03/04/2004 08:01 AM House STA
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ALASKA STATE LEGISLATURE
HOUSE STATE AFFAIRS STANDING COMMITTEE
March 4, 2004
8:01 a.m.
MEMBERS PRESENT
Representative Bruce Weyhrauch, Chair
Representative Jim Holm, Vice Chair
Representative John Coghill
Representative Bob Lynn
Representative Paul Seaton
Representative Ethan Berkowitz
Representative Max Gruenberg
MEMBERS ABSENT
All members present
COMMITTEE CALENDAR
HOUSE JOINT RESOLUTION NO. 31
Proposing amendments to the Constitution of the State of Alaska
relating to the Alaska permanent fund and to payments to certain
state residents from the Alaska permanent fund; and providing
for an effective date for the amendments.
- HEARD AND HELD
HOUSE BILL NO. 422
"An Act repealing the special subaccount established in the
constitutional budget reserve fund; relating to the powers of
the Department of Revenue for the investment of amounts in the
constitutional budget reserve fund; and providing for an
effective date."
- HEARD AND HELD
DISCUSSION WITH DEPARTMENT OF TRANSPORTATION STAFF
[See 9:17 a.m. minutes for this date.]
HOUSE BILL NO. 439
"An Act relating to the authority to take oaths, affirmations,
and acknowledgments in the state; relating to notaries public;
relating to fees for issuing certificates with the seal of the
state affixed; and providing for an effective date."
- BILL HEARING POSTPONED TO 3/8/04
HOUSE BILL NO. 516
"An Act relating to a charge for a bad check."
- BILL HEARING POSTPONED TO 3/5/04
PREVIOUS COMMITTEE ACTION
BILL: HJR 31
SHORT TITLE: CONST AM: PERMANENT FUND
SPONSOR(S): REPRESENTATIVE(S) HOLM
01/02/04 (H) PREFILE RELEASED 1/2/04
01/12/04 (H) READ THE FIRST TIME - REFERRALS
01/12/04 (H) W&M, STA, JUD, FIN
01/23/04 (H) W&M AT 8:00 AM HOUSE FINANCE 519
01/23/04 (H) Heard & Held
01/23/04 (H) MINUTE(W&M)
02/04/04 (H) W&M AT 8:00 AM HOUSE FINANCE 519
02/04/04 (H) Heard & Held
02/04/04 (H) MINUTE(W&M)
02/18/04 (H) W&M AT 7:00 AM HOUSE FINANCE 519
02/18/04 (H) Moved CSHJR 31(W&M) Out of Committee
02/18/04 (H) MINUTE(W&M)
02/19/04 (H) W&M RPT CS(W&M) NT 6NR
02/19/04 (H) NR: WEYHRAUCH, SAMUELS, WILSON, OGG,
02/19/04 (H) MOSES, HAWKER
03/04/04 (H) STA AT 8:00 AM CAPITOL 102
BILL: HB 422
SHORT TITLE: BUDGET RESERVE FUND INVESTMENT
SPONSOR(S): FINANCE
02/02/04 (H) READ THE FIRST TIME - REFERRALS
02/02/04 (H) STA, FIN
02/10/04 (H) STA AT 8:00 AM CAPITOL 102
02/10/04 (H) Scheduled But Not Heard
02/26/04 (H) STA AT 8:00 AM CAPITOL 102
02/26/04 (H) Heard & Held
02/26/04 (H) MINUTE(STA)
03/02/04 (H) STA AT 8:00 AM CAPITOL 102
03/02/04 (H) Heard & Held
03/02/04 (H) MINUTE(STA)
03/04/04 (H) STA AT 8:00 AM CAPITOL 102
WITNESS REGISTER
DESMON BUTTS
Wasilla, Alaska
POSITION STATEMENT: Testified during the hearing on HJR 31.
ACTION NARRATIVE
TAPE 04-27, SIDE A
Number 0001
CHAIR BRUCE WEYHRAUCH called the House State Affairs Standing
Committee meeting to order at 8:01 a.m. Representatives Holm,
Seaton, Coghill, Lynn, and Weyhrauch were present at the call to
order. Representatives Berkowitz and Gruenberg arrived as the
meeting was in progress.
HJR 31-CONST AM: PERMANENT FUND
Number 0031
CHAIR WEYHRAUCH announced that the first order of business was
HOUSE JOINT RESOLUTION NO. 31, Proposing amendments to the
Constitution of the State of Alaska relating to the Alaska
permanent fund and to payments to certain state residents from
the Alaska permanent fund; and providing for an effective date
for the amendments.
Number 0075
REPRESENTATIVE HOLM, sponsor, stated that HJR 31 is a
constitutional amendment, which would be voted on by the people.
The resolution would require a two-thirds majority in the House
and Senate in order to get to the ballot. The proposed
legislation, he said, would restructure the way the permanent
fund currently works. There would be a payout of $20,000, only
to those people who qualified [for the permanent fund dividend
(PFD)] in 2004.
REPRESENTATIVE HOLM directed attention to a handout in the
committee packet entitled, "HJR 31's Restructuring Of The
Permanent Fund," which shows that, after the $20,000 payments
are made, the corpus of the fund would change from it's current
approximate $28 billion to $16 billion. That $16 billion would
continue to earn money and, "with the possibility of 8-percent
earnings on average," it would produce approximately $1.28
billion per year. Of that amount, $480 million is proposed to
go back into the fund to keep it inflation-proofed, while $800
million would then be available for government services and to
be put into the capital budget reserve (CBR). Representative
Holm indicated the "far right" of the handout and said that "the
numbers are just a possibility." He clarified that the numbers
don't have to be done this way and he said discussions could
take place regarding how much money the government needs and how
much money needs to be put in the CBR. He stated his idea is to
do the same thing that is being done with the CBR, which is to
take the peaks of economic times and to "put them into the
valleys of our economic times." Thus, the excess money can be
used to take up the slack when the oil prices are lower. He
suggested that "those things will eventually happen."
Number 0354
REPRESENTATIVE HOLM stated that there is a difficult scenario in
Alaska; there exists "twenty eight thousand million dollars-
worth of assets" that were derived from the resources of Alaska.
Those monies were put in the New York stock exchange, thus they
don't "sit in Alaska" or produce jobs in Alaska. He said it
could be argued that the earnings from the stock exchange and
resource development in other parts of the world is beneficial
to the state of Alaska to the amount of approximately $600
million for PFD checks. Notwithstanding that, he stated that
those checks are less than a person could earn with $20,000
invested in a mutual fund today. He explained that when he
looked at the numbers, he began thinking about whether it was
possible to put enough money "in" to make a life-altering change
for people, while still preserving the size of the fund so that
it could produce earnings large enough to take care of the
budget deficits that are created today with the current spending
scenario.
REPRESENTATIVE HOLM noted that there has been talk of
shortfalls, with $200-$600 million taken out of the [CBR]. He
admitted that he is not a manager of a huge corporate fund.
Notwithstanding that, he suggested that the legislature should
have the ability to keep the pressure on "how we spend money,"
while also having enough money in the accounts to pay the bills.
He indicated that because of the current structure and political
reality, there is a fear of taking any money "out of there" and
affecting people's PFD checks, and "we work under a scenario
that wastes an awful lot of time worrying about how in the
dickens we're going to pay our bills." He revealed that he has
been receiving hundreds of e-mails from diverse people who feel
that [the legislature] is not giving education or welfare its
due and is not adequately providing for services as required by
the constitution.
REPRESENTATIVE HOLM stated that [HJR 31] is not the only
possibility, and it is a possibility that has been thought of
before. He said he believes [this proposed resolution] would
work and would "change the way the State of Alaska is structured
in its functioning today." He said it could be argued how to
carry the plan out, for example, whether the people would get
$4,000 or $5,000 checks. He continued as follows:
I suggest there's one thing we could possibly do, and
that is to have a venture capital fund that's owned by
the people of the state of Alaska - not the state
itself, but the people of Alaska - that could be used
no differently than what we're doing with the
permanent fund today, as a pot of cash that then could
prevent the monies leaving the state and be actually
be invested into projects within the state of Alaska
to have some perpetuity of jobs and revenues within
the state.
REPRESENTATIVE HOLM expressed that one thing that does not exist
today is the ability of the people of the state to "have a
connect between what it costs for their government, and what
they pay for it." He concluded that the people of Alaska don't
understand that all of the resource money that's spent for
government is a tax that has been taxed away from all who own
the resources of Alaska. He said:
When we became a state, the resources were put in a
collective. The earnings of those resources are what
we're receiving today, but we're depleting the
resource - and it's a nonrenewable resource. So, I
would suggest ... that we look at some methodology ...
that has the potential for changing the way we
structure the government of the State of Alaska. We
must balance our budget. We cannot go down this road
much farther - we know we can't. We are working under
a situation where the CBR requires a three-quarter
vote, and because ... it requires a three-quarter
vote, our budgets increase immeasurably at the end of
the session to get out of the session and make sure
that we get a vote from the minority, because we have
to have a minority vote in order to leave in the
appropriate time.
Number 0733
REPRESENTATIVE HOLM reiterated that he thinks [HJR 31] has
possibilities to reach solutions and he only offers it because
he thinks it's an absolute necessity that "we as Alaskans" come
up with some system that works. He said he agrees with others
who say that it is the job of [the legislature] to come up with
a solution. He said, "Popular or not, I believe that if it gets
on the ballot it would pass." He listed other possibilities,
such as a dividend program and the percent of market value
(POMV). He suggested that the POMV doesn't take into
consideration the population of the state. Since 1982, when
Alaska "instituted the dividend program," the population has
increased by 200,000 people. Representative Holm said he has
never seen any indication that the earnings of the fund will
grow as fast as the population. He said he understands that the
POMV approach is an excellent way to manage funds. He noted
that most of the discussion by the fund managers have indicated
that that is "the best way of going." Representative Holm
stated:
I suggest that that would be the methodology for the
corpus of fund that would be left in the permanent
fund, starting and beginning at the year 2004, and
carrying forward for the next five years, and then a
rolling five-year average from then on. And that ...
is primarily because there wouldn't be $28 billion to
make that beginning of the rolling average.
Number 0894
CHAIR WEYHRAUCH asked if any analysis had been done regarding
the figures of $20,000 payouts totaling $12 billion and a
remaining corpus of $16 billion. He asked, "Why those figures?"
REPRESENTATIVE HOLM indicated that one consideration had been to
ask what a good number would be that people would vote for, that
would allow the legislature to do what it should be doing. He
said he had considered $10,000, but decided that it wouldn't be
enough. He noted that he has received e-mails with suggestions
for different amounts and he said he doesn't know that there is
a magic number. Whatever the amount is, he explained, it should
be large enough, but not so large that there wouldn't be enough
in the remaining permanent fund to provide enough earnings at a
predicted rate of 8 percent for a buffer to use to balance the
state budget. He continued:
If we assumed ... that we would have $400 million
available, we could balance our budget, given the
current scenario we are in today. And if we wanted
more money, we would then have to go through the same
scenario with the CBR to add more money to education
or to any other programs that we chose to fund.
REPRESENTATIVE HOLM reiterated that the numbers work, but he is
not tied to them.
CHAIR WEYHRAUCH stated that [HJR 31] has been described by some
as the "take the money and run resolution." He asked
Representative Holm to address that.
REPRESENTATIVE HOLM replied that a number of people have said
that "it's greed" and it's inappropriate for people to consider
not having a dividend program. He remarked that he lived [in
Alaska] for 38 years before there ever was a dividend program,
so it's not something that's a part of his history.
REPRESENTATIVE HOLM mentioned taking [the money] and putting it
into people's homes. He said he looked at the larger view and
the main view is that government must function in the
appropriate manner, which means that the people that are paying
the money for the government must have a "connect" to that money
they are paying for that government. He continued as follows:
Through these discussions I hope people will
understand that we are taxing $1.7 billion every year
from the people of Alaska and using it for their
government. It just means we're not sending it to New
York to the stock exchange; we're pulling it into the
State of Alaska. The royalty payments are ... not the
monies of the oil companies - they're our monies.
CHAIR WEYHRAUCH responded that cashing out the permanent fund
and making a portion of it available to government is still not
putting the responsibility on the individual. He stated that to
have a connection between government [and the people], a tax
system is almost needed, because "you have to invest in
government." He asked if [HJR 31] would lead to a setup for a
taxation system in the state that doesn't already exist.
REPRESENTATIVE HOLM answered that at some future date it would.
He suggested that when the revenues from the natural resources
decline and the state's expenses increase, eventually a point
will come where "the two are not equal," which will require some
form of taxation to pick up the balance.
Number 1177
REPRESENTATIVE HOLM stated that when people have an opportunity
to make life-altering changes, they can choose "to waste their
investment or they can choose to invest their investment." He
emphasized the importance of teaching people that it's more
important to invest in Alaska, into new products and jobs. He
said those jobs are not government jobs. He said, "We produce a
tremendous number of educated people here, but we have very few
long-term jobs, and so we send a lot of our people 'outside,'
because we don't educate them in fields that they can stay here
in, other than in government or in something related to that."
He mentioned retail sales and he said that "many of the sales
jobs are actually not very high-paying ..., quality jobs that
you'd want to be ... having people pay for a college education
to think that that's their long-term goal."
CHAIR WEYHRAUCH stated that the permanent fund was set up to be
permanent and the money should be there for future generations.
He indicated that [HJR 31] would pay out this generation.
Number 1262
REPRESENTATIVE HOLM offered an example of a family of four that
would get a payout of $80,000 [through the proposed HJR 31]. He
suggested that they might buy a home with that money, and that
is an asset that transfers to their family. He noted that the
state's assets are declining and future generations will not
have the nonrenewable resources available to use. He remarked
that once land is bought, for example, people a thousand years
from now can't buy that piece of land, unless they "buy it from
your heirs." He questioned "how far down that road we need to
go." He said he thinks it's far more important that people [in
the state now] have decent employment, have an ability to take
care of themselves, and have a proper use and function of their
own finances. He concluded, "I think it's a far better thing to
teach people to fish than give them fish, and so, just handing
them a bunch of money without giving them the appropriate
analysis of what they should do with it, I think is a very valid
point, and we need to discuss that."
Number 1336
REPRESENTATIVE SEATON, regarding the idea of investments, jobs,
and people, noted that many things are done in the state by
investment credit, credit to oil companies, and credit to small
businesses, for example. He asked Representative Holm if his
proposal of giving everybody $20,000 will create business and
good paying jobs "versus using that money over time to influence
the economy."
REPRESENTATIVE HOLM prefaced his answer by stating that he is a
businessman, so he worries about how much it costs to repay
debt. He mentioned the "rule of 72," which is [a formula for
how] money doubles every 72 months. He continued as follows:
If you take $20,000 today ... it's not inconceivable
that in 20 years of $1,000 payments for a dividend, as
we do today, you would still only have $20,000 in
total funds. But at 20 years out, the $1,000 that you
get in 20 years is probably only worth $400 or $500 in
today's dollars, or some number. It's a discounted
number; it's not $1,000, it's something less than that
in 2004 dollars. If you take $20,000 in 2004 dollars,
even if you pay the taxes on it and you only end up
with $15,000, the time value of money, as I understand
it, means it's probably worth between $40,000 and
$60,000, depending upon what you do with it.
The other thing [is], if you take that money and you
just put it in a mutual fund, and you clip coupons on
it, you get your $1,000, ... but ... the individual
would own the asset.
REPRESENTATIVE SEATON said Representative Holm is saying that
Alaska is exporting jobs because it doesn't have good jobs, the
brightest "kids" are leaving the state, and a $20,000 one-time
payout will create good jobs across the state. He stated that
he doesn't see the connection and he doesn't think such a payout
would have the same kind of effect as tax credits for
investments in certain businesses, for example, or "the other
kind of state programs that go forward." He said he wanted to
make certain that that's Representative Holm's position.
REPRESENTATIVE HOLM responded that he is not saying that this is
all a jobs program. He offered a couple examples: First, he
said that the $20,000 could be reducing mortgage, which could
result in a huge economic boon for the family. He said it is
inherent upon [the legislators] as leaders to offer solutions to
people so that they can improve their lot. Second, if people
take that money and pay off credit cards, on which they are
presently paying huge percentages of interest, "you also can
exact some tremendous positives." He added, "Now, whether
people do this or not, I don't know."
REPRESENTATIVE HOLM said there's a great disconnect between
fishermen and the amount they pay to Alaska for the government.
He reminded the committee that many of the fishermen who come up
to the state don't pay any taxes to the state. He noted that it
is reputed to be that the people who work in Prudhoe Bay don't
pay any money to the state for its government. He mentioned all
the different things that the state pays for, such as [water]
ports and airports, and he said, "But we don't get any
compensation from those who work here." To give tax credits to
companies to come to Alaska doesn't necessarily translate into
paying money for the state government, he said, while having
extra money in Alaska for creating jobs may be "the little shot
in the arm that will allow somebody to start a small business."
He revealed that he started his own business with $30,000, but
he borrowed from someone.
REPRESENTATIVE HOLM reiterated that he does not see [HJR 31] as
the only solution. However, he stated that his sense is that
"we do not function as a decent government here." He said [the
legislature] argues a lot over how to balance the budget,
knowing it hasn't balanced its budget in 10 years, except by
going to the savings account to do so. He said, "I don't know
what the answer is; this is all about trying to figure out some
methodology where this government can function better."
REPRESENTATIVE SEATON expressed appreciation for Representative
Holm's words, but questioned how the $20,000 individual payout
ties to the argument that [HJR 31] is for investment in jobs and
retaining people in Alaska.
REPRESENTATIVE HOLM said he isn't maintaining that [result] at
all, but is only maintaining that if someone wants to get out of
"the doldrums or wherever they are," then [$20,000] might be a
significant amount of money. He said, "I don't know about you,
sir, but ... $15,000 - even if that's what the number is - or
$10,000 cash in your pocket is more money than many, many folks
see in their lifetime. And to assume that people would just
waste it, I don't think [is] appropriate." He stated that he
thinks [that kind of payout] has the potential for life-altering
change.
Number 1678
REPRESENTATIVE LYNN asked what the effect on eligibility of
recipients of public assistance would be if they were to receive
"all this money."
REPRESENTATIVE HOLM mentioned there are statements made in the
committee packets regarding how the services would be changed in
different departments. He said it's fairly complex, and he said
he thinks Representative Lynn's concerns are well placed. He
proffered that it may only be a one-year problem for many,
because they may go right back on whatever type of assistance
that they currently receive. He said it may be that certain
folks shouldn't be impacted by this, and "we will do things like
hold harmless." He noted that [HJR 31] takes out the hold
harmless agreement for one specific reason: He thinks that if
people are given the opportunity, they will get away from being
on public assistance. He noted, for example, that a single
mother with two children would receive $60,000, and he suggested
that many single mothers with two children have never had that
much money. Representative Holm stated that he is trying to
exact a social change, as well as a government change, and he
said he doesn't think the two are mutually exclusive. He
concluded, "You know, we as a government are trying to provide
for those who cannot provide for themselves. And I think we
should do that. The operative word here is 'cannot,' not 'will
not.' And I suppose, ... philosophically, that's what I'm
trying to accomplish."
REPRESENTATIVE LYNN revealed that he calls four to five
constituents every day to ask if they have any questions,
complaints, or concerns. The one common denominator in the
answers is in regard to the fiscal situation in the state that
needs to be solved. He indicated that the comments of people
regarding the ideas proposed to solve the fiscal problem is to
"pick something and do it." Regarding Representative Holm's HJR
31, he said he thinks many constituents think it's a good idea.
REPRESENTATIVE LYNN said he thinks that [HJR 31] "has a lot to
recommend it." He pointed out that, if a dividend payment of
approximately $1,000 a year can be predicted for the next 20
years, then all those who are over 60 years old would probably
be better off with the $20,000 in their pockets now than betting
that they will live another 20 years. He indicated that he
would benefit in that way and thus declared a conflict of
interest.
REPRESENTATIVE LYNN said some say that people would squander
that money. He said that's probably true, but said he has a
quaint idea that "it's none of my business what you all do with
your money." Even if some folks "blew" that money, he observed,
there would still be a tremendous economic impact upon the
state.
Number 1930
REPRESENTATIVE LYNN observed that the permanent fund has become
"something of a sacred cow," and most [legislators] have
promised in one manner or another to protect the fund. He
stated that he is in favor of [protecting] the fund because it
belongs to the people. He noted that the fund has been
described as something to have for a rainy day, and he suggested
that "some variety of my colleague's suggestion here would turn
a rainy day into a sunny day." He said there are a number of
[ideas regarding the fund], and he suggested it may be wise to
put more than one of them on the ballot to "help the people
decide." He stated that he would support [HJR 31] moving out of
committee.
Number 2033
REPRESENTATIVE BERKOWITZ mentioned "the Mackie plan" [a proposed
plan by former Senator Jerry Mackie]. In response to a comment
by Chair Weyhrauch, he specified that the Mackie plan had been
to cash out a portion of the fund. Regarding [HJR 31], he noted
that there have been a lot of discussions that the proposed
legislation would be good for the economy. Conversely, he
stated, "I just wonder what happens to the Python after it
swallows a $12 billion pig. What happens for its next meal?"
He questioned what would happen when people leave the state,
which is something he predicted people would do. He mentioned
possible effects to small businesses and the cost of housing.
REPRESENTATIVE BERKOWITZ said he has not heard any discussion
regarding the mechanics of "this liquidation." He stated that
he would like to know what would happen to the remainder of the
fund. For example, he asked if [HJR 31] would impact the
quality of the permanent fund's investments. He noted that 8
percent of $20,000 is approximately $1,600. He suggested
another option might be a "POMV 70-30 split," which would
maintain the integrity of the fund. He continued as follows:
And I'm not endorsing that, I'm just pointing it out
that you get to the same place without sacrificing ...
the very important notion of intergenerational store
of wealth that the permanent fund enshrines. So, I'd
like to hear a little bit more about the thinking that
went into this.
Number 2136
REPRESENTATIVE GRUENBERG questioned whether the permanent fund
belongs just to Alaskans today or whether it belongs to Alaskans
in the future. He mentioned Representative Lynn's previous
remark that what other people do with the money isn't his
business. He continued as follows:
If we really subscribe to the principal that
Representative Lynn ... stated, then we really are
affecting people's money who are not voting on the
bill - people who are not old enough to vote [or] ...
are not even born yet - and so, we really are making a
decision about somebody else's money if we take the
money and distribute it now.
Now you say, "Well, we do that every time we take oil
out of the ground, because that's an asset that may
not just belong to us, but may belong to future
generations." And I would say that that's true, but
we don't take all the money out immediately - all the
assets out - and distribute it. What we've done is
taken the state's share and kept it in the permanent
fund, so we really have kept it for future
generations. And we've followed the principal that
I'm espousing, which isn't just [that] it belongs to
the current generation.
REPRESENTATIVE GRUENBERG mentioned the land that was given away
in Oklahoma [the Oklahoma Land Rush, April 22, 1889], and said
someone could point to that as an example of giving away [a
state resource] to the people. He indicated that his logical
response would be that to give a small amount of distribution
under the "let's help people fish so that they can support
themselves" policy is good for the state to do. He spoke of
helping people get off welfare and support themselves, whether
they choose to do so by living on the land or recreating on the
land. He noted that fishing is a renewable resource.
Number 2299
REPRESENTATIVE GRUENBERG said a second question is, "Who
decides?" The same analysis applies, he said. Because [HJR 31]
is a constitutional amendment, the legislature doesn't decide,
but the people do. He clarified that it is the current
generation who would decide [for future generations]. He said
he thinks that it's safe to say that not many people would make
the analysis that "I'm discussing at the moment." He stated
that the legislators are really the ultimate trustees of the
permanent fund, because the ideas regarding that fund are
proposed by the legislature.
Number 2329
REPRESENTATIVE HOLM responded that he agrees that the
legislature is trustee for the future. He stated that because
of that, the legislature must solve the fiscal dilemma that [the
state] is in today. That, he explained, is the only reason he
proposed [HJR 31] as a method to "get there from here." He
reiterated that it isn't the only possibility. He noted that
the POMV [idea] could work, but said he's concerned that there
isn't "the population discussion." He continued as follows:
But frankly, 63 percent of the people in January
didn't even know what POMV meant ... in a poll that
was taken. My question is, if folks don't understand
it, they won't vote for it. If they won't vote for
it, we're still in the same dilemma were are in today.
Number 2376
CHAIR WEYHRAUCH stated that this obviously is a "huge
philosophic issue." He outlined that the committee's process is
to hear what the people have to say, understand what the
implications of [HJR 31] are in terms of state policy, and vote
on the issue.
TAPE 04-27, SIDE B
Number 2376
REPRESENTATIVE SEATON said he appreciates Representative Holm's
bringing [HJR 31] forward, because he thinks the intent of the
resolution is to find some way to enable the state to take its
largest income-generating asset and use it to the benefit of the
state through funding state services and balancing the fiscal
gap. He noted that most of the conversation is centered on what
people will do with the money and he said he doesn't really
think that's the crux of the problem. He said he thinks the
question to consider is whether the purpose of Alaska's having
subsurface rights and so much land is to fund and support a
state government or to make Alaskans individually wealthy.
Number 2283
REPRESENTATIVE COGHILL responded that he agrees with much of
what Representative Seaton just said and he appreciates
Representative Holm for bringing forth [HJR 31]. He confirmed
that it's true that the subsurface rights were given to the
state so it could afford to maintain its government. He said,
"We were fortunate enough to find the oil in Prudhoe Bay in
1968, and we have had quite an interesting ride ever since
then." He told the committee to be aware that "during that
time, three quarters of the royalties, revenues, and leases have
already gone into the general fund state coffers." He said it
could be argued that three quarters of those revenues have been
consumed by the current generation; however, he noted that there
is an infrastructure, so there are benefits that are going to
accrue.
REPRESENTATIVE COGHILL indicated that when discussion first
began about the permanent fund dividend, one idea was to let
people share generally in the wealth, while the other was to
protect the fund itself, so that "people would be engaged." He
said he thinks that at this point, if the dividend goes away,
the protection goes away. Every year [in the legislature] there
is discussion about protecting the dividend. He said that
that's good, but "it also has its backlash." He stated the fact
that "we" have actually come to the point where the critical
mass in the fund has allowed a good debate on turning a
nonrenewable resource into a renewable one. The dividend now is
a high focus.
REPRESENTATIVE COGHILL said he thinks this is probably one of
the critical years when "we're" going to have to question
whether it's time to use some of the earnings to support
government services, because up until now it hasn't [been time
to do so]. He said, "I don't know that by taking the dividend
off the table that you really solve that argument. I think
we'll still have a debate, and I think there's going to be, once
again, a larger mistrust, because it will be viewed as playing
to self-interest on one hand, and allowing the legislature to
... manage the rest of it outside of their interest." He said
he thinks that speaks to Representative Gruenberg's previous
comment regarding whether this is a trust that is being managed.
He said that in many ways it is. He said this is a huge policy
question and he appreciates "the boldness." He revealed that he
isn't necessarily going to support "this effort." He explained
that [supporting HJR 31 would mean that] not only is he of the
generation that has benefited from the three quarters of the
money that went into government services, but he would also be
the generation that would get a direct payout of the earnings of
that resource.
Number 2100
REPRESENTATIVE COGHILL stated the following:
If I'd have been the architect, I probably would not
have put a dividend in to begin with. I would
probably [have] made the state fight for a dividend.
And now we have ... the opposite effect - probably
rightfully so: the state now has to justify its need
to use some of the earnings of permanent fund. That's
probably a good debate. ...
If I was the architect I would say, "Give an
individual dividend, not for the whole earnings of the
permanent fund," ... because then you have everybody
engaged in this renewable resource, just like you
would in the negotiations for the oil contracts. Let
the community share in it like Representative Moses
said; give them a dividend also that is discretionary.
... We did that; when we had a lot of oil we had
revenue sharing. And when the revenue was there, we
shared. If it's not there we can't share .... And
then, let the government get a dividend, if you will,
or a portion of that, because that was, I think, the
whole intent of the resource base, which we have
purported that this now is a renewable resource built
out of a nonrenewable resource. So, at the end of the
day, we'll probably get there, and we're in the middle
of that discussion. But I think right now, for this
particular bill, you will disengage the public from
the protection of this fund, and at that point I can
say it's worked very well - and sometimes too well,
but I think, appropriately, has worked well. And for
that there is an engagement.
The day that we get a tax in there's a different kind
of engagement, and I'll tell you why. I pay an income
tax every year to the federal government, but I am so
disengaged from the federal government, it's
unbelievable. So, the tax is a burden, but it's not
really an engagement tool. This actually has worked
much better than an engagement tool, I think.
Now sometimes the discussion wobbles into the
extremes, but I don't think that's entirely bad. ...
I'm conflicted too, by the way. Not only would I
stand - my wife and I - to have enough to set some
things in order in my house that it would be very nice
-- but that's exactly what the appeal is here to that
kind of interest, not necessarily to a principal. I
think that I would try to ratchet it up to a more
noble principal. However, I'm not a big fan of people
getting something for nothing either, so I get
conflicted in the discussion. The dividend has been a
benefit to Alaskans, generally, but it has been
somehow disconnected from a responsibility. And I
think as we go down the road, we'll need to discuss
that.
Right now though they have been carrying a pretty good
responsibility, in my view, holding the government
accountable, saying, "You don't use any of those
earnings 'til you get some of your house in order."
And it has been frustrating, but very effective, you
know. And I appreciate that tool, because I'm one of
those guys that would ride rates on the growth of
government. And this is one of those tools that I've
actually used to say, "Before you do anything there, I
want some changes." And I've appreciated that tool,
quite frankly. And it does get people engaged. As
for me, I struggle with changing that trust that has
now grown to a huge amount in Alaska. And a payout at
this point would, I think, disconnect it. And so
[Representative] Holm, I really do appreciate how
you're trying to get to the fiscal needs, but we can
actually get there without having to take this off the
table, I think.
Number 1939
DESMON BUTTS testified that he spent a couple years in the
financial markets doing self-directed investing and training.
He stated that he is in favor of having the cash distribution
[proposed in HJR 31], "under a few circumstances." He told the
committee that people have expressed being in favor of [the
payout] if it were $20,000 after taxation. They also would
prefer that the money be distributed the first of the year, so
that they would have a year and four months to invest it,
especially if they have to pay taxes on it. He offered an
example.
MR. BUTTS said that if the rule of 72 is applied, with a 5-
percent return, the investment would double in 14.4 years, and
the rate of return on $20,000 would be approximately $1,388 per
year. He said, "If you want to have a dividend and you were to
invest that $20,000, that would give you a very decent dividend
indefinitely, and therefore you protect yourself and your family
in the long term." He explained that there's no guarantee that
the permanent fund may even exist in 20 years, or that the
payout will be consistently $1,000 per year. He said it
concerns him that after inflation, the amount that future
generations may receive may be only $200 per person, for
example. He suggested that those who may not be around much
longer can will the money to their successors.
Number 1822
MR. BUTTS noted a problem is the abuse of the permanent fund by
those who don't live [in Alaska], but fill out the
[application]. He said, "I've had a few incidences over the
years I've been here [of] people telling me that they have had
that happen in their family - three or four families reporting
at the same address and abusing that fund. And that would help
take care of the abuse problem of the fund, as well." Mr. Butts
said he believes that if people were educated regarding the
long-term effects of having the cash upfront, the stimulation of
the economy, and their ability to spend [the money]
appropriately, [the proposed legislation] would probably be more
widely accepted.
MR. BUTTS, in response to a question from Chair Weyhrauch, said
he moved to Alaska four years ago and owns a transportation
service and limousine company in Wasilla.
Number 1749
CHAIR WEYHRAUCH said he would like to hear what it would mean to
the state to have this payout. He acknowledged that some people
may want to vote on the legislation; however, he said he would
like a little bit more analysis regarding the implications of
[HJR 31].
Number 1690
REPRESENTATIVE HOLM stated that his intentions are to solve the
fiscal problem in Alaska, which he indicated has not been solved
because of political differences. He said, "Because we're in
such a dilemma, it may require this kind of a drastic change in
how we do business."
CHAIR WEYHRAUCH noted that since the permanent fund is a trust,
it may be argued that it should be cashed out. However, he
noted that, philosophically, the permanent fund was set up with
a lofty goal of having a fund to "invest on" for generations.
He opined that it's an unfortunate state of political affairs
that there are overcrowded classrooms that can't be financed,
for example.
REPRESENTATIVE HOLM directed the committee's attention to a page
entitled, "Vote for the Alaska Permanent Fund," [included in the
committee packet, stapled in back of pages from the Division of
Legal and Research Services]. He said it is an excerpt from the
1976 official election pamphlet and encouraged the committee to
read it. He remarked that [the permanent fund] was a lofty
goal. He said, "It certainly was something that we predicted
... could happen, but I think at that time nobody had any
concept of how large it could be and where we would be today.
And given that, we can look back, but history hopefully only
keeps us from making the same mistakes again."
CHAIR WEYHRAUCH announced that [HJR 31 was heard and held].
HB 422-BUDGET RESERVE FUND INVESTMENT
Number 1543
CHAIR WEYHRAUCH announced that the last order of business was
HOUSE BILL NO. 422, "An Act repealing the special subaccount
established in the constitutional budget reserve fund; relating
to the powers of the Department of Revenue for the investment of
amounts in the constitutional budget reserve fund; and providing
for an effective date." [HB 422 had been amended on 3/2/04;
Amendment 3 was pending.]
Number 1511
CHAIR WEYHRAUCH noted that Section 1 had been struck from the
bill.
REPRESENTATIVE SEATON asked if the bill had also been amended so
that it would take effect immediately.
CHAIR WEYHRAUCH confirmed that is true. He said, "I'm not sure
that it made a lot of difference, but ... I think we did add
that."
Number 1474
REPRESENTATIVE GRUENBERG moved to amend Amendment 3, to "retain
the first phrase." [See the 3/2/04 minutes.]
Number 1443
CHAIR WEYHRAUCH announced he would like to hold further
discussion on HB 422 until the next day's hearing. He indicated
that work would be done on the bill before then.
REPRESENTATIVE GRUENBERG requested two versions of [Amendment 3]
and said, "I don't know if you agree that we should have the
special account, but I would like at least one version to retain
that, so people can see what it looks like."
CHAIR WEYHRAUCH concurred.
[HB 422 was heard and held.]
[The committee took an at-ease to set up for the discussion with
the Department of Transportation & Public Facilities staff. See
9:17 minutes for this date.]
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