Legislature(2003 - 2004)

04/24/2003 07:10 AM W&M

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
                    ALASKA STATE LEGISLATURE                                                                                  
           HOUSE SPECIAL COMMITTEE ON WAYS AND MEANS                                                                          
                         April 24, 2003                                                                                         
                           7:10 a.m.                                                                                            
                                                                                                                                
MEMBERS PRESENT                                                                                                               
                                                                                                                                
Representative Mike Hawker, Co-Chair                                                                                            
Representative Jim Whitaker, Co-Chair                                                                                           
Representative Cheryll Heinze                                                                                                   
Representative Vic Kohring                                                                                                      
Representative Bruce Weyhrauch                                                                                                  
Representative Peggy Wilson                                                                                                     
Representative Max Gruenberg                                                                                                    
Representative Carl Moses                                                                                                       
                                                                                                                                
MEMBERS ABSENT                                                                                                                
                                                                                                                                
Representative Norman Rokeberg                                                                                                  
                                                                                                                                
OTHER LEGISLATORS PRESENT                                                                                                     
                                                                                                                                
Representative Carl Gatto                                                                                                       
Representative Paul Seaton                                                                                                      
Representative Dan Ogg                                                                                                          
Representative Ralph Samuels                                                                                                    
                                                                                                                                
COMMITTEE CALENDAR                                                                                                            
                                                                                                                                
HOUSE BILL NO. 271                                                                                                              
"An Act levying and providing for the collection and                                                                            
administration of an excise tax on passenger vehicle rentals;                                                                   
and providing for an effective date."                                                                                           
                                                                                                                                
     - MOVED CSHB 271(W&M) OUT OF COMMITTEE                                                                                     
                                                                                                                                
HOUSE JOINT RESOLUTION NO. 9                                                                                                    
Proposing amendments to the Constitution of the State of Alaska                                                                 
relating to an appropriation limit and a spending limit.                                                                        
                                                                                                                                
     - HEARD AND HELD                                                                                                           
                                                                                                                                
HOUSE JOINT RESOLUTION NO. 26                                                                                                   
Proposing amendments to the Constitution of the State of Alaska                                                                 
relating to and limiting appropriations from and inflation-                                                                     
proofing the Alaska permanent fund by establishing a percent of                                                                 
market value spending limit.                                                                                                    
                                                                                                                                
     - HEARD AND HELD                                                                                                           
                                                                                                                                
PREVIOUS ACTION                                                                                                               
                                                                                                                                
BILL: HB 271                                                                                                                  
SHORT TITLE:PASSENGER VEHICLE RENTAL TAX                                                                                        
SPONSOR(S): REPRESENTATIVE(S)KOTT                                                                                               
                                                                                                                                
Jrn-Date   Jrn-Page                     Action                                                                                  
04/15/03     0986       (H)        READ THE FIRST TIME -                                                                        
                                   REFERRALS                                                                                    
04/15/03     0986       (H)        W&M, FIN                                                                                     
04/15/03     0986       (H)        REFERRED TO WAYS & MEANS                                                                     
04/22/03                (H)        W&M AT 7:00 AM HOUSE FINANCE                                                                 
                                   519                                                                                          
04/22/03                (H)        Heard & Held                                                                                 
                                   MINUTE(W&M)                                                                                  
04/23/03                (H)        W&M AT 7:00 AM HOUSE FINANCE                                                                 
                                   519                                                                                          
04/23/03                (H)        Heard & Held                                                                                 
                                   MINUTE(W&M)                                                                                  
04/24/03                (H)        W&M AT 7:00 AM HOUSE FINANCE                                                                 
                                   519                                                                                          
                                                                                                                                
BILL: HJR 9                                                                                                                   
SHORT TITLE:CONST AM: APPROPRIATION/SPENDING LIMIT                                                                              
SPONSOR(S): REPRESENTATIVE(S)STOLTZE                                                                                            
                                                                                                                                
Jrn-Date   Jrn-Page                     Action                                                                                  
01/31/03     0102       (H)        READ THE FIRST TIME -                                                                        
                                   REFERRALS                                                                                    
01/31/03     0102       (H)        STA, JUD, FIN                                                                                
01/31/03     0102       (H)        REFERRED TO STATE AFFAIRS                                                                    
02/11/03                (H)        STA AT 8:00 AM CAPITOL 102                                                                   
02/11/03                (H)        Heard & Held                                                                                 
                                   MINUTE(STA)                                                                                  
03/28/03     0687       (H)        COSPONSOR(S): ROKEBERG                                                                       
04/04/03     0797       (H)        W&M REFERRAL ADDED BEFORE STA                                                                
04/04/03     0797       (H)        REMOVED FROM STA REFERRED TO                                                                 
                                   W&M                                                                                          
04/09/03                (H)        W&M AT 7:00 AM HOUSE FINANCE                                                                 
                                   519                                                                                          
04/09/03                (H)        Heard & Held                                                                                 
                                   MINUTE(W&M)                                                                                  
04/17/03                (H)        W&M AT 7:00 AM HOUSE FINANCE                                                                 
                                   519                                                                                          
04/17/03                (H)        Heard & Held                                                                                 
                                   MINUTE(W&M)                                                                                  
04/24/03                (H)        W&M AT 7:00 AM HOUSE FINANCE                                                                 
                                   519                                                                                          
                                                                                                                                
BILL: HJR 26                                                                                                                  
SHORT TITLE:CONST. AM: PF APPROPS/INFLATION-PROOFING                                                                            
SPONSOR(S): RLS BY REQUEST OF LEG BUDGET & AUDIT BY REQUEST                                                                     
                                                                                                                                
Jrn-Date   Jrn-Page                     Action                                                                                  
04/17/03     1025       (H)        READ THE FIRST TIME -                                                                        
                                   REFERRALS                                                                                    
04/17/03     1025       (H)        W&M, JUD, FIN                                                                                
04/17/03     1025       (H)        REFERRED TO WAYS & MEANS                                                                     
04/22/03                (H)        W&M AT 7:00 AM HOUSE FINANCE                                                                 
                                   519                                                                                          
04/22/03                (H)        Heard & Held                                                                                 
                                   MINUTE(W&M)                                                                                  
04/24/03                (H)        W&M AT 7:00 AM HOUSE FINANCE                                                                 
                                   519                                                                                          
                                                                                                                                
WITNESS REGISTER                                                                                                              
                                                                                                                                
ARLISS STURGULEWSKI, Trustee                                                                                                    
University of Alaska Foundation                                                                                                 
Anchorage, Alaska                                                                                                               
POSITION STATEMENT:  Testified in support of HJR 26.                                                                            
                                                                                                                                
MARY GRISWOLD                                                                                                                   
Homer, Alaska                                                                                                                   
POSITION STATEMENT:  Testified in support of HJR 26.                                                                            
                                                                                                                                
EDWARD MARTIN, SR.                                                                                                              
Soldotna, Alaska                                                                                                                
POSITION STATEMENT:  Testified in opposition to HJR 26.                                                                         
                                                                                                                                
JAMES PRICE                                                                                                                     
Nikiski, Alaska                                                                                                                 
POSITION STATEMENT:  Testified in opposition to HJR 26.                                                                         
                                                                                                                                
LAURIE CHURCHILL                                                                                                                
Nikiski, Alaska                                                                                                                 
POSITION:  Testified in opposition to HJR 26.                                                                                   
                                                                                                                                
PETRIA FALKENBERG                                                                                                               
Kenai, Alaska                                                                                                                   
POSITION STATEMENT:  Testified in opposition to HJR 26.                                                                         
                                                                                                                                
ACTION NARRATIVE                                                                                                              
                                                                                                                                
TAPE 03-13, SIDE A                                                                                                            
Number 0001                                                                                                                     
                                                                                                                                
CO-CHAIR WHITAKER called the House  Special Committee on Ways and                                                             
Means meeting  to order at  7:10 a.m.   Representatives Whitaker,                                                               
Hawker, Heinze,  Kohring, Wilson, and  Moses were present  at the                                                               
call to  order.  Representatives Weyhrauch  and Gruenberg arrived                                                               
as the meeting  was in progress.   Representatives Gatto, Seaton,                                                               
Ogg, and Samuels were also in attendance.                                                                                       
                                                                                                                                
HB 271-PASSENGER VEHICLE RENTAL TAX                                                                                           
Number 0125                                                                                                                     
                                                                                                                                
CO-CHAIR  WHITAKER announced  that  the first  order of  business                                                               
would be  HOUSE BILL NO. 271,  "An Act levying and  providing for                                                               
the collection and  administration of an excise  tax on passenger                                                               
vehicle rentals; and providing for an effective date."                                                                          
                                                                                                                                
Number 0152                                                                                                                     
                                                                                                                                
CO-CHAIR HAWKER moved to adopt  the proposed committee substitute                                                               
for HB 271,  Version 23-LS0936\S, Kurtz, 4/23/03,  as the working                                                               
document.   There being  no objection, Version  S was  before the                                                               
committee.                                                                                                                      
                                                                                                                                
CO-CHAIR HAWKER explained that  the proposed committee substitute                                                               
was drafted in  response to public testimony  by industry members                                                               
during yesterday's  hearing.   The proposed  committee substitute                                                               
has been constructed  with the cooperation of the  members of the                                                               
committee  and the  bill's sponsor  [Representative Kott].   This                                                               
version expands the definition of  vehicles subject to the excise                                                               
tax  to  include  recreational  vehicles  as  well  as  passenger                                                               
vehicles.  The rate on passenger  vehicles has been reduced to 10                                                               
percent from the  previous bill's 15 percent  level because local                                                               
taxes  and access  fees  created  too much  of  a  burden on  the                                                               
industry.   The  10 percent  [excise tax]  is more  in line  with                                                               
national standards, he commented.   The tax on recreational motor                                                               
vehicles   [RVs]   is  established   at   3   percent  with   the                                                               
understanding that RVs  will rent on a dollar-per-day  basis 3 to                                                               
5 times as much as an  average passenger vehicle.  This keeps the                                                               
tax  levies in  a proportional  perspective, he  said.   Co-Chair                                                               
Hawker told  the members that  the committee substitute  also has                                                               
administrative provisions  that specify that the  regulations for                                                               
the  administration  of  this  tax shall  be  determined  by  the                                                               
[Department  of  Revenue].   Nothing  in  this  bill in  any  way                                                               
prohibits the lessors of the  vehicles from collecting the excise                                                               
tax from the consumers.                                                                                                         
                                                                                                                                
Number 0421                                                                                                                     
                                                                                                                                
CO-CHAIR HAWKER told the members  that he is comfortable with the                                                               
bill with  respect to the  way it  fits into the  general revenue                                                               
system where funds are not  dedicated, and where revenues come in                                                               
from many  sources such as  oil and  gas revenue excise  taxes or                                                               
fees for  registration of  motor vehicles.   The  general revenue                                                               
system has  not been looked at  for many years, and  is no longer                                                               
consistent  with what  has become  generally accepted  across the                                                               
country in funding of state  governments, he commented.  Co-Chair                                                               
Hawker  explained  that excise  taxes  on  vehicles is  a  common                                                               
mechanism and  this bill is  consistent with what has  been found                                                               
to  be  a   proven  component  of  the   general  revenue  system                                                               
nationwide.   He  told the  members he  believes [this  tax] fits                                                               
into a  comprehensive fiscal  structure for  the state  of Alaska                                                               
that makes sense and is appropriate at this time.                                                                               
                                                                                                                                
Number 0541                                                                                                                     
                                                                                                                                
REPRESENTATIVE WILSON asked what  the estimated revenues for this                                                               
[excise tax] would be.                                                                                                          
                                                                                                                                
CO-CHAIR  HAWKER  replied  that  the fiscal  note  on  the  first                                                               
version  of   HB  271  showed  approximately   $7.5  million  [in                                                               
revenue].  He pointed out that  fiscal note was predicated on all                                                               
vehicles, including recreational vehicles,  being taxed at the 15                                                               
percent  level.   A fiscal  note  reflecting the  changes in  the                                                               
committee substitute  is not yet  available; however, he  said he                                                               
believes there  will be a  proportional reduction in  relation to                                                               
the tax base.                                                                                                                   
                                                                                                                                
CO-CHAIR WHITAKER  added that he  estimates the fiscal  note will                                                               
be around $7  million.  A revised fiscal note  for this committee                                                               
substitute will be provided to the committee soon.                                                                              
                                                                                                                                
Number 0639                                                                                                                     
                                                                                                                                
REPRESENTATIVE  SEATON commented  that  he  believes the  reduced                                                               
rate on RVs makes sense  especially since individuals renting RVs                                                               
are not  only getting a  vehicle, but accommodations  or lodging.                                                               
He  said  the  committee  talked about  the  applicability  of  a                                                               
municipal tax on  vehicles or a bed tax that  could be instituted                                                               
by  a  municipality.   He  stated  he  believes there  should  be                                                               
clarification in the bill on this point.                                                                                        
                                                                                                                                
CO-CHAIR HAWKER  responded that bed  taxes are  usually justified                                                               
as a means  to promote economic development and  tourism, as well                                                               
as a means  of accommodating the costs  that municipalities incur                                                               
as a  result of having tourists  in their midst.   He pointed out                                                               
that from the  standpoint of additional burden  on the community,                                                               
the  motor vehicle  renter  also pays  taxes  through motor  fuel                                                               
taxes and  dumping fees that  are associated  with RVs.   He told                                                               
the members he  does not see the need to  equate the [excise tax]                                                               
to a bed  tax or apply it in  addition to a bed tax.   That would                                                               
be very difficult  to do, he commented.  Co-Chair  Hawker said he                                                               
does  not see  this  excise tax  as  a conflict  with  a bed  tax                                                               
imposed  by   communities  since  they  are   two  different  tax                                                               
structures.                                                                                                                     
                                                                                                                                
REPRESENTATIVE  SEATON explained  that he  is only  interested in                                                               
clarifying the language  as to whether [a bed  tax] is acceptable                                                               
or  not acceptable  [with a  RV rental]  because he  believes the                                                               
question will come up.                                                                                                          
                                                                                                                                
CO-CHAIR  WHITAKER noted  for  the  record, that  Representatives                                                               
Weyhrauch and Samuels had joined the meeting.                                                                                   
                                                                                                                                
Number 0909                                                                                                                     
                                                                                                                                
CO-CHAIR HAWKER  proposed a technical  amendment to Version  S as                                                               
follows:                                                                                                                        
                                                                                                                                
     On page 2, line 15                                                                                                         
     After the words "passenger vehicle"                                                                                    
     Insert the words "or recreational vehicle"                                                                             
                                                                                                                                
CO-CHAIR HAWKER pointed  out that this change  is important since                                                               
there has been a separation  in definitions of passenger vehicles                                                               
and  recreational  vehicles   in  the  bill.     There  being  no                                                               
objection, the technical amendment was adopted.                                                                                 
                                                                                                                                
The committee took an at-ease from 7:18 a.m. to 7:22 a.m.                                                                       
                                                                                                                                
Number 1048                                                                                                                     
                                                                                                                                
REPRESENTATIVE  HEINZE  moved to  report  CSHB  271, Version  23-                                                               
LS0936\S,  Kurtz,  4/23/03,  out  of  committee  with  individual                                                               
recommendations and the accompanying fiscal notes.                                                                              
                                                                                                                                
Number 1123                                                                                                                     
                                                                                                                                
REPRESENTATIVE  KOHRING objected  and  said he  is not  convinced                                                               
that a  tax of this nature  is something that will  be beneficial                                                               
to the  economy.   Representative Kohring  explained that  he has                                                               
not heard  a compelling  argument as  to why  this tax  is needed                                                               
other  than the  fact  that it  is another  revenue  source.   He                                                               
recalled comments  that the industry  needs to contribute  to the                                                               
state in terms of what it consumes  in the wear and tear on roads                                                               
and public  facilities; however,  he said he  has not  heard that                                                               
this  industry  has  been  a  detriment  to  the  infrastructure.                                                               
Representative  Kohring  added that  the  industry  does pay  gas                                                               
taxes, business license fees,  vehicle registration fees, airport                                                               
taxes, and  other [taxes and  fees] of that  nature.  He  said he                                                               
believes the  industry has already  made a  sizeable contribution                                                               
to the state.  Representative  Kohring summarized his comments by                                                               
saying that  he does not  believe this is  a prudent action  at a                                                               
time  when  encouraging economic  development  in  the state  and                                                               
encouraging small  businesses, which are  the backbone of  a good                                                               
strong economy, is essential.                                                                                                   
                                                                                                                                
Number 1326                                                                                                                     
                                                                                                                                
A roll  call vote was  taken.  Representatives  Moses, Gruenberg,                                                               
Wilson, Weyhrauch,  Heinze, Whitaker,  and Hawker voted  in favor                                                               
of   reporting    CSHB   271,   Version   S,    from   committee.                                                               
Representative  Kohring  voted  against   it.    Therefore,  CSHB                                                               
271(W&M) was reported out of  the House Special Committee on Ways                                                               
and Means by a vote of 7-1.                                                                                                     
                                                                                                                                
HJR  9-CONST AM: APPROPRIATION/SPENDING LIMIT                                                                                 
                                                                                                                                
Number 1420                                                                                                                     
                                                                                                                                
CO-CHAIR  WHITAKER  announced that  the  next  order of  business                                                               
would be  HOUSE JOINT RESOLUTION  NO. 9, Proposing  amendments to                                                               
the  Constitution  of   the  State  of  Alaska   relating  to  an                                                               
appropriation limit and a spending limit.                                                                                       
                                                                                                                                
CO-CHAIR WHITAKER determined  that no one in the  room or on-line                                                               
wanted to testify.                                                                                                              
                                                                                                                                
CO-CHAIR  WHITAKER  noted  for  the  record  that  Representative                                                               
Gruenberg had joined the meeting.                                                                                               
                                                                                                                                
Number 1444                                                                                                                     
                                                                                                                                
CO-CHAIR  HAWKER   commented  that   since  the   committee  last                                                               
discussed  HJR  9,  he  has  had  many  conversations  about  the                                                               
structure of  the resolution.   He said  that if  this resolution                                                               
results  in a  constitutional amendment,  it will  be one  of the                                                               
legislature's  most significant  accomplishments.   The  [Alaska]                                                               
Constitution  is  truly  the  backbone   of  the  way  the  state                                                               
operates.  The  budget is how the government  satisfies the needs                                                               
and priorities of the people of Alaska.                                                                                         
                                                                                                                                
CO-CHAIR HAWKER  pointed out that  the original version of  HJR 9                                                               
was particularly restrictive.   It provided a flat  basis for all                                                               
future appropriations  with no escalating provision.   Each year,                                                               
the legislature could  raise the amount spent over  the base year                                                               
by 2 percent with a three-quarters  vote of the legislature.  But                                                               
then, the next year the legislature  would have to go back to the                                                               
base  line and  perhaps could  increase it  2 percent  that year.                                                               
Under  the  [original] HJR  9  the  legislature  could have  a  2                                                               
percent increase  over a base year.   The base year  would be the                                                               
current budget, which  would be in effect for the  next 10 years.                                                               
Given  the inflationary  pressures  and the  desire for  economic                                                               
growth,  the original  resolution  might be  too constrictive  to                                                               
maintain a budget, even at the current level.                                                                                   
                                                                                                                                
Number 1710                                                                                                                     
                                                                                                                                
CO-CHAIR HAWKER  added that  he will  not offer  specific changes                                                               
today, but  that he and  others have considered various  means of                                                               
making  HJR  9  more  flexible  as  it  caps  expenditures.    He                                                               
suggested  the committee  consider some  increments such  as:   1                                                               
percent increase  with a  simple majority  vote, an  additional 2                                                               
percent with a two-thirds vote,  and perhaps an another 2 percent                                                               
increase  with  a  three-quarters  vote, for  a  potential  total                                                               
increase  of five  percent.    A three-quarters  vote  is a  huge                                                               
hurdle, he acknowledged.   The stair step concept  would retain a                                                               
very rigid commitment to the  people to control expenditures, but                                                               
it   would  allow   for  a   reasonable  growth   of  government,                                                               
particularly  in  response to  things  the  legislature does  not                                                               
always control.   For  example, the  education budget  is formula                                                               
driven, and the  legislature does not have the ability  to cut 15                                                               
percent across  the board.   That  would not  be good  policy, he                                                               
stated.   There  are other  formula programs,  such as  Medicaid,                                                               
that  the legislature  wants to  constrain, but  it is  a billion                                                               
dollars, and the state has no  control over it.  He concluded his                                                               
comments by encouraging  the committee to add  flexibility to HJR                                                               
9 or whatever mechanism is used.                                                                                                
                                                                                                                                
Number 1910                                                                                                                     
                                                                                                                                
CO-CHAIR WHITAKER noted  there will be public testimony  on HJR 9                                                               
tomorrow and next week.  With  the support of the majority of the                                                               
members, he said  he intends to move HJR 9  out of committee next                                                               
week.  He  invited interested people to bring  their concerns and                                                               
comments forward.                                                                                                               
                                                                                                                                
Number 2006                                                                                                                     
                                                                                                                                
REPRESENTATIVE GRUENBERG stated that  for government to function,                                                               
there  must be  sufficient flexibility  in a  spending limit;  he                                                               
said legislators  cannot begin to  know what will happen  [in the                                                               
future].                                                                                                                        
                                                                                                                                
[HJR 9 was held in committee.]                                                                                                  
                                                                                                                                
                                                                                                                                
HJR 26-CONST. AM: PF APROPOS/INFLATION-PROOFING                                                                               
Number 2110                                                                                                                     
                                                                                                                                
CO-CHAIR  WHITAKER announced  that  the final  order of  business                                                               
would be HOUSE  JOINT RESOLUTION NO. 26,  Proposing amendments to                                                               
the Constitution of the State  of Alaska relating to and limiting                                                               
appropriations from  and inflation-proofing the  Alaska permanent                                                               
fund by establishing a percent of market value spending limit.                                                                  
                                                                                                                                
Number 2118                                                                                                                     
                                                                                                                                
ARLISS  STURGULEWSKI, Trustee,  University of  Alaska Foundation,                                                               
congratulated  the legislature  on having  established the  House                                                               
Special Committee on  Ways and Means.  She told  the members that                                                               
she is very supportive of  the constitutional amendment [HJR 26].                                                               
There are  a number  of reasons she  believes this  is important,                                                               
she said, but  the most important is that it  offers stability in                                                               
year-to-year  amounts  that  are available  [for  appropriation].                                                               
This  constitutional amendment  would provide  some stability  in                                                               
planning, she said.                                                                                                             
                                                                                                                                
MS. STURGULEWSKI  explained that she  serves as a trustee  on the                                                               
University of  Alaska Foundation  which was formed  primarily for                                                               
scholarships for  students.  She  explained that  [the University                                                               
of Alaska  Foundation] uses methods  similar to that  proposed by                                                               
this constitutional  amendment as do large  endowment foundations                                                               
across the country; this method is a very standard approach.                                                                    
                                                                                                                                
MS.  STURGULEWSKI told  the  members  that when  she  was in  the                                                               
legislature  she carried  the bill  which  inflation proofed  the                                                               
[Permanent] Fund principal, not the  earnings reserves.  She said                                                               
that  this constitutional  amendment  would  pull together  both.                                                               
Over time the markets  do go up and down and  this would assure a                                                               
steady, real  rate of return for  the fund and that  will protect                                                               
it.  Ms. Sturgulewski summarized  her comments by saying that she                                                               
believes this is an excellent  method of protecting the fund, and                                                               
she  will  personally commit  herself  to  working to  pass  this                                                               
constitutional amendment.                                                                                                       
                                                                                                                                
Number 2411                                                                                                                     
                                                                                                                                
MARY   GRISWOLD,   testified   in   support   of   the   proposed                                                               
constitutional  amendment  [HJR  26].   She  read  the  following                                                               
testimony into the record:                                                                                                      
                                                                                                                                
     I  am an  enthusiastic  supporter of  a  5 POMV  payout                                                                    
     because   it   constitutionally  inflation-proofs   the                                                                    
     entire permanent  fund.  Right now,  only the principal                                                                    
     is inflation-proofed, and that  is done by statute, not                                                                    
     through the  constitution, and only after  the dividend                                                                    
     program is funded.                                                                                                         
                                                                                                                                
     The second  reason I support 5  POMV is that it  sets a                                                                    
     spending  limit.     Under  the   current  distribution                                                                    
     methodology,  the   legislature  may   appropriate  the                                                                    
     entire earnings  reserve account.  Five  POMV forces us                                                                    
     to resist the temptation  to appropriate too much money                                                                    
     when  the  fund  is   flush,  yet  makes  distributions                                                                    
     available in lean years.                                                                                                   
                                                                                                                                
     Number 2550                                                                                                                
                                                                                                                                
     Third,  an  annual  payout based  on  market  value  is                                                                    
     compatible with  the fund's diversified  portfolio that                                                                    
     is managed,  in conformance to industry  standards, for                                                                    
     long-term  value over  short-term  gain.   The  current                                                                    
     distribution method,  based on income,  was appropriate                                                                    
     20 years  ago when the  fund was invested  primarily in                                                                    
     bonds.  A  5 percent payout is  generally recognized by                                                                    
     large fund managers as  the highest sustainable payout,                                                                    
     beyond which the real value  of the fund would diminish                                                                    
     over time.  This  straightforward approach protects the                                                                    
     value of the fund  and provides a limited, predictable,                                                                    
     and sustainable revenue stream.                                                                                            
                                                                                                                                
     The  permanent   fund  trustees  combined   the  fund's                                                                    
     principal  and income  in one  pot of  money to  make 5                                                                    
     POMV  work  effectively.    Segregating  the  principal                                                                    
     interferes  with  value-management  goals  by  exerting                                                                    
     pressure to produce short-term  income for dividends or                                                                    
     other    distributions   during    periods   of    poor                                                                    
     performance.   Segregating  the  principal also  tempts                                                                    
     the  legislature  to  provide  for  a  greater  than  5                                                                    
     percent  payout when  the earnings  reserve account  is                                                                    
     flush,  as  in HJR  1.    This  is  just what  POMV  is                                                                    
     designed to avoid.                                                                                                         
                                                                                                                                
     How the legislature chooses to  divide the payout is an                                                                    
     important question.   The  APFC [Alaska  Permanent Fund                                                                    
     Corporation]  takes  no  position  on the  use  of  the                                                                    
     payout.    Five  POMV  is  a  management  tool,  not  a                                                                    
     distribution plan.  However,  the two are intrinsically                                                                    
     linked.   The use of  the payout  should not be  set in                                                                    
     the  constitution  because  this  is  an  appropriation                                                                    
     issue   better  left   to   the  legislative   process.                                                                    
     However,  the  statutes   relating  to  permanent  fund                                                                    
     income  and  income  distribution must  be  amended  to                                                                    
     conform to 5 POMV.  I  urge you to preserve the current                                                                    
     dividend formula when you change  these statutes.  Five                                                                    
     POMV  is too  valuable to  the permanent  fund to  risk                                                                    
     voter rejection by threatening their dividend checks.                                                                      
                                                                                                                                
     Number 2670                                                                                                                
                                                                                                                                
     For  modeling purposes,  we assume  an 8  percent total                                                                    
     return,  3  percent  inflation,   and  5  percent  real                                                                    
     return.   Under  existing statutes,  50 percent  of the                                                                    
     income available  for distribution, or 4  percent, goes                                                                    
     to  the  dividend  program.   Inflation  proofing  then                                                                    
     takes  3  percent,  leaving 1  percent  for  the  other                                                                    
     legislative   appropriation,  which   has  never   been                                                                    
     touched.  For this distribution  to work under POMV, 80                                                                    
     percent of  the 5 percent  payout must be  allocated to                                                                    
     the  dividend program  to provide  the same  4 percent.                                                                    
     Inflation-proofing  of  3   percent  has  already  been                                                                    
     accounted  for  by  establishing  a  5  percent  payout                                                                    
     limit,  leaving  20 percent  of  the  payout for  other                                                                    
     legislative appropriation,  which is the same  as the 1                                                                    
     percent  under  the   existing  distribution  statutes.                                                                    
     Fifty percent  of the money available  for distribution                                                                    
     after  inflation  proofing   cannot  provide  the  same                                                                    
     amount  for  dividends  as  50  percent  of  the  money                                                                    
     available for distribution before inflation-proofing.                                                                      
                                                                                                                                
     It is  time to  move forward  on a  fiscal plan.   This                                                                    
     constitutional amendment combined with  a change to the                                                                    
     statutes securing  80 percent of the  annual payout for                                                                    
     dividends  is critical  first step.   Please  promote a                                                                    
     comprehensive package the voters will  accept.  It is a                                                                    
     three-way  win.    The permanent  fund  gets  a  better                                                                    
     management   framework,   the    legislature   gets   a                                                                    
     predictable revenue  stream, and the people  keep their                                                                    
     dividend formula.  [original punctuation provided]                                                                         
                                                                                                                                
Number 2747                                                                                                                     
                                                                                                                                
REPRESENTATIVE GRUENBERG asked Ms.  Griswold whom she represents,                                                               
and if she  would provide the members with a  written copy of her                                                               
testimony.                                                                                                                      
                                                                                                                                
MS. GRISWOLD  stated that  she is representing  only herself.   A                                                               
copy  of  her   written  testimony  has  been   provided  to  the                                                               
committee.                                                                                                                      
                                                                                                                                
Number 2819                                                                                                                     
                                                                                                                                
EDWARD MARTIN, SR.,  testified in opposition to HJR 26.   He told                                                               
the members  that he believes  [HJR 26] is  a poor way  to manage                                                               
the  fund.   The state  legislature  has a  very large  financial                                                               
management  problem and  so does  the Permanent  Fund Corporation                                                               
Board of  Trustees, he said.   They  have to use  the "so-called"                                                               
prudent man  rule.   They have  invested 99  percent of  the fund                                                               
outside of  our borders  which has  produced about  [$6 billion].                                                               
The  sad  part  [of  this  policy] is  that  the  [trustees]  are                                                               
continuing the  same policy [of  investing outside  Alaska] while                                                               
recommending this  legislation which  takes more from  the people                                                               
of Alaska and  lets government have more to waste.   He asked the                                                               
members  to  remember that  the  money  has  no value  to  Alaska                                                               
citizens without  its use.  He  told the members that  there will                                                               
be a heavy political price paid  when the citizen rule is applied                                                               
at  the  ballot box.    This  legislation  does not  benefit  the                                                               
citizens of  Alaska, only special  interests, and the  people are                                                               
not buying it, he warned.                                                                                                       
                                                                                                                                
Number 3112                                                                                                                     
                                                                                                                                
JAMES PRICE,  testified in  opposition to  HJR 26.   He  told the                                                               
members he  believes that  this resolution  brings the  state one                                                               
step  closer  to using  the  dividend  earnings and  perhaps  the                                                               
principal to fund  the operation of state government.   Mr. Price                                                               
said that  he thinks  the legislature should  find a  solution to                                                               
the  deficient  problem before  changing  any  provisions of  the                                                               
Permanent  Fund.   He  said he  would like  to  see the  dividend                                                               
program   off    the   table   with   respect    to   legislative                                                               
appropriations.   He said  he does  not believe  this legislation                                                               
will  solve the  problem,  but  will perpetuate  it.   Mr.  Price                                                               
summarized  his comments  by saying  he  opposes HJR  26 and  the                                                               
appropriation of  any of  the earnings for  the funding  of state                                                               
government.                                                                                                                     
                                                                                                                                
Number 3309                                                                                                                     
                                                                                                                                
LAURIE CHURCHILL, testified  in opposition HJR 26.   She told the                                                               
members that  she does not  believe there  should be a  change in                                                               
the  [Alaska] Constitution  without a  vote of  the people.   She                                                               
said  she believes  there is  a serious  spending problem  with a                                                               
bloated  budget  and  it  needs  to  be  cut  drastically.    Ms.                                                               
Churchill  noted that  many of  the legislators  who are  serving                                                               
made  campaign promises  to their  constituents  that they  would                                                               
leave   the  PFD   [Permanent  Fund   dividend]   alone.     This                                                               
[resolution] is a violation of the constituents' trust.                                                                         
                                                                                                                                
Number 3429                                                                                                                     
                                                                                                                                
CO-CHAIR WHITAKER  clarified that  what is  being discussed  is a                                                               
proposed constitutional  amendment [HJR  26] which, if  passed by                                                               
the legislature, would require a vote of the people in 2004.                                                                    
                                                                                                                                
Number 3450                                                                                                                     
                                                                                                                                
PETRIA FALKENBERG, testified  in opposition to HJR 26.   She told                                                               
the members  that she is  opposed to the resolution  because most                                                               
candidates elected  in 2002 promised  not to touch  the Permanent                                                               
Fund.  She asked if the  members were listening to the 83 percent                                                               
of Alaskan  voters.   Ms. Falkenberg said  she believes  that the                                                               
major  problem lies  with overspending.   She  said she  does not                                                               
believe the Permanent  Fund should be a source of  funding to run                                                               
the government.   She said  she opposes the  legislature's coming                                                               
through the back door to rob the PFD with bills of this nature.                                                                 
                                                                                                                                
Number 3633                                                                                                                     
                                                                                                                                
REPRESENTATIVE   WILSON  explained   to  those   individuals  who                                                               
testified and those who are  listening that the members have been                                                               
advised  that it  is possible  that  the PFD  could disappear  at                                                               
various times; however, with this resolution in place it would                                                                  
be a more stable and more assured dividend for the people of the                                                                
state.                                                                                                                          
                                                                                                                                
CO-CHAIR WHITAKER announced that there will be public testimony                                                                 
taken tomorrow, Tuesday, and Wednesday on HJR 9 and HJR 26.                                                                     
                                                                                                                                
[HJR 9 and HJR 26 were held over.]                                                                                              
                                                                                                                                
ADJOURNMENT                                                                                                                   
                                                                                                                                
There being no further business before the committee, the House                                                                 
Special Committee on Ways and Means meeting was adjourned at                                                                    
7:50 a.m.                                                                                                                       

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