02/18/2005 08:29 AM House W&M
| Audio | Topic |
|---|---|
| Start | |
| HB52 | |
| HB143 | |
| Adjourn |
+ teleconferenced
= bill was previously heard/scheduled
ALASKA STATE LEGISLATURE
HOUSE SPECIAL COMMITTEE ON WAYS AND MEANS
February 18, 2005
8:29 a.m.
MEMBERS PRESENT
Representative Bruce Weyhrauch, Chair
Representative Norman Rokeberg
Representative Ralph Samuels
Representative Paul Seaton
Representative Peggy Wilson
Representative Max Gruenberg
MEMBERS ABSENT
Representative Carl Moses
COMMITTEE CALENDAR
HOUSE BILL NO. 52
"An Act relating to adoption and revision of a comprehensive
long-range fiscal plan for the State of Alaska."
- HEARD AND HELD
HOUSE BILL NO. 143
"An Act relating to the policy of the state regarding the source
of funding used to cover a shortfall in general fund revenue."
- HEARD AND HELD
PREVIOUS COMMITTEE ACTION
BILL: HB 52
SHORT TITLE: LONG-RANGE FISCAL PLAN
SPONSOR(S): REPRESENTATIVE(S) GRUENBERG
01/10/05 (H) PREFILE RELEASED 1/7/05
01/10/05 (H) READ THE FIRST TIME - REFERRALS
01/10/05 (H) W&M, FIN
02/18/05 (H) W&M AT 8:30 AM CAPITOL 106
BILL: HB 143
SHORT TITLE: POLICY ON GENERAL FUND REVENUE SHORTFALL
SPONSOR(S): WAYS & MEANS
02/14/05 (H) READ THE FIRST TIME - REFERRALS
02/14/05 (H) W&M, STA, FIN
02/18/05 (H) W&M AT 8:30 AM CAPITOL 106
WITNESS REGISTER
KEVIN RITICHE, Executive Director
Alaska Municipal League
Juneau, Alaska
POSITION STATEMENT: Testified in support of HB 52.
TADD OWENS, Executive Director
Resource Development Council for Alaska, Inc.
Anchorage, Alaska
POSITION STATEMENT: Testified on HB 52.
ROB CARPENTER, Fiscal Analyst
Legislative Finance Division
Juneau, Alaska
POSITION STATEMENT: Presented the effects of HB 143.
ACTION NARRATIVE
CHAIR BRUCE WEYHRAUCH called the House Special Committee on Ways
and Means meeting to order at 8:29:37 AM. Representatives
Seaton and Gruenberg were present at the call to order.
Representatives Rokeberg, Samuels, and Wilson arrived as the
meeting was in progress.
HB 52-LONG-RANGE FISCAL PLAN
CHAIR WEYHRAUCH announced that the first order of business would
be HOUSE BILL NO. 52 "An Act relating to adoption and revision
of a comprehensive long-range fiscal plan for the State of
Alaska."
8:31:35 AM
REPRESENTATIVE GRUENBERG relayed that he and Representative
Harris, originally introduced HB 52 during the Twenty-Third
legislature and in its previous incarnation it was House Bill
493. The first section of HB 52, contains legislative findings
that indicate the areas for which the legislature is
responsible, such as: public health and welfare, public
education, development of natural resources, public safety,
public facilities, and environmental protection. In order to
carry out these responsibilities the legislature must budget a
reasonable level of expenditures to finance the operations of
state government. There is often a significant disparity
between the revenue sources used and the expenditures necessary
to maintain a reasonable level of state services, he noted. He
related that revenue sources fluctuate and Alaska needs
stability. For several years, the legislature has addressed the
disparity by drawing against the balance in the constitutional
budget reserve fund (CBR), which has been declining to a level
that requires the development of a sound fiscal plan. The long-
range comprehensive fiscal plan will encourage the discipline
necessary to ensure the budget remains balanced and properly
planned, which will stabilize the state's economy.
REPRESENTATIVE GRUENBERG said that he was "surprised" that no
statute existed requiring the state to adopt and maintain a
stable long-term fiscal plan. This legislation would require
the legislature to adopt and annually revise a comprehensive
long-range fiscal plan to balance state revenue and expenditures
for the current and succeeding four years. The plan, he
explained, must set out projected revenue available and
anticipated expenditures for the operation of state government
for each fiscal year. For each fiscal year of projected
expenditures that exceed projected revenue, the plan must
include proposals to achieve the following: balance the budget,
encourage real economic growth and stability, improve the high
quality of life, develop natural resources, provide education,
maintain public health and safety, and ensure that state
government provides services as efficiently as practical, while,
reducing state expenditures where possible. Furthermore, the
legislature must: protect the principal of the permanent fund in
accordance with the constitutional mandate, use the earnings of
the fund to provide for inflation-proofing, maintain a strong
dividend program, and repay the legislature's legal flexibility
to determine the appropriate use of the remaining earnings of
the fund. The legislature must examine and plan for ways to
raise the necessary revenue for the operation of state
government while maintaining a stable tax environment. The plan
must contain provisions to maintain the integrity of the CBR,
which was established under the constitution to ensure that a
prudent minimal balance in the fund remains available to provide
funding for emergencies.
8:37:02 AM
REPRESENTATIVE GRUENBERG, in response to Representative Seaton,
related that the expenditures of the state have never surpassed
the revenue sources of the state.
8:37:46 AM
REPRESENTATIVE GRUENBERG, in response to Representative Wilson,
said that HB 52 directs the legislature to consider all the
revenue sources of the state, such as: the permanent fund, the
permanent fund dividend, the CBR, the ERA [Earnings Reserve
Account], and the enactment of taxes. How the legislature
appropriates those funds is under its jurisdiction, he
highlighted.
8:39:06 AM
KEVIN RITICHE, Executive Director, Alaska Municipal League
(AML), relayed that the AML and its members support the proposal
for a long-range fiscal plan. He related that many
municipalities have a five-year plan to balance the budget. He
said, "The only thing more dangerous than planning, is not
planning."
8:39:59 AM
MR. RITCHIE, in response to Chair Weyhrauch, related that many
municipalities, like Juneau, try to "look ahead five years."
8:40:08 AM
MR. RITCHIE, in response to Chair Weyhrauch, said he could not
answer whether any ordinance or statute used the term "long-
range fiscal plan." He explained that the City and Borough of
Juneau had a five-year fiscal plan, but it was not called a
"long-range fiscal plan" in the ordinance.
8:40:36 AM
REPRESENTATIVE ROKEBERG noted that, although he could not recall
the exact statute, in his research for balancing the budget he
found a statuary requirement existed for a long-range
projection.
8:40:52 AM
REPRESENTATIVE WILSON commented that she has received numerous
emails and letters from statewide municipalities and
organizations "begging" the legislature to propose a long term
fiscal plan, similar to the proposal of HB 52.
8:41:29 AM
REPRESENTATIVE ROKEBERG said that the legislature needs to adopt
a long-range fiscal plan and not just a bill that talks about
it. He expressed concern that the bill would deflect from the
urgency to adopt such a plan.
8:41:41 AM
CHAIR WEYHRAUCH related that a bill is merely "fluff" compared
to the substance.
8:41:53 AM
TADD OWENS, Executive Director, Resource Development Council for
Alaska, Inc., said the council has been concerned about the
state structural fiscal imbalance for over a decade. Although,
the council's board has yet to take a formal position on HB 52,
the council is "anxious to work with the legislature on any and
all ideas to move the state closer to a long range fiscal plan,"
he said. This year's budget surplus offers the legislature the
opportunity to make "tough decisions" regarding fiscal
responsibility over the long term, he noted.
8:43:33 AM
CHAIR WEYHRAUCH noted that Mr. Owens' position mirrors that of
the "Chamber, AARP, and many other [institutions]."
8:43:40 AM
MR. OWENS, in response to Representative Seaton, relayed that
the council's [opinion that] the state is not in a situation
where there is no revenue or revenue options to cover the
expenditures, rather it's an allocation issue. The council
believes that particular steps should be taken to address the
long-term fiscal imbalance, such as: budget discipline, uses for
the permanent fund earnings for something other than dividends
alone, a constitutional amendment for percent of market value
(POMV), and, if necessary, the institution of a statewide tax.
8:46:28 AM
MR. OWEN, in response to Representative Rokeberg, said that the
council is wrestling with a long-range comprehensive fiscal plan
versus making incremental improvements to the status quo when
possible. However the council is willing to work on any idea
that would "drive the state forward," he related.
8:48:17 AM
REPRESENTATIVE GRUENBERG clarified that HB 52 is not an
alternative to an actual fiscal plan because both are necessary
in order for the state to plan ahead.
8:48:48 AM
MR. OWENS related that the council wants what is best for the
state, and if the combined efforts of both HB 52 and a [long-
range] fiscal plan perpetuate that process, then the council
supports both actions.
8:49:15 AM
CHAIR WEYHRAUCH stated that the aforementioned issues are
important to consider when attempting to resolve the fiscal gap.
HB 143-POLICY ON GENERAL FUND REVENUE SHORTFALL
8:49:53 AM
CHAIR WEYHRAUCH announced that the next order of business would
be HOUSE BILL NO. 143 "An Act relating to the policy of the
state regarding the source of funding used to cover a shortfall
in general fund revenue."
CHAIR WEYHRAUCH said that HB 143 is intended as a companion bill
to SB 88, which establishes that if there were a budget
shortfall, the policy of the legislature would be to fill that
shortfall using the earnings from the ERA and the CBR. The
public should be aware of the state's fiscal deficit and the two
funds that can be accessed, he noted.
8:51:25 AM
ROB CARPENTER, Fiscal Analyst, Legislative Finance Division,
provided a Powerpoint presentation on the effects of HB 143. He
said that the bill is essentially the same as SB 88, but it was
reworded and deals with tax issues. The first slide illustrated
that HB 143 would be appropriated equally from the CBR and the
ERA, if there were a shortfall in the general fund.
8:52:29 AM
MR. CARPENTER presented the slide entitled, "Why? Where's the
problem?", that detailed that the fiscal gap of the state budget
resides in general fund revenue and appropriations, which is
roughly one-third of the budget. Although most don't include
the permanent fund in the budget, it is a major component of
appropriations for dividends and inflation-proofing, he said.
8:53:26 AM
MR. CARPENTER, in response to Chair Weyhrauch, reiterated that
the majority of the money used from the permanent fund reserve,
to operate the capital budget, is for the appropriations of the
dividend, which is about $1 billion per year, and inflation
proofing the principle of the permanent fund.
8:54:07 AM
MR. CARPENTER, in response to Chair Weyhrauch, said that other
state government uses for the permanent fund ERA include the
following: the Department of Health and Social Services' hold
harmless program, and both the Department of Revenue and the
Department of Natural Resources for supplementing their budgets
for the [work these departments do with] royalty deposits to the
permanent fund.
8:55:36 AM
MR. CARPENTER, in response to Chair Weyhrauch, said that after
all the appropriations, inflation proofing, and the permanent
fund dividend, the unused amount in the ERA for the fiscal year
(FY) 2005 totals about $2.1 billion. In further response to
Chair Weyhrauch, Mr. Carpenter said the ERA's $2.1 billion could
be utilized by a majority vote of the legislature otherwise the
$2.1 billion will be invested in the asset allocation of the
permanent fund.
8:56:11 AM
MR. CARPENTER, in response to Chair Weyhrauch, relayed that the
$2.1 billion is "almost the same amount" as the state's
operating budget. In FY 2005, not including supplementals, the
state and capital operating budget was $2.3 billion, he added.
8:56:59 AM
REPRESENTATIVE ROKEBERG pointed out that, "In October of 2002,
the earnings reserve had a negative balance, and had the market
not returned, there would not have been sufficient money to pay
the dividend."
REPRESENTATIVE WILSON recalled that the ERA had a negative
balance two different times.
8:57:39 AM
MR. CARPENTER, in response to Representative Wilson, agreed to
provide the committee with details about the ERA, the CBR, and
budget reports detailing expenditures. He added that the Alaska
Permanent Fund Corporation provides monthly financial reports
that detail the amount of the principal of the fund as well as
the ERA.
8:58:05 AM
REPRESENTATIVE WEYHRAUCH relayed that a joint meeting of the
Senate and House Finance Committees' meeting on February 17,
2005, gave the historical review and future prognosis of the
ERA.
8:58:15 AM
MR. CARPENTER presented the slide entitled, "...What's the
problem?", which shows the two problems the state faces with the
general fund (GF) revenue. [Those problems] are the volatility
of the GF and declining projections of the GF in the future.
8:59:06 AM
CHAIR WEYHRAUCH surmised that the difference between the white
bars and the maroon background, on the graph, represents the gap
between income and expenditures. If HB 143 became law, the
mechanism for having the maroon line meet the top of the white
bar would be to split the difference between the CBR and the
ERA. The darker blue field on the right-hand side of the graph
is assumptions based on a gas pipeline, the development of the
Arctic National Wildlife Refuge (ANWR), and other resource
development.
MR. CARPENTER agreed with Chair Weyhrauch's understanding of the
chart.
8:59:50 AM
MR. CARPENTER, in response to Representative Seaton, clarified
that the maroon baseline represents the current revenue received
from oil fields and taxes, but the figure does not include the
earnings from the permanent fund.
9:00:31 AM
MR. CARPENTER, in response to Chair Weyhrauch, said that the
green diamonds in the FY 06 bar represented FY 05, due to
technical difficulties with the computer program.
9:01:26 AM
MR. CARPENTER, in response to Representative Gruenberg,
acknowledged that the 2 percent state spending increase was an
assumption necessary to estimate the future budget needs, but in
no means relates to actuality.
9:02:00 AM
MR. CARPENTER related that it was necessary to choose an
assumption and the 2 percent assumption rate was chosen based on
the inflation rate of 2 percent or 2.6 percent. However, for
FY06 and FY07, a baseline figure from 2005, which was about $2.3
billion, was added to the Teachers' Retirement System (TRS) and
Public Employees' Retirement System (PERS) unfunded liability
for the following 2 years, and he "threw it at two percent," he
explained.
9:02:38 AM
REPRESENTATIVE ROKEBERG pointed out that last year the committee
projections were "leading the pack" with its future projections.
9:03:15 AM
REPRESENTATIVE GRUENBERG pointed out that the rows to the left
of the green diamonds are actual figures and the rows to the
right of the green diamonds are projections. He said "And so we
don't see, in fact, that the budget has gone up at a 2 percent
rate. We've seen it affected and that has been effected by what
the legislature itself has done .... "
9:04:02 AM
MR. CARPENTER replied, "You could say that."
9:04:14 AM
REPRESENTATIVE GRUENBERG added "Not entirely, because we're
governed by how much money we have and what our needs are, but
my point is that we are, to some extent, the masters of our own
fate .... "
9:04:23 AM
REPRESENTATIVE SAMUELS asked what would be the policy of HB 143
if the CBR is unable to cover its portion. He asked, "Can you
go to the earnings reserve, or are you implying that you have to
go to a new tax?"
9:04:42 AM
CHAIR WEYHRAUCH said that structurally the bill does not address
whether the CBR cannot cover its portion.
9:04:51 AM
REPRESENTATIVE SAMUELS asked if "Before the enactment of a new
tax," implies that something like a tobacco tax could not be
considered as a revenue measure. Could it even be discussed if
no money is needed, he also asked.
9:05:19 AM
CHAIR WEYHRAUCH added that the aforementioned question should be
addressed as part of the bill deliberation.
9:05:25 AM
REPRESENTATIVE WILSON asked if the term "Before the enactment of
any new tax," refers to a new tax development or to the addition
of a current tax.
CHAIR WEYHRAUCH reiterated that question should be addressed as
part of the bill deliberation.
REPRESENTATIVE WILSON commented that the graph fluctuates over
the years due to the state not keeping up with inflation.
Therefore, she indicated that that state needs to adjust to keep
up with the status quo.
9:06:27 AM
REPRESENTATIVE ROKEBERG commented that the budget went down due
to a lack of revenue and there were extreme amounts of
shortfalls of up to $1 billion per year.
9:06:47 AM
REPRESENTATIVE SEATON added that the decline should also be
attributed to the policies made by the legislature. He
highlighted the policy decisions about whether to raise the
budget or to streamline government.
9:08:29 AM
MR. CARPENTER presented the graph entitled, "...and things can
change quickly", which details the proposed general fund budget
for FY 06. The graph assumes the governor's proposed budget
plus $117.5 million for the FY 06 PERS and TRS costs. The graph
assumes the average price of oil needed to "break even" for the
GF and where the fiscal gap or surplus would be depending on
those oil prices. At $2.6 billion, the oil prices can "break
even" at $42 per barrel. Higher prices would cause a surplus
and lower prices would cause a fiscal gap, he noted.
9:09:39 AM
MR. CARPENTER, in response to Chair Weyhrauch, said that the
graph was for the upcoming FY 06.
9:09:56 AM
MR. CARPENTER, in response to Representative Gruenberg, related
that the bottom of the graph should be labeled price per barrel
of oil. For further clarification, he added that the bottom of
the graph was the average price throughout FY 06.
9:10:26 AM
MR. CARPENTER, in response to Representative Wilson, confirmed
that the graph shows that the oil price will have to remain at
$42 per barrel for an entire year in order to prevent a deficit
or a surplus. The projections also assume the governor's
budget, he added.
9:10:54 AM
MR. CARPENTER, in response to Representative Wilson, said that
the price of oil yesterday was around $41 to $42 per barrel.
9:11:06 AM
REPRESENTATIVE WEYHRAUCH asked why the blue field [referring to
the same graph] labeled "Unrestricted General Fund Revenue,"
shows a diminishing line towards the left.
MR. CARPENTER explained that the blue field diminishes because
if the state were to average $25 per barrel for the year, there
would be $1.6 billion in revenue, which would be roughly $1
billion less than the expenditures.
9:12:03 AM
REPRESENTATIVE GRUENBERG inquired as to the "statistically
projected" price of oil for FY 06.
MR. CARPENTER replied that the Department of Revenue establishes
the revenue projections, which estimates $32 to $35 per barrel
[in FY 06]. In further response to Representative Gruenberg, Mr.
Carpenter said that he has never seen a standard deviation chart
with the price of oil projections for an entire year.
9:13:24 AM
REPRESENTATIVE ROKEBERG pointed out that sensitivity charts are
available through the Department of Revenue.
9:13:41 AM
MR. CARPENTER for clarification purposes asked Representative
Gruenberg if he was interested in the volatility of oil prices.
REPRESENTATIVE GRUENBERG clarified that he was interested in the
statistical assumptions for figuring what the probabilities are
that the state will have the Department of Revenue's assumed
average oil price.
9:14:07 AM
REPRESENTATIVE ROKEBERG commented that the Department of Revenue
does not do sensitivity charts for the aforementioned data, but
it does the correlation charts between the budget and the price
of oil.
9:14:36 AM
REPRESENTATIVE SEATON commented that the aforementioned data was
presented to the committee during a previous meeting regarding
the percentage of time and the accuracy of oil projections by
the state and the other entities that project oil prices.
9:15:23 AM
MR. CARPENTER presented the slide entitled, "...and they have",
which details that the CBR has been used to fill the fiscal gap
8 out of 12 years. Furthermore, approximately $5.5 billion has
been withdrawn to balance the budget. The state has deposited
$5.6 billion into the CBR and earned $1.6 billion in interest,
he related.
9:16:02 AM
CHAIR WEYHRAUCH clarified that $5.6 billion has been deposited
back into the CBR by the oil settlement monies. Thus, the money
deposited is independent of the legislature because it is
independent of any appropriations out of the CBR.
9:16:38 AM
MR. CARPENTER related his belief that the $5.6 billion seems to
be $1 billion off because he recalled the liability of the CBR
to be $6.5 billion.
9:16:46 AM
MR. CARPENTER, in response to Chair Weyhrauch, said that the
deposits into the CBR have been ongoing since 1999.
9:16:56 AM
MR. CARPENTER presented the next slide entitled, "...for
example", which shows the CBR balances and the draws incurred.
The maroon columns represent the continuing balance, the blue
columns represent the actual draw to balance the budget, and the
green line is an average draw. In FY 99, the state borrowed
over $1 billion, he noted.
CHAIR WEYHRAUCH commented that the green line shows a steady
level average draw.
MR. CARPENTER added that the price value is a stabilized average
as opposed to a rolling average.
9:18:01 AM
REPRESENTATIVE GRUENBERG pointed out that the green "average"
draw is an arithmetic mean draw rather than a median. He asked
what the median draw would be.
MR. CARPENTER responded that he did not have the answer to that
question.
9:18:33 AM
MR. CARPENTER presented the slide entitled, "Potential Future
Oil and Gas Revenue." The light blue area shows the baseline
general fund revenue on decline, the line above it shows the
general fund budget increasing, and the areas to the far right
are resource development projections. He said that the problem
years will occur from 2006 to 2013. The assumptions of a 2
percent growth are calculated in these projections, he added.
9:19:46 AM
REPRESENTATIVE WILSON commented that this graph shows that
unless the legislature is willing to take action soon, in the
next couple of years, it will not be fun to be a legislator.
9:20:11 AM
REPRESENTATIVE ROKEBERG added that was the case in 1989 and
2001, when the legislature was drawing down $800 million to $1
billion per year from the CBR because the price of oil had
plummeted.
9:20:25 AM
MR. CARPENTER, in response to Representative Seaton, said that
the price of oil, calculated in the general fund revenue
projections, is provided by the Department of Revenue. The long
term projection is $22 per barrel, and there is a three year
horizon of what the price is going to be, and then it goes to a
five-year average.
9:21:11 AM
MR. CARPENTER, in response to Representative Seaton, relayed
that production is an issue because it is in decline, so the
price would probably have to increase to coincide with the
growth in the budget.
9:21:46 AM
REPRESENTATIVE SEATON commented that it is important for the
committee to know the different scenarios of the underlying
assumptions that cause a fiscal gap.
9:22:13 AM
MR. CARPENTER, in response to Chair Weyhrauch, said that the
projection of 2 percent comes from the Finance Division, the
projections of $22 per barrel and the green field labeled, "Gas
Pipeline" both come from the Department of Revenue.
9:22:30 AM
MR. CARPENTER presented the slide entitled, "Several Pots of
Money." The slide details the various options and funds
available to deal with the fiscal gap. The options are as
follows: reducing state spending, using the permanent fund
earnings, and creating an income tax, a corporate income tax,
and a sales tax.
9:23:20 AM
CHAIR WEYHRAUCH commented that the sales tax assumes that it
could generate $200 to $300 million.
MR. CARPENTER, in response to Chair Weyhrauch, said that the
corporate tax is a potential tax and the figures labeled, "Other
Revenues" and "CBR," are in existence.
9:23:50 AM
REPRESENTATIVE ROKEBERG inquired as to the source of the
figures, because they are inconsistent with some of the previous
studies done by the committee.
9:24:15 AM
MR. CARPENTER related that the projections are assumed at the 1
percent level by the Department of Revenue.
REPRESENTATIVE ROKEBERG added that the projections are at the
high ranges from the past forecasts.
9:24:41 AM
CHAIR WEYHRAUCH added that the committee will have to revisit
that information at another date.
MR. CARPENTER commented that the projections were provided as
examples and general ranges of the types of revenue that the
state could produce.
CHAIR WEYHRAUCH related that the chart merely intends to show
the ways to fill the gap, the margin between revenues and
expenses, [but] may not provide the exact figures.
9:25:22 AM
REPRESENTATIVE ROKEBERG said:
That is exactly the point because these are max sized
figures: income tax, corporate tax, [and] sales taxes
... the high side here shows $1 billion .... The
legislature, as a matter of policy, could choose to
implement the maximum amount of taxation as a burden
to the public and we still only come up with something
around $1 billion, and our general revenue is $2.3
[billion] going to $2.6 [billion] over night. Some
thing that people need to be aware of [is] even if we
taxed ourselves to death we still couldn't pay our
bills ... The question in Alaska is can we afford
ourselves.
9:26:01 AM
CHAIR WEYHRAUCH reiterated for clarification purposes that the
aforementioned sentiment relates that Alaska has a structural
problem.
REPRESENTATIVE ROKEBERG said that the state can't balance the
budget on other conditions alone, and the key element is the
resource revenue.
9:26:17 AM
REPRESENTATIVE WEYHRAUCH opined that the state would either have
to have "some serious revenue source" or there would have to be
a fundamental change made to the current system of government.
9:26:28 AM
REPRESENTATIVE ROKEBERG agreed.
9:26:37 AM
REPRESENTATIVE GRUENBERG commented that the projection
assumptions for Alaska show the production of oil in decline.
He asked if there was similar analysis on the Middle East's oil
production.
MR. CARPENTER said he is unable to answer that question.
9:27:38 AM
REPRESENTATIVE WILSON pointed out that the legislature has to
"be careful," because if it were to enact any of the options,
presented before the committee, it could be taking $1 billion
out of the economy.
9:28:19 AM
CHAIR WEYHRAUCH relayed that Alaska has a structural problem
between its expenditures and its earnings.
9:28:45 AM
MR. CARPENTER presented the slide entitled, "...why not just the
CBR?", which shows the current $2.1 million remaining and the
projected 2 percent growth in the general fund appropriations.
According to these projections, the state could be out of money
by 2009, he said.
9:29:17 AM
CHAIR WEYHRAUCH clarified that based on this chart the CBR funds
would run out by 2009.
MR. CARPENTER added that the chart includes general fund revenue
projections that are currently maintained at $43 per barrel.
CHAIR WEYHRAUCH reiterated, for clarification purposes that this
chart does not account for the earnings reserve of the permanent
fund.
9:29:52 AM
MR. CARPENTER, in response to Representative Seaton, clarified
that the chart is based on actual revenue projections by the
Department of Revenue and the current long term forecast for the
oil price at $25.50.
9:30:45 AM
CHAIR WEYHRAUCH asked if the gas pipeline chart shows a
realistic climb in revenue.
9:31:15 AM
REPRESENTATIVE SAMUELS relayed that it takes a lot of gas to
fill a pipeline, approximately $100 million worth of gas. He
said that he is unable to tell if the graph is detailing an
expansion. He asked from where the 2011 gas pipeline money
projections were outlined.
9:31:57 AM
REPRESENTATIVE ROKEBERG opined that the graph's sloping curve
could be a result of the provisions of the Stranded Gas Act. He
said "And what we, [the legislature] would be voting on,
assuming there would be some start-up, front-loaded concessions
there to [give incentive to] the development, because we
understand ... when they turn on the pipe there is going to be a
pretty big dump. That [sloping curve] could also reflect the
decrease in North American prices."
9:32:42 AM
CHAIR WEYHRAUCH said that the public needs to understand this
slide shows that if the legislature remains inactive, and it
uses the CBR, the state will still be out of money. He said,
"Every year ... the line moves out on the constitutional budget
reserve simply because their bacon's been saved by oil taxes or
something else, because the projections on the complete draw
down is zero of the constitutional budget reserve [has] always
been based on some sort of static scenario."
9:33:21 AM
MR. CARPENTER, in response to Representative Seaton, replied
that the graph did not incorporate the general fund revenue from
the administrative order on the economic limit factor (ELF) in
Prudhoe Bay. Therefore, for FY 06 there is an additional $150
billion of general fund revenues not incorporated into the
graph.
9:34:34 AM
CHAIR WEYHRAUCH added that the effect of the ELF, or an
administrative change to the ELF and production, is all unknown
because we are currently in a "rhetorical phase."
9:34:49 AM
MR. CARPENTER presented the slide entitled, "Potential Future
Oil and Gas Revenue." The slide depicts what would happen if
the legislature was to draw 50 percent from the ERA, in addition
to filling the fiscal gap with 50 percent from the ERA, and 50
percent from the CBR. Theoretically, the aforementioned
assumptions extend the life of the CBR and fill the fiscal gap
completely, he added. A majority vote is all that is required
to access the ERA.
9:36:16 AM
REPRESENTATIVE GRUENBERG asked if a majority vote would be 21 in
the House and 19 in the Senate.
CHAIR WEYHRAUCH clarified that a majority vote would be 21 in
the House and 11 in the Senate.
9:36:33 AM
MR. CARPENTER presented the next slide entitled, "PF financial
projections say...". The chart is from the Permanent Fund
Corporation's website showing the monthly financial projections
on realized and unrealized earnings. The Permanent Fund
Corporation projections are based on where it plans to be in the
future and what occurred in the past, he added.
9:37:04 AM
REPRESENTATIVE ROKEBERG asked if the meeting with Callan and
Associates indicated any provisions in the projected returns.
CHAIR WEYHRAUCH recalled that the Callan and Associates meeting
only reiterated what it has said in the past.
9:37:39 AM
MR. CARPENTER presented the slide entitled, "How much less is my
PFD if the Legislature draws $250 M from the ERA each year?".
The slide is a grid chart, showing the fiscal gap range in the
left column, and the next column shows the ERA draw in millions,
He noted that the ERA is to be filled by half the amount of the
fiscal gap. The large part of the graph shows the fiscal years
ahead if the legislature enacts the draws from the ERA. For
example, the chart shows that if in year five [after the
enactment] there was a $250 million draw to balance the budget,
then there would be a $30 additional difference in the permanent
fund dividend check.
9:39:32 AM
MR. CARPENTER, in response to Representative Wilson, related
that the grid chart takes into account the growth of the
permanent fund.
9:39:48 AM
MR. CARPENTER, in response to Representative Samuels, said that
these projections are based only on the current statute for the
dividend and not on the POMV.
9:40:05 AM
REPRESENTATIVE WILSON requested a similar grid chart that would
show the effects of POMV.
9:40:20 AM
REPRESENTATIVE ROKEBERG related that the grid chart would have
to include other assumptions because the POMV alone would not
change the projections. The POMV is a management tool, but it
does not allocate, he added.
9:40:46 AM
REPRESENTATIVE SEATON related that the committee would like a
chart of the projected dividend amounts as well as the
influences on the dividend, because under the proposed scenario
the dividends would be growing. He reiterated that five years
after enactment of HB 143, the dividend would be a $30 less than
if the legislature did nothing.
9:41:21 AM
CHAIR WEYHRAUCH added that it is one issue to take $30 off of
last year's dividend which was $919, but to take $30 off of
$1,340, it puts it in different terms.
9:41:38 AM
REPRESENTATIVE ROKEBERG added that "The assumption about 'how
many' is already in the other column. You can see the projected
dividend amount here, you just have to divide it by what the
estimate of recipients is."
9:41:59 AM
MR. CARPENTER presented the slide entitled, "...how does this
compare to status quo?". The chart shows that if the
legislature pulled $250 million each year, the status quo
projected, with no draw and the dividend [appropriations] of
$250 million. Therefore, by FY 15 the ERA would have $110
million left per check.
9:42:52 AM
REPRESENTATIVE WEYHRAUCH commented that the issue is becoming a
"political will issue and not a money issue."
9:43:05 AM
MR. CARPENTER presented the final slide, which depicts the
declining balance of the CBR. The yellow line represents the
CBR balance not shared to fill the fiscal gap, and the red line
represents the CBR balance shared. The maroon columns are the
declining general fund revenue and the purple columns are the
increasing general fund budget.
9:43:35 AM
REPRESENTATIVE ROKEBERG commented that many graphs show no CBR
draw and just the ERA.
9:43:47 AM
MR. CARPENTER pointed out that "$250 million is one-quarter of
one-thirtieth of the earnings power of the permanent fund, so 25
percent of 3 percent .... If you think about that in a five year
averaging change in the dividend ... it is reasonable, to me."
9:44:36 AM
REPRESENTATIVE ROKEBERG said that not withstanding the lowering
impact on the CBR it still exhausts itself by FY 12. He
commented that the legislature needs to address: why the state
should maintain a budget reserve, what should be the given
amount, its relationship to general fund spending, and how the
resources are allocated. The different approach addressed in
this legislation [HB 143] does not solve the long term problem
and actually takes away "cash management and shock absorber
tools," he said.
9:45:26 AM
REPRESENTATIVE SAMUELS said:
Whatever we do to fix this problem, having the least
impact on the economy, and if you cut budget ... $1
billion ... that money ... gets spent here, so it's
going to have an impact of the economy .... As much
as people say, if you have a sales tax it's going to
come from the tourists or an income tax is going from
the out-of-state workers, the reality is broad based
taxes they're going to get paid by Alaskans, and that
money then comes out of the economy. And if you strip
away the politics - which is why POMV made so much
sense last year - it's new money, and you're not
hurting the economy drastically. And the problem with
just waiting for the earnings ... if you do that and
you don't make your 7 percent, or if the market
completely tanks and there are no earnings, then there
we are. And that is what POMV, the whole point of it,
was to stabilize the cash flow, and have as little
impact on the economy as possible .... If you strip
away the politics, shame on us if we don't fix the
problem somehow. And the second thing that has not
come up in this, or anything else, is the impact of
the federal dollars on our economy, and it could all
come together at one time .... You never can tell when
political parties switch and the federal influence
will continue to drop, and that will have an impact on
our economy .... [Oil] production is going down ...
so if you just strip away the politics, the problem is
certainly fixable ....
9:47:50 AM
REPRESENTATIVE GRUENBERG added that the federal programs seem to
bring in money until the program gets going, and then the money
stops.
9:48:05 AM
REPRESENTATIVE SEATON added that everyone is welcome to the
House State Affairs Standing Committee meeting that will address
PERS and TRS on February 19, 2005, from 9:00 a.m. until 12:00
a.m.
ADJOURNMENT
There being no further business before the committee, the House
Special Committee on Ways and Means meeting was adjourned at
9:48:33 AM.
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