Legislature(2003 - 2004)

03/17/2004 07:02 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                                                                          
                         March 17, 2004                                                                                         
                           7:02 a.m.                                                                                            
                                                                                                                                
MEMBERS PRESENT                                                                                                               
                                                                                                                                
Representative Mike Hawker, Chair                                                                                               
Representative Bruce Weyhrauch, Vice Chair                                                                                      
Representative Vic Kohring                                                                                                      
Representative Dan Ogg                                                                                                          
Representative Norman Rokeberg                                                                                                  
Representative Ralph Samuels                                                                                                    
Representative Peggy Wilson                                                                                                     
Representative Max Gruenberg                                                                                                    
Representative Carl Moses                                                                                                       
                                                                                                                                
MEMBERS ABSENT                                                                                                                
                                                                                                                                
All members present                                                                                                             
                                                                                                                                
OTHER LEGISLATORS PRESENT                                                                                                     
                                                                                                                              
Representative Paul Seaton                                                                                                      
Representative John Harris                                                                                                      
                                                                                                                                
COMMITTEE CALENDAR                                                                                                            
                                                                                                                                
HOUSE BILL NO. 236                                                                                                              
"An Act imposing a tax on employment; and providing for an                                                                      
effective date."                                                                                                                
                                                                                                                                
     - MOVED CSHB 236(W&M) OUT OF COMMITTEE                                                                                     
                                                                                                                                
HOUSE BILL NO. 298                                                                                                              
"An Act relating  to the distribution of  appropriations from the                                                               
Alaska permanent fund under art.  IX, sec. 15(b), Constitution of                                                               
the  State  of  Alaska,  and making  conforming  amendments;  and                                                               
providing for an effective date."                                                                                               
                                                                                                                                
     - MOVED CSHB 298(W&M) OUT OF COMMITTEE                                                                                     
                                                                                                                                
PREVIOUS COMMITTEE ACTION                                                                                                     
                                                                                                                              
BILL: HB 236                                                                                                                  
SHORT TITLE: EMPLOYMENT TAX FOR EDUCATION                                                                                       
SPONSOR(S): REPRESENTATIVE(S) WILSON                                                                                            
                                                                                                                                
04/02/03       (H)       READ THE FIRST TIME - REFERRALS                                                                        
04/02/03       (H)       W&M, FIN                                                                                               
04/10/03       (H)       W&M AT 7:00 AM HOUSE FINANCE 519                                                                       
04/10/03       (H)       -- Meeting Canceled --                                                                                 
04/16/03       (H)       W&M AT 7:00 AM HOUSE FINANCE 519                                                                       
04/16/03       (H)       Heard & Held/Subcommittee assigned                                                                     
04/16/03       (H)       MINUTE(W&M)                                                                                            
01/28/04       (H)       W&M AT 7:00 AM HOUSE FINANCE 519                                                                       
01/28/04       (H)       Heard & Held                                                                                           
01/28/04       (H)       MINUTE(W&M)                                                                                            
02/11/04       (H)       W&M AT 7:00 AM HOUSE FINANCE 519                                                                       
02/11/04       (H)       -- Meeting Canceled --                                                                                 
02/13/04       (H)       W&M AT 7:00 AM HOUSE FINANCE 519                                                                       
02/13/04       (H)       -- Meeting Canceled --                                                                                 
03/10/04       (H)       W&M AT 7:00 AM HOUSE FINANCE 519                                                                       
03/10/04       (H)       -- Meeting Canceled --                                                                                 
03/17/04       (H)       W&M AT 7:00 AM HOUSE FINANCE 519                                                                       
                                                                                                                                
BILL: HB 298                                                                                                                  
SHORT TITLE: DISTRIBUTIONS OF APPROPS FROM PERM FUND                                                                            
SPONSOR(S): WAYS & MEANS                                                                                                        
                                                                                                                                
05/05/03       (H)       READ THE FIRST TIME - REFERRALS                                                                        
05/05/03       (H)       W&M, FIN                                                                                               
05/06/03       (H)       W&M AT 7:00 AM HOUSE FINANCE 519                                                                       
05/06/03       (H)       Heard & Held                                                                                           
05/06/03       (H)       MINUTE(W&M)                                                                                            
05/08/03       (H)       W&M AT 7:00 AM HOUSE FINANCE 519                                                                       
05/08/03       (H)       Heard & Held                                                                                           
05/08/03       (H)       MINUTE(W&M)                                                                                            
05/14/03       (H)       W&M AT 7:00 AM HOUSE FINANCE 519                                                                       
05/14/03       (H)       -- Meeting Canceled --                                                                                 
03/17/04       (H)       W&M AT 7:00 AM HOUSE FINANCE 519                                                                       
                                                                                                                                
WITNESS REGISTER                                                                                                              
                                                                                                                                
DAN DICKINSON, Director                                                                                                         
Tax Division                                                                                                                    
Department of Revenue                                                                                                           
Anchorage, Alaska                                                                                                               
POSITION STATEMENT:  Testified during the discussion of HB 236                                                                  
and answered questions.                                                                                                         
                                                                                                                                
MARY HAKALA, Member                                                                                                             
Alaska Kids Count                                                                                                               
Juneau, Alaska                                                                                                                  
POSITION STATEMENT:  Testified during the discussion of HB 236.                                                                 
                                                                                                                                
ROGER GAY                                                                                                                       
Big Lake, Alaska                                                                                                                
POSITION STATEMENT:  Testified during the discussion of HB 236.                                                                 
                                                                                                                                
BOB BARTHOLOMEW, Chief Operating Officer                                                                                        
Alaska Permanent Fund Corporation                                                                                               
Department of Revenue                                                                                                           
Juneau, Alaska                                                                                                                  
POSITION STATEMENT:   Testified during  the discussion of  HB 298                                                               
and answered questions.                                                                                                         
                                                                                                                                
KEVIN RITCHIE, Executive Director                                                                                               
Alaska Municipal League                                                                                                         
Juneau, Alaska                                                                                                                  
POSITION STATEMENT:   Testified during  the discussion of  HB 298                                                               
and answered questions.                                                                                                         
                                                                                                                                
ACTION NARRATIVE                                                                                                              
                                                                                                                                
TAPE 04-13, SIDE A                                                                                                            
Number 0001                                                                                                                     
                                                                                                                                
CHAIR MIKE HAWKER called the  House Special Committee on Ways and                                                             
Means  meeting to  order at  7:02 a.m.   Representatives  Hawker,                                                               
Samuels, Kohring, Weyhrauch, Wilson,  Moses, and Ogg were present                                                               
at the  call to  order.   Representatives Rokeberg  and Gruenberg                                                               
arrived as the  meeting was in progress.   Representatives Seaton                                                               
and Harris were also present.                                                                                                   
                                                                                                                                
HB 236-EMPLOYMENT TAX FOR EDUCATION                                                                                           
                                                                                                                                
Number 0150                                                                                                                     
                                                                                                                                
CHAIR HAWKER announced that the  first order of business would be                                                               
HOUSE BILL  NO. 236, "An  Act imposing  a tax on  employment; and                                                               
providing for an effective date."                                                                                               
                                                                                                                                
CHAIR HAWKER  informed the committee  of his intent to  move both                                                               
HB 236 and HB  298 out of committee and on  to the [House Finance                                                               
Committee] after discussion and public testimony today.                                                                         
                                                                                                                                
Number 0219                                                                                                                     
                                                                                                                                
REPRESENTATIVE WILSON, sponsor of HB 236, moved to adopt the                                                                    
proposed committee substitute (CS) for HB 236, Version 23-                                                                      
LS0921\V, Kurtz, 3/16/04, as the working document.  There being                                                                 
no objection, Version V was before the committee.                                                                               
                                                                                                                                
CHAIR HAWKER noted the arrival of Representative Gruenberg.                                                                     
                                                                                                                                
REPRESENTATIVE WILSON read from the sponsor statement for CSHB                                                                  
236.  For many years ... Alaska had [a school tax] that was paid                                                                
by all employed persons in the state.  She continued to read:                                                                   
                                                                                                                                
     The  money went  into  the general  fund  and became  a                                                                    
     portion  of  the   dollars  legislators  earmarked  for                                                                    
     education.   However,  when  Alaska  thought that  they                                                                    
     were rich  beyond their wildest  dreams and  the supply                                                                    
     of oil  money, of course,  would never end,  the school                                                                    
     tax was repealed, and so,  this is just trying to bring                                                                    
     back a school tax.                                                                                                         
                                                                                                                                
     This bill  imposes a $100  education tax to be  paid by                                                                    
     all  employed   persons,  self-employed   or  regularly                                                                    
     employed, who earn  more than $600 in Alaska.   This is                                                                    
     a  way to  assure that  all persons  who earn  money in                                                                    
     Alaska  pay something  for the  services that  they all                                                                    
     receive.   It's a  way to collect  some money  from the                                                                    
     18.2 percent  of workers who  work in this  state, earn                                                                    
     their living  here, but reside  and spend  it somewhere                                                                    
     else.                                                                                                                      
                                                                                                                                
     This bill contains a trigger.   We talked about several                                                                    
     different things  last time.   The education  tax would                                                                    
     be imposed  only in calendar  years following  the June                                                                    
     30  fiscal  year  end  when the  cash  balance  in  the                                                                    
     Constitutional Budget Reserve Fund  [CBRF] is less than                                                                    
     $1.5  billion.     The  tax   would  be   suspended  in                                                                    
     subsequent calendar years following  the June 30 fiscal                                                                    
     end, when the cash balance  of the CBRF is greater than                                                                    
     $2.5 billion.   So,  the trigger is  if it  falls below                                                                    
     $1.5  billion  it  goes into  effect,  and  if  money's                                                                    
     coming in and we've  replenished that fund, which we're                                                                    
     supposed to be  doing, which we have not  been doing up                                                                    
     to this  point, but, when  that happens, then  it would                                                                    
     be  automatically suspended  until  a  time would  come                                                                    
     when we would need it again.                                                                                               
     The  tax would  be deposited  into the  state's general                                                                    
     fund  and accounted  for separately.   The  legislature                                                                    
     may then  appropriate the amounts collected  under this                                                                    
       section for education.  The Department of Revenue                                                                        
       [DOR] projects that the annual earnings from this                                                                        
     would be approximately $43 million.                                                                                        
                                                                                                                                
Number 0536                                                                                                                     
                                                                                                                                
CHAIR HAWKER noted  that there is a new fiscal  note from DOR and                                                               
asked  that it  be  distributed  to the  members.    He said  the                                                               
sectional analysis provided  is a more technical  analysis of the                                                               
individual sections of the proposed CS.                                                                                         
                                                                                                                                
Number 0555                                                                                                                     
                                                                                                                                
REPRESENTATIVE  WEYHRAUCH directed  a question  to Representative                                                               
Wilson  about employees  such as  students who  live outside  the                                                               
state but return  to work for seasonal employment  in the summer,                                                               
who don't make in excess of $600  a year.  He asked if they would                                                               
be taxed on earnings made outside the state.                                                                                    
                                                                                                                                
REPRESENTATIVE WILSON answered that the  tax would be on earnings                                                               
made in Alaska at  a rate of zero percent on  the first $600 they                                                               
would earn, 10 percent on the  next thousand, and zero percent on                                                               
any other  earnings.  If  they were making  $650, it would  be 10                                                               
percent of that amount, which would be $65, she explained.                                                                      
                                                                                                                                
CHAIR HAWKER clarified the issue in  terms of nexus [the power of                                                               
a state  to tax extraterritorial  entities].  If the  student has                                                               
nexus to  Alaska, if there  is an  Alaska nexus to  the taxpayer,                                                               
then the tax would be collected, he said.                                                                                       
                                                                                                                                
REPRESENTATIVE WILSON  added that if  the student is  a resident,                                                               
the tax would be collected.                                                                                                     
                                                                                                                                
Number 0737                                                                                                                     
                                                                                                                                
CHAIR  HAWKER reviewed  the major  changes in  the bill  from the                                                               
previous version.   He  stated that wages  were easy  to quantify                                                               
for  state  residents, but  a  mechanism  was needed  to  capture                                                               
earnings from  self-employment:   fishers, doctors,  lawyers, and                                                               
others who operate as  independent contractors, sole proprietors,                                                               
or subchapter-S corporations or  partnerships.  He explained that                                                               
after much deliberation, a  simple definition of "self-employment                                                               
net income"  was determined, which  is a clearly defined  term in                                                               
the  Internal  Revenue Code  (IRC)  under  Title 26,  Chapter  2,                                                               
Section  1402(a),  "Net  earnings  from  self-employment".    Net                                                               
earnings from self-employment means "if  you've got to fill out a                                                               
social security self-employment  form in a federal  1040, the net                                                               
earnings from  self-employment, which is gross  income derived by                                                               
an  individual, less  allowable  deductions,  become the  taxable                                                               
line."     That   would  include   independent  contractors   and                                                               
partnership income.   A key point of the net  earnings from self-                                                               
employment Internal  Revenue Service (IRS) definition  is that it                                                               
has extensive  provisions that take  partnership income  and back                                                               
off passive  income such  as rents,  royalties, and  interest, he                                                               
explained.   He said  it was  a tried  and tested  definition and                                                               
opined it was a good basis for capturing [income] from self-                                                                    
employed  individuals.   He emphasized  that that  was the  major                                                               
change in [the proposed CS].                                                                                                    
                                                                                                                                
Number 1027                                                                                                                     
                                                                                                                                
CHAIR HAWKER explained  some of the smaller changes  to the bill.                                                               
The  "collars"  were defined  at  $1.5  and  $2.5 billion.    The                                                               
employers  will continue  to be  responsible for  collecting from                                                               
wage-earning employees.   A new  section provides for  a sanction                                                               
by DOR  to make employers post  a bond to assure  payment for the                                                               
withholding, if an employer is  not good at remitting the payment                                                               
in a timely fashion.  The [proposed CS] indicates that self-                                                                    
employed individuals  must remit individually to  themselves.  If                                                               
any  individual  subject to  this  tax  pays  more than  $100  by                                                               
operation of  multiple employers  or by their  own contributions,                                                               
DOR shall  refund [that amount  of overpayment], he said.   There                                                               
is  a  provision  that requires  anyone  hiring  a  self-employed                                                               
individual  who   has  to  file   with  the   federal  government                                                               
informational reports,  the 1099  reporting, to file  copies with                                                               
DOR  for cross-checking  and audit  purposes.   The bill  clearly                                                               
indicates that  the disposition is  for education, which  is very                                                               
timely, he  opined.  Last,  definitions have been cleaned  up and                                                               
referenced to specific sites of the IRC, he said.                                                                               
                                                                                                                                
CHAIR HAWKER noted the arrival of Representative Rokeberg.                                                                      
                                                                                                                                
Number 1244                                                                                                                     
                                                                                                                                
REPRESENTATIVE  WILSON expressed  her appreciation  for the  work                                                               
done by Representative Hawker on  the proposed CS, especially for                                                               
making it understandable to taxpayers.                                                                                          
                                                                                                                                
CHAIR HAWKER thanked Representative  Wilson for her assistance on                                                               
the bill.                                                                                                                       
                                                                                                                                
Number 1319                                                                                                                     
                                                                                                                                
REPRESENTATIVE  WEYHRAUCH inquired  about  the  "kick-in" in  the                                                               
proposed CS,  and wondered why it  just doesn't say, "When  it is                                                               
less than $2.5 billion."                                                                                                        
                                                                                                                                
REPRESENTATIVE   WEYHRAUCH,   in   reply  to   a   request   from                                                               
Representative Wilson, restated  his question and said  it is now                                                               
written  as having  a floor  and a  ceiling.   He suggested  just                                                               
having a floor.                                                                                                                 
                                                                                                                                
REPRESENTATIVE WILSON replied  that part of the reason  is to let                                                               
the people of  the state realize that [Alaska] can  reach a point                                                               
where the tax  is no longer needed, and that  is a better selling                                                               
point.  It also helps the  legislators realize that there is some                                                               
leeway  because the  CBRF is  supposed to  be replenished  during                                                               
good times, she added.                                                                                                          
                                                                                                                                
REPRESENTATIVE  WEYHRAUCH  said,  "So,  this  is  an  educational                                                               
provision rather than a management provision."                                                                                  
                                                                                                                                
REPRESENTATIVE WILSON said it is both.                                                                                          
                                                                                                                                
CHAIR HAWKER  compared it to a  thermostat regulating temperature                                                               
in a  room.   He said,  "There is  a point  at which  the furnace                                                               
kicks on,  but there  is also  a zone, in  there, where  the heat                                                               
fluctuates before  the furnace  kicks off again.   In  this case,                                                               
it's providing  a window of area  there that allows for  the fact                                                               
that this  is a very dynamic  world with a lot  of other economic                                                               
variables  in it."    He  acknowledged Representative  Rokeberg's                                                               
term of art, "It's a collar on ranges subject to judgment."                                                                     
                                                                                                                                
Number 1539                                                                                                                     
                                                                                                                                
CHAIR HAWKER  noted specifically  that when  money is  taken from                                                               
the  CBRF in  this state,  as Representative  Wilson said,  it is                                                               
owed back to that  fund by the general fund.   It is a receivable                                                               
of that fund,  and that is why the language  [in the proposed CS]                                                               
very  carefully chooses  the words  "cash balance"  in the  CBRF,                                                               
because the  CBRF has a  cash balance  of $8-plus billion  at all                                                               
times, made up of a combination  of cash and receivables from the                                                               
general fund,  he explained.   "So,  in this  case, we  are truly                                                               
tying  to  the  cash  balance   in  the  CBRF,  rather  than  the                                                               
accountant's value balance in the CBRF," he stated.                                                                             
                                                                                                                                
REPRESENTATIVE WEYHRAUCH  asked, "Could,  then, you go  through a                                                               
process of selling  equities to bring that cash  balance up prior                                                               
to, well, to  determine the June 30 balance, either  to avoid the                                                               
tax or,  alternatively, put  it into an  illiquidity to  cash out                                                               
from the  CBRF to  make an  illiquid cash  balance to  impose the                                                               
tax?"                                                                                                                           
                                                                                                                                
CHAIR HAWKER deferred to Mr. Dickinson.                                                                                         
                                                                                                                                
Number 1705                                                                                                                     
                                                                                                                                
DAN  DICKINSON, Director,  Tax Division,  Department of  Revenue,                                                               
said he believes that  in the CBRF, most of the  money is in cash                                                               
or cash  equivalents and is  held in a way  such that it  will be                                                               
liquid.   "There  is a  special account  which is  held in  other                                                               
securities.  To  be more precise, it could be  defined as current                                                               
asset balance," he explained.                                                                                                   
                                                                                                                                
CHAIR  HAWKER  noted that  "cash  and  cash equivalents"  is  the                                                               
commonly used term.                                                                                                             
                                                                                                                                
Number 1800                                                                                                                     
                                                                                                                                
REPRESENTATIVE ROKEBERG said he  appreciates the statements about                                                               
cash and cash  equivalents, but opined that CBRF  does have other                                                               
investments and securities.  He said  he isn't sure that a short-                                                               
term bond is equivalent to a cash equivalent.                                                                                   
                                                                                                                                
CHAIR HAWKER  noted that idea is  found in the Statement  312 [of                                                               
the 2003 "Comprehensive Annual Financial Report" (CAFR)].                                                                       
                                                                                                                                
REPRESENTATIVE  ROKEBERG  continued  to   say  that  there  is  a                                                               
provision  for   longer-term  investments  that   is  statutorily                                                               
enacted.  He  recalled several years ago when there  was a higher                                                               
balance in the CBRF and DOR was  directed to look at a portion of                                                               
the  CBRF  for  a  longer-term  investment  to  boost  the  yield                                                               
somewhat.  He said there could also be other securities.                                                                        
                                                                                                                                
CHAIR   HAWKER  added,   "Requiring   the  five-year   investment                                                               
horizon."                                                                                                                       
                                                                                                                                
Number 1900                                                                                                                     
                                                                                                                                
MR.  DICKINSON  noted  that  in   Statement  311,  which  is  the                                                               
combining balance  sheet that includes  the CBRF,  the categories                                                               
that  make up  the assets  are  "cash" and  "investments," at  $2                                                               
billion,  and "due  from other  funds", at  $5-plus billion.   He                                                               
suggested a  more accurate  way of reconciling  this would  be to                                                               
say "cash  investments."  He  made the  point that the  bill does                                                               
not refer  to the CAFR,  which does  not come out  until December                                                               
15.   He said the  language Chair  Hawker inserted says  that the                                                               
commissioner will  certify [the cash  balance] based on  the cash                                                               
balance that  is there.   He advised  looking at the  latest KPMG                                                               
audit to see how those funds are characterized.                                                                                 
                                                                                                                                
Number 1945                                                                                                                     
                                                                                                                                
REPRESENTATIVE  WEYHRAUCH suggested  it  may  just be  semantics,                                                               
because if it is  going to be imposed, it is  going to be imposed                                                               
by  regulation,   not  by   legislation.     He  said   that  the                                                               
administration is given the authority,  once they know what is in                                                               
the CBRF in  the calendar year, and then, in  the following year,                                                               
DOR follows  the statutory requirements  and sends out  the forms                                                               
for the education tax.                                                                                                          
                                                                                                                                
MR.  DICKINSON   said  he  believes  the   conditions  are  being                                                               
established by legislation.                                                                                                     
                                                                                                                                
REPRESENTATIVE  WEYHRAUCH   agreed.     He  explained   that  the                                                               
legislature sets the policy and delegates  to DOR to send out the                                                               
tax forms.   He emphasized that the legislature does  not have to                                                               
make  another legislative  determination  for  delegating to  the                                                               
agency when the CBRF limit goes below $1.5 billion.                                                                             
                                                                                                                                
MR. DICKINSON said that is correct.                                                                                             
                                                                                                                                
REPRESENTATIVE WEYHRAUCH mentioned that that  was his idea on the                                                               
sales tax, also.                                                                                                                
                                                                                                                                
Number 2104                                                                                                                     
                                                                                                                                
REPRESENTATIVE OGG remarked:                                                                                                    
                                                                                                                                
     I kind  of like this  thought process you've put  in of                                                                    
     having two  levels, one when  [the cash  balance] drops                                                                    
     below  a certain  level,  the  legislature making  that                                                                    
     draw knows that they are  now moving to impose a school                                                                    
     tax - "income tax," or 10  percent of income - and that                                                                    
     the only way to move away  from that is to start making                                                                    
     those  deposits  to  get  that fund  back  up  to  $2.5                                                                    
     billion.                                                                                                                   
                                                                                                                                
Number 2203                                                                                                                     
                                                                                                                                
REPRESENTATIVE ROKEBERG thanked the  chair for his recognition of                                                               
the collar  methodology, which  would benefit  the people  in the                                                               
state if the oil prices  and natural resources revenues reached a                                                               
point where there  would be an automatic stay  of that particular                                                               
taxation.   It  is  a policy  statement to  the  people that  the                                                               
legislature  recognizes  that there  should  be  tax relief  when                                                               
there are other  revenue sources available.  He said  it could be                                                               
comforting for people to know that  there won't be taxes just for                                                               
taxes' sake.                                                                                                                    
                                                                                                                                
Number 2316                                                                                                                     
                                                                                                                                
REPRESENTATIVE ROKEBERG  asked for  clarification about  the cash                                                               
balance definition as it relates  to the statutory revisions of a                                                               
few years  back, concerning the  boosting of yield.   He wondered                                                               
if the broader term, "current assents", could be used.                                                                          
                                                                                                                                
MR. DICKINSON  replied that  the cash  and investments  listed in                                                               
the category  used in the CAFR  would include both the  main fund                                                               
and the  "sub" fund,  which has been  specially designated  to be                                                               
invested  for a  longer-term horizon  and  for a  higher rate  of                                                               
return.   He said he  wanted to look  at the audit  report issues                                                               
regarding cash holdings.  He said,  "I believe if we use cash and                                                               
investments, or maybe cash and  liquid investments, or maybe even                                                               
specifically,  went  off and  said,  investments  other than  the                                                               
receivable from  the general fund --  there may be a  cleaner way                                                               
of doing it."                                                                                                                   
                                                                                                                                
Number 2431                                                                                                                     
                                                                                                                                
CHAIR HAWKER noted that the term  "current assets" is not used in                                                               
government accounting anymore.  He  suggested coming up with some                                                               
expansion  of that  term, and  making a  conceptual amendment  to                                                               
have  "and  investment"  incorporated   in  the  three  necessary                                                               
places, before the bill goes to the [House Finance Committee].                                                                  
                                                                                                                                
REPRESENTATIVE WEYHRAUCH asked if that includes cash investment.                                                                
                                                                                                                                
CHAIR HAWKER replied  that it does.  He said  the KPMG standalone                                                               
report of  the CBRF  may use  a slightly  different word,  and he                                                               
would like  to compare  the two  and find  a balance  between the                                                               
words.                                                                                                                          
                                                                                                                                
Number 2540                                                                                                                     
                                                                                                                                
REPRESENTATIVE  GRUENBERG reported  that HB  466 would  eliminate                                                               
the sub  account and if it  passes, there would be  money in only                                                               
one account.   He asked if Representative  Hawker could reference                                                               
the money in the account as established by statute.                                                                             
                                                                                                                                
MR. DICKINSON replied that it could  be done, but care would have                                                               
to  be taken  because accounts  in the  budgeting system  are not                                                               
like bank accounts.                                                                                                             
                                                                                                                                
Number 2636                                                                                                                     
                                                                                                                                
REPRESENTATIVE SEATON said  the collar mechanism is  a good idea,                                                               
but he expressed concern if there  was a situation where there is                                                               
$2 billion in the CBRF and, at  one time, at that amount, the tax                                                               
is in  effect and,  at another  time, it  is not  in effect.   He                                                               
said:                                                                                                                           
                                                                                                                                
     It is confusing if you've  been below $1.5 billion, and                                                                    
     now you're  at $2  billion in  the CBRF,  you're taxing                                                                    
     people.   If  you, at  some  point in  time, have  been                                                                    
     above  $2.5 billion,  you  take the  tax  off, and  now                                                                    
     you're  down  to  $2  billion  and  you're  not  taxing                                                                    
     people.   You go to  $1.8 billion -- you're  not taxing                                                                    
     people.   It seems to  me that  the idea of  having the                                                                    
     trigger is  a good  mechanism, but  I'm not  sure about                                                                    
     the  confusion  that  you get  about  sometimes  taxing                                                                    
     people, and  sometimes not taxing  people, on  the same                                                                    
     amount of money in the CBRF.                                                                                               
                                                                                                                                
Number 2745                                                                                                                     
                                                                                                                                
MR. DICKINSON responded that if  there was a single point instead                                                               
of a collar, it would be  equally confusing.  If the CBRF hovered                                                               
around that  balance, a tax  in year one, no  tax in year  two, a                                                               
tax  in year  three,  et  cetera, in  other  words,  if the  CBRF                                                               
bounced around  the trigger point,  it would be  more frustrating                                                               
to people,  he opined.  If  there is a $1-billion  collar and the                                                               
CBRF  stays within  that collar,  there won't  be those  kinds of                                                               
changes, he predicted.                                                                                                          
                                                                                                                                
CHAIR  HAWKER used  the thermostat  example again  to show  that,                                                               
during  the range  in  which the  temperature  is declining,  the                                                               
furnace is  off until  it hits  the trigger point.   It  comes on                                                               
until it  reaches a higher  point and then  kicks off, so  at any                                                               
given time  at the mid-range of  the setting, the furnace  may be                                                               
on or off.   He termed it a smoothing mechanism.   If there was a                                                               
single  point,  one  penny  less than  the  trigger  point  would                                                               
trigger the tax;  one penny more, and  the tax would go  off.  He                                                               
said he  found that  concept harder  to justify  than a  range in                                                               
which the revenue mechanism would be applied.                                                                                   
                                                                                                                                
Number 2914                                                                                                                     
                                                                                                                                
REPRESENTATIVE  ROKEBERG  offered  the wording  for  a  potential                                                               
amendment which  changes, on page 2,  line 12, the amount  of the                                                               
floor  trigger  to $1  billion  rather  than  $1.5 billion.    He                                                               
explained  the   change  creates   a  lower  threshold   for  the                                                               
imposition of the tax, which would  create less tax on the people                                                               
and create a greater spread  between $1 billion and $2.5 billion,                                                               
which   should  overcome   some   of  the   concerns  raised   by                                                               
Representative Seaton.  He noted  that the governor has spoken on                                                               
this issue,  the Conference  of Alaskans  discussed using  the $1                                                               
billion trigger,  and the public understands  that figure better.                                                               
He  said  [the committee]  needs  to  look  at the  current  cash                                                               
balances,  the cash  flow,  and  what may  be  done  in terms  of                                                               
entering  the CBRF.   He  suggested that  [the committee]  should                                                               
look at  the structural fiscal  gap in the $1-billion  range, not                                                               
the $1.5-billion  range.  He  remarked that this was  supposed to                                                               
be the "shock  absorber" for the future economy.   He referred to                                                               
Mr. Corbus's  testimony during the  Conference of  Alaskans which                                                               
indicated that the  state requires between $300  million and $400                                                               
million a year just for cash flow  needs.  Even if the state were                                                               
flush with money  in terms of revenue collection,  there needs to                                                               
be  that  extra  cushion  because  the  cash  flow  has  variable                                                               
requirements, notwithstanding the fiscal situation, he opined.                                                                  
                                                                                                                                
Number 3146                                                                                                                     
                                                                                                                                
CHAIR  HAWKER  explained  that  the  rationale  behind  the  $1.5                                                               
billion was recognized in the  governor's $1 billion-floor in the                                                               
CBRF because of the six-month  lag period between the measurement                                                               
date and  the effective date  of a  revenue mechanism.   There is                                                               
the  presumption that  if there  is  a continuing  draw into  the                                                               
CBRF, that  draw would continue  for another six months,  so that                                                               
by the  time the  revenue mechanism  actually takes  effect, [the                                                               
amount in the CBRF] may be  substantially below the $1 billion at                                                               
the  time of  the draw,  he  explained.   At any  given time  the                                                               
"checkbook float"  for the state  is about $0.5 billion,  and the                                                               
incremental  amount  of $500  million  would  give the  assurance                                                               
that, at any  given time, there would be a  $1-billion cushion in                                                               
the bank, he surmised.                                                                                                          
                                                                                                                                
REPRESENTATIVE  ROKEBERG said  he  appreciated that  information,                                                               
but maintained  that there is  a difference between  $300 million                                                               
and $500 million, and a few  million here and there starts adding                                                               
up.  He asked Mr. Dickinson  why the cash balance analysis of the                                                               
CBRF is on June 30 and not July  1.  He also asked when the FY 04                                                               
budget  will be  reconciled  to see  what type  of  draw will  be                                                               
needed from the CBRF.                                                                                                           
                                                                                                                                
Number 3400                                                                                                                     
                                                                                                                                
MR. DICKINSON answered it is  his understanding that there are no                                                               
cash transfers  that occur between June  31 and July 1,  and said                                                               
[the date]  is purely an  accounting measure.  He  explained that                                                               
when DOR  prepares the CAFR  they can  say, "Here, to  the penny,                                                               
was the  draw in  the CBRF."   He said there  is a  memorandum of                                                               
understanding between the treasury  and the administration to set                                                               
up  a cash  efficiency management  to make  sure there  is always                                                               
enough money in the general fund  to make payments.  [The general                                                               
fund] is  kept within a $100  million to $200 million  range, and                                                               
if it looks as  if there will be cash over  $200 million for over                                                               
30 days,  money from the general  fund will be put  back into the                                                               
CBRF.  If it  looks as if the amount will  go below $100 million,                                                               
money is  taken out  of the  CBRF.  There  is no  cash difference                                                               
between  June 30  and  July  1, and  nobody  makes  a deposit  or                                                               
withdrawal on  the last day of  the fiscal year or  the first day                                                               
of the new fiscal year, he concluded.                                                                                           
                                                                                                                                
REPRESENTATIVE WEYHRAUCH said, "Didn't we do that last year?"                                                                   
                                                                                                                                
MR. DICKINSON  said he believed  a financial adjustment  was made                                                               
on the books.                                                                                                                   
                                                                                                                                
REPRESENTATIVE  ROKEBERG  stated that  he  was  mystified by  Mr.                                                               
Dickinson's testimony because he felt  there should at least be a                                                               
year-end  date,  which  would  be   June  30,  when  all  of  the                                                               
accounting  and balance  sheets are  reconciled to  that date  to                                                               
determine if  any draws are  needed.  He  said there should  be a                                                               
notional amount, anyway, which is  what the Alaska Permanent Fund                                                               
Corporation uses,  and what  he calls  "windage."   He emphasized                                                               
that the  bill needs  to be very  clear as to  the amount  of the                                                               
trigger,  and whether  or not  the draw  for that  current fiscal                                                               
year, presumably  June 30, has an  impact on the balance  that is                                                               
in the CBRF.                                                                                                                    
                                                                                                                                
Number 3721                                                                                                                     
                                                                                                                                
CHAIR  HAWKER replied  that June  30 was  chosen because  then it                                                               
does become  very empirical and,  ultimately, an  audited number,                                                               
which  would   give  the  public   the  greatest   assurance  and                                                               
confidence that the  books have been reconciled at  that point in                                                               
time.                                                                                                                           
                                                                                                                                
MR. DICKINSON responded  that there are several  things going on.                                                               
For everyone's  convenience the tax  needs to on  a calendar-year                                                               
basis,  and there  needs to  be, for  software purposes,  a five-                                                               
month notice  period.  He  explained that  on July 31,  the [DOR]                                                               
commissioner will  estimate the  balance that  will show  up five                                                               
months later.   He said the money is not  segregated in different                                                               
bank accounts.                                                                                                                  
                                                                                                                                
REPRESENTATIVE  ROKEBERG   returned  to  his   original  question                                                               
whether  the draw  was attributable  to June  30 or  July 1.   He                                                               
said:                                                                                                                           
                                                                                                                                
     It  seems  to  me   that  you're  actually  making  the                                                                    
     drawdowns on a  cash flow basis as  you identify what's                                                                    
     actually  happening  as  a   practical  matter.    This                                                                    
     particular  legislation  would  have you  jump  another                                                                    
     hurdle here, in  terms of that, is all  I'm getting at.                                                                    
     I was wondering if the effect  is if the amount that we                                                                    
     want to  use as a  trigger would take into  effect that                                                                    
     current fiscal  year of June  30 impact on the  draw of                                                                    
     the CBR  [Constitutional Budget Reserve].   That's what                                                                    
     I'm driving at.                                                                                                            
                                                                                                                                
MR.  DICKINSON  replied  that  he  thought  it  would  be  fairly                                                               
immaterial which [date]  is used, and the reason that  June 30 is                                                               
used  is, "Five  months later  you  could say,  here's the  CAFR,                                                               
there's the date, June 30."                                                                                                     
                                                                                                                                
REPRESENTATIVE ROKEBERG said, "If you're  going to use a notional                                                               
amount at the end of July to  make the calculation, it may not be                                                               
consistent  with the  report  anyway, though,  right?   And  that                                                               
would  just  expose  your  judgment, good  or  poor,  because  it                                                               
wouldn't necessarily be consistent with the audit."                                                                             
                                                                                                                                
MR.  DICKINSON  said that  was  a  good  point.   He  added,  "It                                                               
probably won't  hit exactly on, but  hope would be that  it would                                                               
be very  close.  You'd  probably have a  lot of explaining  to do                                                               
about  why it  wasn't exactly  on, especially  if the  difference                                                               
moved it from one to the other."                                                                                                
                                                                                                                                
REPRESENTATIVE ROKEBERG added,  "Or you missed it by  $50 or $100                                                               
million like you mentioned."                                                                                                    
                                                                                                                                
MR. DICKINSON  added, "Or if  it flipped you  on one side  or the                                                               
other of a measuring line."                                                                                                     
                                                                                                                                
CHAIR HAWKER  suggested the committee  move on  if Representative                                                               
Rokeberg was finished with his comments.                                                                                        
                                                                                                                                
REPRESENTATIVE  ROKEBERG replied  that  he would  be offering  an                                                               
amendment soon.                                                                                                                 
                                                                                                                                
Number 4100                                                                                                                     
                                                                                                                                
REPRESENTATIVE OGG asked  for clarity about how  much tax someone                                                               
with an income of $650 would pay.                                                                                               
                                                                                                                                
REPRESENTATIVE WILSON  explained that  $600 is cut  off as  if it                                                               
didn't exist, and  then $601 would be taxed at  10 percent of $1,                                                               
or 10 cents, and [the tax on $650 would be $5].                                                                                 
                                                                                                                                
REPRESENTATIVE OGG  said that  clarifies one point.   He  said he                                                               
appreciated  the  time and  effort  put  into getting  the  self-                                                               
employed people  into the  bill.  He  wondered about  the "coupon                                                               
clippers, dividend folks, or people who are just landowners."                                                                   
                                                                                                                                
Number 4219                                                                                                                     
                                                                                                                                
MR.  DICKINSON  answered,  "We  haven't  gotten  coupon  clippers                                                               
unless they  owned part  of the company  whose coupons  they were                                                               
clipping  through  a  subchapter-S-type  arrangement.    That  is                                                               
correct.   People who  are living off  of pure  investment income                                                               
would not qualify."                                                                                                             
                                                                                                                                
CHAIR HAWKER said that was by intent of the bill drafters.                                                                      
                                                                                                                                
MR. DICKINSON said it would just be earned income.                                                                              
                                                                                                                                
REPRESENTATIVE OGG  said it appears  that someone who  received a                                                               
permanent fund dividend would be  excluded, as well as people who                                                               
just receive rental  income.  He asked if that  was the intent of                                                               
the bill.                                                                                                                       
                                                                                                                                
MR.  DICKINSON replied  that  was the  effect of  the  bill.   He                                                               
suggested if a  person formed a subchapter-S  corporation to hold                                                               
rental  properties,   there  might   be  a  payment,   but  said,                                                               
generally, for pure rental, there would not [be a tax payment].                                                                 
                                                                                                                                
REPRESENTATIVE OGG asked  if a dividend would be taxed  if it was                                                               
a person's sole income.                                                                                                         
                                                                                                                                
MR. DICKINSON said it would not be taxed.                                                                                       
                                                                                                                                
CHAIR HAWKER noted that was the  intent of the bill and explained                                                               
that is  why the "net  earnings from  self-employment" definition                                                               
was chosen, which keeps to earned income as an active services-                                                                 
type  income excluding  rentals from  real estate,  from personal                                                               
property, et  cetera.  The idea  was not to go  after the passive                                                               
retirement income of  elderly folks, nor the  bank account income                                                               
and  permanent fund  income of  children.   It  was designed  for                                                               
income-generating activities in the state, he concluded.                                                                        
                                                                                                                                
Number 4400                                                                                                                     
                                                                                                                                
REPRESENTATIVE OGG  remarked that  he wanted that  information to                                                               
be  clear on  the record  because he  had heard  earlier comments                                                               
that some  children should  pay a portion  of their  education if                                                               
they  were receiving  a dividend.    He said  he appreciates  the                                                               
clarity which shows that is not the intent [of the bill].                                                                       
                                                                                                                                
CHAIR  HAWKER  opened  the  meeting  to  public  testimony.    He                                                               
referred to a paragraph in  the members' packets from Don Rulian,                                                               
head of the Alaska Society  of CPAs, which expressed Mr. Rulian's                                                               
comfort,  from an  accountant's perspective,  with the  [proposed                                                               
CS] version of the bill.                                                                                                        
                                                                                                                                
Number 4521                                                                                                                     
                                                                                                                                
MARY  HAKALA, Member,  Alaska  Kids Count,  said  she is  working                                                               
actively  with a  large network  of concerned  parents advocating                                                               
for increased funding for schools.   She said her organization is                                                               
nonpartisan, parent-initiated,  based in Juneau, but  a statewide                                                               
network.  She reported that  the members of the organization were                                                               
asked to consider the revenue  side of the education equation and                                                               
voice their preferences to legislators.   Parents want excellence                                                               
in their  schools, and to  reach that  goal it will  require even                                                               
more  than   the  $80  million-plus   that  is   currently  under                                                               
consideration  by the  legislature, she  opined.   She said  they                                                               
realize that  new revenue measures  are necessary to make  that a                                                               
reality in Alaska.   She noted that today she  was speaking as an                                                               
individual,  and has  a concern  with the  $600 threshold  in the                                                               
bill because  of the burden it  places on college kids  and young                                                               
people who have limited earnings in the summer months.                                                                          
                                                                                                                                
TAPE 04-13, SIDE B                                                                                                            
                                                                                                                              
MS.  HAKALA continued  to say  that this  population would  pay a                                                               
disproportionate share of  the tax.  She added, as  an adult, she                                                               
has no problem  paying the tax, but would prefer  an amendment be                                                               
made  to change  the trigger  point.   She suggested,  though she                                                               
supports the  bill, that  there are more  effective ways  to fund                                                               
education such as  revisiting the economic limit  factor (ELF) to                                                               
ensure  that Alaskans  truly  maximize their  fair  share of  oil                                                               
profits, enacting  the percent of  market value (POMV)  method to                                                               
utilize a  portion of  the permanent  fund earnings  for services                                                               
such as education, and initiating  a broad-based state income tax                                                               
that  is not  regressive.   She thanked  the committee  for their                                                               
time.                                                                                                                           
                                                                                                                                
Number 4502                                                                                                                     
                                                                                                                                
REPRESENTATIVE  SEATON  said  he  has heard  many  comments  from                                                               
people who  are willing to  pay taxes for education,  and pointed                                                               
out that  the way the bill  is structured now, the  tax would not                                                               
be  collected because  there is  a $1.5  billion cutoff  and [the                                                               
CBRF]  is above  that.   He asked  Ms. Hakala  if she  thinks the                                                               
situation  the state  is  in now  would benefit  from  a tax  for                                                               
education.                                                                                                                      
                                                                                                                                
MS. HAKALA said her opinion is  that there must be some mechanism                                                               
put into place so that income  begins to be generated in the near                                                               
term.                                                                                                                           
                                                                                                                                
Number 4354                                                                                                                     
                                                                                                                                
ROGER GAY from Big Lake testified as follows:                                                                                   
                                                                                                                                
     Article 1, Section 1, of  the state constitution states                                                                    
     that  all  persons  have the  natural  right  to  life,                                                                    
     liberty, the  pursuit of  happiness, and  the enjoyment                                                                    
     of the rewards of their  own industry; that all persons                                                                    
     are equal and entitled  to equal rights, opportunities,                                                                    
     and  protection under  the law;  and  that all  persons                                                                    
     have  corresponding obligations  to the  people and  to                                                                    
     the state.  HB 236 not  only deprives the worker of the                                                                    
     enjoyment of  the rewards of  his own industry,  but it                                                                    
     also imposes  an unequal obligation  to the  people and                                                                    
     to  the  state.   Under  the  equal protection  clause,                                                                    
     everyone   should  be   subjected  to   the  same   tax                                                                    
     regardless of their  age or their source of  income.  I                                                                    
     don't  understand  why you  want  to  pick on  workers,                                                                    
     instead of nonworkers, and  turn them into second-class                                                                    
     citizens.                                                                                                                  
                                                                                                                                
     Furthermore,  this  bill  is obviously  an  attempt  to                                                                    
     circumvent  the  constitutional  provision  prohibiting                                                                    
     the  dedication of  funds under  Article 9,  Section 7.                                                                    
     As  to  this  bill  suspending the  taxes  if  the  CBR                                                                    
     exceeds  $2.5 billion,  HB 236  basically ensures  that                                                                    
     the government will never allow  the CBR to exceed $2.5                                                                    
      billion.  The government has no incentive to suspend                                                                      
     any tax.  [HB 236] is not an employment tax, it is an                                                                      
     employment penalty.  Thank you.                                                                                            
                                                                                                                                
Number 4209                                                                                                                     
                                                                                                                                
REPRESENTATIVE  KOHRING responded,  "Amen, thank  you, good  job,                                                               
and I agree with you."                                                                                                          
                                                                                                                                
CHAIR HAWKER  asked if  there was  any further  public testimony.                                                               
Hearing none, he announced that  public testimony was closed.  He                                                               
asked for consideration of amendments.                                                                                          
                                                                                                                                
Number 4100                                                                                                                     
                                                                                                                                
REPRESENTATIVE ROKEBERG  moved to  adopt Conceptual  Amendment 1,                                                               
on  page 2,  line  12,  after the  word  "than",  to change  $1.5                                                               
billion to $1 billion.                                                                                                          
                                                                                                                                
CHAIR HAWKER objected for purposes of discussion.                                                                               
                                                                                                                                
REPRESENTATIVE  ROKEBERG stated  that  he  thinks the  $1-billion                                                               
amount is  a more  realistic floor  trigger mechanism,  given the                                                               
current amount  in the  CBRF, and  given the  prospective demands                                                               
for the CBRF in  the near term.  It also  would lower the trigger                                                               
point at  which the tax would  be imposed.  He  said he believes,                                                               
from  testimony he  has heard  on other  occasions, that  the $1-                                                               
billion figure  is a fair  approximation of the amount  of shock-                                                               
absorber cushion  the state needs,  structurally, as well  as for                                                               
cash flow management issues.                                                                                                    
                                                                                                                                
CHAIR  HAWKER  asked  Representative Rokeberg  if  he  envisioned                                                               
lowering the  top end  of the  collar or keeping  it at  the same                                                               
level.                                                                                                                          
                                                                                                                                
REPRESENTATIVE ROKEBERG replied it is fine as it is.                                                                            
                                                                                                                                
Number 3936                                                                                                                     
                                                                                                                                
REPRESENTATIVE SAMUELS,  continuing the discussion of  the collar                                                               
issue, predicted  that eventually  this legislature, or  a future                                                               
legislature, will  fix the funding  mechanism so the CBRF  is not                                                               
dependent on  a cash flow.   When that time comes,  when money is                                                               
not being drawn out of the  CBRF, he suggested that the tax could                                                               
be  collected for  10 to  15  years at  $43 million  a year,  not                                                               
counting  the compounded  interest, and  yet not  be needed.   He                                                               
said, "If you never need it, why would you collect the tax?"                                                                    
                                                                                                                                
REPRESENTATIVE ROKEBERG  said it  was a good  point and  he would                                                               
support an amendment to lower the amount to $2 billion.                                                                         
                                                                                                                                
REPRESENTATIVE  SAMUELS deferred  to those  who know  the numbers                                                               
better than he does.                                                                                                            
                                                                                                                                
CHAIR HAWKER asked Mr. Dickinson to comment.                                                                                    
                                                                                                                                
Number 3743                                                                                                                     
                                                                                                                                
MR. DICKINSON replied  that it would take many years  to build up                                                               
to $1.5 billion.   He said it is a judgment  call, that there are                                                               
other  bills   being  considered  that  have   the  same  trigger                                                               
mechanism  in them,  and  that  this tax  could  never carry  the                                                               
burden.   He  said  he  hopes that  all  the  "tools" would  have                                                               
similar triggers.                                                                                                               
                                                                                                                                
CHAIR HAWKER said it could be  argued that this component, at the                                                               
current fiscal  note of $40-plus  million, would be one  of those                                                               
elements that would keep the  budget balanced and allow the state                                                               
to not  have to  draw from  the CBRF,  which is  why a  collar is                                                               
needed.                                                                                                                         
                                                                                                                                
REPRESENTATIVE ROKEBERG  emphasized that this particular  bill is                                                               
only  one of  a number  of pieces  of legislation.   The  primary                                                               
amount of build-up and return from  the CBRF, if the POMV were to                                                               
pass, would  be from excess  amounts of  money spun off  from the                                                               
permanent fund,  but more importantly, natural  resource revenues                                                               
that don't have  to be utilized.  That would  be a primary source                                                               
of funding for any reloading or  build-up of the CBRF, he opined.                                                               
He said  a collar speeds up  the process and he  would not object                                                               
to an amendment for the $2-billion amount.                                                                                      
                                                                                                                                
Number 3540                                                                                                                     
                                                                                                                                
REPRESENTATIVE SAMUELS  said he did  not mind either  lowering it                                                               
or  keeping it  and letting  the [House  Finance Committee]  take                                                               
care of making the triggers all the same.                                                                                       
                                                                                                                                
CHAIR HAWKER  asked Representative  Samuels if  he would  like to                                                               
propose an amendment to [Conceptual Amendment 1].                                                                               
                                                                                                                                
REPRESENTATIVE  SAMUELS replied  that he  did not  know what  the                                                               
numbers  would   be  and  suggested   that  the   [House  Finance                                                               
Committee] make all of the trigger points the same.                                                                             
                                                                                                                                
Number 3514                                                                                                                     
                                                                                                                                
REPRESENTATIVE   SEATON  said   he  was   confused  because   the                                                               
discussion seems to be saying that  the tax is a CBRF-refill tax,                                                               
rather than an  education tax.  He characterized  the comments he                                                               
has heard from  constituents as being pro-education  funding.  He                                                               
said the tax was not quite  a dedicated tax and yet was primarily                                                               
for education, but  what he is hearing today is  that Alaska does                                                               
not need  money for education,  because there is enough  money in                                                               
the CBRF,  so Alaska  doesn't need  the tax.   He argued  that to                                                               
take the  amount down to $1  billion means that even  if there is                                                               
less money  than is  there today,  and the  CBRF is  even drawing                                                               
less than $1.5 billion, the tax  wouldn't be needed.  He said the                                                               
design  of  the tax  is  to  fund  education, which  people  have                                                               
repeatedly said needs  more funding, so he  suggested raising the                                                               
floor, instead.                                                                                                                 
                                                                                                                                
Number 3309                                                                                                                     
                                                                                                                                
REPRESENTATIVE WILSON asked what the  trigger points in the other                                                               
bills were.                                                                                                                     
                                                                                                                                
CHAIR  HAWKER  said  he  didn't  know,  and  suggested  following                                                               
Representative  Samuels' suggestion  to have  the [House  Finance                                                               
Committee,   or   House   Rules  Standing   Committee]   identify                                                               
consistent parameters.                                                                                                          
                                                                                                                                
REPRESENTATIVE  WILSON   said  she  agrees   with  Representative                                                               
Seaton's comments  and is not  comfortable with waiting  [for the                                                               
amount]  to get  below the  $1-billion amount,  because at  least                                                               
that  much is  needed in  the  CBRF for  insurance for  emergency                                                               
expenses.                                                                                                                       
                                                                                                                                
Number 3141                                                                                                                     
                                                                                                                                
REPRESENTATIVE ROKEBERG noted that the  idea is to try to develop                                                               
confidence  about  taxation  between   the  legislature  and  the                                                               
people.  He said  this bill is not an income  tax and is intended                                                               
to generate additional  revenues for the state; the  fact that it                                                               
is a "soft tie" to education is,  in part, to alert people to the                                                               
need for those monies.  "The fact  is, there has to be a balanced                                                               
approach in this bill, by delaying  its impact until the money is                                                               
really needed, rather  than rushing out when the price  of oil is                                                               
at $36  a barrel and  start laying  taxes on people,"  he opined.                                                               
He  said the  legislature  has to  be very  careful  not to  lose                                                               
support from the public.                                                                                                        
                                                                                                                                
Number 3022                                                                                                                     
                                                                                                                                
CHAIR HAWKER  asked if  there was any  further discussion  of the                                                               
amendment.   He  maintained his  objection and  requested a  roll                                                               
call vote.  He said the  question before the committee is whether                                                               
to pass  Conceptual Amendment  1, which would  change on  page 2,                                                               
line 12, the $1.5 billion to $1 billion.                                                                                        
                                                                                                                                
                                                                                                                                
A roll call vote was  taken.  Representatives Weyhrauch, Kohring,                                                               
Samuels,  Rokeberg,  and  Hawker  voted in  favor  of  Conceptual                                                               
Amendment 1.   Representatives Ogg, Moses,  Wilson, and Gruenberg                                                               
voted against it.  Therefore,  Conceptual Amendment 1 passed by a                                                               
vote of 5-4.                                                                                                                    
                                                                                                                                
Number 2844                                                                                                                     
                                                                                                                                
REPRESENTATIVE OGG moved to adopt  Conceptual Amendment 2 to also                                                               
include  passive  income  such   as  rentals  from  real  estate,                                                               
royalties, and dividends in the bill.                                                                                           
                                                                                                                                
CHAIR HAWKER objected for discussion purposes.                                                                                  
                                                                                                                                
REPRESENTATIVE OGG first declared  a conflict of interest because                                                               
he is  a landlord, and  then opined that it  is not right  to let                                                               
some  folks  who  make  money   and  pay  taxes  to  the  federal                                                               
government  not pay  this  education  tax.   He  stated that  the                                                               
intent of  the bill is to  have citizens of the  state contribute                                                               
toward education through  a school tax.  He  noted that sometimes                                                               
employment is  passive, but that  does not  mean a person  is not                                                               
making money.  As a landlord,  he said he makes repairs, which is                                                               
physical labor, but because it is  passive income it is not going                                                               
to be  included [in the bill].   He concluded by  saying, "If you                                                               
make money  in this  state, and  we're going  to go  forward with                                                               
something like this, you should participate."                                                                                   
                                                                                                                                
Number 2731                                                                                                                     
                                                                                                                                
CHAIR HAWKER stated that the  amendment would be, in his opinion,                                                               
a substantial  change of intent in  the manner in which  the bill                                                               
was drafted.   He  remarked, speaking as  an accountant,  that it                                                               
would  be  a  fairly  complicated   and  difficult  provision  to                                                               
enforce.  He  questioned what would be targeted:   corporate rent                                                               
payers, or individual citizens'  interest earnings, or exemptions                                                               
for those over 65 years old  whose only source of income might be                                                               
a rental  property.   He said those  issues were  considered, but                                                               
the focus of the bill is on people working for remuneration.                                                                    
                                                                                                                                
Number 2606                                                                                                                     
                                                                                                                                
REPRESENTATIVE ROKEBERG agreed that the  intention of the bill is                                                               
for "1099  incomes," or  those incomes that  are reportable.   He                                                               
mentioned  that there  currently is  no tax  on rentals  and that                                                               
[Conceptual  Amendment  2]  would  be a  huge  change  in  public                                                               
policy,  and he  argued against  that change.   He  said that  by                                                               
pursuing [Conceptual  Amendment 2] in this  form, business income                                                               
is not being considered.  If  there is a business formation above                                                               
a sole proprietorship or family  partnership, there would be 1099                                                               
income that  would be reportable  under this bill, which  he said                                                               
he considers to be adequate.                                                                                                    
                                                                                                                                
Number 2446                                                                                                                     
                                                                                                                                
REPRESENTATIVE GRUENBERG  spoke in  favor of  the amendment.   He                                                               
said  the issue  is one  of fairness,  and arguments  against the                                                               
amendment  have  been  fairly  technical.   He  argued  that  the                                                               
concept of  personal income, as  opposed to corporate  income, is                                                               
fairly  well defined  in  the IRC,  and it  could  be drafted  to                                                               
change the definition  to include personal income.   He called it                                                               
a  drafting  issue.    "The  justification  that  was  given  for                                                               
excluding this  type of  income was  that you  don't want  to tax                                                               
elderly  people  and   children,"  he  said.     "I'm  not  sure,                                                               
constitutionally, if you  can draw that distinction,  or if there                                                               
is a question of denial of equal protection."                                                                                   
                                                                                                                                
REPRESENTATIVE  GRUENBERG   emphasized  it  was  a   question  of                                                               
fairness  because  the  means  of not  taxing  children  and  the                                                               
elderly  is being  addressed in  the bill  by not  taxing passive                                                               
income.  He  pointed out that there are elderly  who work and are                                                               
getting taxed.   The people who are not getting  taxed are people                                                               
who don't work, and they could  be people who are not elderly and                                                               
not children,  so the means that  is being used is  overbroad, he                                                               
opined.   There  are  people who  are escaping  the  tax who  are                                                               
neither  elderly nor  children, such  as the  wealthy who  do not                                                               
work.   He said that is  not fair and he  supports the amendment.                                                               
He  suggested the  taxing of  rental  property is  not the  issue                                                               
here,  but  an education  tax  is,  and  the  two should  not  be                                                               
confused.                                                                                                                       
                                                                                                                                
Number 2139                                                                                                                     
                                                                                                                                
REPRESENTATIVE   SAMUELS   asked    Mr.   Dickinson   about   the                                                               
relationship  between  rental   property  and  limited  liability                                                               
corporations (LLCs), and whether an  LLC would be responsible for                                                               
paying the $100 education tax.                                                                                                  
                                                                                                                                
MR. DICKINSON replied:                                                                                                          
                                                                                                                                
     If you  have multiple  sources [of  income] and  one of                                                                    
     them is  taxable, you'll get  the $100 taken out.   So,                                                                    
     in some ways,  it's very hard for us to  figure out who                                                                    
     would  just have  rental income  and who  wouldn't have                                                                    
     anything  else.   So,  I  think,  in some  senses,  the                                                                    
     notion  that folks  who have  multiple sources,  one of                                                                    
     them  may qualify,  the others  may not,  makes that  a                                                                    
     very hard number to estimate.                                                                                              
                                                                                                                                
REPRESENTATIVE SAMUELS asked  if it was only  for the individual.                                                               
He said:                                                                                                                        
                                                                                                                                
     If  I owned  a series  of  apartments and  a couple  of                                                                    
     duplexes or something, and my  LLC was the company that                                                                    
     got the  rent checks,  the company is  not on  the hook                                                                    
     for the  $100, so, to me,  it is kind of  a moot point,                                                                    
     almost.  We're not talking  about that many people that                                                                    
     ... have nothing else other than rental income.                                                                            
                                                                                                                                
MR. DICKINSON suggested  that federal filers could  be checked to                                                               
see how many had only Schedule F  income.  He guessed it would be                                                               
a fairly small number.                                                                                                          
                                                                                                                                
Number 2010                                                                                                                     
                                                                                                                                
REPRESENTATIVE ROKEBERG noted  that self-employed individuals are                                                               
going to  pay tax  under this  bill if they  have an  LLC because                                                               
they would have self-reporting income under a 1099.                                                                             
                                                                                                                                
MR. DICKINSON  said that was  correct for  LLCs that opted  to be                                                               
partnerships.                                                                                                                   
                                                                                                                                
REPRESENTATIVE ROKEBERG  asked if,  typically, the  vast majority                                                               
[of LLCs] select self-employment income.                                                                                        
                                                                                                                                
MR. DICKINSON said he didn't have the numbers in front of him.                                                                  
                                                                                                                                
REPRESENTATIVE  ROKEBERG replied,  "I  would be  surprised if  95                                                               
percent of  LLCs in the state  are S-corps and didn't  take it as                                                               
individual incomes."                                                                                                            
                                                                                                                                
CHAIR HAWKER added  that was the reason most entities  exist.  He                                                               
noted the  arrival of Representative  Harris, co-chairman  of the                                                               
House Finance Committee.                                                                                                        
                                                                                                                                
Number 1700                                                                                                                     
                                                                                                                                
CHAIR  HAWKER strongly  maintained his  objection to  [Conceptual                                                               
Amendment 2].  He restated the question before the committee:                                                                   
                                                                                                                                
     Shall we  adopt a  Conceptual Amendment 2,  which would                                                                    
     be to restructure this bill,  and Representative Ogg, I                                                                    
     will call attention to the  title of the bill which was                                                                    
       a limited tax on wages and net earnings from self-                                                                       
       employment, to include, in some manner, taxing the                                                                       
         folks that earn income solely from real estate                                                                         
     investments.                                                                                                               
                                                                                                                                
REPRESENTATIVE  OGG  said his  intent  was  to target  employment                                                               
income that individuals, and not  corporations, made.  He said it                                                               
would  be in  the area  of self-employed  individuals, and  would                                                               
exclude  folks  who  received  income   from  real  estate.    He                                                               
explained that  the tax would  be determined from  federal income                                                               
tax.                                                                                                                            
                                                                                                                                
CHAIR  HAWKER  clarified the  amendment:  "Your  amendment is  to                                                               
restructure the  bill to  eliminate or change  the tax  base here                                                               
from wages  and self-employment income,  to all income  earned by                                                               
individuals."                                                                                                                   
                                                                                                                                
Number 1606                                                                                                                     
                                                                                                                                
REPRESENTATIVE OGG said he was not  an accountant, but if that is                                                               
how it reads  from adding in [other  self-employment wages], that                                                               
is his intent.                                                                                                                  
                                                                                                                                
REPRESENTATIVE GRUENBERG  said, as he understands  the amendment,                                                               
it is  to include the  concept of  personal income as  defined in                                                               
the IRC,  which would  include rental income  and other  forms of                                                               
passive income such as dividends.                                                                                               
                                                                                                                                
REPRESENTATIVE OGG added, "And royalties."                                                                                      
                                                                                                                                
Number 1518                                                                                                                     
                                                                                                                                
CHAIR  HAWKER suggested  that Representative  Ogg's intent  is to                                                               
eliminate the concept,  in this bill, of having  the revenue base                                                               
be wages and  self-employment income, and change it  to being the                                                               
much  broader  concept of  personal  income,  the entire  federal                                                               
taxable income.                                                                                                                 
                                                                                                                                
REPRESENTATIVE ROKEBERG  replied, as a  point of order,  that the                                                               
amendment is inappropriate because it  is so far-reaching that it                                                               
almost rewrites  the whole bill.   He said  he was not  sure that                                                               
was Representative Ogg's intention.                                                                                             
                                                                                                                                
CHAIR HAWKER concurred with  Representative Rokeberg's point that                                                               
the  amendment would  be a  complete rewriting  of the  bill, and                                                               
asked the maker of the amendment to reconsider it.                                                                              
                                                                                                                                
Number 1307                                                                                                                     
                                                                                                                                
REPRESENTATIVE OGG restated his intent,  saying it appears to him                                                               
that people  who own  real estate are  getting by  without paying                                                               
this  tax,  and  spoke  of  his  own  personal  experience  as  a                                                               
landlord.   He  opined that  passive  income -  rental from  real                                                               
estate, royalties, and dividend income  - should be included.  He                                                               
said  those  who  pay  federal  income tax  should  also  pay  an                                                               
education tax.                                                                                                                  
                                                                                                                                
REPRESENTATIVE GRUENBERG  responded to  Representative Rokeberg's                                                               
point of  order.  He said  he believes the amendment  is in order                                                               
according to Mason's  Manual.  The fact that it  expands the bill                                                             
is not a valid point of order, he opined.                                                                                       
                                                                                                                                
CHAIR HAWKER asked that the amendment be reduced to writing.                                                                    
                                                                                                                                
REPRESENTATIVE  OGG said  he  would  be happy  to  write out  his                                                               
amendment  and submit  it to  the  chair and  perhaps the  [House                                                               
Finance Committee] would take it up.                                                                                            
                                                                                                                                
REPRESENTATIVE OGG withdrew Conceptual Amendment 2.                                                                             
                                                                                                                                
CHAIR   HAWKER  announced   that   Conceptual   Amendment  2   by                                                               
Representative  Ogg  is withdrawn  with  the  concurrence of  the                                                               
objector.                                                                                                                       
                                                                                                                                
Number 1027                                                                                                                     
                                                                                                                                
REPRESENTATIVE ROKEBERG  responded to  Representative Gruenberg's                                                               
point  and defended  his point  of order  on the  basis that  the                                                               
amendment would have  taken the head tax, or  employment tax, and                                                               
turned it  into an income  tax.  "It  would be removing  the bill                                                               
from the committee and totally changing it," he said.                                                                           
                                                                                                                                
Number 0940                                                                                                                     
                                                                                                                                
REPRESENTATIVE WEYHRAUCH  moved to adopt Conceptual  Amendment 3,                                                               
page 2, line 11, where the words  are "cash balance".  He said he                                                               
is not sure those words adequately  cover the intent of the bill.                                                               
He asked for help with additional wording.                                                                                      
                                                                                                                                
CHAIR HAWKER  objected only for  discussion purposes,  stating he                                                               
thought it  was a good  amendment.   He suggested the  words "and                                                               
investment" be added to the  three places where "cash balance" is                                                               
mentioned.    He suggested  the  bill  drafters find  a  succinct                                                               
definition that would  "capture the amount of  money that appears                                                               
on the top line in the CAFR."                                                                                                   
                                                                                                                                
Number 0830                                                                                                                     
                                                                                                                                
REPRESENTATIVE  WILSON suggested  those words  be added  to lines                                                               
11, 15, and 18 [of the proposed CS].                                                                                            
                                                                                                                                
REPRESENTATIVE WEYHRAUCH said  it was okay to add  it wherever it                                                               
says "cash balance" in the bill.                                                                                                
                                                                                                                                
Number 0808                                                                                                                     
                                                                                                                                
CHAIR  HAWKER acknowledged  the  amendment to  the amendment  and                                                               
noted  that there  were no  objections.   He  explained that  the                                                               
amendment would  expand the  words "cash balance"  to be  a more-                                                               
encompassing, technically correct  description of "something that                                                               
gets us  to that  amount that  appears on the  first line  of the                                                               
CAFR."  He  removed his objection to the amendment.   He repeated                                                               
Conceptual  Amendment 3,  "which is  to have  in three  locations                                                               
identified,  line 11,  line 15,  and  line 18,  page 2  of the  V                                                               
version of the bill, where  the words 'cash balance' appear, have                                                               
the  concept  of  cash and  investment  incorporated  into  those                                                               
lines, the  specific verbiage  to be  worked out  in coordination                                                               
with DOR."                                                                                                                      
                                                                                                                                
CHAIR  HAWKER,  hearing  no further  objections,  announced  that                                                               
Conceptual Amendment 3 [as amended] was adopted.                                                                                
                                                                                                                                
REPRESENTATIVE ROKEBERG said there is  an intent by the committee                                                               
and the bill  to focus on education, but nothing  in the title of                                                               
the bill seems to indicate that.                                                                                                
                                                                                                                                
Number 0651                                                                                                                     
                                                                                                                                
REPRESENTATIVE  ROKEBERG offered  Conceptual  Amendment 4,  which                                                               
would add  a new  Section 1, short  title, "Alaska  Education and                                                               
Employment Tax", and then renumber accordingly.                                                                                 
                                                                                                                                
REPRESENTATIVE GRUENBERG objected for  purposes of discussion and                                                               
offered  a  friendly  conceptual  amendment to  also  change  the                                                               
wording in the title of the bill.  [The title in Version V read,                                                                
"An Act imposing a limited tax  on wages and on net earnings from                                                               
self-employment; relating  to the administration  and enforcement                                                               
of that tax; and providing for an effective date."]                                                                             
                                                                                                                                
                                                                                                                                
REPRESENTATIVE ROKEBERG  said he has  no objection to  that idea,                                                               
but that the  amendment was intended to be for  a statutory short                                                               
title so  that the  people understand the  intent [if  it becomes                                                               
law].                                                                                                                           
                                                                                                                                
Number 0523                                                                                                                     
                                                                                                                                
REPRESENTATIVE   WEYHRAUCH   wondered   if   the   words   "self-                                                               
employment", which  are contained in  the title of the  bill now,                                                               
would change  to "employment", or  if "self-employment"  would be                                                               
used in the proposed short title.                                                                                               
                                                                                                                                
REPRESENTATIVE  ROKEBERG   replied  that  "employment"   is  both                                                               
employment  and self-employment,  and he  didn't think  the issue                                                               
needed to be confused in the short  title.  "We don't want a long                                                               
title in  the short  title," he  added.   "We don't  want 'Alaska                                                               
Self-Employment' in the short title."                                                                                           
                                                                                                                                
REPRESENTATIVE WEYHRAUCH  said he understands that,  but that the                                                               
title says self-employment.                                                                                                     
                                                                                                                                
REPRESENTATIVE  ROKEBERG   replied  that   is  why  there   is  a                                                               
distinction  between a  short title  and a  legal, constitutional                                                               
one.                                                                                                                            
                                                                                                                                
REPRESENTATIVE  GRUENBERG  removed  his objection  to  Conceptual                                                               
Amendment 4.                                                                                                                    
                                                                                                                                
REPRESENTATIVE OGG  asked why it  couldn't say  "Alaska Education                                                               
Tax".                                                                                                                           
                                                                                                                                
REPRESENTATIVE  ROKEBERG replied  that it  was an  employment tax                                                               
requiring money for education.                                                                                                  
                                                                                                                                
Number 0410                                                                                                                     
                                                                                                                                
REPRESENTATIVE OGG  moved to adopt  an amendment to  Amendment 4,                                                               
to delete the  word "Employment" and just  have "Alaska Education                                                               
Tax".                                                                                                                           
                                                                                                                                
CHAIR  HAWKER asked  Representative Rokeberg  if he  would accept                                                               
that as a friendly amendment.                                                                                                   
                                                                                                                                
REPRESENTATIVE ROKEBERG said he would.                                                                                          
                                                                                                                                
Number 0304                                                                                                                     
                                                                                                                                
CHAIR  HAWKER replied  that now  Conceptual Amendment  4 says  to                                                               
adopt a  short title, "The  Alaska Education Tax", as  Section 1,                                                               
and renumber accordingly.                                                                                                       
                                                                                                                                
REPRESENTATIVE ROKEBERG mentioned,  "We run the risk  of a truth-                                                               
in-advertising  claim, if  we're not  careful.   That's the  only                                                               
problem I  have with that, because  we have a dedicated  fund for                                                               
education."                                                                                                                     
                                                                                                                                
CHAIR HAWKER asked Representative Ogg  if, upon the acceptance of                                                               
his friendly amendment, he wanted to withdraw his objection.                                                                    
                                                                                                                                
REPRESENTATIVE   OGG  withdrew   his   objection  to   Conceptual                                                               
Amendment 4 [as amended].                                                                                                       
                                                                                                                                
CHAIR  HAWKER   clarified  that  before  the   committee  now  is                                                               
Conceptual  Amendment 4,  a short-title  amendment, which  adds a                                                               
new Section 1 and renumbering  accordingly, referring to the bill                                                               
as "The Alaska Education Tax."                                                                                                  
                                                                                                                                
CHAIR  HAWKER,  hearing  no further  objections,  announced  that                                                               
Conceptual Amendment 4 [as amended] was adopted.                                                                                
                                                                                                                                
Number 0122                                                                                                                     
                                                                                                                                
REPRESENTATIVE  KOHRING   addressed  Representative   Wilson  and                                                               
voiced  a concern  about  out-of-state workers.    He used  North                                                               
Slope workers  as an  example, and asked  what benefits  they are                                                               
getting  from state  services that  would justify  this tax.   He                                                               
asked  Representative Wilson  if  she had  any  research on  this                                                               
issue.                                                                                                                          
                                                                                                                                
REPRESENTATIVE WILSON replied, "They use our airports."                                                                         
                                                                                                                                
REPRESENTATIVE KOHRING  responded that  they are paying  for that                                                               
use through the tickets they purchase.                                                                                          
                                                                                                                                
Number 0003                                                                                                                     
                                                                                                                                
REPRESENTATIVE  WILSON remarked  that [the  North Slope  workers]                                                               
were not the only out-of-state  workers.  She maintained that the                                                               
workers in other  parts of the state far exceed  the numbers that                                                               
work on the North Slope.                                                                                                        
                                                                                                                                
TAPE 04-14, SIDE A                                                                                                            
                                                                                                                              
CHAIR HAWKER added, "Use our services and extract our wealth."                                                                  
                                                                                                                                
Number 0042                                                                                                                     
                                                                                                                                
REPRESENTATIVE  KOHRING replied,  "You  said,  'far exceed',  how                                                               
does that break out, then?"                                                                                                     
                                                                                                                                
REPRESENTATIVE WILSON said she did  not have the figures in front                                                               
of her, but could get them.                                                                                                     
                                                                                                                                
REPRESENTATIVE  KOHRING  requested  information  about  how  many                                                               
dollars  would  be  generated  for  this  tax  from  out-of-state                                                               
workers.                                                                                                                        
                                                                                                                                
Number 0100                                                                                                                     
                                                                                                                                
CHAIR  HAWKER  answered   Representative  Kohring's  question  by                                                               
saying, based on the most  recent Department of Labor & Workforce                                                               
Development   information,   there   are   approximately   70,000                                                               
employees who  are not  Alaska residents per  year in  the state.                                                               
The average  salary is  around $15,000 per  person, so  $100 from                                                               
each of the 70,000 would be  extracted for the state treasury, he                                                               
said.                                                                                                                           
                                                                                                                                
REPRESENTATIVE  KOHRING  thanked  Representative Hawker  for  the                                                               
information.                                                                                                                    
                                                                                                                                
REPRESENTATIVE  ROKEBERG asked  Representative Hawker  if he  has                                                               
discussed  this  bill  with the  governor's  office,  because  he                                                               
understands that they have an amendment for the bill.                                                                           
                                                                                                                                
CHAIR HAWKER said that it is not "ready for prime time."                                                                        
                                                                                                                                
Number 0224                                                                                                                     
                                                                                                                                
REPRESENTATIVE  WILSON  moved to  report  CSHB  236, Version  23-                                                               
LS0921\V,  Kurtz,  3/16/04, as  amended,  out  of committee  with                                                               
individual recommendations and the accompanying fiscal notes.                                                                   
                                                                                                                                
REPRESENTATIVE KOHRING objected.                                                                                                
                                                                                                                                
Number 0400                                                                                                                     
                                                                                                                                
A  roll call  vote was  taken.   Representatives Weyhrauch,  Ogg,                                                               
Moses, Wilson, Samuels, Rokeberg,  Gruenberg, and Hawker voted in                                                               
favor  of  reporting CSHB  236,  as  amended, out  of  committee.                                                               
Representative  Kohring  voted  against   it.    Therefore,  CSHB                                                               
236(W&M) was reported out of  the House Special Committee on Ways                                                               
and Means by a vote of 8-1.                                                                                                     
                                                                                                                              
HB 298-DISTRIBUTIONS OF APPROPS FROM PERM FUND                                                                                
                                                                                                                                
[Contains discussion of HJR 26]                                                                                               
                                                                                                                                
Number 0440                                                                                                                     
                                                                                                                                
CHAIR HAWKER announced that the  final order of business would be                                                               
HOUSE  BILL NO.  298, "An  Act  relating to  the distribution  of                                                               
appropriations  from the  Alaska  permanent fund  under art.  IX,                                                               
sec.  15(b), Constitution  of  the State  of  Alaska, and  making                                                               
conforming  amendments; and  providing  for  an effective  date."                                                               
[HB  298 was  sponsored by  House Special  Committee on  Ways and                                                               
Means.]                                                                                                                         
                                                                                                                                
CHAIR  HAWKER  explained   that  HB  298  is   a  companion  bill                                                               
supporting the POMV  constitutional amendment [HJR 26].   He said                                                               
the last  time the bill was  before the committee was  during the                                                               
last legislative session.                                                                                                       
                                                                                                                                
Number 0456                                                                                                                     
                                                                                                                                
REPRESENTATIVE WEYHRAUCH  moved to  adopt the  proposed committee                                                               
substitute (CS)  for HB 298, Version  23-LS1075\S, Cook, 3/15/04,                                                               
as the  working document.   There being  no objection,  Version S                                                               
was before the committee.                                                                                                       
                                                                                                                                
CHAIR HAWKER explained  the changes in Version S  by referring to                                                               
the sectional analysis.  He explained:                                                                                          
                                                                                                                                
     [The  proposed CS]  looks at  existing statute,  places                                                                    
     where  it refers  to things  like the  Earnings Reserve                                                                    
     Account  or  using income  as  a  basis for  the  money                                                                    
     available  from the  permanent fund,  and modifies  and                                                                    
     adapts  that language  to the  POMV concepts  of having                                                                    
     the  value of  the fund  be  the basis  for the  amount                                                                    
     available for general appropriation each year.                                                                             
                                                                                                                                
Number 0607                                                                                                                     
                                                                                                                                
CHAIR HAWKER  continued to explain  that in Section 1  the Alaska                                                               
jury list is currently defined as  coming from the list of people                                                               
who  apply for  "a distribution  of Alaska  Income," which  is an                                                               
archaic  term.   The  actual  list  is  from the  permanent  fund                                                               
dividend (PFD)  files, and Section  1 cleans up the  language, he                                                               
said.                                                                                                                           
                                                                                                                                
CHAIR  HAWKER  explained that  Section  2  defines the  statutory                                                               
duties of  the Joint  Committee on  Legislative Budget  and Audit                                                               
(LB&A).   One of  the previous duties  was to  provide investment                                                               
policy guidance for  the "income" from the  permanent fund, which                                                               
had been previously segregated into  an earnings reserve account.                                                               
Now LB&A  provides investment policy  guidance for  the permanent                                                               
fund, and the  income account has been merged  into the permanent                                                               
fund itself, he said.                                                                                                           
                                                                                                                                
REPRESENTATIVE GRUENBERG  announced that he is  "flagging for the                                                               
committee" Section  2 because he  is going to offer  an amendment                                                               
to  Section 10,  which says  this Act  only takes  effect if  the                                                               
[POMV] amendment  to the constitution  passes.  He said  it seems                                                               
to him  that there are sections  in the proposed CS  that are not                                                               
dependent  upon the  passage of  the [POMV]  amendment.   He said                                                               
Section 1 is not [dependent].   He asked if that would also apply                                                               
to Section 2.  He wondered  if they were standalone sections that                                                               
could be passed even if the [POMV] amendment does not pass.                                                                     
                                                                                                                                
Number 0810                                                                                                                     
                                                                                                                                
CHAIR HAWKER concurred  that they could stand alone  on their own                                                               
merits.                                                                                                                         
                                                                                                                                
REPRESENTATIVE GRUENBERG  asked if there are  any more standalone                                                               
sections.                                                                                                                       
                                                                                                                                
CHAIR HAWKER  suggested walking through the  sections and keeping                                                               
that idea in mind.  He said it is an excellent observation.                                                                     
                                                                                                                                
CHAIR  HAWKER explained  that Section  3, subsection  (a) is  the                                                               
most operative  section in  the bill  as it  relates to  the POMV                                                               
method.    He  voiced  a  concern raised  by  many  as  POMV  was                                                               
discussed.  People had asked what  would happen if the state goes                                                               
into a period  of protracted declining markets and  the 5 percent                                                               
that  would be  made  available under  the  POMV method  actually                                                               
exceeds the  real rate of  return for  some long period  of time.                                                               
He noted that [Section 3(a)]  addresses this issue in statute and                                                               
creates the  statutory limit  that "if  the average  10-year real                                                               
rate  of  return  falls  below  5 percent,  the  amount  that  is                                                               
appropriated from  the fund,  which the  constitutional amendment                                                               
states may  be up to  5 percent, is limited  to the real  rate of                                                               
return that is less  than 5 percent."  He called  it a sidebar in                                                               
statute that grants relief.                                                                                                     
                                                                                                                                
Number 0956                                                                                                                     
                                                                                                                                
REPRESENTATIVE OGG remarked  that he was pleased  to see [Section                                                               
3, subsection (a)] in [the proposed CS  to HB 298].  He asked, in                                                               
the worst-case  scenario, what percentage, under  this limitation                                                               
factor,  would be  removed from  the principal  of the  permanent                                                               
fund.                                                                                                                           
                                                                                                                                
CHAIR  HAWKER  called  on  Bob Bartholomew  to  come  forward  to                                                               
testify and help answer questions.                                                                                              
                                                                                                                                
Number 1050                                                                                                                     
                                                                                                                                
BOB BARTHOLOMEW,  Chief Operating Officer, Alaska  Permanent Fund                                                               
Corporation, Department of Revenue replied:                                                                                     
                                                                                                                                
     What  [Section 3,  subsection (a)]  was intended  to do                                                                    
     was try to look at when  the real rate of return, which                                                                    
     is the return  after we retain enough  income to offset                                                                    
     the effects of  inflation, if we don't  meet what would                                                                    
     become the constitutional spending  limit of 5 percent,                                                                    
     if  over a  10-year period  we started  to have  a real                                                                    
     rate of return, this, for  example, was 4 percent, that                                                                    
     the spending  for that year  would drop.   The spending                                                                    
     limit would drop from 5  percent of the market value of                                                                    
     the fund to 4 percent.                                                                                                     
                                                                                                                                
CHAIR HAWKER remarked, "To the amount we could appropriate."                                                                    
                                                                                                                                
MR. BARTHOLOMEW continued:                                                                                                      
                                                                                                                                
     To the  amount that  could be  appropriated out  of the                                                                    
     permanent fund.   And,  so, when  we talk  about what's                                                                    
     the  worst-case  scenario  and how  would  that  affect                                                                    
     eating into  the corpus of  the principal of  the fund,                                                                    
     we would just  have to make some estimates  to say, you                                                                    
     know,  right   now  there   is  approximately   --  the                                                                    
     permanent  fund is  in three  components.   There's the                                                                    
     accounting record  we make of the  historical principal                                                                    
     contributions into the  fund and special appropriations                                                                    
     by  the legislature  and  inflation  proofing.   Today,                                                                    
     that's  about $23  billion.   Then,  there's two  other                                                                    
     components, currently, of the  permanent fund.  There's                                                                    
     what's called the unrealized  earnings account that has                                                                    
     about  $3.5 billion  in it;  then there's  the realized                                                                    
     earnings, and  that has  about $1 billion  in it.   So,                                                                    
     there's three  components, and the first  two, which is                                                                    
     the $23  billion, the  accounting principal  number and                                                                    
     the unrealized  gains, which by the  attorney general's                                                                    
     opinion is a  part of principal -- those  two are $26.5                                                                    
     billion.   Then,  we said  we  have $1  billion in  the                                                                    
     realized earnings reserve.                                                                                                 
                                                                                                                                
Number 1300                                                                                                                     
                                                                                                                                
     When  you  look at  things  today,  you would  have  $1                                                                    
     billion  available  for  appropriation -  it's  in  the                                                                    
     realized earnings account - and  then that $3.5 billion                                                                    
     can go,  if they  sell investments, ...  into earnings.                                                                    
     When you do an assessment  of "when would you be eating                                                                    
     into the fund," some  people use the $23-billion figure                                                                    
     and say you've got to  spend down to $23 billion before                                                                    
     you're eating  into the corpus.   That means  we'd have                                                                    
     $4.5 billion available today.   So, when you say, "Give                                                                    
     me an  example," you would  have to spend in  excess of                                                                    
     your real income, $4.5 [billion],  before you would eat                                                                    
     into the corpus -  what was considered originally under                                                                    
     the  constitution as  far as  the original  deposits of                                                                    
     oil and what they've earned.                                                                                               
                                                                                                                                
     I think the intent of this  section is to not allow you                                                                    
     to  eat into  that, so  the intent  is, over  a 10-year                                                                    
     period,  if we've  made enough  income,  we would  only                                                                    
     spend what we've made.  So,  I think the intent here is                                                                    
     not to eat into the corpus.   I could create a scenario                                                                    
     that says,  in the short  term, you might eat  into it,                                                                    
     but I  think, for  most practical purposes,  this would                                                                    
     be the  guardrails that  that prevented.   So,  I think                                                                    
     for   a  high   percentage  of   the  options   or  the                                                                    
     probabilities  of  what  would  be the  income  of  the                                                                    
     permanent fund  moving forward, you really  wouldn't be                                                                    
     eating into  the corpus of the  fund.  I don't  want to                                                                    
     give  a specific  number, but  it is  possible, in  the                                                                    
     short term, if the markets  went down fast enough, that                                                                    
     you  might spend  into that  original  corpus, or  that                                                                    
     original  $23 billion.    I do  think  that, with  this                                                                    
     provision in here, the likelihood  of that happening is                                                                    
     greatly  reduced.    I think  the  worst-case  scenario                                                                    
     would be fairly small, but it could happen.                                                                                
                                                                                                                                
Number 1522                                                                                                                     
                                                                                                                                
REPRESENTATIVE OGG said  a lot of folks talk about  a market that                                                               
keeps going down, and that is the  great fear.  He said he's been                                                               
in meetings where  "you run the averages, we should  be okay, and                                                               
you can  take care of  those little blips."   He said it  was his                                                               
understanding that  [Section 3,  subsection (a)]  is in  place so                                                               
that when  there is  a long-term slide,  money stops  being drawn                                                               
off  of the  principal.   He reminded,  "If you're  in the  short                                                               
term,  you draw  into the  principal and,  of course,  you bounce                                                               
back up."   He asked  how it figures in  during a long  period of                                                               
time, if  it was in place  all the time,  or if the state  has to                                                               
wait for the full 10 years of decline.                                                                                          
                                                                                                                                
Number 1620                                                                                                                     
                                                                                                                                
MR.  BARTHOLOMEW   pointed  out  that   it  would  be   in  place                                                               
immediately and a  10-year average would be used.   He pulled out                                                               
a slide as an  example to show that if next year  there is a down                                                               
market and the  permanent fund loses income for  the entire year,                                                               
which has  happened twice in the  history of the fund,  that loss                                                               
would be  figured in, but  it would go  to a 10-year  average, he                                                               
explained.   The  history of  the financial  market is  extremely                                                               
volatile from year  to year, but over the longterm,  it is fairly                                                               
stable, he  suggested.   He referred to  a rolling  10-year real-                                                               
return graph to show a red,  stable line at 5 percent, the target                                                               
at which the constitution will set the spending limit.                                                                          
                                                                                                                                
CHAIR HAWKER interjected, "Real return."                                                                                        
                                                                                                                                
MR.  BARTHOLOMEW  continued,  "That's   the  income  after  we've                                                               
accounted  for inflation  and retained  that  in the  fund."   He                                                               
explained that  the last  bullet [on the  graph] shows  where the                                                               
rolling 10-year period  was on June 30, 2003,  about 5.3 percent.                                                               
He said, next year, if that  percent moved a whole percent in one                                                               
year, down to  4.3 percent, the spending  limit would immediately                                                               
drop.   There would be  a 4.3  percent spending limit  under this                                                               
provision.                                                                                                                      
                                                                                                                                
MR.  BARTHOLOMEW explained  that what  happened for  the 12-month                                                               
spending period ending December 31  [2003] is the 10-year average                                                               
was raised by 1 percent to over  6 percent.  "That means there is                                                               
currently a  5 percent spending  limit, so the permanent  fund is                                                               
retaining more than  it earned, so that in the  future years when                                                               
it goes  down, there could be  a pretty good down  year before it                                                               
would take us below the 5  percent," he explained.  He noted that                                                               
the effect  is immediate, but  not dramatic.   Each 1  percent is                                                               
about $250 million, he concluded.                                                                                               
                                                                                                                                
REPRESENTATIVE    OGG   thanked    Mr.   Bartholomew    for   the                                                               
clarification.                                                                                                                  
                                                                                                                                
Number 1947                                                                                                                     
                                                                                                                                
REPRESENTATIVE  ROKEBERG   asked  why  five  of   the  six  years                                                               
immediately preceding the fiscal year are used.                                                                                 
                                                                                                                                
MR.  BARTHOLOMEW  replied  that  there are  two  measurements  in                                                               
[Section 3].  The measurement  just mentioned is "when should you                                                               
spend less  than 5 percent,  so that's  the trigger for  that 10-                                                               
year average  of income.   He added, "There's a  second provision                                                               
in here  which tells you how  to calculate the market  value that                                                               
you're going to  base your 5 percent against."   That is a 5-year                                                               
average  of  the  total  market   value  of  the  fund,  and  the                                                               
individual volatility of one year  doesn't affect it as much when                                                               
a 5-year average is used, he  explained.  The clause states to go                                                               
back six  years and then  come forward for five  years, computing                                                               
the average.  The reason for  the "look back" provision is so the                                                               
legislature  will know  what is  available when  they convene  in                                                               
January.   Under  the current  rules  where a  5-year average  is                                                               
used,  the  June 30  date,  which  hasn't  been reached  yet,  is                                                               
included, so  when the  legislature passes  the budget,  they are                                                               
basing it  on an  estimate of  how much  income is  available, he                                                               
said.  This method eliminates projections, he concluded.                                                                        
                                                                                                                                
CHAIR  HAWKER  added  that  the language  is  identical  to,  and                                                               
conforms to, the POMV proposed constitutional amendment.                                                                        
                                                                                                                                
REPRESENTATIVE ROKEBERG  requested spreadsheets  and calculations                                                               
regarding this provision, and suggested  that they be part of the                                                               
bill packet.   He voiced a concern about the  "rate of inflation"                                                               
definition.  He asked which definition is being used.                                                                           
                                                                                                                                
Number 2250                                                                                                                     
                                                                                                                                
MR. BARTHOLOMEW replied that the  definition of inflation that is                                                               
used by  the permanent fund is  defined in statute and  will have                                                               
to be  added to the  definitions section of  the bill.   He noted                                                               
that Section 9  [of the proposed CS] where AS  37.13.145 is being                                                               
repealed is  where the current  definition of  inflation proofing                                                               
resides and will need  to be added back in.   He said the finance                                                               
director of DOR  has been asked to write up  a definition for the                                                               
national Consumer  Price Index  (CPI).  Since  this is  an Alaska                                                               
fund, people  have asked why  a national CPI  is being used.   He                                                               
responded  that how  the permanent  fund is  invested is  greatly                                                               
affected by the  investments across the United States  as well as                                                               
across the world.  He emphasized  that using a national CPI is an                                                               
important piece  that DOR recommends adding  into the definitions                                                               
section.                                                                                                                        
                                                                                                                                
Number 2424                                                                                                                     
                                                                                                                                
REPRESENTATIVE  ROKEBERG said  he understands  that the  attorney                                                               
general's  opinion and/or  position  now is  that the  unrealized                                                               
portion  of the  permanent fund  is available  for appropriation.                                                               
He asked if that is correct.                                                                                                    
                                                                                                                                
MR.  BARTHOLOMEW replied  that  it  is just  the  opposite.   The                                                               
opinion of about a year ago  regarding the original intent in the                                                               
definitions of  the word "principal"  and "what is  available for                                                               
appropriation" stated that  it was really driven  by the realized                                                               
income, he explained.  He continued:                                                                                            
                                                                                                                                
     When we have unrealized gains  -- I'll just give you an                                                                    
     example:   if  you own  a share  of stock  in IBM,  you                                                                    
     bought  it for  $50,  it's  gone up  to  $100, and  you                                                                    
     haven't  sold  it  yet,  you  have  $50  of  unrealized                                                                    
     income.  Prior to  the attorney general's opinion, that                                                                    
     money was  available for appropriation.   And when they                                                                    
     did their research, they felt  that the original intent                                                                    
     when the  [provision of  the] constitution  was adopted                                                                    
     by the  citizens in 1976  [was] that the  definition of                                                                    
     income was what we call  realized, and that it wouldn't                                                                    
     be  available for  appropriation until  you sold  that.                                                                    
     So,  their definition  would be,  unrealized income  is                                                                    
     not available for appropriation.                                                                                           
                                                                                                                                
     But one of  the reasons we recommend  changing from the                                                                    
     current  system to  a value-based  system  is the  only                                                                    
     difference  between   that  being  available   and  not                                                                    
     available  is  whether  the manager  that  we've  hired                                                                    
     sells that  stock.   So, if he  sold it  tomorrow, it's                                                                    
     available.  That number of  what's available can really                                                                    
     vary,  and modern  accounting principles  have said  to                                                                    
     get away from that concept  of realized and look at the                                                                    
     total  value of  the fund  every year,  including those                                                                    
     unrealized  gains, and  then  make  a determination  of                                                                    
     what  you want  to  make  available for  appropriation.                                                                    
     Unrealized  gains  or  losses  are  not  available  for                                                                    
     appropriation.                                                                                                             
                                                                                                                                
CHAIR HAWKER  emphasized that this  legislation is  effective if,                                                               
and only  if, the POMV endowment  method is adopted, and  it does                                                               
not address how the fund currently operates.                                                                                    
                                                                                                                                
Number 2650                                                                                                                     
                                                                                                                                
REPRESENTATIVE ROKEBERG asked if  Chair Hawker is indicating that                                                               
the market-value determination would  make moot the definition of                                                               
realized and unrealized [gains] when making the calculation.                                                                    
                                                                                                                                
MR. BARTHOLOMEW  answered, "That is  correct.  We would  now look                                                               
at  everything based  on the  total value  of the  fund."   There                                                               
wouldn't be a separate pool  for principal, unrealized gains, and                                                               
realized  gains,  he  explained.    Now, all  of  that  money  is                                                               
invested  the   same  way,  and  generally   accepted  accounting                                                               
principles (GAAP) account for it all  the same way, he said.  "We                                                               
would be getting  rid of a 25-year-old archaic  statute, in going                                                               
to the modern endowment accounting," he added.                                                                                  
                                                                                                                                
REPRESENTATIVE   ROKEBERG  remarked   that   the  definition   of                                                               
"available for appropriation" still has to be dealt with.                                                                       
                                                                                                                                
MR.  BARTHOLOMEW   replied  that  would  be   Section  3,  titled                                                               
"Appropriations from the fund."  This  is the section that says 5                                                               
percent is going  to be spent of the 5-year  average of the fund,                                                               
unless the realized income for that  period was not 5 percent, he                                                               
noted.                                                                                                                          
                                                                                                                                
Number 2814                                                                                                                     
                                                                                                                                
CHAIR HAWKER  clarified that the constitutional  amendment, which                                                               
is a separate  piece of legislation [HJR 26] that  was passed out                                                               
of the House Special Committee on  Ways and Means months ago, now                                                               
sitting in  the House Finance  Committee, potentially on  its way                                                               
to  the  House Rules  Standing  Committee,  is the  vehicle  that                                                               
defines the 5 percent appropriation  authority.  That legislation                                                               
would be  a constitutional  authority which states  that up  to 5                                                               
percent may be  appropriated annually.  [The  proposed CS] before                                                               
the  committee  creates a  statutory  sidebar,  a parameter  that                                                               
allows for times where the state  may choose not to appropriate 5                                                               
percent, he  said.  He emphasized  that the bill does  not define                                                               
or make the provision for the 5 percent appropriation.                                                                          
                                                                                                                                
Number 2900                                                                                                                     
                                                                                                                                
REPRESENTATIVE ROKEBERG said he  understands that information but                                                               
is  trying   to  get   at  the   definition  of   "available  for                                                               
appropriation".                                                                                                                 
                                                                                                                                
MR.  BARTHOLOMEW pointed  to the  first sentence  in [Section  3,                                                               
subsection (a)]  where it specifically says  the amount available                                                               
for appropriation is determined  under the constitution, and said                                                               
that is going  to be the 5  percent limit, or up to  5 percent of                                                               
the value  of the fund.   The guardrails are where  it says there                                                               
is an  exception to the 5  percent spending limit if  a 5 percent                                                               
real rate of return has not been earned.                                                                                        
                                                                                                                                
REPRESENTATIVE  ROKEBERG   asked  if   the  realized   gains  and                                                               
unrealized  gains  were included  when  calculating  the rate  of                                                               
return.                                                                                                                         
                                                                                                                                
Number 3020                                                                                                                     
                                                                                                                                
MR. BARTHOLOMEW  replied, "No, going  forward we would  no longer                                                               
look at  it as  realized versus  unrealized.   We would  look at,                                                               
under GAAP, what was the total income  of the fund.  So, it would                                                               
be both the  cash flow income as well as  the appreciation of the                                                               
assets...."                                                                                                                     
                                                                                                                                
REPRESENTATIVE ROKEBERG asked,  "Why are we going  to GAAP rather                                                               
than  GASB   [Governmental  Accounting  Standards   Board]  here,                                                               
because  the  permanent fund  acts  more  or  less as  a  private                                                               
financial institution?"                                                                                                         
                                                                                                                                
MR.   BARTHOLOMEW  replied   that  all   professional  accounting                                                               
organizations come  under GAAP,  of which GASB  is a  subset, and                                                               
the  official rules  that  determine  investment accounting  come                                                               
under GAAP.                                                                                                                     
                                                                                                                                
CHAIR HAWKER  replied that  the capstone  definition is  GAAP and                                                               
GASB is a subset within it.                                                                                                     
                                                                                                                                
REPRESENTATIVE  ROKEBERG said  it has  gotten the  permanent fund                                                               
corporation  in trouble  before, which  is why  he was  making it                                                               
clear.                                                                                                                          
                                                                                                                                
CHAIR HAWKER  said, "That is why  we are trying to  give them the                                                               
most sheltering umbrella in our definitions."                                                                                   
                                                                                                                                
Number 3159                                                                                                                     
                                                                                                                                
REPRESENTATIVE WEYHRAUCH  remarked that this is  a very important                                                               
bill.   He referred to  it as  up-front pricing because  it shows                                                               
the people what  the legislature plans to do if  POMV passes.  He                                                               
emphasized  that the  bill  needs  to move  forward  even if  the                                                               
constitutional amendment  stalls, because it could  be debated on                                                               
its own merits.   He said it  is tied to the POMV  debate, but it                                                               
serves  as  an  educational  process,  as  well.    He  suggested                                                               
adopting  portions  of  the  bill   even  if  the  constitutional                                                               
amendment is not  adopted.  He said the bill  needs to be amended                                                               
in Section 10  so that Sections 3,  4, 7, and 8  only take effect                                                               
if  the  constitutional amendment  passes.    The other  sections                                                               
should be adopted notwithstanding, he said.                                                                                     
                                                                                                                                
CHAIR HAWKER  noted that  Representative Gruenberg  has expressed                                                               
those  same concerns  and  has been  working on  a  list of  [the                                                               
sections] for a specific amendment.                                                                                             
                                                                                                                                
Number 3327                                                                                                                     
                                                                                                                                
REPRESENTATIVE  GRUENBERG  addressed Representative  Samuels  and                                                               
Mr. Bartholomew  and asked, if the  constitutional amendment does                                                               
not  pass,  whether   they  would  still  like   LB&A  to  advise                                                               
concerning the investment  policy for the entire fund.   He added                                                               
he thought it was a good idea.                                                                                                  
                                                                                                                                
Number 3409                                                                                                                     
                                                                                                                                
MR.  BARTHOLOMEW replied  that he  thought the  [Alaska Permanent                                                               
Fund  Corporation] has  always felt  it was  important to  have a                                                               
good  working   relationship  with  the  legislature,   and  LB&A                                                               
provides  the  process  for  that relationship,  so  he  said  he                                                               
supports maintaining it.                                                                                                        
                                                                                                                                
REPRESENTATIVE  GRUENBERG responded,  "Not just  the income,  but                                                               
everything."                                                                                                                    
                                                                                                                                
MR. BARTHOLOMEW replied, "That is correct."                                                                                     
                                                                                                                                
REPRESENTATIVE SAMUELS concurred and said  it is a good mechanism                                                               
for  the   [Alaska  Permanent  Fund   Corporation]  to   get  its                                                               
information to the legislative body.                                                                                            
                                                                                                                                
Number 3433                                                                                                                     
                                                                                                                                
REPRESENTATIVE GRUENBERG  said he supports  a lot of  the concept                                                               
of POMV,  but is not  sure he wants it  in the constitution.   He                                                               
suggested  proposing a  statute to  achieve  the same  ends.   He                                                               
wondered if this  legislation might be such a statute.   He asked                                                               
Mr. Bartholomew whether provisions in  [the proposed CS] could be                                                               
effected to achieve some of those  ends, if they are adopted even                                                               
if  the  constitutional  amendment  does  not  pass.    He  asked                                                               
Representative  Hawker   if  he   should  propose   a  conceptual                                                               
amendment or  work on  a written  amendment to be  taken up  at a                                                               
later date.                                                                                                                     
                                                                                                                                
Number 3635                                                                                                                     
                                                                                                                                
CHAIR  HAWKER  replied  that  it   would  be  more  appropriately                                                               
introduced as a  standalone bill.  He explained that  [HB 298] is                                                               
a companion  piece specifically  for the  proposed constitutional                                                               
amendment [HJR 26].                                                                                                             
                                                                                                                                
REPRESENTATIVE  GRUENBERG suggested  that  [HB  298] could  serve                                                               
that  purpose  and  have  sections   that  achieve  a  standalone                                                               
provision.                                                                                                                      
                                                                                                                                
CHAIR HAWKER said  his personal preference would be  not to alter                                                               
[HB 298] to that extent.                                                                                                        
                                                                                                                                
REPRESENTATIVE  GRUENBERG  asked   Mr.  Bartholomew,  aside  from                                                               
Sections 1 and 2, if there  were any other sections that could go                                                               
into effect even if the constitutional amendment does not pass.                                                                 
                                                                                                                                
MR.  BARTHOLOMEW answered,  "Section 5  would be  a section  that                                                               
would work unrelated to POMV."                                                                                                  
                                                                                                                                
REPRESENTATIVE GRUENBERG  asked Mr.  Bartholomew to  explain what                                                               
Section 5 does.                                                                                                                 
                                                                                                                                
MR. BARTHOLOMEW explained:                                                                                                      
                                                                                                                                
     Section 5 currently has language  that assumes ... that                                                                    
     we basically  expense our  entire operating  budget the                                                                    
     first day  of the fiscal year,  and then we get  to the                                                                    
     end of the  year, and whatever we  really didn't spend,                                                                    
     we add that back to income.   How that really works is,                                                                    
     at  the  end  of  each  month  we  expense  our  actual                                                                    
     expenditures.   It makes  it clear  that the  source of                                                                    
     revenue for the budget will  be the investments, and it                                                                    
     deletes the  sections of the  statutes that  talk about                                                                    
     adding unused budget back to income.                                                                                       
                                                                                                                                
Number 3877                                                                                                                     
                                                                                                                                
REPRESENTATIVE   GRUENBERG  referred   to   the   section  as   a                                                               
housekeeping section and asked if  there were any other [sections                                                               
that could go into effect on their own].                                                                                        
                                                                                                                                
MR. BARTHOLOMEW replied  that Sections 7 and 8 seem  to relate to                                                               
the  Permanent  Fund  Dividend  Division  and  said  he  was  not                                                               
familiar  with those  sections  of  the statute.    He said  they                                                               
seemed to  be related  to POMV  so he assumed  they would  not be                                                               
necessary.                                                                                                                      
                                                                                                                                
CHAIR HAWKER concurred.                                                                                                         
                                                                                                                                
REPRESENTATIVE   GRUENBERG   asked  for   clarification   whether                                                               
Sections 7 and 8 could be conditional.                                                                                          
                                                                                                                                
MR.  BARTHOLOMEW replied  that they  should be  conditional [upon                                                               
the passage of the constitutional amendment].                                                                                   
                                                                                                                                
Number 4010                                                                                                                     
                                                                                                                                
REPRESENTATIVE GRUENBERG asked if  the only [sections] that would                                                               
not be conditional are 1, 2, and 5.                                                                                             
                                                                                                                                
CHAIR HAWKER said yes.                                                                                                          
                                                                                                                                
REPRESENTATIVE  GRUENBERG asked  about Section  11.   He said  he                                                               
thinks there would  need to be a conforming  amendment to Section                                                               
11.                                                                                                                             
                                                                                                                                
CHAIR HAWKER concurred and said:                                                                                                
                                                                                                                                
     We've got this dual condition  here, in Sections 10 and                                                                    
     11,  at the  moment.   The entire  Act is  conditioned,                                                                    
     which is  Section 10, upon the  passage, and emphasize,                                                                    
     and  a  POMV  method  approved  by  voters  and  taking                                                                    
     effect, which  is really  the ultimate  condition here.                                                                    
     Section 11  is that  if those conditions  precedent are                                                                    
     met,  the actual  date  on which  this  Act shall  take                                                                    
     effect  is  January  1,  2005.   There  would  be  some                                                                    
     conforming  language  that   would,  in  the  condition                                                                    
     precedent,  excepting that  Sections 1,  2, and  5, and                                                                    
     also in Section 11, indicating  that Sections 1, 2, and                                                                    
     5 would take effect immediately.                                                                                           
                                                                                                                                
REPRESENTATIVE  GRUENBERG   said  he  would  offer   that  as  an                                                               
amendment later when amendments are taken up.                                                                                   
                                                                                                                                
Number 4142                                                                                                                     
                                                                                                                                
REPRESENTATIVE ROKEBERG opined that  the committee is wasting its                                                               
time right  now, because  this bill is  contingent on  the POMV's                                                               
passing.                                                                                                                        
                                                                                                                                
REPRESENTATIVE  OGG returned  to  Section 3  and  noted that  the                                                               
permanent fund  is different from  most funds because  25 percent                                                               
of  revenues  from  mineral  sales,  royalties,  and  leases  are                                                               
included.   He  asked Mr.  Bartholomew  how that  impacted the  5                                                               
percent figure and the 10-year average.                                                                                         
                                                                                                                                
Number 4313                                                                                                                     
                                                                                                                                
MR.  BARTHOLOMEW related  that  the  way it  is  written now,  it                                                               
completely  excludes  the  effect  of the  ongoing  oil  deposits                                                               
coming into the fund.  He explained:                                                                                            
                                                                                                                                
     We're  measuring the  investment  real  rate of  return                                                                    
     over 10  years and  trying to  achieve that  5 percent.                                                                    
     During that  10-year period we've continued  to receive                                                                    
     oil deposits.  Historically,  that's probably about a 1                                                                    
     percent average.   It's  declining currently;  well, it                                                                    
     was   declining  because   production  was   declining.                                                                    
     Prices are  high, so  it's staying  up near  what we've                                                                    
     been   getting  over   the  last   5-8  years.     It's                                                                    
     approximately  between $200  and  $400  million a  year                                                                    
     that  we've  been  getting from  ongoing  oil  revenues                                                                    
     coming into the permanent fund.   Really, what you have                                                                    
     is  the fund  is also  growing by  the ongoing  revenue                                                                    
     deposits, and that  is not being factored  in to what's                                                                    
     available for  appropriation.  That money  comes in and                                                                    
     earns  income, so  down the  line there  is a  benefit,                                                                    
     but, in the short term,  the fund has actually probably                                                                    
     grown.   Currently,  we're at  about a  6 percent  real                                                                    
     rate of return  for the last 10 years.   Including oil,                                                                    
     it's really  grown by 7  percent, but  currently that's                                                                    
     not brought into the equation.                                                                                             
                                                                                                                                
Number 4435                                                                                                                     
                                                                                                                                
REPRESENTATIVE  OGG   requested  clarification  of   [Section  3,                                                               
subsection (b)].                                                                                                                
                                                                                                                                
CHAIR  HAWKER  related  that [Section  3,  subsection  (b)]  does                                                               
provide statute  consistent with the current  statutory provision                                                               
that splits  the earnings available  from the permanent  fund, 50                                                               
percent  to the  dividend fund,  and  50 percent  to the  general                                                               
fund.                                                                                                                           
                                                                                                                                
CHAIR HAWKER  continued to  explain [the proposed  CS].   He said                                                               
the balance  of the bill  relates to "housekeeping"  matters such                                                               
as  the market-value  provision in  Section 4,  which provides  a                                                               
statutory mandate in accordance with GAAP.                                                                                      
                                                                                                                                
REPRESENTATIVE  GRUENBERG  asked  if   that  provision  could  be                                                               
effective regardless  of the constitutional  amendment [passing].                                                               
He opined it had value independent of the amendment.                                                                            
                                                                                                                                
Number 4610                                                                                                                     
                                                                                                                                
MR.  BARTHOLOMEW  related  that,   currently,  when  the  monthly                                                               
financial  statements are  done,  GAAP is  followed to  determine                                                               
market value.                                                                                                                   
                                                                                                                                
CHAIR HAWKER interjected  that the first sentence  [of Section 4]                                                               
refers to Article IX, Section  15(b), of the [Constitution of the                                                               
State of  Alaska].   This section does  not currently  exist, and                                                               
would not  exist until the  POMV amendment is passed,  he pointed                                                               
out.                                                                                                                            
                                                                                                                                
TAPE 04-14, SIDE B                                                                                                            
Number 4630                                                                                                                     
                                                                                                                                
REPRESENTATIVE GRUENBERG suggested excising  the first phrase [in                                                               
Section 4]  and beginning  with line  22, "the  corporation shall                                                               
determine".    He asked  [Mr.  Bartholomew]  if that  is  current                                                               
practice.                                                                                                                       
                                                                                                                                
MR. BARTHOLOMEW replied  that it is a requirement  under GAAP and                                                               
so  it is  calculated,  but  not used  in  any  of the  statutory                                                               
formulas to  determine what is  available for appropriation.   He                                                               
said, "It is what we do."                                                                                                       
                                                                                                                                
Number 4600                                                                                                                     
                                                                                                                                
REPRESENTATIVE GRUENBERG  asked if  there would  be any  value in                                                               
having that language in the law, independent of the amendment.                                                                  
                                                                                                                                
CHAIR HAWKER  relayed that  the current  statute, which  would be                                                               
deleted in  this bill, provides  that the fund shall  be computed                                                               
annually on the  last day of the fiscal year,  in accordance with                                                               
GAAP, excluding  any unrealized gains  or losses.   He emphasized                                                               
that there could  be conflicting statutes if the  new section was                                                               
added  without  deleting the  old  one.    He mentioned  that  AS                                                               
37.13.140, the income  section which is no  longer relevant under                                                               
a market-value approach to distribution, would become archaic.                                                                  
                                                                                                                                
REPRESENTATIVE GRUENBERG  remarked that  he thought this  was one                                                               
of  the  sections  that  could  be kept  in,  regardless  of  the                                                               
constitutional amendment.                                                                                                       
                                                                                                                                
CHAIR  HAWKER  termed the  section  a  housekeeping measure  that                                                               
could work either way.                                                                                                          
                                                                                                                                
MR.  BARTHOLOMEW  pointed  out  in  Section 5  that  all  of  the                                                               
operating costs for the permanent fund  for the 32 staff that are                                                               
employed, the  investment manager  fees for the  external equity,                                                               
and bond managers  that cost between $45 million  and $50 million                                                               
a year would come out of the 5 percent spending limit.                                                                          
                                                                                                                                
Number 4310                                                                                                                     
                                                                                                                                
CHAIR HAWKER characterized  that decision as being  an honest way                                                               
to show  the public that  the fund  was not being  invaded behind                                                               
closed doors, in any way.  All  operating funds come out of the 5                                                               
percent, he said.                                                                                                               
                                                                                                                                
REPRESENTATIVE GRUENBERG  he asked  if this dialogue  is relating                                                               
to the constitutional amendment.                                                                                                
                                                                                                                                
CHAIR HAWKER  replied that  Representative Gruenberg  is correct.                                                               
It is  statutory clarification to  make it very clear  that there                                                               
are "no back doors."                                                                                                            
                                                                                                                                
REPRESENTATIVE GRUENBERG  said, "Understood, and that's  clear on                                                               
the record."                                                                                                                    
                                                                                                                                
Number 4232                                                                                                                     
                                                                                                                                
CHAIR HAWKER  related that  Section 6  is a  housekeeping matter.                                                               
He explained that  the permanent fund also  manages the portfolio                                                               
of the Alaska Mental Health  Trust Authority (AMHTA), and because                                                               
the  archaic  section, AS  37.13.140,  is  being deleted,  a  new                                                               
section  is needed  to take  its place.   He  reported that  Jeff                                                               
Jessee [executive  director of AMHTA]  is in full  agreement with                                                               
this portion of the bill.                                                                                                       
                                                                                                                                
REPRESENTATIVE GRUENBERG  said he  assumed that  AS 37.14  is the                                                               
mental health trust chapter.                                                                                                    
                                                                                                                                
CHAIR HAWKER said that is correct.                                                                                              
                                                                                                                                
REPRESENTATIVE  GRUENBERG asked  Mr.  Bartholomew  if he  thought                                                               
there was anything  in that chapter now that requires  the use of                                                               
GAAP, and if it could be a standalone provision.                                                                                
                                                                                                                                
MR. BARTHOLOMEW said,  "This is similar to  the recent provision.                                                               
Right now  we're required to  account for mental health  the same                                                               
way we account  for the permanent fund.  If  you don't change the                                                               
permanent  fund, then  we  wouldn't  want to  change  the way  we                                                               
account for mental  health, so this one would want  to be subject                                                               
to the POMV."                                                                                                                   
                                                                                                                                
Number 4059                                                                                                                     
                                                                                                                                
CHAIR HAWKER  continued to explain  the sections of  the proposed                                                               
CS.   He  said, "Section  7 is  a conforming  to the  change from                                                               
income being used  and transferred to the  dividend fund account,                                                               
to  the  money appropriated  from,  ergo,  the amount  calculated                                                               
under a  market-value approach."   Section 8 is  disclosures that                                                               
are currently required  by statute to be included on  the stub of                                                               
a permanent fund check, again,  with the language conforming to a                                                               
market-value approach, he explained.                                                                                            
                                                                                                                                
CHAIR HAWKER  noted that in  Section 9, the repealors,  the three                                                               
current sections  of statute whose operation  would conflict with                                                               
the POMV  operation, are  very important.   The whole  purpose of                                                               
the bill is  to replace those three sections, he  emphasized.  He                                                               
said AS 37.13.140 defines income  and net income of the permanent                                                               
fund for  the purposes  of making  distributions, and  he pointed                                                               
out  that the  bill  changes to  market value,  not  income.   AS                                                               
37.13.145 defines the disposition of  the income of the permanent                                                               
fund, inflation proofing, and transfers  to the dividend account,                                                               
which has been superseded by Section  3 of [the proposed CS].  AS                                                               
37.13.300(c) is  the mental health  trust reference  that becomes                                                               
archaic as a result of the operation of the POMV, he concluded.                                                                 
                                                                                                                                
Number 3905                                                                                                                     
                                                                                                                                
REPRESENTATIVE SEATON asked about  Section 3, subsection (b), and                                                               
the graph  on the  rolling 10-year  real return.   He said  he is                                                               
concerned that  additional money deposited  into the fund  is not                                                               
counted  as  return.    He  posited  that  there  could  be  high                                                               
inflationary pressure  at some point  in time that  would greatly                                                               
influence the rate  of return, and suggested that  money from oil                                                               
resources  should  be [considered],  because  the  fund could  be                                                               
growing well, and yet drop below the  5 percent line.  He said he                                                               
doesn't  think  the intent  [of  the  bill]  is  to look  at  how                                                               
particular investments do, but how the  fund is doing.  He opined                                                               
that it would  be better to include the royalty  deposits and any                                                               
other  deposits  made  from settlements,  et  cetera,  into  this                                                               
calculation.                                                                                                                    
                                                                                                                                
Number 3728                                                                                                                     
                                                                                                                                
MR. BARTHOLOMEW  reported that he  has had many  discussions with                                                               
other legislators  on this  topic.  The  question is,  "Should we                                                               
have the  spending limit be not  only the real rate  of return of                                                               
the investments, but  the growth of the fund  through the mineral                                                               
or oil deposits?"   He termed it a policy  decision of looking at                                                               
the total value of the  fund changing, including deposits, versus                                                               
just looking at the investment income.                                                                                          
                                                                                                                                
CHAIR HAWKER  said, when drafting  the bill,  he did not  want to                                                               
consider the  new money coming  in as part  of the return  on the                                                               
invested  funds, which  would  allow  for substantial  investment                                                               
losses and still appear as if money  is being made.  He said that                                                               
idea is  inconsistent with the  intent of  the bill, which  is to                                                               
give the greatest possible assurances  of the continued growth of                                                               
the fund.                                                                                                                       
                                                                                                                                
REPRESENTATIVE ROKEBERG  stated that it is  not inconsistent with                                                               
the  market value,  market-to-market consideration,  if the  cash                                                               
flow of the  fund is actually staying level or  growing.  He said                                                               
Representative Seaton  does have a point.   It is a  policy call,                                                               
he added.                                                                                                                       
                                                                                                                                
CHAIR HAWKER said, "The argument  that the idea of the additional                                                               
25  percent being  deposited each  year  was that  it should,  in                                                               
fact, always be an increment  rather than something that we could                                                               
be using  to offset investment  losses in determining  the amount                                                               
available."  He agreed it is a policy call.                                                                                     
                                                                                                                                
REPRESENTATIVE  ROKEBERG added,  "Particularly if  you're looking                                                               
at the  market value of  the whole  total fund, rather  than just                                                               
the discrete elements of it."                                                                                                   
                                                                                                                                
Number 3515                                                                                                                     
                                                                                                                                
CHAIR HAWKER pointed out the real issue, saying:                                                                                
                                                                                                                                
     Do we  wish the  fund only to  grow through  returns in                                                                    
     excess of a real rate of  return of 5 percent, or do we                                                                    
     want to have the incremental  money coming in each year                                                                    
     under the  25 percent  constitutional provision  to the                                                                    
     part of  fund growth.  I  think it is a  good question.                                                                    
     Do we want to prioritize  the fund growth or prioritize                                                                    
     our ability to access the money in the fund?                                                                               
                                                                                                                                
REPRESENTATIVE ROKEBERG said the money  might be needed to offset                                                               
Section 3, subsection (a).                                                                                                      
                                                                                                                                
CHAIR HAWKER called that section "conservative sidebars."                                                                       
                                                                                                                                
Number 3440                                                                                                                     
                                                                                                                                
REPRESENTATIVE  SEATON voiced  a concern  that the  discussion is                                                               
about POMV, and  then a sidebar is  added to say it  is not POMV,                                                               
it's a percent of investment growth.   He said POMV refers to the                                                               
value  of the  fund, which  includes  deposited money.   If  that                                                               
money  is  excluded   and  the  sidebar  is  added   to  say  the                                                               
expenditures can only  be related to the  10-year rolling average                                                               
of  the  investment percentage,  minus  the  inflation, the  fund                                                               
could  be growing  even  though  it appears  to  be  below the  5                                                               
percent  limiting number.    He  concluded that  it  seems to  be                                                               
inconsistent.                                                                                                                   
                                                                                                                                
CHAIR HAWKER clarified  that every year when the new  money is in                                                               
the  fund, it  becomes the  basis for  the market  value for  the                                                               
following year.  The money that  comes in during the current year                                                               
is not  termed "income  of the  fund" for  purposes of  return on                                                               
investment  until  the  next  year   when  the  market  value  is                                                               
measured, he explained.                                                                                                         
                                                                                                                                
Number 3259                                                                                                                     
                                                                                                                                
KEVIN  RITCHIE,  Executive  Director,  Alaska  Municipal  League,                                                               
speaking on behalf  of the Alaska Council of  Mayors, thanked the                                                               
committee  for its  efforts and  said a  lot more  information is                                                               
filtering down through communities.   He reported that the mayors                                                               
and leaders  of Alaska's communities  are behind  the development                                                               
of  a  comprehensive,  long-range  fiscal  plan.    He  said  the                                                               
committee  should have  received  a letter  from the  communities                                                               
encouraging the legislature down this  path.  He noted that three                                                               
times as  many groups as three  months ago signed the  letter and                                                               
that the  breadth of the  groups is  widening.  He  mentioned the                                                               
following groups:  AARP,  Association of Developmental Disability                                                               
Providers,  Alaska Coal  Association, League  of Women  Voters of                                                               
Alaska, and virtually every group  in Wrangell, which he surmised                                                               
is a good example of a community that gets together and talks.                                                                  
                                                                                                                                
MR. RITCHIE related that people  of the state, given something to                                                               
work  with, will  have very  positive discussions  to help  solve                                                               
problems.   He suggested  letting the public  know what  will get                                                               
worse if no  action is taken, and what will  improve if action is                                                               
taken.   He referred to HB  236, the education tax  the committee                                                               
just moved  out, and  said it  clearly states a  way of  making a                                                               
moral  dedication or  commitment to  what  will get  better.   He                                                               
encouraged the committee to continue to think about that.                                                                       
                                                                                                                                
REPRESENTATIVE OGG thanked  Mr. Ritchie for coming  and asked for                                                               
his comments  about the 50/50  split and the idea  of approaching                                                               
the bill  as a statutory  process as opposed to  a constitutional                                                               
process.                                                                                                                        
                                                                                                                                
Number 3000                                                                                                                     
                                                                                                                                
MR. RITCHIE said he thinks the  50/50 split concept is what is in                                                               
most people's minds.   He called it a "have your  cake and eat it                                                               
too" situation  where the permanent  fund dividend, at  least for                                                               
the next two years, doesn't go  down, but goes up, and then stays                                                               
stable  in an  amount that  most  Alaskans would  think would  be                                                               
fairly  substantial.   At  the  same  time,  it provides  a  very                                                               
substantial amount of money for  doing things in communities that                                                               
are  very important,  he  noted.   He  related  that [the  Alaska                                                               
Municipal League] does  not have an opinion  about the statutory-                                                               
versus-constitutional process.                                                                                                  
                                                                                                                                
REPRESENTATIVE OGG inquired if POMV  is perceived as a limitation                                                               
on  the   legislature's  ability  to  utilize   revenues  of  the                                                               
permanent fund.                                                                                                                 
                                                                                                                                
MR.  RITCHIE said  it  seems to  him  that  it is  both.   It  is                                                               
utilizing  revenues not  being utilized  and, at  the same  time,                                                               
placing limits  on the utilization  of those revenues,  which, he                                                               
opined,  are  already there  to  utilize  if the  legislature  so                                                               
chooses.                                                                                                                        
                                                                                                                                
Number 2843                                                                                                                     
                                                                                                                                
REPRESENTATIVE  ROKEBERG  said  there has  been  some  discussion                                                               
within  the  committee,  particularly  by  Representative  Moses,                                                               
about a community  dividend program.  He asked  for Mr. Ritchie's                                                               
opinion as  to why the  legislature should consider this  idea in                                                               
light of the lack of vote of confidence by the mayors.                                                                          
                                                                                                                                
MR.  RITCHIE replied  he believes  that action  was in  regard to                                                               
solving the  fiscal gap, and  he suspects  there are a  number of                                                               
legislators, as well,  who wonder if the legislature  is going to                                                               
take action  on that issue.   He said it was  not a broad-brushed                                                               
lack of  confidence, which  is what got  reported.   He explained                                                               
the intent was to stimulate action  on the fiscal plan.  In terms                                                               
of the  municipal dividend,  that concept  has been  discussed by                                                               
many people, among them former-Governor  Hickel, who believe very                                                               
strongly   in  putting   authority   to   make  decisions   about                                                               
communities in  the hands of  people in communities,  he related.                                                               
He said  the concept of  community dividends is all  about taking                                                               
money  that belongs  to all  Alaskans and  allowing them  to make                                                               
decisions on how that money will best benefit their communities.                                                                
                                                                                                                                
REPRESENTATIVE ROKEBERG  said he assumed  that the mayors  in the                                                               
state were having fiscal difficulties along with everyone else.                                                                 
                                                                                                                                
Number 2637                                                                                                                     
                                                                                                                                
CHAIR HAWKER  agreed that  the vote of  no confidence  was broad-                                                               
brushed on the  legislature and noted that that  very morning the                                                               
committee  was  meeting  at  7:00   a.m.,  actively  involved  in                                                               
addressing [fiscal] issues.                                                                                                     
                                                                                                                                
REPRESENTATIVE  WEYHRAUCH  called the  vote  of  no confidence  a                                                               
"lingering  eye-poke" for  legislators who  have worked  hard and                                                               
long, and  he stated his  appreciation for the "old-timers."   He                                                               
said he was digressing, and he would like to move this bill.                                                                    
                                                                                                                                
CHAIR HAWKER  asked Mr.  Ritchie to  take a  message back  to the                                                               
mayors  and tell  them  that  they were  a  bit shortsighted  and                                                               
"caused us some grave disappointment  and, perhaps, a little loss                                                               
in confidence in them, as well."                                                                                                
                                                                                                                                
REPRESENTATIVE   GRUENBERG   addressed   his   friends   in   the                                                               
legislature and asked  them to work with the  mayors, saying that                                                               
"we are  all Alaskans, and  to solve  our problems, we  must work                                                               
together."                                                                                                                      
                                                                                                                                
Number 2330                                                                                                                     
                                                                                                                                
MR.  RITCHIE said  he agrees,  and the  reason he  is before  the                                                               
committee today is to say  that the legislature is moving forward                                                               
in  the right  direction and  the communities  are supportive  of                                                               
those efforts.   He mentioned that communication  is critical and                                                               
does not  always work well.   He spoke about the  number of small                                                               
communities that have been in  existence for well over a thousand                                                               
years, that now are feeling a  great deal of pain.  He encouraged                                                               
keeping communication open to work together to solve problems.                                                                  
                                                                                                                                
Number 2234                                                                                                                     
                                                                                                                                
REPRESENTATIVE  KOHRING asked  why  those  communities that  have                                                               
been around  for a thousand  years are now  in such dire  need of                                                               
money now  for services, when,  as recently as a  generation ago,                                                               
they did  fine.   He said he  has been [in  Alaska] 41  years and                                                               
remembers  when Alaska  was a  state  that had  good roads,  good                                                               
schools,  and public  safety  at  just a  fraction  of the  money                                                               
available  now.   "Suddenly we  have  a major  crisis when  we're                                                               
spending  far more  money than  we did,  say, 35  years ago,"  he                                                               
remarked.                                                                                                                       
                                                                                                                                
MR. RITCHIE replied  that he has thought a great  deal about that                                                               
as well and thinks it is a valid  question.  In the last 50 years                                                               
there  have  been   amazing  changes  in  the   quality  of  life                                                               
throughout  Alaska,   especially  rural   Alaska,  in   terms  of                                                               
decreases  in infant  mortality, improvement  of education,  more                                                               
on-site  health clinics,  and other  basic things.   He  said the                                                               
issue is, if  those things start deteriorating  now, people quite                                                               
rightfully have come to expect  that quality of life, and without                                                               
those things, there  is a great likelihood that  there's going to                                                               
be a exodus out of small  communities.  He said, "The problem is,                                                               
small communities  are what we  think of  when we think  of rural                                                               
Alaska  and what  it stands  for.   From a  practical standpoint,                                                               
most of  our urban communities have  as much as a  third of their                                                               
economy based on  commerce and providing services."   He said the                                                               
relationship  among  all the  communities  in  Alaska is  a  very                                                               
important part of the economy.                                                                                                  
                                                                                                                                
Number 1947                                                                                                                     
                                                                                                                                
REPRESENTATIVE WILSON  told of her  experience living in  a small                                                               
town for  seven years, and  of the closing businesses  and exodus                                                               
of people  due to fewer jobs.   She described the  decline of the                                                               
hospital as  an employer and  the chain  reaction due to  lack of                                                               
jobs, and she predicted that the  town could become a ghost town.                                                               
She said these are real  things that are happening to communities                                                               
across  the state  and she  imagined  the vote  of no  confidence                                                               
stemmed from  high levels  of frustration.   She  emphasized that                                                               
[the  House Special  Committee  on  Ways and  Means]  has made  a                                                               
difference for the last two years.   She repeated that there is a                                                               
lot of frustration in the "real trenches of the real world."                                                                    
                                                                                                                                
CHAIR HAWKER  spoke of viability  of communities  and, addressing                                                               
Mr.  Ritchie,  said  he  knew the  Alaska  Municipal  League  was                                                               
concerned as well.   He stated the mission of  [the House Special                                                               
Committee  on  Ways and  Means],  which  is cost  management  and                                                               
efficiencies,  and  opined  that   the  viability  of  individual                                                               
communities would be an important subset of that discussion.                                                                    
                                                                                                                                
Number 1712                                                                                                                     
                                                                                                                                
REPRESENTATIVE  OGG  said  he  was   pleased  to  hear  that  Mr.                                                               
Ritchie's organization  has "opened their eyes,"  recognizes that                                                               
this legislature  has been  working on, [a  fiscal plan],  and is                                                               
now applauding the  legislature for their efforts.   He asked Mr.                                                               
Ritchie if that is what he is hearing.                                                                                          
                                                                                                                                
MR. RITCHIE replied yes.                                                                                                        
                                                                                                                                
REPRESENTATIVE OGG  thanked Mr. Ritchie and  his organization for                                                               
their reflection and support of the legislature's efforts.                                                                      
                                                                                                                                
Number 1606                                                                                                                     
                                                                                                                                
CHAIR  HAWKER thanked  Mr. Ritchie,  and asked  if there  was any                                                               
further  public  testimony.    Hearing  none,  he  closed  public                                                               
testimony.                                                                                                                      
                                                                                                                                
Number 1552                                                                                                                     
                                                                                                                                
REPRESENTATIVE  ROKEBERG  [Started  to  make a  motion  to  adopt                                                               
Conceptual Amendment 1  and then withdrew it in  order to consult                                                               
with  Mr.  Bartholomew about  the  wording  about consumer  price                                                               
index.]                                                                                                                         
                                                                                                                                
MR.  BARTHOLOMEW related  that currently  in AS  37.13.145(c) the                                                               
wording  United  States  Consumer   Price  Index  for  all  urban                                                               
consumers.  He supported continuing to use that measure.                                                                        
                                                                                                                                
REPRESENTATIVE GRUENBERG suggested that  statute be read into the                                                               
record.    He  asked  if  Mr. Bartholomew  was  referring  to  AS                                                               
37.13.145(c)(1).                                                                                                                
                                                                                                                                
MR. BARTHOLOMEW said correct.                                                                                                   
                                                                                                                                
Number 1460                                                                                                                     
                                                                                                                                
REPRESENTATIVE  ROKEBERG   moved  to  adopt   the  aforementioned                                                               
Conceptual  Amendment  1,  but  requested  clarification  of  the                                                               
wording.                                                                                                                        
                                                                                                                                
CHAIR HAWKER  clarified that  Conceptual Amendment  1 is  to have                                                               
the   drafters  include   as  appropriate   in   this  bill,   AS                                                               
37.13.145(c)(2),  paraphrased  as  appropriate, using  the  price                                                               
index  that  will  be  read into  the  record  by  Representative                                                               
Gruenberg.                                                                                                                      
                                                                                                                                
REPRESENTATIVE GRUENBERG pointed out that  that is a statute that                                                               
is going to be repealed in [the proposed CS].                                                                                   
                                                                                                                                
CHAIR HAWKER said correct.                                                                                                      
                                                                                                                                
REPRESENTATIVE  ROKEBERG said  that  is why  it  is a  conceptual                                                               
amendment and is being put back in.                                                                                             
                                                                                                                                
Number 1350                                                                                                                     
                                                                                                                                
CHAIR HAWKER  objected to Conceptual  Amendment 1  for discussion                                                               
purposes.   He read,  "As currently  used for  inflation proofing                                                               
the  permanent  fund  is  calculated using  the  average  of  the                                                               
monthly  United  States  Consumer   Price  Index  for  all  Urban                                                               
Consumers", which he noted is called the CPI-U.                                                                                 
                                                                                                                                
REPRESENTATIVE ROKEBERG  added that he  has always used  the term                                                               
"or its equivalent" in case there has ever been a change.                                                                       
                                                                                                                                
REPRESENTATIVE   GRUENBERG  asked   for   clarification  of   the                                                               
amendment.  He asked if  Representative Hawker is suggesting that                                                               
the entire statute not be repealed.                                                                                             
                                                                                                                                
CHAIR HAWKER paraphrased Conceptual Amendment 1:                                                                                
                                                                                                                                
     The  amendment   before  us   would  be   a  conceptual                                                                    
     amendment to  have the  drafters include  as additional                                                                    
     language  some  place  as   appropriate  in  this  Act,                                                                    
     language  that would  define, in  relation  to rate  of                                                                    
     inflation  as appears  on page  3, line  12, that  that                                                                    
     rate  of   inflation,  the   measure,  the   index  for                                                                    
     determining  that rate  of inflation,  be the  CPI-U or                                                                    
     its equivalent and successor index.                                                                                        
                                                                                                                                
MR. BARTHOLOMEW  suggested in Section 37.13.900,  the definitions                                                               
section for this  provision of statute, adding  the definition of                                                               
inflation.                                                                                                                      
                                                                                                                                
REPRESENTATIVE  ROKEBERG  agreed  that is  where  the  definition                                                               
should go so it would be  applicable throughout the whole body of                                                               
the chapter.                                                                                                                    
                                                                                                                                
Number 1030                                                                                                                     
                                                                                                                                
CHAIR HAWKER  withdrew his objection  to Conceptual  Amendment 1.                                                               
There being no objection, Conceptual Amendment 1 was adopted.                                                                   
                                                                                                                                
Number 1020                                                                                                                     
                                                                                                                                
REPRESENTATIVE WEYHRAUCH  moved to adopt Conceptual  Amendment 2,                                                               
to  say  that in  the  conditional-effect  portion of  the  bill,                                                               
Section 10, that only those sections  that are related to POMV be                                                               
included.                                                                                                                       
                                                                                                                                
CHAIR HAWKER objected for discussion purposes.                                                                                  
                                                                                                                                
Number 1010                                                                                                                     
                                                                                                                                
REPRESENTATIVE  GRUENBERG offered  a friendly  amendment to  make                                                               
the motion more detailed.                                                                                                       
                                                                                                                                
REPRESENTATIVE WEYHRAUCH agreed.                                                                                                
                                                                                                                                
REPRESENTATIVE GRUENBERG expanded Conceptual  Amendment 2 to say,                                                               
Sections 1,  2, and  5 would not  be subject to  Section 10.   He                                                               
explained, "So, in  other words, the conditional  effect would be                                                               
Sections  3, 4,  6, and  9 of  this Act  take effect  only if  an                                                               
amendment to  Article IX .... "   He said that  language would go                                                               
on page 6, line 12, which would  exempt Sections 1, 2, and 5 from                                                               
the  conditional  effect.    That   is  the  first  part  of  the                                                               
amendment, he  noted.   The second  part would  be that  there be                                                               
another section  added, Section 12,  that would give  Sections 1,                                                               
2, and 5 an immediate effective date.                                                                                           
                                                                                                                                
CHAIR HAWKER  suggested that Sections  1, 2,  and 5 would  not be                                                               
conditional under  either the existing  Sections 10 or  11, which                                                               
would allow the drafters some latitude.                                                                                         
                                                                                                                                
REPRESENTATIVE GRUENBERG agreed.                                                                                                
                                                                                                                                
Number 0903                                                                                                                     
                                                                                                                                
REPRESENTATIVE OGG  objected.   He said the  bill was  crafted to                                                               
match the POMV and he does not  want to go down this road because                                                               
it all  becomes ineffectual if the  POMV constitutional amendment                                                               
does not go  into effect.  He said  he appreciated Representative                                                               
Gruenberg's  desire  to  address   these  kinds  of  issues,  but                                                               
suggested  that  perhaps  there should  be  separate  legislation                                                               
which he would support.                                                                                                         
                                                                                                                                
REPRESENTATIVE  GRUENBERG  responded  that the  issue  he  raised                                                               
about  Sections  1,  2,  and  5  may  not  have  been  completely                                                               
considered when this  bill was drafted.  Those  sections are good                                                               
changes  in  the  law  and  whether  or  not  the  constitutional                                                               
amendment  passes, this  bill does  have merit,  and there  is no                                                               
reason not to move those sections forward anyway.                                                                               
                                                                                                                                
Number 0649                                                                                                                     
                                                                                                                                
REPRESENTATIVE ROKEBERG  agreed with Representative Ogg  and said                                                               
Sections  1  and  2  are  "here  by  convenience,"  and  he  also                                                               
supported separate legislation for  those sections because adding                                                               
[HB  298] as  a companion  bill to  the constitutional  amendment                                                               
could cause confusion to the  public with extra sections to read.                                                               
He said this  issue should be considered during  the next hearing                                                               
of the bill.                                                                                                                    
                                                                                                                                
CHAIR HAWKER maintained his objection.                                                                                          
                                                                                                                                
A roll call vote was  taken.  Representatives Weyhrauch, Kohring,                                                               
Wilson, and Gruenberg  voted in favor of  Conceptual Amendment 2.                                                               
Representatives  Ogg,  Rokeberg,  and Hawker  voted  against  it.                                                               
Representatives  Moses  and Samuels  were  absent  for the  vote.                                                               
Therefore, Conceptual Amendment 2 was adopted by a vote of 4-3.                                                                 
                                                                                                                                
Number 0355                                                                                                                     
                                                                                                                                
REPRESENTATIVE WEYHRAUCH  moved to  report CSHB 298,  Version 23-                                                               
LS1075\S,  Cook,  3/15/04,  as  amended, out  of  committee  with                                                               
individual recommendations and the accompanying fiscal notes.                                                                   
                                                                                                                                
REPRESENTATIVE KOHRING objected.                                                                                                
                                                                                                                                
Number 0237                                                                                                                     
                                                                                                                                
A  roll call  vote was  taken.   Representatives Weyhrauch,  Ogg,                                                               
Wilson, Rokeberg,  Gruenberg, and Hawker  voted in favor  of CSHB                                                               
298.   Representative Kohring voted against  it.  Representatives                                                               
Moses  and Samuels  were absent  for the  vote.   Therefore, CSHB                                                               
298(W&M) was reported out of  the House Special Committee on Ways                                                               
and Means by a vote of 6-1.                                                                                                     
                                                                                                                                
CHAIR  HAWKER  thanked  the  committee  and  the  permanent  fund                                                               
experts for their participation.                                                                                              
                                                                                                                                
Number 0212                                                                                                                     
                                                                                                                                
ADJOURNMENT                                                                                                                   
                                                                                                                                
There being no  further business before the  committee, the House                                                               
Special  Committee on  Ways and  Means meeting  was adjourned  at                                                               
10:14 a.m.                                                                                                                      

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