Legislature(2019 - 2020)GRUENBERG 120
04/25/2019 03:00 PM House STATE AFFAIRS
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| Audio | Topic |
|---|---|
| Start | |
| HB139 | |
| HB132 | |
| HJR18 | |
| HJR6 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| *+ | HB 139 | TELECONFERENCED | |
| *+ | HB 132 | TELECONFERENCED | |
| *+ | HJR 6 | TELECONFERENCED | |
| *+ | HJR 18 | TELECONFERENCED | |
| + | TELECONFERENCED |
ALASKA STATE LEGISLATURE
HOUSE STATE AFFAIRS STANDING COMMITTEE
April 25, 2019
3:03 p.m.
MEMBERS PRESENT
Representative Zack Fields, Co-Chair
Representative Jonathan Kreiss-Tomkins, Co-Chair
Representative Gabrielle LeDoux
Representative Andi Story
Representative Adam Wool
Representative Sarah Vance
Representative Laddie Shaw
MEMBERS ABSENT
All members present
OTHER LEGISLATORS PRESENT
Representative Jennifer Johnston
COMMITTEE CALENDAR
HOUSE BILL NO. 139
"An Act providing an exemption from the state procurement code
for the acquisition of investment-related services for assets
managed by the Board of Trustees of the Alaska Permanent Fund
Corporation."
- HEARD & HELD
HOUSE BILL NO. 132
"An Act relating to the Alaska permanent fund; relating to the
earnings reserve account; relating to the permanent fund
dividend; relating to deposits into the permanent fund; relating
to appropriations to the dividend fund and general fund; and
providing for an effective date."
- HEARD & HELD
HOUSE JOINT RESOLUTION NO. 18
Proposing amendments to the Constitution of the State of Alaska
relating to the Alaska permanent fund and to appropriations from
the Alaska permanent fund.
- HEARD & HELD
HOUSE JOINT RESOLUTION NO. 6
Proposing amendments to the Constitution of the State of Alaska
relating to the Alaska permanent fund and the permanent fund
dividend.
- HEARD & HELD
PREVIOUS COMMITTEE ACTION
BILL: HB 139
SHORT TITLE: AK PERM. FUND CORP. PROCUREMENT EXEMPTION
SPONSOR(s): REPRESENTATIVE(s) JOHNSTON
04/17/19 (H) READ THE FIRST TIME - REFERRALS
04/17/19 (H) STA, FIN
04/25/19 (H) STA AT 3:00 PM GRUENBERG 120
BILL: HB 132
SHORT TITLE: PERM. FUND:DEPOSITS;DIVIDEND;EARNINGS
SPONSOR(s): REPRESENTATIVE(s) WOOL
04/15/19 (H) READ THE FIRST TIME - REFERRALS
04/15/19 (H) STA, FIN
04/25/19 (H) STA AT 3:00 PM GRUENBERG 120
BILL: HJR 18
SHORT TITLE: CONST AM: PERMANENT FUND; POMV;EARNINGS
SPONSOR(s): REPRESENTATIVE(s) KREISS-TOMKINS
04/24/19 (H) READ THE FIRST TIME - REFERRALS
04/24/19 (H) STA, JUD, FIN
04/25/19 (H) STA AT 3:00 PM GRUENBERG 120
BILL: HJR 6
SHORT TITLE: CONST. AM.:PERMANENT FUND & DIVIDEND
SPONSOR(s): RULES BY REQUEST OF THE GOVERNOR
02/20/19 (H) READ THE FIRST TIME - REFERRALS
02/20/19 (H) STA, JUD, FIN
04/25/19 (H) STA AT 3:00 PM GRUENBERG 120
WITNESS REGISTER
ROBERT ERVINE, Staff
Representative Jennifer Johnston
Alaska State Legislature
Juneau, Alaska
POSITION STATEMENT: Presented HB 139 on behalf of
Representative Johnston, prime sponsor.
ANGELA RODELL, Executive Director
Alaska Permanent Fund Corporation (APFC)
Juneau, Alaska
POSITION STATEMENT: Answered questions during the hearing on HB
139.
NATHANIEL GRABMAN, Staff
Representative Adam Wool
Alaska State Legislature
Juneau, Alaska
POSITION STATEMENT: Presented HB 132 on behalf of
Representative Wool, prime sponsor, with the use of a PowerPoint
presentation.
BRUCE TANGEMAN, Commissioner
Department of Revenue (DOR)
Juneau, Alaska
POSITION STATEMENT: Introduced HJR 6 on behalf of the House
Rules Standing Committee, sponsor, by request of the governor.
WILLIAM MILKS, Senior Assistant Attorney General
Legislation & Regulations Section
Civil Division (Juneau)
Department of Law (DOL)
Juneau, Alaska
POSITION STATEMENT: Provided a sectional analysis for HJR 6, on
behalf of the House Rules Standing Committee, sponsor, by
request of the governor.
MIKE BARNHILL, Director of Policy
Office of Management & Budget (OMB)
Office of the Governor
Juneau, Alaska
POSITION STATEMENT: Answered questions during the hearing on
HJR 6.
ACTION NARRATIVE
3:03:08 PM
CO-CHAIR FIELDS called the House State Affairs Standing
Committee meeting to order at 3:03 p.m. Representatives LeDoux,
Story, Wool, Vance, Shaw, Kreiss-Tomkins, and Fields were
present at the call to order. Also present was Representative
Johnston.
HB 139-AK PERM. FUND CORP. PROCUREMENT EXEMPTION
3:04:06 PM
CO-CHAIR FIELDS announced that the first order of business would
be HOUSE BILL NO. 139, "An Act providing an exemption from the
state procurement code for the acquisition of investment-related
services for assets managed by the Board of Trustees of the
Alaska Permanent Fund Corporation."
3:04:23 PM
ROBERT ERVINE, Staff, Representative Jennifer Johnston, Alaska
State Legislature, on behalf of Representative Johnston, prime
sponsor of HB 139, paraphrased from the sponsor statement, which
read as follows [original punctuation provided]:
House Bill 139 adds an exemption to the state's
procurement code that would let the Alaska Permanent
Fund Corporation (APFC) be exempt from the code when
evaluating and managing assets.
In a recent effort to cut costs and increase revenue
margins, pressure has been placed on the APFC to bring
more of their fund management in-house. With markets
changing quickly, it is important that they have the
tools to quickly evaluate and manage investments.
Under existing law, APFC is exempt from the state's
procurement code when it acquires income producing
assets or delegates its investment authority. However,
they must comply with the state's procurement code
when evaluating and managing the assets in which it
invests. This bill will allow them to perform due
diligence in a timely manner.
This exemption will improve APFC's ability to identify
subject matter experts, gather professional background
information and negotiate contracts in under 10 days,
compared to the minimum 54 days required under the
state's procurement code. The change proposed in this
bill will allow an expeditious timeline that closely
aligns with the pace of the markets in which APFC
works.
Allowing APFC the exemption in HB 139 will give them
the tools they need to meet the added demands that
Alaskans are placing on the fund.
3:05:36 PM
REPRESENTATIVE STORY asked for the number of investments that
would be exempt from the procurement code under HB 139.
3:06:37 PM
ANGELA RODELL, Executive Director, Alaska Permanent Fund
Corporation (APFC), responded that APFC expects HB 139 to affect
about eight to ten decisions annually.
REPRESENTATIVE STORY asked whether money would be saved through
the procedures proposed under HB 139.
MS. RODELL answered that it is her belief that there will be
some cost savings. The APFC would be able to acquire subject
matter experts itself instead of relying on third party
contractors to acquire subject matter experts and, thereby,
generating cost savings to the state and to the fund.
REPRESENTATIVE VANCE asked for an explanation of the current
procurement code under which APFC operates.
MS. RODELL relayed that APFC is under the full state procurement
code, and the only exemption is for the investment decisions.
For example, APFC is not subject to the procurement code to buy
a bond or to hire a money manager.
REPRESENTATIVE VANCE asked for the length of time in the current
procurement process.
MS. RODELL answered that the length of time is about 50 to 60
days, including notifications and appeals.
REPRESENTATIVE VANCE asked whether HB 139 would waive that
process, so that someone could be hired within a few days.
MS. RODELL responded, "That is correct."
REPRESENTATIVE VANCE commented that she understands the need to
respond quickly to investment opportunities. She asked why
there is need for the proposed change considering the fund is
performing well.
MS. RODELL offered that if APFC can streamline the process, use
staff resources to directly acquire the needed expertise, and
not rely on third parties in order to avoid the procurement
process, it can be much more opportunistic and timely in
accessing investments and, therefore, get more investment
return.
REPRESENTATIVE VANCE questioned how procedures under HB 139
would prevent the "good old boy" type of hiring of which many
people are suspicious.
MS. RODELL answered that the APFC trustees and staff take their
fiduciary responsibility very seriously. The proposed exemption
is meant to confirm the underlying thesis of an investment, not
give a "good old boy" a subject matter waiver or steer business
in any one direction. The APFC has instituted processes to
prevent such from occurring, and the fund results demonstrate
the efficacy of those processes.
REPRESENTATIVE VANCE asked for an elaboration of the
requirements for hiring investors.
MS. RODELL explained that the process for hiring managers and
investment advisors is in the APFC Board of Trustees investment
policy. The policy is a living document that the board reviews
annually to ensure that the policy continues to reflect the
procedures and the goals of the fund. Within that policy are
manager selection rules and requirements; the APFC is required
to use the board's general consultant to assist with the
selection process; and a process for alternative manager
searches is outlined in the policy. She offered that a series
of questionnaires are used for the selection process. The
process is like the [state] procurement process absent the time
periods and state contracting requirements.
3:13:16 PM
REPRESENTATIVE LEDOUX stated that she was under the impression
that the proposed legislation would allow APFC to retain third
party people, which currently must be accomplished under the
procurement code. She asked for confirmation that Ms. Rodell's
testimony is that APFC currently relies on a consulting firm to
make the hires, and HB 139 would allow APFC to hire the [subject
matter experts] directly.
MS. RODELL replied that currently APFC can hire a fiduciary -
someone with specific responsibility to manage fund money. The
proposed legislation would expand APFC's hiring authority to
include subject matter experts relevant to a specific investment
idea. For example, APFC wants to directly invest in a
biotechnology idea and not use a fiduciary, but because it lacks
the underlying expertise [in the subject matter], it would like
to consult with a medical person. Currently APFC must go
through the state procurement process to find that professional
service. She stated that APFC is asking for a procurement code
exemption to acquire that professional service.
REPRESENTATIVE LEDOUX asked whether the state's procurement
code, not personnel code, would be used to hire state employees.
MS. RODELL responded that APFC does not use the procurement code
to hire people. She explained that she is referring to
professional service contracts with subject matter experts.
REPRESENTATIVE LEDOUX asked for confirmation that the experts
would not be hired as employees but retained as contractors.
MS. RODELL answered, "That is correct." She stated that the
experts would be hired to opine on a specific subject matter in
their fields of expertise, such as engineering, biotechnology,
technology, or software. The APFC would ask the experts to use
their expertise to opine on the business validity of a potential
investment.
REPRESENTATIVE LEDOUX mentioned that she is confused by the term
"hire." She offered that MS. Rodell is referring to retaining
an expert as a third-party contractor and not an employee of
APFC.
MS. RODELL concurred.
3:16:33 PM
REPRESENTATIVE WOOL expressed that currently APFC can spend up
to $100,000 without being subject to the state procurement code;
therefore, an expert could be paid up to that amount.
MS. RODELL agreed that the state procurement code has limited
exception for under $100,000.
REPRESENTATIVE WOOL asked whether an expert opinion costing over
$100,000 is common and asked for confirmation that the amount is
the cost for an opinion and not a percentage of the investment
or return.
MS. RODELL responded, "That is correct." She added that the
cost depends on the time spent reviewing all the information and
writing an opinion. She said that part of the challenge is that
the shorter the time frame available for the review, the higher
the cost.
REPRESENTATIVE WOOL offered, "$100,000 a week, I guess that's
acceptable."
MS. RODELL mentioned that at times there are teams of reviewers;
therefore, the procurement may involve the work of an entire
group.
REPRESENTATIVE WOOL asked for confirmation that an investment by
APFC is not subject to the procurement code.
MS. RODELL answered, "That is correct."
REPRESENTATIVE WOOL asked whether a real estate investment, such
as purchasing a skyscraper, can be made without adhering to the
procurement code.
MS. RODELL answered, "That is correct."
REPRESENTATIVE WOOL offered that the procurement code needs to
be followed when getting advice on the building being intact, if
the advice is $150,000.
MS. RODELL answered, "Exactly."
REPRESENTATIVE WOOL suggested that the cost of an opinion on a
major skyscraper is substantial.
MS. RODELL replied, "It can be."
3:19:43 PM
CO-CHAIR FIELDS asked for an example of how obtaining the expert
opinion on investments has produced significant returns for the
corporation and how giving APFC the ability to contract with
experts would provide the opportunity for more returns.
MS. RODELL stated that APFC invested $189 million in JUNO
Therapeutics between 2012-2013. The investment opportunity came
directly to APFC from the group forming JUNO Therapeutics; it
was a fast-track investment. The APFC was unable to procure a
medical expert opinion in the timeframe available for evaluating
the investment. She said that the investment was offered as an
IPO (initial public offering) in 2017 and has netted the
permanent fund about $1.8 billion. The investment was extremely
lucrative and is the type of investment that APFC wants to be
able to pursue using one of its investment managers and not a
third-party.
REPRESENTATIVE LEDOUX asked whether using a fiduciary means
using another investment manager, and therefore, paying more for
the service.
MS. RODELL responded, "That is correct."
3:22:11 PM
CO-CHAIR KREISS-TOMKINS asked for further explanation of the two
different types of third parties - the third party that APFC is
currently using versus the third party it would use under the
proposed legislation.
MS. RODELL explained that currently APFC uses an investment
manager third party; under HB 139 it would use a non-fiduciary
third party - one that is not an investment manager.
CO-CHAIR KREISS-TOMKINS asked if currently that [third party]
investment manager in turn procures the services of the subject
matter expert; therefore, APFC is paying the investment manager
as a middleman to obtain the expertise.
MS. RODELL responded, "That is correct." She added that the
investment manager then invests some of his/her own money into
the investment alongside of APFC money.
CO-CHAIR KREISS-TOMKINS offered that under HB 139, the
corporation could cut the middle entities out of the equation.
MS. RODELL answered, "That is correct."
REPRESENTATIVE WOOL offered that currently APFC is using two
middlemen - the fiduciary and the subject matter expert; the
proposed legislation would eliminate the fiduciary and APFC
could hire the expert directly. He asked whether the intent of
the proposed legislation is to save money by not paying the
middleman. He also asked whether the procurement code is
followed for hiring the fiduciary.
MS. RODELL confirmed that eliminating the [third-party]
investment manager does save the corporation the cost of the
manager's fees. The proposed legislation also enables APFC to
react in a timely manner to investment opportunities.
REPRESENTATIVE WOOL asked whether APFC pays the investment
manager an hourly rate or a percentage of the investment.
MS. RODELL confirmed that APFC pays a management fee that is a
percentage of the investment. She added that the investment
manager usually receives a percentage of any profit-sharing over
and above attaining certain performance indicators.
REPRESENTATIVE WOOL suggested that APFC enters a fiscal
relationship with the investment managers for a period; under HB
139, APFC would hire the expert directly, pay him/her for the
service, make the investment, and "move on."
MS. RODELL replied, "Correct."
3:26:23 PM
REPRESENTATIVE LEDOUX offered that the proposed legislation
would save APFC a great deal of money. She asked Ms. Rodell to
give an example in which APFC would have liked to have retained
a [subject matter expert] directly but had to retain an
intermediary fiduciary. She asked what amount of money was paid
to the fiduciary.
MS. RODELL referred to the previous example involving JUNO
Therapeutics, in which APFC invested $189 million and netted
about $1.8 billion after selling the stock. She stated that if
a fiduciary was involved in the transaction, he/she would have
gotten a $1 million fee and 20 percent of the profit-sharing.
The amount going to the fiduciary would be in the millions. She
said that APFC is pleased with its return on that investment.
She maintained, however, that decrements, such as the $1 million
fee, cannot be seen in a $65 billion budget - it "doesn't move
the needle"; therefore, discussing fee savings is a challenge
for APFC. She emphasized that fee savings is important to the
corporation, and the corporation is always looking for ways to
create better results for the people of Alaska through its
investment activity.
3:30:00 PM
REPRESENTATIVE VANCE asked whether APFC could provide the
legislature a report next year on the savings under HB 139 if
passed.
MS. RODELL responded that she believes that tracking that
information would be possible, especially if the request is made
in advance.
REPRESENTATIVE WOOL offered that HB 139 would not only save the
corporation money but extend to it nimbleness, freedom, control,
and flexibility.
MS. RODELL concurred.
CO-CHAIR FIELDS stated that HB 139 would be held over.
3:31:25 PM
The committee took an at-ease from 3:31 p.m. to 3:33 p.m.
HB 132-PERM. FUND:DEPOSITS;DIVIDEND;EARNINGS
3:32:41 PM
CO-CHAIR FIELDS announced that the next order of business would
be HOUSE BILL NO. 132, "An Act relating to the Alaska permanent
fund; relating to the earnings reserve account; relating to the
permanent fund dividend; relating to deposits into the permanent
fund; relating to appropriations to the dividend fund and
general fund; and providing for an effective date."
3:33:30 PM
NATHANIEL GRABMAN, Staff, Representative Adam Wool, Alaska State
Legislature, on behalf of Representative Wool, prime sponsor of
HB 132, paraphrased from the sponsor statement, which read as
follows [original punctuation provided]:
HB 132 aims to maintain annual, oil-derived payments
to Alaskans while reducing the uncertainty in
government funding inherent in the status quo. This
will be accomplished by calculating the PFD based on a
percentage of oil revenues.
The Alaska Permanent Fund (PF) is the repository for
much of the state's mineral wealth, with most of that
wealth originally derived from oil. Every year, funds
are deposited into the corpus of the PF, and are then
invested in stocks, bonds, real estate, and other
financial instruments. Over time, this principal
produces earnings from which Alaskans receive an
annual Permanent Fund Dividend (PFD) check. Given the
original source of the corpus funds, many Alaskans
view the PFD as their share of the state's oil money.
Historically, PFDs have been based on a 5-year rolling
average of PF earnings. Gubernatorial vetoes and lower
legislative appropriation have reduced the amount of
the PFD from their statutory value in each of the last
three years. Barring a change, it appears likely that
the value of the PFD will continue to be debated
annually by the legislature, with the proportion of
the Percentage of Market Value (POMV) allocated to
government services and the PFD constantly in flux.
If passed, HB 132 would ensure steady funding for
government services by leaving the POMV draw reserved
for a specific purpose rather than split. Residents
would continue to be paid, with the value of their
annual royalty checks now tied directly to the state's
mineral (oil) revenue. The value of the dividend would
fluctuate along with the price and production of oil.
This uncertainty is better sustained in the dividend
check, as certainty and predictability are of
paramount importance for planning government spending
into the future.
If the price or volume of oil production
increased, so too would our checks.
If oil taxes increased, so would the dividend.
If new natural gas resources came online,
dividends would rise.
Increased dividends would also offset the
negative effects (higher fuel, utilities, and
shipping prices) caused when oil prices are high.
MR. GRABMAN added that there is not a strong correlation between
oil revenue each year and the historic PFD; in fact, they appear
to be inversely correlated. The general trend has been that
when the price of oil increases, the PFD decreases, and vice
versa.
MR. GRABMAN stated that with passage of Senate Bill 26 [during
the Thirtieth Alaska State Legislature, 2017-2018, signed into
law 6/27/18], a percentage of POMV draw is the state law; the
proportion of the POMV that will be devoted to the PFD this year
has already been the source of much discussion in both bodies of
the legislature, and such discussions appear likely to continue
on an annual basis moving forward.
MR. GRABMAN relayed that although the principal of the permanent
fund is primarily derived from oil wealth, the performance of
the Permanent Fund Earnings Reserve ("earnings reserve"), and by
extension, the value of the PFD, have arguably tracked more
closely with stock market fluctuations than with the price or
production of oil. He added that in the same way the taxpayers
are more likely to pay attention to government spending than
non-taxpayers. Tying the PFD directly to Alaska's oil revenue
will ensure that residents remain informed and engaged with
respect to the state's oil prices, production, and policies.
3:36:20 PM
MR. GRABMAN referred to a PowerPoint presentation, entitled "HB
132: A New Approach to the PFD." Beginning with slide 2,
entitled "What does HB 132 accomplish?", Mr. Grabman reviewed
the following points:
Stabilize government funding by dedicating the POMV
draw for state services.
Link the Dividend directly to oil revenues.
Reduce need for recurrent legislative battle over PFD
amount.
REPRESENTATIVE WOOL explained that the state has been "breaking
the law" in its method of paying out the PFD in the last several
years; the statutory formula prescribes one method, and the
state has been following another method. He offered that the
proposed legislation would eliminate the old statute to avoid
the state breaking the law, and a new statute would be enacted -
one that would be more easily followed. He added that the
"battle" that Mr. Grabman mentioned is the battle over the
amount of the dividend; that battle never used to happen because
the state followed the statute. He said that the extreme
decline in revenue has caused fiscal realignment; HB 132 would
attempt to eliminate that annual conflict.
REPRESENTATIVE SHAW asked if the proposed legislation would give
the state the flexibility to utilize the POMV as needed,
separating the government services and the dividend.
REPRESENTATIVE WOOL replied that HB 132 would retain the POMV
draw from the permanent fund at the current 5.25 percent, and
that draw would be transferred, in full, to GF.
REPRESENTATIVE LEDOUX questioned, "Since the legislature has
seen fit to not follow the law with respect to the current
statute, what makes you think that ... we would be any better
when it comes to following the formula that you've set out?"
REPRESENTATIVE WOOL answered that the current situation came
about when [Governor Bill Walker] vetoed half of the PFD amount
in the budget [during the Twenty-Ninth Alaska State Legislature,
2015-2016], and it continued during following two years [the
Thirtieth Alaska State Legislature, 2017-2018] when the
legislature appropriated less than the statutory formula. He
offered that this occurred because the state could not afford
the larger payment. He further stated that a $3,000 statutory
PFD would total about $1.9 billion. If the revenue from oil and
POMV comes to $5 billion, and almost $2 billion is spent on PFD
checks, Alaskans question, "Is that the best way to spend the
limited revenue that we have?"
REPRESENTATIVE WOOL continued by saying that HB 132 would link
the PFD amount to the revenue: when oil revenue is down, the
amount of the PFD would be lower; when oil revenue is up, the
amount of the PFD would be higher. He offered that by statutory
formula, the PFD amount is high, but the oil revenue to the
state is not high, and this has caused the problems that the
state is currently experiencing.
3:41:10 PM
MR. GRABMAN continued with slide 3, entitled "Current flow of
oil money and related funds." He explained that there two types
of oil - leases that pre-date 1980 and leases that start in
1980. He referred the committee to Alaska Statutes (AS)
37.13.010(a) for greater detail. He stated that 25 percent of
leases, royalties, royalty sales, bonuses, net profit shares,
and federal mineral revenue from the "old" oil is put into the
corpus; 50 percent of those revenue sources from the "new" oil
is put into the corpus. He pointed out that the Alaska State
Constitution, Article IX, Section 15, states that at least 25
percent of this revenue must be transferred to the corpus. He
said that the remainder of the revenue, including all the
production tax, currently flows into GF. Once the money is in
the corpus, it is invested; the investment earnings flow into
the earnings reserve, which by statute is inflation-proofed; and
due to Senate Bill 26, there is a POMV draw, which goes into GF.
He stated, "And we then have a long, bruising, drawn-out
argument discussion to figure out what the PFD is going to be."
MR. GRABMAN referred to slide 4, entitled "flow of oil money and
related funds under HB 132," and said that under the proposed
legislation, there would no longer be a distinction between old
oil and new oil; 25 percent of leases, royalties, royalty sales,
bonuses, net profit shares, federal mineral revenue would go
into the corpus; the money flows within the permanent fund would
be the same as described under the current system; and the
question would be, What about the other 75 percent of those six
categories from all the oil? He explained that under HB 132, 33
percent of the six revenue sources and production tax or the
amount needed to distribute an $1,800 dividend would go to GF
where it would be appropriated to the PFD fund and paid out as
dividends. He said that if there is not enough revenue to
afford an $1,800 dividend, then the remaining 42 percent of the
six revenue sources would go into GF along with 67 percent of
the production tax.
MR. GRABMAN moved on to slide 5, entitled "HB 132 vs Actual
PFD," and stated that the chart on the slide shows the actual
PFDs since inception compared with what they would have been if
HB 132 had been enacted throughout that time. He pointed out in
the chart that the trends of the two lines are often in
opposition; the amount of oil revenue has not correlated with
the historical amounts of the PFD.
MR. GRABMAN referred to slide 6, entitled "HB 132 (capped and
uncapped PFD) vs. Actual PFD", which adds the trend line for an
uncapped PFD under the scenario of HB 132 having been enacted.
He pointed out that uncapped PFDs would have been like the
actual PFDs most years; however, there would have been massive
disparities between the two for a few years. There would have
been $5,000 PFDs in the years that oil revenue spiked. Having
the cap allows the state to "put more money away" in funds such
as the Constitutional Budget Reserve (CBR) and other funds to
save for the future.
3:45:24 PM
MR. GRABMAN moved on to slide 7, entitled "PFD Values, HB 132
vs. Proposed POMV Splits," and explained that the POMV splits
came from the Legislative Finance Agency and the statutory PFD
came from the Office of Management & Budget (OMB). He pointed
out the wide disparity between the trend lines in the graph.
MR. GRABMAN turned to slide 8, entitled "FY202: HB 132 PFD check
values, determined by per barrel oil cost and production
levels." He explained that the chart demonstrates what the
dividend amounts would be under HB 132 at different per-barrel
oil costs. The chart compares the official production
projections with the values determined for different production
levels by linear extrapolation - at 90 percent of projected
production, 95 percent, 105 percent, and 110 percent. He
pointed out that the values at the top half of the chart - per
barrel oil cost of $90 and above - are mostly above the $1,800
threshold.
3:46:40 PM
REPRESENTATIVE VANCE stated her belief that linking the [PFD]
directly to oil is counter to the intent of the permanent fund
since the time of inception. She stated that the intent of the
permanent fund was to take a non-renewable resource and turn it
into a renewable resource to offset when Alaska's economy was
down due to oil prices; a high [PFD] would balance out a low
Alaska economy. She offered that under HB 132, both the state's
economy and the PFD would be low at the same time, hurting
Alaska's economy even more.
REPRESENTATIVE WOOL agreed that the permanent fund was created
for the intent that when oil prices were low, Alaska would have
a vast fund from which to draw for operating. He maintained
that under HB 132, that would not change; the structured POMV
draw of 5.25 percent would fund government services; the revenue
would be steady and not be "chipped away at year after year" for
PFD checks. He maintained that under HB 132 the permanent fund
would stay intact and, in some ways, be more robust.
REPRESENTATIVE WOOL continued by saying that the PFD itself was
not in the original conversation concerning the intent of the
permanent fund. He stated his belief that the intent of the PFD
has morphed from its original intent. He opined that the intent
of the PFD was to give Alaskans a dividend from the oil wealth
so that they would monitor the investments and spending of the
state. He mentioned that the permanent fund has grown
tremendously. The PFD checks began at about $300 - not a
significant contribution to a person's budget - and varied from
year to year. He mentioned that the PFD has become a guaranteed
income. With the new structured draw and the size of the
permanent fund, the checks could go to $4,000. He offered his
belief that such a check defies the intent of the PFD. He
concluded that under HB 132, the permanent fund would stay
intact and would be used to fund government and services.
3:51:40 PM
REPRESENTATIVE VANCE referred to the chart on slides 3 and 4.
She asked whether reducing the percentage of new oil revenues
going into the corpus from 50 percent to 25 percent under HB 132
would be detrimental to the corpus.
REPRESENTATIVE WOOL responded that the combined percentage of
old and new oil revenues is about 31 percent; therefore, the
reduction is from 31 percent to 25 percent. He agreed that
under the proposed legislation, less would go to the corpus. He
added that HB 132 was introduced to adjust the PFD in response
to the new POMV program.
REPRESENTATIVE VANCE asked for the motivation behind HB 132,
considering that less money would go into the corpus, less money
would be introduced into Alaska's economy, the PFD checks would
be fluctuating as much as it has historically, and only the POMV
portion for government operations would be protected.
REPRESENTATIVE WOOL answered that the model proposed under HB
132 would cause greater fluctuations in the PFD check. A $64
billion permanent fund, invested and producing an average of 8
percent annual return since inception, constitutes steady money
regardless of the formula for the PFD. He said that his
proposal would cause the check to fluctuate depending on the
price and production of oil. He maintained his belief that some
variability in the PFD check is acceptable. He stated that his
preference is that the money for state government be steady and
the payments to Alaskans be variable according to the oil
industry market. He suggested that under his proposal there
would be more incentive to produce more oil or produce natural
gas. He declared that in the event that there is no more oil,
or the oil market abates, relying on a POMV draw to pay the PFD
check without oil revenue would create a huge problem for
Alaska. Under HB 132, if there is no more oil revenue, Alaska
is not committed to giving a large check in perpetuity.
3:56:53 PM
REPRESENTATIVE LEDOUX asked for confirmation that the proposed
legislation puts a cap on the PFD but no floor on the PFD.
REPRESENTATIVE WOOL replied, "You are correct." He said that
the cap could be raised or lowered, or a floor could be added.
He reiterated that if the price of oil goes down to $15 per
barrel and production goes down to 250,000 barrels per day,
Alaska would have a difficult time operating. He maintained
that the dividend under his proposed legislation would be like
the dividend one gets with stock in Ford Motor Company: if the
company has a good year, the investor gets a good dividend
check; if the company loses money, the investor does not get a
good check. He concluded that the PFD under HB 132 is tied more
to performance of Alaska's number one resource.
REPRESENTATIVE VANCE asked, "Who do you represent - the state or
the people?"
REPRESENTATIVE WOOL responded that he represents the people in
the state of Alaska, and he believes that the state and the
people of Alaska are inextricably entwined. He opined that a
good state system that supports the people is desirable and, in
turn, the people will support the state. He conceded that his
proposed legislation is a different approach than has been
considered. The previous administration introduced a PFD
proposal that was complicated; however, there was a component of
that formula that was dependent on oil. He mentioned that in
2008, Governor Sarah Palin proposed a bonus check of $1,200 due
to abundant oil revenues to the state; it was an "energy" check
due to the high cost of heating oil. When the price of oil is
high, it is good for the state but bad for the residents; it is
of no benefit to the average citizen. He maintained that when
the price of oil is high, a larger PFD check can offset some of
the other expenses incurred due to the high cost of oil.
[HB 132 was held over.]
4:01:24 PM
The committee took an at-ease from 4:01 p.m. to 4:03 p.m.
HJR 18-CONST AM: PERMANENT FUND; POMV; EARNINGS
4:03:12 PM
CO-CHAIR FIELDS announced that the next order of business would
be HOUSE JOINT RESOLUTION NO. 18, Proposing amendments to the
Constitution of the State of Alaska relating to the Alaska
permanent fund and to appropriations from the Alaska permanent
fund.
4:03:22 PM
CO-CHAIR KREISS-TOMKINS, as prime sponsor HJR 18, paraphrased
the sponsor statement, which read as follows [original
punctuation provided]:
House Joint Resolution 18 (HJR 18) constitutionally
protects the real value of the Alaska Permanent Fund
permanently, for future generations by "hardening"
the POMV structure of SB 26, as passed by the
legislature in 2018.
HJR 18 constitutionally limits appropriations from the
Permanent Fund to 5% of the average of its market
value for the first five of the preceding six fiscal
years. Because POMV-based management of the Permanent
Fund renders the function of the earnings reserve
account obsolete, HJR 18 also merges the earnings
reserve account with the principal; effectively all
the Permanent Fund becomes the principal.
Most important, HJR 18 addresses the urgent and
bipartisan goal of protecting the real value of the
Permanent Fund for future generations. In addition,
HJR 18 provides the Alaska Permanent Fund Corporation
certainty in managing assets, allowing APFC to earn a
best possible return on its investments, for the
benefit of Alaskans.
CO-CHAIR FIELDS asked the reason for Representative Kreiss-
Tomkins concern regarding the legislature drawing down the
state's savings account.
CO-CHAIR KREISS-TOMKINS explained that since he was elected, the
legislature has spent $14 billion out of savings, because doing
so was easier than cutting the operating budget and/or passing
taxes. He maintained that one or the other of those two actions
should have been taken, but neither occurred because it was
easier to spend down savings. He stated that he has been
frustrated by that scenario and believes that putting in place
hard protections is an important and prudent measure. He
offered that the permanent fund is one of the largest sovereign
wealth funds in the world and certainly the largest in the U.S.
He mentioned that the permanent fund is a huge intergenerational
asset and expressed his desire that it be there permanently.
CO-CHAIR FIELDS mentioned that his staff has prepared long-term
projections for the permanent fund under different scenarios and
offered them to the committee members to review.
4:06:50 PM
REPRESENTATIVE SHAW referred to Representative Kreiss-Tomkins's
testimony that $14 billion has been spent from the savings
accounts - the Statutory Budget Reserve (SBR) and the
Constitutional Budget Reserve Fund (CBRF). He mentioned that
Representative Kreiss-Tomkins was involved in the legislative
process that resulted in the spending and asked, "We now have to
be prudent because there is a potential that we could go broke
in that savings account?"
CO-CHAIR KREISS-TOMKINS explained that the $14 billion is an
approximate number; the spending began in 2013; the SBR has
about $1.7 billion remaining; and therefore, the legislature has
effectively spent the savings down. He concluded that it was
that situation which prompted the passage of Senate Bill 26
[during the Thirtieth Alaska State Legislature, 2017-2018,
signed into law 6/27/18].
REPRESENTATIVE VANCE concurred with the need to protect the
corpus of the permanent fund and the importance of it remaining
in perpetuity. She asked whether there is a need for inflation-
proofing in the proposed legislation.
CO-CHAIR KREISS-TOMKINS responded that inflation-proofing is
effectively accounted for in the percent of market value (POMV)
structure provided the draw is sufficiently conservative. He
said that the 5 percent draw proposed in HJR 18 and also
incorporated in Senate Bill 26 beginning in fiscal year 2021 (FY
21), effectively accounts for inflation in looking at the
average market value of the permanent fund in the first five of
the preceding six fiscal years. With a greater percentage draw,
the real value of the fund would be eroded over time by
inflation.
REPRESENTATIVE VANCE asked whether the inflation-proofing is in
statute.
CO-CHAIR KREISS-TOMKINS explained that under the POMV approach
the permanent fund is basically a classical endowment: there is
a big pot of money, and the draw down each year is a certain
percentage of the pot. Currently, Alaska has two pots of money:
one pot is static; the other constantly grows; and money is
transferred from the growing pot to the static pot. He stated
that it is important to account for inflation by shifting money
from the earnings reserve account (ERA) to the corpus on an
annual basis to ensure that the corpus will not lose value over
time. Under his proposed legislation, the structure is
simplified to have one large corpus - all principle - and the
draw already accounts for inflation; in other words, inflation-
proofing is built in.
CO-CHAIR FIELDS added that with an 8 percent or more annual
return and a 5 percent draw, the remaining 3 percent is more
than enough to prevent against inflation.
4:11:23 PM
REPRESENTATIVE VANCE asked, "While this protects the corpus in
the constitution, where is the dividend?"
CO-CHAIR KREISS-TOMKINS responded that there have been
discussions among legislators about whether the [amount of the]
permanent fund dividend (PFD) should be addressed in the
constitution. He added that he personally believes that it
should be and has sponsored a constitutional amendment to do so.
He noted the lack of legislative support for that idea. He
stated that as a baseline, all legislators, regardless of their
views on the PFD, agree on the importance of protecting the fund
itself. Under HJR 18 and the POMV approach to managing the
permanent fund, the amount of the PFD becomes a decision of the
legislature, as it is currently. He mentioned that the 5
percent draw from the fund would be more than enough to pay a
PFD that follows the statutory formula, if the legislators
supported it. Currently, the political is to distribute a
lesser amount.
REPRESENTATIVE VANCE referred to page 1, line 15-16, of HJR 18,
which read in part: "Each fiscal year, the legislature may
appropriate from the permanent fund to the general fund an
amount that is not more than five percent...." She asked
whether this could be interpreted as "may appropriate the POMV."
She added that historically the words "may appropriate" have
been "fighting words." She asked the reasoning behind choosing
this wording for the constitutional amendment.
CO-CHAIR KREISS-TOMKINS restated the question, Why does the
amendment use "may" instead of "shall"? He stated that if oil
exceeds $140 barrel and a large amount of traditional petroleum
revenue is flowing into the state treasury, the legislature may
choose to draw down only 4.25 percent of the market value,
because it doesn't need the full 5 percent; the remaining money
could be left to grow in the fund for future generations. He
suggested that there may be scenarios in which the legislature
decides that spending the full 5 percent is unnecessary.
4:15:14 PM
REPRESENTATIVE LEDOUX asked whether under HJR 18, taking a 5
percent draw rather than a 5.25 percent draw, would subject the
state to greater reductions in services or a lower PFD check
than currently experienced.
CO-CHAIR KREISS-TOMKINS agreed that there would be less money
available with a POMV draw of 5 percent compared with a POMV
draw of 5.25 percent; however, there are many other variables at
play.
REPRESENTATIVE VANCE asked Representative Kreiss-Tomkins to
explain how the ERA is currently used.
CO-CHAIR KREISS-TOMKINS said that currently the ERA consists of
realized and unrealized earnings from the permanent fund; this
is the account use by the legislature to pay dividends and some
public services. He added that the permanent fund is generally
understood to consist of the corpus and the ERA combined.
REPRESENTATIVE VANCE asked for confirmation that the two
accounts are clearly different regarding accessing the funds.
She asked for clarification of the motivation behind combining
the accounts.
CO-CHAIR KREISS-TOMKINS agreed that there is a very important
and profound difference between the funds: the corpus is
protected in the constitution and cannot be accessed for
appropriation, whereas the ERA - which is close to $19 billion -
is available for appropriation by a simple majority vote of the
legislature. He noted that the two-account structure of the
permanent fund is highly unusual relative to other sovereign
wealth funds.
[HJR 18 was held over.]
4:19:44 PM
The committee took an at-ease from 4:20 p.m. to 4:21 p.m.
HJR 6-CONST. AM.:PERMANENT FUND & DIVIDEND
[Contains discussion of HJR 5, HJR 7, SJR 4, SJR 5, and SJR 6]
4:21:13 PM
CO-CHAIR FIELDS announced that the final order of business would
be HOUSE JOINT RESOLUTION NO. 6, Proposing amendments to the
Constitution of the State of Alaska relating to the Alaska
permanent fund and the permanent fund dividend.
4:21:24 PM
BRUCE TANGEMAN, Commissioner, Department of Revenue (DOR), on
behalf of the House Rules Standing Committee, sponsor of HJR 6,
by request of the governor, lauded the actions of the
legislature in creating the percent of market value (POMV)
structure of drawing money from the permanent fund and noted the
current discussions in the committee meeting addressing the
split. He stated that HJR 6 would protect Alaskans' right to
determine the future of the permanent fund dividend (PFD). He
said that the permanent fund and the PFD was never broken and
worked exactly as designed for 34 years. Over the three
decades, the PFD calculation and the amount paid to Alaskans was
never questioned, regardless of the size of the check, until
2016, when the legislature appropriated the full PFD and
Governor Bill Walker vetoed it by half. In 2017 and 2018, both
branches of government agreed on a reduced dividend.
MR. TANGEMAN, in response to Representative Wool's proposed
legislation [HB 132, introduced and discussed during the 4/25/19
House State Affairs Standing Committee meeting], said that
currently DOR tracks the market to determine a five-year rolling
average; HB 132 would track the price and production of oil. He
stated that in 2012, the PFD was $878; in 2013 the PFD was $900;
however, in 2015, the dividend was the largest ever at $2,072.
He stated that the dip reflected the market correction of 2008,
which affected the following five years; in 2013, the amount
again increased and was at its highest level in 2015. He
conceded that there has been volatility in the PFD amount, but
Alaskans never questioned the amount, because they understood it
to be the result of the calculation and not politics. He
maintained that political decisions regarding the amount of the
PFD are what "got people's attention" and created the current
situation.
MR. TANGEMAN said that the constitutional amendment under HJR 6
would guarantee the PFD; PFDs would not be subject to
appropriation; the funds would be transferred to the PFD payment
fund and distributed. He maintained that the amendment under
the proposed resolution would protect the PFD; it could not be
reduced by the legislature or the governor's veto. Further, the
amendment would require that any changes to the statutory PFD
formula would require a vote of the people. He emphasized,
"It's Alaska's PFD and they should be entrusted with the future
of any changes to the calculation." He stated that the proposed
resolution is part of Governor Michael J. Dunleavy's larger
fiscal plan, which is to ensure Alaskans are included when
deciding the size and scope of their government.
4:26:09 PM
WILLIAM MILKS, Senior Assistant Attorney General, Legislation &
Regulations Section, Civil Division (Juneau), Department of Law
(DOL), on behalf of the House Rules Standing Committee, sponsor
of HJR 6, by request of the governor, relayed that the proposed
resolution consists of a constitutional amendment which would
provide for a dividend in the Alaska State Constitution. He
reiterated that the statutory dividend program was followed for
three decades; it not being followed prompted a court case
challenge; the Alaska Supreme Court stated clearly that absent a
constitutional amendment providing for a dividend, the PFD will
compete annually for legislative appropriations. He relayed
that the proposed amendment follows up on that decision.
MR. MILKS paraphrased from the sectional analysis, which read as
follows [original punctuation provided]:
Section 1: This would provide a conforming amendment
to the existing language in order to authorize a
portion of permanent fund income to be used for
dividends as set forth in Section 2.
Section 2: This section would create two new
subsections in the permanent fund amendment.
Subsection (b) would require that a portion of the
permanent fund income be used, without an
appropriation, solely for the purpose of paying
permanent fund dividends to state residents. Those
payments would occur according to the dividend program
and formula currently set forth in statute. Subsection
(b) would also allow the legislature to change the
dividend program, including amount and eligibility,
subject to the approval of the voters in subsection
(c).
Subsection (c) would require that any law passed by
the legislature to amend the permanent fund dividend
program, including the amount and the eligibility
requirements, would not take effect unless the voters
approved the proposed law at the next statewide
election. If approved by the voters, it would take
effect 90 days after certification of the election.
Section 3: This transition provision specifies that
the dividend program in place on January 1, 2019 would
remain in place until the legislature and the voters
approved a change to the program.
Section 4: This section would require that the
constitutional amendment be placed on the general
election ballot in 2020.
4:29:06 PM
CO-CHAIR KREISS-TOMKINS asked for the administration's
perspective on the changes made to [SJR 5] - the Senate
companion resolution.
MR. MILKS responded that the largest change was that the
proposed constitutional amendment would include the statutory
formula for calculating the dividend amount, and any change in
the formula would be subject to the approval of the voters. He
mentioned that an additional change to the proposed amendment
was the replacement of annual payments with quarterly payments.
CO-CHAIR KREISS-TOMKINS asked for the administration's position
on the quarterly disbursements.
4:31:15 PM
MIKE BARNHILL, Director of Policy, Office of Management & Budget
(OMB), Office of the Governor, responded on the administration's
position on changes made to SJR 5 by the Senate Judiciary
Standing Committee [during the 4/15/19 meeting]. The
administration supports the elimination of the requirement that
any change in eligibility requirements [for the PFD] must be
approved by voters. The administration does not object to the
amendment calling for quarterly disbursements of the PFD but
that the change would be accomplished more appropriately by
statute. The administration did not voice an objection
regarding the third change - rolling SJR 6 into SJR 5. He
explained that SJR 6 constitutes the administration's proposal
with respect to a constitutional spending limit. He said that
the administration's preference is that the two proposed
resolutions be considered separately; they represent substantial
policy amendments to the constitution.
REPRESENTATIVE LEDOUX asked whether the administration opposes
quarterly payments as a social engineering concept.
MR. BARNHILL expressed that there are valid policy reasons to
pay the PFD on a more periodic basis: more of the dividend
money would stay in state; it would have more impact on the
economy of the state; it could generate jobs; and an annual
dividend tends to be spent Outside. He said that the
administration's objection is not from a policy standpoint, but
due to a concern for the appropriate place - constitution or
statute.
REPRESENTATIVE VANCE suggested that quarterly payments would
benefit not only the recipients but the earnings of the corpus,
as the money would remain in the corpus longer. She expressed a
desire to hear the perspective of Angela Rodell, Executive
Director, Alaska Permanent Fund Corporation, (APFC) regarding
quarterly payments.
REPRESENTATIVE VANCE asked if it is possible to adopt the
proposed constitutional amendment in HJR 6 without adopting the
proposed spending cap and vice versa.
MR. BARNHILL answered that the administration intentionally
structured the proposed constitutional amendments in three
separate vehicles so that the citizens would have the ability to
vote on each one based on its merits; by implication, one could
be adopted without the other. He said that the constitutional
amendments would give the voters the opportunity to vote up or
down on the spending limit [HJR 7 and SJR 6], on a dividend that
is constitutionally appropriated [HJR 6 and SJR 5], and on the
taxpayer's bill of rights [HJR 5 and SJR 4]. He concluded that
one amendment could be adopted without the others; however, it
is the Dunleavy administration's perspective is that the
residents should have the opportunity to vote on each.
REPRESENTATIVE VANCE asked whether HJR 6 protects the corpus of
the permanent fund.
MR. BARNHILL responded that existing constitutional construct
regarding the permanent fund protects the corpus; the language
was adopted in 1976. It relays that the principle shall be used
only for incoming-producing investments, implying that it cannot
be appropriated.
4:36:46 PM
CO-CHAIR FIELDS commented that the constitution does not protect
the ERA; therefore, the legislature could still draw down that
account.
MR. BARNHILL concurred.
REPRESENTATIVE WOOL asked for confirmation that under the
proposed constitutional amendment, the statutory formula [for
the PFD] would be in the constitution, and a change in the
formula would require a vote of the people.
MR. BARNHILL replied that the constitutional amendment would
guarantee the transfer of PFD funds pursuant to statute. It
would introduce direct democracy into the constitution by
dictating that if the legislature changes the statutory formula,
the people would automatically get an opportunity to vote on the
change. It would not enshrine a particular statutory approach
to the PFD calculation. The legislature would retain the right
to change the calculation; however, any change would require
approval by a vote of the people.
REPRESENTATIVE LEDOUX asked whether the people would vote on any
changes that the legislature made before the changes can go into
effect.
MR. BARNHILL responded, "Correct."
REPRESENTATIVE LEDOUX asked for confirmation that if the
legislature wants to make any changes, it would make the
changes, put the changes out for vote, and if the people accept
the changes, the changes would go into effect the next year.
MR. BARNHILL said, "Correct." He explained that the proposed
constitutional amendment would prepackage a referendum.
Currently under the constitution when the legislature passes any
law, the public can get the issue on the ballot by gathering
signatures in a referendum process. The proposed constitutional
amendment would make the referendum process automatic.
4:39:15 PM
CO-CHAIR KREISS-TOMKINS mentioned discussion about a 50-50 split
of the POMV draw as a compromise, producing a dividend amount
that would be larger than that of the last two years but smaller
than this proposal would yield. He asked whether the
administration has a position on the 50-50 split compromise.
4:40:05 PM
The committee took a brief at-ease at 4:40 p.m.
4:40:09 PM
MR. BARNHILL answered that the administration has not taken a
position on any new approach to the PFD, such as a 50-50 split,
but is willing to discuss it.
REPRESENTATIVE VANCE asked for confirmation that if HJR 6
passed, it would be put to a vote on the 2020 ballot to decide
if it should be in the constitution.
MR. BARNHILL concurred.
CO-CHAIR FIELDS asked whether the administration has mapped out
a timeline, since any change in the statutory formula would
substantially alter the budget process.
MR. BARNHILL disagreed that a change in the statutory formula
would substantially change the budget process. The proposed
resolution clearly states the timelines; the first opportunity
for the legislature to make appropriations pursuant to a new
statutory formula would be the fiscal year following the
election. For example: the vote is in November; the
legislative session begins the following January; and the
legislature would appropriate for the following fiscal year
pursuant to the constitutional amendment.
REPRESENTATIVE VANCE asked whether it would be feasible for the
legislature to combine the three resolutions so that the
spending cap, the income tax, and the PFD were all put before
the voters in one ballot question.
Mr. BARNHILL stated that he appreciated the representative's
desire to simplify constitutional issues for the voters;
however, he offered that considerable time and effort was spent
to determine the best way to present the issues. The decision
was made to use three separate vehicles addressing three
separate subjects. He maintained that giving the people a voice
in how the PFD is calculated and in any legislative decision to
change that calculation is a discreet issue that stands on its
own. The other two issues - giving people a voice in any tax
changes or rate increases and giving the people a voice in
amending the constitution to limit spending - are also separate
discreet issues. He conceded that since all three issues fall
under Article IX of the constitution, it would be possible to
defend combining them; however, it is the intention of the
administration to give the people the ability to vote each one
up or down.
4:45:04 PM
REPRESENTATIVE LEDOUX referred to the proposed constitutional
amendment [in HJR 5 and STR 4], also known as the taxpayer bill
of rights, and asked whether the legislature would be required
to approve a tax passed by the people through an initiative
process.
Mr. BARNHILL agreed that passage of the constitutional amendment
would require the people to vote on any new tax or tax rate
increase passed by the legislature, and alternately, if the
people initiate a tax or a tax increase, the legislature would
be required to approve it before it is enacted. He stated that
both mechanisms currently exist with one exception - when the
people initiate a law, the legislature cannot repeal it for two
years. The resolution seeks to shorten that time frame.
REPRESENTATIVE LEDOUX expressed her belief that most people who
support the taxpayer bill of rights do not realize that it would
impact their ability through the initiative process. She
offered that the most likely tax to be approved through an
initiative process would be an oil tax. She stated that she
does not think most people realize that the constitutional
amendment would give the legislature "a second bite at that."
REPRESENTATIVE WOOL maintained that the three issues - taxes,
PFDs, and the spending cap - are all intertwined in the final
budget product. He asked whether Mr. Barnhill thought that
separating issues that are intertwined might present a problem.
Mr. BARNHILL responded, no. He expressed his belief that the
people can analyze each issue separately. He added that if
there is an emerging consensus within the committee to roll the
resolutions together to move them forward, the administration
would most likely not object.
REPRESENTATIVE WOOL suggested that the administration, through
the proposed constitutional amendments, is introducing another
branch of government. Raising or lowering revenue would require
approval not only of the House, the Senate, and the executive
branch, but of the people, which would take a year or more and a
great deal of educational campaigning.
Mr. BARNHILL responded that this very point was debated at
length at the constitutional convention, and the convention
approved this vigorous element of direct democracy. He added
that Alaska has a very strong access to legislation through the
initiative and referendum process. He suggested that the
governor is proposing to take that element of direct democracy
that exists right now and that the people regularly access right
now and pre-package the initiative/referendum in respect to the
PFD and new and increased taxes. He opined that if the
legislature were to make a change to the PFD statute, there is a
high likelihood that a referendum would be filed. He added that
the passage of a personal income tax would most likely result in
a referendum as well. The administration is seeking to make
that referendum automatic and give the people the opportunity to
vote on these very important issues that they care deeply about.
4:51:47 PM
CO-CHAIR FIELDS asked whether the inclusion of legislative
approval of voter-approved initiatives was intentional or
accidental. As an example, he referred to a voter initiative to
spend less money on per barrel tax credits to oil companies.
MR. BARNHILL responded that requiring legislative approval over
a voter initiated new tax or tax rate increase was no accident;
it was the point.
MR. MILKS responded that in the proposed constitutional
amendment addressing taxes, if the voters, by initiative, pass a
new tax or increase the rate of tax, the legislature can reject
it. He stated that in the original version of the resolution,
the default was as follows: if the legislature did nothing, the
new tax was rejected. The Senate Judiciary Standing Committee
changed the default to the following: if the voters pass a tax,
the legislature has the opportunity to ....
[Due to technical difficulties, the last minute of the hearing
was not recorded.]
CO-CHAIR FIELDS stated that HJR 6 would be held over.
4:54:47 PM
ADJOURNMENT
There being no further business before the committee, the House
State Affairs Standing Committee meeting was adjourned at 4:55
p.m.