe
if you actually take $4 billion out of the earnings reserve. And
again, you can see that the impact is minimal on the large income
and is very large - the impact of the equal amount reduction is
very large on those with the lowest incomes. These are just
mathematical relationships, and that's - you have big problems
before you, I'm just addressing this very small point of how these
changes affect people of different income levels."
Number 0324
BRIAN BRUNDIN testified via teleconference in opposition to HB 91
from Anchorage. He said, "I'm a tax lawyer and I been so in
Anchorage here since 1966. Prior to then I was also a CPA
(certified public accountant). So I have represented people in tax
matters for a long time including, when Alaska use to have an
income tax before it was repealed in 1980."
MR. BRUNDIN continued, "My perspective is this, of all of the taxes
- and I've published nationally on Alaska taxation as well, my
perspective from my general clients point of view is that an income
tax is the most people unfriendly, anti-people tax you can have.
This has not been said, so I wanted to point it out to you. And
you just need to think about what a persons reaction is when he
gets a notice of being audited. That auditor comes in and goes
into his private affairs unbelievable so. It's frightening to most
people. They have to (indisc.--paper shuffling) more private
information about themselves, they have more fear, and so forth,
than any other kind of taxation. It's also true that it's more
expensive to administer. Even when we had our Alaska income tax -
was a percentage of the federal - which would seem to be easy to
administer. You do your federal tax, and then you just take a
percent and send it to the state. But the state made some
different rules as it would again. You didn't believe that the
federal government - everything it wanted to do was appropriate for
Alaska so we had different rules."
MR. BRUNDIN continued, "I had clients who had auditors from the
federal government, and they ended up showing transactions one way,
and then auditors from the state, in those same transactions, ended
up being reported differently for the state than the federal. And
how do you chase these out-of-state people - we want to collect tax
from, you have a tax office in Seattle, and elsewhere, you have a
much more expensive administrative problem collecting an income
tax. So I would suggest to you that, when you consider an income
tax, know that it is the most anti-people tax that we have. It
also - another view of it, is that asking for a tax at this time,
might also be viewed - to me it is, as progovernment, anti-people.
And I say that because of an experience in 1980 when the
legislature considered repealing the Alaska income tax, the
Governor's proposal then was this, we'll keep the tax, we'll
collect it this year, and then if we don't need it we'll refund it
to you next year. When I heard that, several of us went down to
Juneau and really said, 'gosh, this is - you know, let's protect
the government at all costs and get..."
CHAIR JAMES asked Mr. Brundin to summarize his statement.
MR. BRUNDIN concluded he testimony. He said, "I suggest to you
that we cut our expenses and live on our savings account before we
go after the people's savings account in and anti-people tax."
Number 0369
CARL BENSON testified via teleconference from Fairbanks. He
stated, "I would like to point out that my friend in Minnesota -
who we talk about these things - he use to live here when paid an
income tax. But he told me my governor can beat up your governor.
From Minnesota they can say that to any state now, but I told him
my governor has got more political courage than yours or any other.
He proposed to reinstate our state income tax. And he said, 'What,
you mean you don't have one anymore?' No. 'You must have a high
state sales tax?' No we don't have that. 'How do you raise taxes
from the population?' Well we don't, we mail money out to them
instead."
MR. BENSON continued, "Last year, the money we mailed out to the
public was almost $900 million. It's by far the biggest single
item in our state budget. Second to that is education and then you
go on down the line. Well, we have the lowest gasoline tax in the
United States, our property taxes are low compared to anywhere
else. We've got this permanent fund that generates income and the
purpose of that was originally to use some of that income to help
pay for state government when the nonrenewable resource ran out we
have the permanent fund invested as a renewable fund - a renewable
income."
MR. BENSON further stated, "I think basically, the proposal that
Tony Knowles has put forth for a state income tax and to use some
for the earnings of the permanent fund for the purpose they were
originally intended is a great idea. The proposal looks reasonably
good. We're putting in an (indisc.) which was just stated earlier,
nobody's put forth a better one. I have to disagree with the
previous speaker though, I think sales tax at the state level is
more regressive than an income tax. The fairest tax is a graduated
income tax, and the idea of spending our savings - spending
principal, is absolutely crazy including the CBR (Constitutional
Budget Reserve). The whole purpose of a savings account is to
generate income and you deal with spending the income and leaving
the savings to generate more income."
MR. BENSON concluded, "Basically, the other point about the state
income tax that's attractive is that it's deductible from the
federal tax. Also, last year, it was nearly $900 million that went
out in dividends paid to the people constituted about $170 million
that went directly to Internal Revenue Service out of that. With
a state income tax, we help keep more of that dividend in Alaska
instead of packing off to the IRS. And agin, the income tax is
deductible from the federal [tax]. Basically I think these ideas
look very good."
Number 0411
REMY HOLDSWORTH testified in opposition to HB 91 via teleconference
from Palmer. She read the following statement:
I'm not writing this message in protest of the state income
tax, but I'm protesting the way this plan has been written.
I feel it is very unfair to single people without children.
I am a 42 year old woman who has made the choice not to have
children. I work full-time and lead a very productive life.
The way this tax plan is written is that single people without
children will have to pay most of this tax. I feel this is
very discriminating and I fell like I'm being punished in
someway or another for my lifestyle. What really makes me mad
is that a family of four, who make $60 thousand or less will
not have to pay anything at all. That's not right.
If you live in this state, and you reap the benefits of the
state you should have to pay. I also think that 31 percent is
a little excessive in pay, although I do like the idea of a
flat tax. If I were given a choice, I would give up my
permanent fund - to not have to pay a state tax at all - if I
were given that choice. It's nice to be able to get that
permanent fund at the end of the year, but however, it does
put you into a higher tax bracket, and you end up having to
pay more federal tax anyway.
REPRESENTATIVE OGAN stated for the record that he has come to the
conclusion that maybe that's the Governor's strategy is to scare us
into giving up our permanent fund dividend by proposing this tax.
Number 0434
GREG YOUNG appeared before the committee. He stated, "I thought
when I wrote this that it might be a departure from what you would
have been hearing in this committee, but having heard the previous
testimony it's not that much of a departure." He read the
following statement:
Permanent Fund: I've lived in Alaska since 1977, not as long
as some, but longer than many, and, as I recall, when the
permanent fund was first conceived, the purpose was to provide
funds for the day when oil revenues fell off so we could keep
providing the citizens of Alaska necessary government
services. I underlined "necessary." That is, those services
required for life, safety, health as opposed to 'nice to have
things'.
The whole idea of the permanent fund got translated into a
fund that was solely to pay annual cash dividends to Alaskans.
Now we hear cries of, 'Don't touch the permanent fund,' and
'Don't touch my permanent fund dividend, the state owes it to
me.' Well, three's no such thing as a free lunch. If
Alaskan's want to continue to enjoy the standard of living
that they've become accustomed to over the last 20 years, then
they have to be willing to contribute to it.
State Income Tax: I don't mind paying taxes for state
services that are needed. What I object to is those who want
everything for nothing, and want someone else to pay for it.
I would support a flat income tax - deductible from federal,
with standard and dependent deductions, and a 'credit' for
state residency.
State Sales Tax: I would also support an across the board,
food excepted, state sales tax. I think the legislature
should tell communities who don't have a local sales tax that
their portion of state funds will be reduced by whatever
amount such a tax could raise for them. Why should residents
of communities who pay local tax to partially fund local
services contribute to a statewide tax to fund similar
services in boroughs and municipalities where there is no
sales tax? Doesn't make sense to me.
In summary, and I'm sure you've heard this before, even today,
Alaska is the only state in the union that has neither a state
income tax nor a state sales tax. We basically pay our
residents to live here. And, while we have $25 billion in the
bank, we sit around and cry, 'poor mouth.' The lower 48
states laugh at us - and I can tell you that because I have
relative there. It's about time the people of Alaska re-
entered reality and recognized that they need to pay for government
and the government services and programs they want.
Number 0470
PAM KARALUNAS testified via teleconference from Fairbanks in
support the Governor's proposals. She said, "His proposal may not
be the best, but it's in front of us for discussion. I agree that
it's time we start paying our own way again, however, I feel we
should eliminate the permanent fund dividend payments before we tax
our citizens. While I'm sure there are still ways we can cut
spending, I'm very concerned where and how these cuts may happen."
MS. KARALUNAS continued, "My experience over the last 15 years with
human services, child protection, law enforcement, and the court
system affirm over, and over, and over again, that there's a far
greater need for these services than there are services to meet
these needs."
Number 0485
CLARENCE FURBUSH testified via teleconference from Palmer. He
stated, "In my budget, I try to make every dollar count and I have
several proposals that probably have been proposed before, but I
certainly believe in this increase in efficiency in the government.
And, I also believe that it should be audited so that these
royalties - to make sure the state gets its share from the sale of
state resources such as coal, oil, (indisc.) zinc, and so on. And
I think the state should be required to sell a substantial part of
its land to provide income, and also as a tax base for
municipalities. Unorganized areas should be made to organized so
that they can pay their fair share for services."
MR. FURBUSH continued, "Mental Health lands, university lands,
certainly they should be required to sell a substantial part of
their land annually as part of their income. Anyway, if they do
this much, at least it should reduce the required amount that is
required to pay for their services. I think if you add it all
together it won't be an awful lot, but it certainly - it would try
to get every cent you can, wherever you can find it."
Number 0506
KELLY LUDWIG appeared before the committee. She stated, "I'm just
an accountant, I'm not a CPA, I have an accounting degree from the
University of Alaska-Southeast in Juneau, and I've worked with
taxes for the last few years and my concern comes down to an income
tax and the affect that it has with the PFD (permanent fund
dividend) to me (indisc.) going to give us a PFD on one hand and
then we're going to turn around and take it away. I did some
preliminary figures based on Joe Q.-citizen who earns $40 thousand
a year as a single person, has no dependents, doesn't have a big
investment portfolio - and if you take that $40 thousand - and I
used the amount of last year's permanent fund of $1,500.00, I
applied the standard deduction - he can itemize deductions and he
can only subtract from your federal income tax return - state taxes
if you itemize deductions, otherwise it all falls under the
standard deduction. He gets his personal exemption for himself,
that comes down to a taxable income of $32,550. The federal tax on
that is $5,826. Now the state tax would be 31 percent of that,
which is $1,806 and the PFD credit, which would be 33 percent of
the PFD amount at $1,500 is $495 which makes the state tax $1,311.
If you take the PFD at $1,500, you deduct the state tax of $1,311,
you get $188.94. Now by adding the $1,500 into his income that he
has to pay taxes on, the federal tax effect is $245, so if you
subtract all that out, it ends up costing that person $56.12 to get
the PFD and pay the state tax on it."
MS. LUDWIG further stated, "If we were to cap the PFD - I'm just
picking a figure of $850, and we don't have a state income tax,
then that $850, included in his income, costs him in federal taxes
$266. But the gain on that, that he gets, is $584, which means
that for each person, that's $584 drop into our economy and a
$56.12 decrease because, not to mention the cost of setting up the
department, and which would be a collection department - kind of
like child support enforcement which is scary to me. I know people
want to keep their PFDs, but I think that maybe capping them and
then using the earnings reserve account for the unrealized gains
and that is a better option."
REPRESENTATIVE OGAN remarked that the Administration didn't provide
a breakdown of how much individuals would pay that was previously
requested.
CHAIR JAMES added that we can request it again.
REPRESENTATIVE HUDSON asked Ms. Ludwig to provide the committee
with a copy of her worksheet and a worksheet with the sales tax
concept as well.
Number 0558
DAVID KARALUNAS testified via teleconference from Fairbanks and
read the following testimony:
I've been a lifelong citizen of Alaska, and I do make a
distinction between residency and citizenship. Residency
makes you eligible for certain benefits and citizenship
acknowledges the responsibility that we all have to contribute
to the needs of our society, and that's why I am testifying
today.
I'd like to say that I support the Governor's leadership in
advancing these ideas. In so many instances in Alaska our
elected officials failed to leave the open discussion of
options in favor of waiting for the other side to blame, and
I think that hurts all of us.
I support the effort to let the people vote on these issues.
Again, I see too often a reluctance to let the public vote, in
fact, even attempt to block some issues from reaching, or
making it onto the ballot, and I think that's wrong.
I support the elimination of the dividend program before we
enact any state tax, and here is why, I think many people have
come to view the PFD program as an entitlement program, in the
worst sense of a welfare-type program. We see people moving
to the state with no job and large families just because we
have the PFD. And this is the segment of the population that
ends up using most other state services..."
TAPE 99-6, SIDE A
Number 0001
MR. KARALUNAS continued.
from [the Department of] Public Safety, to Department of
Health and Social Services, to [the Department of]
Corrections.
If we tax at the top and hand out PFDs at the bottom, we're
providing an incentive for this type of behavior to continue.
I disagree also with HB 91 because we're trying to reduce
state government at the same time here and it seems to me that
the paperwork and staff to run the dividend program should be
reduced or eliminated before we create a new staff to collect
taxes.
My overall view is that we should at least cap and or
eliminate the dividend before returning any tax. If and when
a tax is necessary, I would like to see some other options
such as a state sales tax with certain basic needs items like
food and medicine not taxed.
I admit that this may not be the best way to reach the
seasonal or transient workers in our state. I would happy to
see this or other options on the ballot so the citizens could
choose the best option.
Although reducing state spending is perhaps a discussion for
another day, I will say that I do not support any further
reduction in real-estate services or education spending.
However, I do think we need to take a hard look at how to make
the basic bureaucracies of our departments more flexible and
responsive to change. I urge that the legislature avoid the
practice of using budget reductions as a punitive tool.
Again, we need leadership here that will work with problem
departments to solve their structural problems, not make their
jobs ever more difficult and hurt the end user by further
cuts.
0043
PHILLIP FURBUSH testified via teleconference from Palmer. He
remarked, "First of all I'd like to make a point that I'd like to
see reductions in state government first before anything else is
done. Second of all I'd like to see a broad range of incomes come
into the state through a resource such as users' fees, taxes, et
cetera, income taxes. But I don't believe that we should get into
the permanent fund. I fear that once we get into the permanent
fund - that for state expenses that the state will always be
dipping into it until eventually it's gone."
MR. FURBUSH further stated, "The permanent fund, in my opinion, is
by far one of the greatest achievements the state has done
potentially for the future. Our state could be using that for
future energy resources, in which I believe it should be. I think,
... we should put more money into the permanent fund to enhance its
ability to produce energy resources in the future. Using it for
the state income tax, or state expenditures will eventually, I
believe be the end of the permanent fund. We should find other
ways to come up with revenues other than to use the permanent
fund."
CHAIR JAMES asked Mr. Furbush if he knows that the corpus of the
fund cannot be touched by the legislature, the principal cannot be
used.
MR. FURBUSH replied he does understand that. He further added, "I
also understand that once they've got the people to vote - like
this bill wants people to vote on it. Once they've got the people
to vote on giving away their permanent fund, that they'll, once
they don't get the permanent fund they will go for the principal,
(indisc.) rather than paying taxes and what not."
Number 0095
GORDON EPPERLY appeared before the committee to testify on HB 91.
He said, "I've lived in Juneau, Alaska since 1963. I'd like to
comment about the proposed income taxes here, and I hope you can
find an alternative to the income tax before you give it much
consideration. I'm going to use the Juneau Empire as part of my
testimony here - and you can pick up any issue at any time - if you
don't believe that you're going to be paying taxes, and you're
going to be paying a lot more taxes. First of all, right on the
front page we have an article here that says union (indisc.) salary
survey and that has to be unions representing the state employees.
Well, I find it kind of ridiculous because the unions here
representing government employees are the government employees.
They negotiate with themselves, they come up with an arbitrary
figure, and they only put on a dog and pony show that they're
coming into an impasse. So who do they bring into to settle the
impasse, another government employee. When it's all said and done
with, who gets the bill, me and everybody else out here in the
private sector, we had no voice in the matter, but we're expected
to pay the bill."
MR. EPPERLY further stated, "You can turn to the newspaper any day,
any time, and you're going to find issues of taxes. Here in this
paper, we have an issue of federal taxes - they're going up. We
have another article ... we're going to be forced to pay on a bond
to build a new high school of $46 million. Of course, that is a
substantial increase in our property taxes, ... yet another phone
fee - the federal government is going to attach another tax on our
phones. The list goes on, and on, and it's on a day to day issue.
So, from that point of view, I would like you to really consider
about this here income tax."
MR. EPPERLY concluded, "For 30 years I watched the growth of this
state government, and yet I see no restraints on the growth. Most
of the growth comes from legislation from the congress being passed
to states - driving us to accept this legislation for federal
funds. But over the years the federal funds dry up, and we the
people out here in the states are (indisc.) continue to support
there here programs. I don't see us going back and reviewing all
those statutes that we have adopted over the last 30 years and see
which programs, that are no longer funded by these federal funds,
we need to get rid of them because they're not serving the interest
of the people and it's bribery. It deprives me of a republican
form of government."
Number 0160
HARRY JENKINS testified via teleconference from Fairbanks. He
said, "Down the road, and I mean way down the road the people in my
opinion would not support a state income tax. Why not a state
payroll tax, then we could tap the resources from all the outside
workers who come to Alaska and make money during the tourist or
fishing seasons, or to Prudhoe Bay, then back to their home-state
without supporting the state that supplies income. Then too,
retired people, and people on subsistence would not have to pay a
payroll tax. Companies would be responsible for filing the forms
for several employees instead of individuals filing separately and
would be processed more easily - requiring fewer state revenue
employees."
MR. JENKINS further stated, "We tax the tourist's source of income
within our state with hotel and motel taxes. Let us tax the
individuals who make money in the state and then take it out of the
state rather than revenue sources like tourists. Let all the
people who use the state as a source of income share the tax
burden."
Number 0190
"B" JARVI testified via teleconference from Fairbanks. She stated,
"Basically I think it is time that we realize that the state should
not try to be and cannot be all things to all people. I really
believe that it is time for the people of Alaska to start sharing
the burden, at least to a greater extent, for their own welfare and
for their own needs. I believe in privatization to a great extent
because I think the state is in a position now of providing a lot
of services to the people that could be done by the private sector.
I think also that there should be a great deal of accountability
and there should be justification for the monies that are expended
or required by agencies that request them. I also feel that it is
time for the State of Alaska to look at funding mechanisms because
regardless of how much you (indisc.), you're going to have to pay
the bill."
MS. JARVI further stated, "I do not favor a state income tax for
the simple reasons that it is a very costly administrative function
that the state would have to take on, and I think that it would be
a very evil, unfriendly tax. And I think it's discriminatory the
way that it is proposed. If you're going to have an income tax,
you need to tax everybody with an income, not just a certain
fragment of the population."
MS. JARVI concluded, "Of all the three proposals that I have here
before me; [House Bills] 89 90 and 91, I would favor [HB] 90 the
most. The permanent fund is nice to have, it is a great thing to
have, but the permanent fund also was designed to meet the cost of
the state. And I think you should take a special appropriation
before we look at a state income tax - before we look at any of the
funding mechanisms. But the first thing we need to look at here,
I think is, what do we need to have. We shouldn't be looking at
funding what we already have and adding to it. We should be
looking at what do we need to have, and what does the state have to
provide that cannot be provided by the private sector."
Number 0237
RUDOLPH VETTER testified via teleconference from Fairbanks. He
said, "In regard to the income tax bill, [HB 91] I think it's
unconstitutional. It looks to me like an escapee or an inmate of
API [Alaska Psychiatric Institute] wrote this bill. Freeze new
hiring, fire your oil advisor - he advised you a year ago that oil
would be somewhere around $18 a barrel - and anybody that's studied
the oil situation knows that oil is - the whole world is (indisc.)
and the price will price even go lower. And, I think there is a
point in the agreement with the oil companies that should oil reach
around $6 a barrel, or a little bit better than that, there will be
no income to the state. I may be wrong on that, but I'm going by
memory."
MR. VETTER indicated that he didn't have a comment on HB 90.
MR. VETTER stated, "on HB 89, I have an alternate. And the
alternate is this - to get rid of all the discussion about the
permanent fund, I recommend that you disburse the permanent fund on
a three-year basis to all qualified permanent personnel. We change
all the laws in regard to natural resources so it would be possible
to contain it, and it (indisc.) be the same. We need more
productive use of the natural resources or possible natural
resources of Alaska. Check out Fort Knox and its impact on
Fairbanks. It is one of the few truly productive things that we
have, and it's new money and it's going to be long-term money.
That's (indisc.) and will be doing business for hundreds of years
after all of us are dead."
Number 0270
NIILO KOPONEN testified via teleconference from Fairbanks. He
stated, "I remember being in the legislature when we could see this
problem coming up, but we didn't. We were spending just about as
much money out the general fund for maintaining the highways per
registered motor vehicle as we were for supporting the public
schools. And, even today, I think the use of the payments for the
highways per registered motor vehicle is probably still as high as
education."
MR. KOPONEN further stated, "And speaking of education, we just
went through a very cold snap in Fairbanks - my electric bill went
up, I had maintenance problems, my oil bill went up, that also
happens to the schools. The bill that was passed last year, does
not provide any support for schools north of Anchorage in the
actual non-educational costs such as heat, lights, and electricity
and I think you better look at changing that."
MR. KOPONEN further stated, "Also during our boom-years, we were
spending money on capital projects. Some of us proposed putting a
(indisc.) fund to pay for the maintenance of those buildings but,
of course, pork was more popular. I also proposed an income tax in
those days. I still support the income tax. I support the
Governor's recommendation for a 'snow-bird' tax. In Territorial
days we paid an income tax - a good share of the $38 million budget
in the first year of statehood came from our actual income tax
payments by individuals. I prefer to pay an income tax to the
state of Alaska to support the people of Alaska - not the
corporations, and rather than sending it to Washington where I have
no control over what they do with that money."
MR. KOPONEN concluded, "So, I think that you necessarily have to
remember that your duty is to look to the future, your duty is to
the citizens of the state of Alaska, their health, education,
welfare and for the support of human beings rather than
corporations and others."
REPRESENTATIVE KERTTULA thanked Representative Koponen for his
years of leadership and said she wished he was here.
Number 0313
MIKE PRAX testified via teleconference from Fairbanks. He said, "I
think we need to step back and look at the impact, not just to the
state government, but to the overall economy of the state of any of
your proposals. And, we need to recognize that there are roughly
three streams of income to our state economy that drive our state
economy. We've got the wealth created by private industry, we have
got some interest income that comes back to the state from the
permanent fund, and we've got some money coming back from the
federal government that they stole from us in first place through
taxes - but they're generous enough to send some back if you whine
loud enough."
MR. PRAX further stated, "The proposals before us only address the
problem of maintaining the state government as though that was some
entity separate from the people and that it was sovereign to the
people. I think we've got the wrong mind set. Any taxes -
internal taxes, will not replace any of the income that is not
currently coming into the state because of the decline in oil
wealth. All state government can do is redistribute that money
from private individuals into those that live off the government."
MR. PRAX reiterated, "Again, I want to repeat, I want to emphasize
that, that any tax will not address the problem of the loss of
revenue coming into the state's economy. So, I think if we want to
be more concerned about the individuals in the state, rather than
the government of the state, we need to look at different sources.
On the other hand, I think we do have a problem that needs to be
addressed. We do need to change something. And, of course, the
state government is now probably the primary source of wealth
because it has way too much in the permanent fund - wealth that
should belong to the private individuals, as Mr. Vetter suggested."
MR. PRAX concluded, "I would suggest then that we take some of the
income that we are receiving from the investments of the permanent
fund and use that as a short-term replacement for the loss of
income from oil, and then continue along your route of trying to
prioritize state spending and transfer state responsibilities back
to local governments and preferably the individuals. And, let the
individuals then decide whether they want a particular service and
they can decide by going and paying for the services they want to
have rather than coming down to meetings and sitting for two hours
arguing about money."
Number 0365
NANCY BAKER testified via teleconference from Fairbanks. She
stated, "I do applaud the Governor for having the guts to propose
an income tax. And, I have felt for a long time - and the people
that I've talked to, as far as I know the word from most of the
population, it's about time we have a tax. That we do need it, and
we should tax ourselves. I came in when someone was saying we are
the butt of jokes all over the country for having no tax and giving
money away. And, many of us do know of large families, I know of
one recently, with eight kids that moved up, a single mother for
the very reason. ... We all have budgets in our home, and we not
only want to supply for our bare needs, but something else to make
us more presentable in life, and so on. And we are (indisc.) of
state and I think there are many needs we have and it's about time
we have an income tax."
Number 0388
BONNIE WILLIAMS testified via teleconference from Fairbanks. She
stated, "I'm opposed to all three of these bill. On the issue of
the permanent fund, like any other trust, you never spend the
principal. The Governor is proposing to liquidate the principal in
order to acquire the $4 billion and then transfer it out into a
fund that would then keep the state government in balance for about
three years. Then we would be out of balance again. In other
words, it's a temporary solution that liquidates our principal. A
terrible, terrible thing to do - never do that. There is a bill
pending ... that would change the incoming revenue stream from oil
taxes and royalties and divert more to state expenses. I think
that's a good idea, I would support that."
MS. WILLIAMS continued, "The income tax, I totally reject as it's
presented because it is unfair and I believe it's unconstitutional.
Furthermore, it has specific clauses that incorporate and include
taxes ... and I think that we should not be doing that at all."
MS. WILLIAMS further stated, "I think that you ought to create a
fund - call it 'failed to balance the budget fund,' and put into it
money that you get by liquidating most, if not all, of the Alaska
Housing Finance Corporation, some money from AIDA [Alaska
Industrial Development Association], take the current balance out
of the constitutional budget reserve. Use those as a temporary
solution as limited as possible. I think you should change your
plan for the amount of money that you are cutting out of this
year's budget. You need to find $100 to $200 million instead of
$50."
MS. WILLIAMS concluded, "And finally, any tax that you impose upon
us, and I don't like any of them, but any tax that you impose upon
any of us and all of us, you should require a reaffirming vote
every two years from citizens or it sunsets. That way, we've got
our finger on your pulse."
Number 0425
NANCY WEBB testified via teleconference from Fairbanks. She
stated, "At this point, I'm not ready to give comments specifically
on the Governor's bills, but I do want to praise you and encourage
you to reach out for testimony like this. I've even been giving
thought to the idea that a survey at some point, from the
legislature, might be a good tool. I'm not certain the right
tools, but I think we really do need to find out what people think
about these proposals. I personally, am probably, willing to pay
an income tax, but I know that a little bit more clearly in favor
of using the permanent fund earnings as one of our tools to solve
this problem. And, also, I think I'm probably pretty strongly in
favor of the increase in the gasoline tax and I think that might
make a lot of sense as far as matching that with federal money or
using it for a revenue source."
MS. WEBB continued, "What I really would like to encourage is the
idea that we explore all these options thoroughly that have been
put on the table. And I like the sound of the cooperation going on
between the Governor and the legislature right now. I really feel
good about that."
Number 0455
DAVID WILLIAMS stated, "I just have a couple of suggestions. One,
I'm deathly against the personal income tax, except in one
condition. The state of Alaska is quite clear that the resources
of the state belong to the people, the federal government's
determined that - or I should say the supreme court determined that
the term people means individuals, not the collective. In that
case, I would support an individual income tax in the state of
Alaska - where the royalty funds, and all funds from extracted
resources in the state go directly to the people first. If we had
all the resource income, in the individual hands, then I would
fully support the individual income tax to support the government.
Particularly, I like the idea because this would allow individuals
to take a much finer and closer view of the legislature. Right now
they don't pay anything they think - so they don't care how much
money you spend because it's coming from someone else."
MR. WILLIAMS further stated, "If you would like to think of a place
to get some funds, I would suggest that you take the 25 percent
royalty that goes into the permanent fund and redirect that to the
state income because oil revenues are declining. And although some
marginal fields may in the future be developed, it's obvious that
the 'greens' are not going to let us develop our oil anyway. So,
revenues are declining, probably perpetually until they're gone.
So, I say take the 25 percent and give to the state. That holds
the permanent fund sacred. ... I want you to put it in a trust, I
would suggest and let the simple earnings that come from
investments be paid to the people."
WILLIAM RENO testified via teleconference from Palmer. He stated,
"First of all, if you guys take all the revenue's that this state
takes, every dime of it, and put it into one account, under a
general fund, instead of having money that's off budget - back
behind the budget, whatever. When you can show all the money that
this state makes, versus how much they spend, then you can come and
ask us for a tax. An income tax, I hate it. ... I suggest a sales
tax - two tiers set up - one for tourists, and one for the rest of
us."
Number 0501
REPRESENTATIVE OGAN stated for the record, "What's missing from the
plan, and I'm glad to hear it discussed, was a discussion of the
bureaucracy it creates. The income tax does create quite a few
jobs - I think 46, or somewhere around there - over 40 jobs to
administer. I like the comments of the invasion of privacy. ...
When you get audited by any group, they do dig pretty deeply out of
your personal affairs."
REPRESENTATIVE OGAN continued, "It seem to me the Governor wants
people to cut their budget - and I can use an example to show that
he wants them to cut it 50 times greater than he offered on his own
cuts to fiscal year 1999. For example, he's offered - if you take
the budget as a whole, 6.2 billion, and we can argue about that,
but if you take all this spending in the state, 6.2 billion - he
offered a one-tenth of a one percent budget. For someone that's,
for example, a range 28-F, who makes $90 thousand a year and is
single, will pay $5 thousand. That's 50 times greater budget cut
that he has to make to his budget than the Governor's willing to
make in his."
REPRESENTATIVE OGAN further stated, "I don't remember the Governor
campaigning on a tax and permanent fund platform. Family values,
I think, as tax burden increases on people that has a direct effect
on families, I think if you look at what's happened to people in
our country, as we've gotten away from having one parent at home,
whether it's the husband or the wife, or male or female - because
I think most people will have to go out - most families need both
spouses working just to make ends meet and a lot of that is because
of the tax burden. So as we increase taxes, I think we have to
look at the affects that it will have on families. It's an
additional burden - more people are going to have to get jobs and
then that creates even a whole bunch of other social problems with
latchkey kids and kids that aren't being parented correctly."
REPRESENTATIVE OGAN said, "I think it's a bad policy to deposit the
earnings of the permanent fund into the CBR. That further empowers
the minority, whatever minority is super-minority of either a
radical, right-winged, conservative republicans or radical, left-
winged, liberal democrats, or any variation of that to have a say
on the final budget. And, I think we're the only state in the
union that empowers the super minority about that."
REPRESENTATIVE OGAN concluded, "My bottom line is that I'm not
ready to pass any taxes or raid the permanent fund until I look my
constituents in the eye and tell them that we've done all we can do
to reduce the size of government first. And, I think most
Alaskans, what I've heard from my constituents, would be willing to
step up to the plate and pay a portion or part of their share if
they felt we've done that."
Number 0548
REPRESENTATIVE ETHAN BERKOWITZ stated, "First of all, I want to
make sure that Representative Ogan knows that this is something
that Representative Davies said on the floor. As far as the
minority is concerned, the three-quarter requirement for the CBR is
on the table. This is something that we're willing to discuss, as
we understand the necessity of preventing a minority from blocking
a budget."
REPRESENTATIVE BERKOWITZ said, "The second thing that I had asked
Representative Ogan, who has been here for quite awhile, is, if he
believes when we need to exercise cuts, which cuts in his district
is he going to offer up."
REPRESENTATIVE HUDSON remarked, "Whatever we do in the final
analysis, we have to look at the affects in the entire economy, not
just the affects on how much money is coming into government, but
how much money is coming into private citizens - it maintains their
jobs. Even money spent in the government creates jobs outside the
government and that has to be considered too. So I think we have
a long ways to go here."
CHAIR JAMES said, "I there is some merit to having a broad-based
tax of some sort. And the reason is a merit to doing that is
because the economy of the state is tapped into. And when you have
more folks coming in and more economic activity, there's a little
bit that funnels into the government to take care of the extra
things that more population - and more needs are, fixing the roads
and those kinds of things."
CHAIR JAMES pointed out the other thing is, is that the
government's not here to create the economy. She said she believes
that the government is here to provide the services that the folks
need. She said, "And, it is true that while we're providing
services, we're creating employment and that is not our job, that
should be a result of providing services. So we have to be sure
that when you think about the size of government, that you think
about the services that the folks are willing to pay for. If they
have some of their own money the pot, such as a broad-based tax
would bring, that creates an ownership and in how much we spend,
that is more important than what we have now."
CHAIR JAMES continued, "The permanent fund dividend, however, is
just a gift and, even though it was a really great decision to be
made, we have put ourselves into a trap. So, now we have more
constituents promoting to have the permanent fund than to pay for
the services yet the state wants the services."
CHAIR JAMES, said, "We have a huge dichotomy of ideas out there.
We don't have a lot of time to do it. What we need to do is hear
from everyone. And then we also need to set up, I believe, a
priority list of how we deal with those things. I would hope that
we don't do it in a debate-fashion, as much as it is a conversation
fashion so that we can come up with something that will provide the
necessary services in the state, tap in briefly to the economy in
one way or another with a broad-based something, and that we would
also be able to grow our economy. One of the things, and that is,
it takes money to make money. We cannot continue to cut the budget
in areas where we encourage resource development. Because if you
don't spend the money for the folks to sell the land, as an
example, or to give the permits, or to do whatever it is to
encourage the folks to bring in their money and investments to make
money in our state, then we funnel ourselves all down."
CHAIR JAMES concluded, "An example I'd like to give is that all of
a sudden, you only have six months a year to work because your job
cuts you off in the wintertime. So, then you start cutting your
expenses, and would you take your car off first because that's the
most expensive thing you have. You sell your car and cancel the
insurance, and stop putting gas in it, that's probably the biggest
hole to fill. Well, we can't get to work. We have to really think
about what is reality and what is just wishes. And I urge every
one of us to debate this, if it's a debate in a friendly manner, or
realistic manner, and come up with the conclusion that grows the
economy in the state, that makes living in Alaska a good place, and
that we can have a government that is not too big, but is just the
right size to provide the services we need." [House Bills 89, 90
and 91 were held for further consideration].
ADJOURNMENT
Number 0607
CHAIR JAMES adjourned the House State Affairs Standing Committee at
12:04 p.m.
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