Legislature(2021 - 2022)ANCH LIO DENALI Rm
10/22/2021 10:00 AM House WAYS & MEANS
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| Audio | Topic |
|---|---|
| Start | |
| HB4008 | |
| Presentation: Permanent Fund Formula Changes; Percent of Market Value | |
| HB4010 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| *+ | HB4008 | TELECONFERENCED | |
| += | HB4010 | TELECONFERENCED | |
| + | TELECONFERENCED | ||
ALASKA STATE LEGISLATURE
HOUSE SPECIAL COMMITTEE ON WAYS AND MEANS
Anchorage, Alaska
October 22, 2021
10:04 a.m.
MEMBERS PRESENT
Representative Ivy Spohnholz, Chair
Representative Andy Josephson
Representative Andi Story (via Microsoft Teams)
Representative Mike Prax (via Microsoft Teams)
MEMBERS ABSENT
Representative Adam Wool
Representative Calvin Schrage
Representative David Eastman
OTHER LEGISLATORS PRESENT
Representative Dan Ortiz
COMMITTEE CALENDAR
HOUSE BILL NO. 4008
"An Act relating to use of income of the Alaska permanent fund;
relating to the amount of the permanent fund dividend; relating
to the duties of the commissioner of revenue; and providing for
an effective date."
- HEARD & HELD
PRESENTATION: PERMANENT FUND FORMULA CHANGES; PERCENT OF MARKET
VALUE
- HEARD
HOUSE BILL NO. 4010
"An Act relating to use of income of the Alaska permanent fund;
relating to the amount of the permanent fund dividend; relating
to the duties of the commissioner of revenue; and providing for
an effective date."
- HEARD & HELD
PREVIOUS COMMITTEE ACTION
BILL: HB 4008
SHORT TITLE: PFD: 50/50 POMV SPLIT
SPONSOR(s): REPRESENTATIVE(s) SNYDER
10/12/21 (H) READ THE FIRST TIME - REFERRALS
10/12/21 (H) W&M, FIN
10/13/21 (H) W&M AT 10:00 AM ANCH LIO DENALI Rm
10/13/21 (H) <Bill Hearing Canceled>
10/22/21 (H) W&M AT 10:00 AM ANCH LIO DENALI Rm
BILL: HB 4010
SHORT TITLE: PERMANENT FUND DIVIDEND; POMV SPLIT
SPONSOR(s): REPRESENTATIVE(s) MCCARTY
10/12/21 (H) READ THE FIRST TIME - REFERRALS
10/12/21 (H) W&M, FIN
10/13/21 (H) W&M AT 10:00 AM ANCH LIO DENALI Rm
10/13/21 (H) Heard & Held
10/13/21 (H) MINUTE(W&M)
10/22/21 (H) W&M AT 10:00 AM ANCH LIO DENALI Rm
WITNESS REGISTER
REPRESENTATIVE LIZ SNYDER
Alaska State Legislature
Anchorage, Alaska
POSITION STATEMENT: As the prime sponsor, presented HB 4008.
ALLIANA SALANGUIT, Staff
Representative Liz Snyder
Alaska State Legislature
Juneau, Alaska
POSITION STATEMENT: Presented a sectional analysis of HB 4008,
on behalf of Representative Snyder, prime sponsor.
ALEXEI PAINTER, Director
Legislative Finance Division
Juneau, Alaska
POSITION STATEMENT: Provided a PowerPoint presentation, titled
"Updates on PFD and POMV Legislation."
REPRESENTATIVE KEN MCCARTY
Alaska State Legislature
Juneau, Alaska
POSITION STATEMENT: Asked questions during the presentation
from the Legislative Finance Division; Presented a PowerPoint as
prime sponsor of HB 4010.
EMILY NAUMAN, Deputy Director
Legislative Legal Services
Legislative Affairs Agency
Juneau, Alaska
POSITION STATEMENT: Provided clarification regarding HB 4010.
CONOR BELL, Fiscal Analyst
Legislative Finance Division
Juneau, Alaska
POSITION STATEMENT: Provided comparisons of the division's
information with that of the bill sponsor of HB 4010.
ACTION NARRATIVE
10:04:08 AM
CHAIR IVY SPOHNHOLZ called the House Special Committee on Ways
and Means meeting to order at 10:04 a.m. Representatives Prax
(via Microsoft Teams), Story (via Microsoft Teams), Josephson,
and Spohnholz were present at the call to order. Representative
Dan Ortiz was also present during the meeting.
HB 4008-PFD: 50/50 POMV SPLIT
10:06:00 AM
CHAIR SPOHNHOLZ announced that the first order of business would
be HOUSE BILL NO. 4008, "An Act relating to use of income of the
Alaska permanent fund; relating to the amount of the permanent
fund dividend; relating to the duties of the commissioner of
revenue; and providing for an effective date."
10:06:27 AM
REPRESENTATIVE LIZ SNYDER, Alaska State Legislature, as prime
sponsor, presented HB 4008. She said the proposed legislation
offers guidance regarding expenditures of earnings from the
Alaska permanent fund. She named two goals: to overcome
legislative gridlock and bring the state a comprehensive fiscal
plan to benefit the state. She said the bill would: retain a 5
percent, percent of market value (POMV) draw; repeal conflicting
statute; and add a revised permanent fund dividend (PFD)
formula, called a 50/50 contingency plan. She said HB 4008 was
designed to balance essential government services with growing
the permanent fund and PFD. She advised that the strength of
the 50/50 plan is that it can mitigate the impact of budget
fluctuations on the PFD by using a five-year moving average in
calculating the baseline budget. She said this would reduce the
capacity for using the PFD as political leverage and provide
budgetary stability. The bill would establish a spending cap
and would encourage the seeking out of additional revenue.
10:09:01 AM
ALLIANA SALANGUIT, Staff, Representative Liz Snyder, Alaska
State Legislature, on behalf of Representative Snyder, prime
sponsor, provided a sectional analysis of HB 4008 [hard copy
included in the committee packet].
10:11:09 AM
REPRESENTATIVE SNYDER gave a PowerPoint presentation, [hard copy
included in the committee packet]. She listed the
considerations of HB 4008 [slide 2]: the 50/50 split;
sustainable, reliable, and high-quality government services;
constitutional obligations; the need to remedy conflicting
statutory language; the need for fiscal plan; the need for
flexibility in challenging budgetary climates; household and
economic benefits of direct payments; and recommendations from
the fiscal [policy] working group. Representative Snyder
acknowledged that while she does not subscribe to some of the
rationale behind the 50/50 split, she understands it as a
compromise to existing statute. She named the components of HB
4008 [slide 3] as comprising: a 5 percent POMV draw; guidance
on the distribution of the POMV draw between general fund and
dividend fund; and conforming language. Representative Snyder
drew attention to an illustration [slide 4] showing how the POMV
can be adjusted to fill a budgetary gap in years when the 50/50
split does not flat fund the previous year's budget.
10:15:25 AM
REPRESENTATIVE SNYDER brought up two scenarios. In Scenario 1
[slide 5], HB 4008 would be adopted, and there would be no new
revenue or cuts, and there would be a flat fund. She covered
the categories: appropriations less revenue; 5-year moving
average adjusted for the consumer price index (CPI) and
inflation, a baseline budget; the POMV of 50 percent, with
baseline budget less 50 percent POMV, and showing amount left
for PFD; and the dividend payout and percent of POMV for the
PFD. The scenario shows these items from fiscal year 2023 (FY
23) through FY 30. She gave as example that under this
scenario, the dividend payout in FY 23 would be $838, and the
percent of POMV for the PFD would be 19 percent. By FY 30 there
would be a 30/70 split.
10:18:18 AM
CHAIR SPOHNHOLZ clarified for the record that "appropriations
less revenue" is a flat budget minus known revenue that would be
used in projections by the Legislative Finance Division. She
added, "It's what we need to raise."
REPRESENTATIVE SNYDER confirmed that is correct. She then moved
on to Scenario 2 [slide 6], which would include adoption of HB
4008 and $7 million in new revenue, as well as continue flat
funding. What would change over time is the size of the PFD and
the proportion needed to cover "less revenue." Under this
scenario, the trajectory of the evolution of the PFD percentage
would be accelerated to approximately 50 percent by FY 30.
REPRESENTATIVE SNYDER noted that HB 4008 would allow for
increasing or decreasing the budget. She summarized the
moderating effects. In decreasing the budget, it would not
result in a decreased PFD in the same year; it would contribute
to a reduction in the five-year average and to an increased PFD
in subsequent years. Nothing in the proposed legislation would
preclude the legislature from increasing the state's budget in
future years, she said. An increase would increase the five-
year average use in subsequent years, in effect increasing the
budget and "increasing the proportion that we need to make sure
that we cover utilizing the POMV draw."
10:21:58 AM
REPRESENTATIVE STORY expressed concern that there were no
interventions proposed in the bill. She said she believed
investments in the future were necessary and that the proposed
legislation did not account for that.
REPRESENTATIVE SNYDER answered that the bill was focused on the
PFD formula, but reiterated that nothing in the bill would limit
the legislature from expanding the budget to meet new needs.
REPRESENTATIVE STORY expressed concern that past experience was
not being considered. She said appropriations have been made in
the past that were vetoed.
10:26:12 AM
CHAIR SPOHNHOLZ said the truth is that the budget had been cut
for the past seven years, and initiatives with wide bipartisan
support cannot be funded without the revenue to do so. She
emphasized the importance of grounding these bills in a broader
context.
10:27:11 AM
REPRESENTATIVE SNYDER highlighted the flexibility which HB 4008
would allow. She said the bill did not prescribe a specific
percentage split. She argued that the flexibility would allow
for the legislature to address unexpected needs.
10:28:47 AM
REPRESENTATIVE PRAX asked for confirmation that future
legislators could not be held to the provisions of HB 4008.
REPRESENTATIVE SNYDER answered that is correct; regardless of
what is in statute, the legislature has the ability to make the
decision on an appropriation, as decided under Wielechowski v.
State of Alaska. Notwithstanding that, she said a common
refrain from critics is to "follow the law." Many of the bills
proposing statutory change and meant to provide guidance are
valuable, particularly in removing current conflicting language.
REPRESENTATIVE PRAX thanked the bill sponsor for being
forthright.
REPRESENTATIVE SNYDER replied that HB 4008 proscribes a 50/50
split as a target, which she called unique.
CHAIR SPOHNHOLZ said the legislature had been appropriating a
dividend without regard to historic formula, and HB 4008 would
develop a new formula based on balancing the budget. She argued
that while it is not a hard stop formula, it is a change to the
way things are currently done.
10:31:40 AM
REPRESENTATIVE PRAX said the bill would at least clarify that
what the legislature does is pay for all state spending and then
fund the PFD with whatever is left; however, he said he thinks
[Alaskans] would be disappointed. He said, "I think we'd be
better off ignoring it and moving on."
10:32:58 AM
REPRESENTATIVE STORY argued that since many items funded by the
legislature have been vetoed by the governor, the PFD is not
funded by with leftover funds.
10:33:53 AM
CHAIR SPOHNHOLZ announced that HB 4008 was held over.
^PRESENTATION: Permanent Fund Formula Changes; Percent of
Market Value
PRESENTATION: Permanent Fund Formula Changes; Percent of Market
Value
10:34:04 AM
CHAIR SPOHNHOLZ announced that the next order of business would
be a presentation on Permanent Fund Formula Changes; Percent of
Market Value.
CHAIR SPOHNHOLZ explained that Alexei Painter would offer an
analysis of all the dividend formulas. She underscored that the
state's budget is small, and education funds have been left
unfunded. She said Mr. Painter's presentation is an update to
one he gave on 9/1/21; it would incorporate newer legislation
that has been introduced.
10:36:07 AM
ALEXEI PAINTER, Director, Legislative Finance Division, provided
a PowerPoint presentation, titled "Updates on PFD and POMV
Legislation," dated 10/22/21 [hard copy included in the
committee packet]. He began on slide 2, which gives a
disclaimer: "Scenarios and adjustments in this presentation
reflect individual pieces of legislation. Sponsors may intend
these bills to be part of a larger package of changes." He
covered slides 3 and 4, which read as follows [original
punctuation provided]:
Review of Modeling Baselines
? Legislative Finance's fiscal model is designed to
show policy makers the longer-term impact of fiscal
policy decisions.
? The baseline assumptions are essentially that
current budget levels are maintained, adjusted for
inflation. Policy changes are then applied against
that baseline.
? Our default is to assume that statutory formulas
will be followed.
Revenue Assumptions
? LFD's baseline revenue assumptions are the
Department of Revenue's Spring Revenue Forecast.
This assumes $61 oil in FY22, growing with
inflation in future years.
DNR oil production forecast projects that
Alaska North Slope production will increase from
459.7 thousand barrels per day in FY22 to 565.5
thousand barrels per day in FY30.
? For the Permanent Fund, we assume actual FY21
returns and Callan's return assumption, which is 5.86%
for FY22 and 6.20% for FY23 and beyond.
10:38:12 AM
MR. PAINTER, in response to Chair Spohnholz, said an updated
fall revenue forecast is typically received by the division one
week before the governor's budget release on 12/15/21. He
continued to slide 5, which read as follows [original
punctuation provided]:
Note on Oil Prices
? We are using DOR's spring forecast price of $61 oil
in FY22, growing with inflation in future years. The
FY23 forecast price is $62.
[Alaska North Slope] ANS price has averaged about
$75 since July 1, 2021. As of October 20, the ANS
price was $86.78.
? Brent futures are showing $80 for June 2022 and an
average price of $76 for FY23, based on an expectation
of declining prices through the fiscal year. Based on
this price, FY23 revenue would be about $500 million
above the Spring forecast.
? DOR's fall forecast will be released in December in
advance of the Governor's budget.
10:40:56 AM
CHAIR SPOHNHOLZ said she appreciated the comments regarding the
volatility of oil prices.
MR. PAINTER continued to slide 6, which read as follows
[original punctuation provided]:
Review of Modeling Baselines (cont.) Spending
Assumptions
? For agency operations, these scenarios assume the
FY22 enacted budget (including HB 3003) grows with
inflation (2.0% per Callan).
? For statewide items, the baseline assumes that all
items are funded to their statutory levels beyond
FY22.
This includes School Debt Reimbursement, the
REAA Fund, Community Assistance, and oil and gas tax
credits. We assume oil and gas tax credits are
statutorily funded beginning FY23 until the credit
balance is eliminated.
For retirement funding, we are using the
amounts adopted in the October ARM Board meeting. This
includes a reduction of $55 million in FY23 due to the
ARM Board's adoption of a zero rate for the normal
contribution to healthcare in FY23. We assume the
normal rate is contributed beginning FY24, as the
Board indicated this zero rate may be temporary.
We also include a baseline Fund Transfers
amount that represents the ongoing cost of DEC's Spill
Prevention and Response program.
? For the capital budget, we assume the enacted FY22
capital budget, growing with inflation.
? For supplementals, we assume $50.0 million per year.
This is based on the average amount of supplemental
appropriations minus lapsing funds each year.
? For dividends, we assume the current FY22 actual PFD
of $739.0 million. We use the PFD calculation from
proposed bills beginning FY23.
10:45:17 AM
REPRESENTATIVE JOSEPHSON pointed out that cost of healthcare
made a continuation of Tier III [retirement benefits]
prohibitive. He asked why the Alaska Retirement Management
Board (ARMB or "ARM Board") concluded that fiscal year 2023 (FY
23) would not need appropriation for retiree healthcare.
MR. PAINTER explained that in 2014, there was an overhaul of
retirement payments, which implemented measures that resulted in
an actuarial expectation that "the healthcare side" is
overfunded and "the pension side" is underfunded. A service
rate that reflects that funding, with no new contributions
"going in," which results in savings to the state as payer and
employer.
10:48:32 AM
REPRESENTATIVE PRAX asked for confirmation of his understanding
that the actuarial projections assume that current contribution
rates will be maintained into the future.
MR. PAINTER confirmed that is correct. He said, "They could
keep this up for quite a while without causing a shortfall in
the net fund." In response to a follow-up question, he said the
legislature would need to pass legislation to pass on the
savings from the state to employees paying into the retirement
fund.
10:51:19 AM
CHAIR SPOHNHOLZ returned attention to comparison of bills.
10:52:38 AM
MR. PAINTER, in response to Representative Story, offered his
understanding that the governor's plan is the only one that
would make a change to the power cost equalization (PCE)
statute. He then turned attention to slide 7, which read as
follows [original punctuation provided, with one spelling
correction]:
PFD and POMV Bills In the 32nd Legislature
Constitutional Amendments
? HJR 1 (Rep. Kreiss-Tomkins)
? HJR 7 (Governor Dunleavy)
? HJR 10 (Rep. Tuck)
? SJR 1 (Sen. Wielechowski)
? SJR 18 (Sen. von Imhof) Statutory Changes
? HB 37 (Rep. Wool)
? HB 73 (Governor Dunleavy)
? HB 202 (Rep. Merrick)
? HB 3002 (Rep. Eastman)
HB 3008 (House Ways and Means)
? HB 4008 (Rep. Snyder)
? HB 4009 (Rep. Hopkins)
? HB 4010 (Rep. McCarty)
? SB 53 (Senate Finance Committee Substitute)
MR. PAINTER offered details regarding HJR 1, as show on slide 8,
which read as follows [original punctuation provided]:
HJR 1 (Rep. Kreiss-Tomkins)
? Constitutional amendment combining Permanent Fund
principal and earnings reserve into a single account
? Establishes limit of draws from Permanent Fund of 5%
POMV
? Does not deal with PFD
MR. PAINTER continued to slide 9, which read as follows
[original punctuation provided]:
HJR 7/HB 73 (Governor)
? HJR 7 is a constitutional amendment combining
Permanent Fund principal and earnings reserve into a
single account
? HJR 7 establishes limit of draws from Permanent Fund
of 5% POMV
? As originally drafted, required that a PFD be paid
according to a statute that was approved by the voters
(as provided in HB 73)
? Governor revised his proposal, which was introduced
as a CS to SJR 6 (the Senate companion). This version
provides:
Constitutional single Permanent Fund account
Limits draws to 5% POMV
Sets PFD as 50% of the POMV draw
Transfers the PCE fund to the Permanent Fund
and adds PCE program as constitutional requirement
10:55:35 AM
MR. PAINTER covered slide 10, which he described as a model
showing that: there is an overdraw needed to pay the dividend
in FY 23; beyond that it would be a constitutionalized POMV; the
FY 23 deficit of $1.1 billion, based on $76 dollar oil, would be
approximately $600 million; the deficit figures with the
baseline assumption decline to approximately $300 million by FY
30, depending on oil prices; and this model is similar to the
one seen in early September.
10:56:25 AM
MR. PAINTER turned to slide 11, which read as follows [original
punctuation provided]:
HJR 10 (Rep. Tuck)
? Constitutional amendment retaining two-account
structure
? Draws limited to 4% of market value of the fund (no
averaging) but may not exceed net income from the fund
in the previous fiscal year
Splits draw 50/50 between PFD and general fund
MR. PAINTER addressed slide 12, which he described as similar to
the governor's model but with lower numbers because of a 4
percent on average draw. He said it is a constitutional
amendment; beyond FY 23 there are no unclaimed draws ERA to meet
the deficit, which is $1.1 billion in FY 23. He added that with
those higher oil prices that would be reduced.
10:57:24 AM
MR. PAINTER, in response to a question from Representative
Josephson regarding the governor's plan on slide 10, explained
that the governor's full plan, not reflected on the slide,
includes spending reductions; therefore spending would be
reduced by $100 million "in each of FY 23 and 24." He offered
further details and then said that in total, there is about $500
million a year less spending in the governor's fiscal plan than
in the Legislative Finance Division's baseline. He remarked
upon a balance wherein higher oil prices may negate the need for
new revenue cuts.
MR. PAINTER, in response to Chair Spohnholz, said the governor,
in his 10-year plan, has not introduced specific legislation
that would, for example, reduce the state share for school debt
reimbursement; however, he has indicated that the long-term plan
would fund that 50 percent at the statutory level.
CHAIR SPOHNHOLZ remarked that a plan is incomplete without the
legislation to make it possible.
11:00:39 AM
MR. PAINTER directed attention to slide 13, which read as
follows [original punctuation provided]:
SJR 1 (Sen. Wielechowski)
? Constitutional amendment combining Permanent Fund
principal and earnings reserve into a single account
? Establishes limit of draws from Permanent Fund of 5%
POMV
? Sets PFD as higher of: (1) current statutory
formula; or (2) 50% of the POMV draw
MR. PAINTER showed the model for SJR 1, on slide 14, which shows
a dividend larger than on the governor's plan because of the
statutory dividend calculation based on income rather than a
POMV draw. That ends up with larger deficits, about $2.2
billion in FY 23 and down to about $900 million in FY 30.
MR. PAINTER presented slide 15, which read as follows [original
punctuation provided]:
SJR 18 (Sen. von Imhof)
? Constitutional amendment splitting Permanent Fund
into two accounts: Permanent Fund and Alaska Resource
Ownership Revenue Account (ARORA)
? ARORA established with a transfer equal to the PFDs
paid below the statutory level (about $6.77 billion)
? Royalties currently directed to the Permanent Fund
will be split equally between the Permanent Fund and
ARORA
? 5% POMV from each fund. Permanent Fund POMV goes to
the general fund, ARORA to the PFD fund
MR. PAINTER pointed out that the model for SJR 18, on slide 16,
shows that the 5 percent POMV would be more than sufficient to
pay for the budget, based on spending projections and revenue
forecast.
11:02:48 AM
MR. PAINTER, in response to Representative Josephson, said the
$6.77 billion is a combination of an historical number and a
guess to the future as to "how we might short the dividend this
year and then next year." He explained that if the dividend
ends up being lower than what it was presumed when drafted, then
"that number" could be different from the $6.77 billion. In
response to a follow-up question, he confirmed that the number
is derived from monies that were not paid to the formula.
11:04:35 AM
MR. PAINTER, in response to Chair Spohnholz, said he did not
know what the FY 30 dividend would be under ARORA, but moments
later announced his source let him know it would be $530.
11:06:33 AM
MR. PAINTER continued to slide 17, which read as follows
[original punctuation provided]:
HB 37 (Rep. Wool)
? Retains statutory 5% POMV
? Directs 10% of POMV and 30% of total royalties to
the PFD
? Repeals additional statutory 25% of royalties to the
Permanent Fund
? Repeals Amerada Hess account (funding source for
Alaska Capital Income Fund)
? Establishes a flat income tax of 2.5% Estimated to
raise $580 Million in FY23
MR. PAINTER said slide 18 showed the model for HB 37, reflecting
a surplus of about $520 million in FY 23, although he remarked
that that is an unrealistic time by which to establish an income
tax.
11:08:06 AM
CHAIR SPOHNHOLZ remarked that HB 37 was one of few proposals
that would entirely balance budget.
MR. PAINTER showed slide 19, which read as follows [original
punctuation provided]:
HB 202 (Rep. Merrick)
? Retains statutory 5% POMV
? Directs 30% of total royalties to the PFD
MR. PAINTER said the model for HB 202 is on slide 20, which
shows the proposed legislation would balance the budget in FY 23
and have surpluses starting at $193 million and growing. The FY
23 amount would be a larger surplus based on today's prices,
said.
11:08:58 AM
MR. PAINTER directed attention to slide 21, which read as
follows [original punctuation provided]:
HB 3002 (Rep. Eastman)
? Repeals statutory POMV draw
? Retains statutory PFD formula
MR. PAINTER said HB 3002 would put things back the way they were
prior to passage of Senate Bill 26 [passed in a previous
legislature]. He said the effect of HB 3002 is shown on the
model on slide 22. He explained the model reflects no ERA draw
but would not look much different with the ERA draw.
11:10:11 AM
CHAIR SPOHNHOLZ noted that HB 3002 would create a $2.8 billion
deficit in FY 23, which would be reduced to approximately $2.5
billion in FY 30. She presumed that in order to balance the
budget, the ERA would have to be overdrawn, which could deplete
the value of the ERA. She asked for an estimate of the ERA
balance at the end of FY 30 if unstructured overdraws were used
to offset the budget.
MR. PAINTER said he could follow up with that information at a
later date.
CHAIR SPOHNHOLZ proffered that her "back of the envelope"
calculation shows that would result in at least $15 billion less
in the ERA.
11:11:40 AM
MR. PAINTER moved on to slide 23, which read as follows
[original punctuation provided]:
HB 3008 (House Ways and Means)
? Retains 5% POMV draw
? Directs 25% of POMV draw to the PFD
MR. PAINTER noted he had just been advised of the answer
regarding slide 22: If it is assumed the deficits came out of
the ERA and the statutory dividends were paid, then the ending
balance in the ERA at the end of FY 30 would be $6.6 billion.
CHAIR SPOHNHOLZ said that is much worse than she had estimated.
11:13:25 AM
REPRESENTATIVE JOSEPHSON supposed that a supporter of the bill
would say $6.6 billion in the ERA has been a previous scenario.
MR. PAINTER answered, "Yes, I mean the ERA has been zero dollars
at the end of fiscal years in the past; so, it's happened
before."
CHAIR SPOHNHOLZ likened HB 3002 to a time machine going back to
how things stood before House Bill 26.
11:14:24 AM
MR. PAINTER returned to the presentation, to slide 24, which
models HB 3008, the 75/25 PFD. It shows deficits in FY 23 of
approximately $300 million. With the $76 oil, that would be
about a $200 million surplus. It would balance the budget in
future years in the spring forecast, then leave a surplus in the
future years, starting FY 25.
MR. PAINTER moved on to slide 25, which read as follows
[original punctuation provided]:
HB 4008 (Rep. Snyder)
? Retains 5% POMV draw
? Directs 50% of POMV draw to the PFD, reduced by the
5-year average gap between non-POMV UGF revenue and
non-PFD UGF spending.
MR. PAINTER said slide 26 models HB 4008, showing a deficit of
about $100 million in FY 23, then surpluses in the following
years. He explained that "the lag" and revenue growing faster
than inflation result in the surpluses if there are not other
measure changes.
11:17:13 AM
MR. PAINTER, in response to a question from Representative
Josephson, said in this model, the surpluses would not
necessarily go towards the dividend; the legislature could do
with the surpluses as it saw fit; it is not specified under HB
4008.
MR. PAINTER directed attention to slide 27, which read as
follows [original punctuation provided]:
HB 4009 (Rep. Hopkins)
? Retains 5% POMV draw
? Stairstep PFDs
FY23: 10% POMV and 35% total oil & gas
royalties
FY24: 15% POMV and 40% total oil & gas
royalties
FY25: 20% POMV and 45% total oil & gas
royalties
FY26+: 25% POMV and 50% total oil & gas
royalties
MR. PAINTER said the model on slide 28 shows the deficit in FY
23 of about $200 million, increasing through FY 26, then
decreasing again. He noted that if the higher revenue is
applied, some of it would come from oil and gas royalties and go
to the dividend, but there would still be enough revenue based
on $76 oil in FY 23 to balance the budget and have surplus.
CHAIR SPOHNHOLZ remarked that moving forward, it could be useful
to update projections based on the fall forecast.
11:20:14 AM
MR. PAINTER showed slide 29, which read as follows [original
punctuation provided]:
HB 4010 (Rep. McCarty)
? Retains 5% POMV draw
? Directs 35% of POMV draw to the PFD
? Directs 13% of total POMV draw (20% of the 65% that
is not directed to PFDs) to capital projects
MR. PAINTER said the model on slide 30 shows higher capital
spending and a deficit in FY 23 of about $800 million, which
shrinks to about $300 million by FY 30. In response to Chair
Spohnholz, he confirmed that if the bill were amended to
accommodate the bill sponsor's intent to change from 13 percent
of the POMV draw going to capital projects to 20 percent, then
that would increase the deficit.
11:22:12 AM
MR. PAINTER moved on to slide 31, which read as follows
[original punctuation provided]:
SB 53 (SFIN Committee Substitute)
? Retains 5% POMV draw
? Sets PFD at $1,100 in FY23, $1,200 in FY24 and
$1,300 in FY25
? If the state implements a new revenue measure
generating at least $700M/year, the PFD becomes 50% of
the POMV beginning in FY26 Otherwise, the PFD is
$1,300 in FY26, and growing with inflation thereafter
MR. PAINTER said there are two models for SB 53. The first
model, on slide 32, assumes "the trigger" is not met. There
would be a $1,300 PFD starting FY 26; and there would be a
deficit in FY 23, then surpluses in future years. The second
model, on slide 33, assumes new revenue is implemented right
before "the trigger period," starting FY 26; it shows a balanced
budget in FY 26, with the PFD and the new revenue, then
surpluses in the out years.
MR. PAINTER said that concluded the presentation.
11:24:18 AM
REPRESENTATIVE JOSEPHSON pointed to information on slide 33 that
shows a surplus of $444 million in FY 30 and asked whether that
would lend itself to the governor's argument that "we don't need
$700 million in new revenue."
MR. PAINTER responded that how to treat the later years is a
policy call for the legislature. He said he does not take much
stock in projections that far out; even the ability to do short-
term projections is not that great.
CHAIR SPOHNHOLZ remarked that the surplus of $444 million has
caveats.
REPRESENTATIVE JOSEPHSON, regarding the out years, suggested the
same could be said of the Fiscal Policy Working Group's
projections.
11:26:28 AM
REPRESENTATIVE KEN MCCARTY, Alaska State Legislature, addressing
slide 33, asked why the budget with the dividend increases so
much, because it appears not to be connected to the permanent
fund.
MR. PAINTER answered that the increase was due to the trigger
mechanism in SB 53; if the new revenue was met, it would
significantly increase the amount going towards the dividend.
11:28:13 AM
CHAIR SPOHNHOLZ stated the importance of the "budget less
dividends" number on slide 33, and she said essentially the
additional revenue allows the 50/50 formula; however, she said
that "we're talking about ... austerity budgets," with no
meaningful increases in areas such as public safety,
transportation, and education.
11:28:58 AM
REPRESENTATIVE JOSEPHSON said the spending assumptions include 2
percent inflation, which is more than the governor's
assumptions.
CHAIR SPOHNHOLZ responded that is correct but reemphasized that
which it does not include.
REPRESENTATIVE JOSEPHSON speculated that on the spectrum of
austerity, "this is sort of in the middle."
CHAIR SPOHNHOLZ respectfully disagreed. She thanked Mr. Painter
for the presentation.
HB 4010-PERMANENT FUND DIVIDEND; POMV SPLIT
11:31:03 AM
CHAIR SPOHNHOLZ announced that the final order of business would
be HOUSE BILL NO. 4010, "An Act relating to use of income of the
Alaska permanent fund; relating to the amount of the permanent
fund dividend; relating to the duties of the commissioner of
revenue; and providing for an effective date."
11:32:02 AM
REPRESENTATIVE KEN MCCARTY, Alaska State Legislature, as prime
sponsor of HB 4010, gave a PowerPoint presentation, titled "HB
4010; A New Solution for an Established sustainable tradition"
[hard copy included in the committee packet]. As shown on slide
2, he reviewed that the percent of market value (POMV) is a 5
percent draw on the Alaska permanent fund. He directed
attention to a slide 3, which shows the following question asked
by a committee member at a previous meeting: "Does the HB 4010
plan have a negative impact on the operational budget resulting
in reductions to it in order to support the capital budget?"
Slide 4 provides the answer in a breakdown of the bill, which he
clarified at the request of Chair Spohnholz to be that of the
100 percent coming from the POMV draw: 35 percent goes to the
permanent fund dividend (PFD), and 65 percent goes to Alaska
government expenses; of the 65 percent, 20 percent goes to
capital projects and 45 percent to government operations.
11:35:55 AM
EMILY NAUMAN, Deputy Director, Legislative Legal Services,
Legislative Affairs Agency, at the request of Chair Spohnholz,
clarified that as drafted, HB 4010 would allot 35 percent [of
the POMV draw] to the PFD and 65 percent to the general fund for
general state spending. Of that 65 percent, 20 percent would go
to capital projects in other words, 13 percent of the 100
percent.
REPRESENTATIVE MCCARTY, in response to Chair Spohnholz,
confirmed that was his intent.
CHAIR SPOHNHOLZ asked that Representative McCarty resubmit the
figures on slide 4 so that there are sub-bulleted items under
the 65 percent specifying that 20 percent of the 65 percent
would go to capital projects and 80 percent of the 65 percent
would go to government operations.
11:38:58 AM
REPRESENTATIVE MCCARTY noted that slide 5 shows the information
from slide 4 in a pie chart. Slide 6 has two graphs, one
showing $60 per barrel in FY 21-27 and project revenue with no
liability reduction until 2028 and surplus in 2030. The other
graph shows $70 per barrel in FY 21-24 and reflects a projected
slight deficit with significant surplus growth after 2025.
Slides 7 and 8 offer a closer look at the plan. Slide 9
addresses appropriations to capital projects and indicates money
to support jobs for Alaskans, a boost for the economy, and
infrastructure for the present and future. Slide 10 boasts no
disadvantages of the "35/65" plan and advantages including a
distribution plan that is: dependable & sustainable; equitable
for both the people's government and individual Alaskans;
beneficial from the standpoint of the PFD and jobs and services
from capital projects; and fiscally sustainable without
requiring excessive revenue expansion or taxation. Slide 11
reiterates the sustainable future aspect of the plan.
REPRESENTATIVE MCCARTY noted that slide 12 answers "no" to the
question of whether HB 4010 would result in reduction to the
operational budget in order to support the capital budget. The
slide further posits that the proposed legislation would offer
"balanced fiscal management with projections of future surplus
protection." Slide 13 adds that "recent projected oil revenue
forecasts have seen unexpected surplus, which could reduce or
eliminate deficit years."
11:42:36 AM
CHAIR SPOHNHOLZ pointed out that the bill comparison
presentation given by Alexei Painter just prior to this bill
hearing used the current oil prices as an even way to compare
the various proposed legislation.
11:43:45 AM
REPRESENTATIVE STORY inquired whether the bill sponsor knew how
many millions of dollars would go to capital projects.
REPRESENTATIVE MCCARTY responded that if the model were used
this year, it would produce just shy of $400 million from the
permanent fund to capital projects. In 2030, $800 million would
go towards capital projects. In response to a follow-up
comment, he agreed that there is a need to build workforce that
has been lost. He noted that HB 108 would help with workforce
and training.
11:47:33 AM
REPRESENTATIVE JOSEPHSON noted that Representative McCarty's
presentation states there would be no impact on the operating
budget; however, slide 30 from Mr. Painter's Legislative Finance
Division presentation said there would be an impact on the
budget. He said, "Something's got to give."
CHAIR SPOHNHOLZ compared the bill sponsor's analysis of HB 4010,
which shows a deficit of $617 million in FY 23 going down to
minus $69 million in FY 25, and she expressed interest in
comparing this to the information from the Legislative Finance
Division, for example whether slide 30 reflects only the
operating budget and does not include "the additional capital
spend."
11:49:45 AM
CONOR BELL, Fiscal Analyst, Legislative Finance Division, said
the division assumed that the capital budget increases and the
agency operating budget "stays with the status quo of the
enacted budget growing with inflation." He said the division
views the cutting or increasing of the operating budget as a
response to a larger capital budget as a separate policy choice.
In response to Chair Spohnholz, he confirmed that all the
amounts on slide 30 of the division's presentation account for a
higher capital budget and resulting overall higher unrestricted
general fund (UGF) budget.
11:52:22 AM
MR. BELL, in response to Representative Josephson, said the
numbers improve because revenue is growing faster than inflation
"during this forecast period," including both POMV and non-POMV
revenue.
CHAIR SPOHNHOLZ reasoned that the FY 23 deficit under HB 4010 is
$200 million higher due to the additional capital spend.
MR. BELL confirmed that's correct.
11:53:57 AM
CHAIR SPOHNHOLZ thanked the bill sponsor and announced that HB
4010 was held over.
11:54:41 AM
ADJOURNMENT
There being no further business before the committee, the House
Special Committee on Ways and Means meeting was adjourned at
11:54 a.m.
| Document Name | Date/Time | Subjects |
|---|---|---|
| HB 4010 Presentation 10.20.21.pdf |
HW&M 10/22/2021 10:00:00 AM |
HB4010 |
| HB 4008 Fiscal Note - PF.pdf |
HW&M 10/22/2021 10:00:00 AM |
HB4008 |
| HB 4008 Sponsor Statement.pdf |
HW&M 10/22/2021 10:00:00 AM |
|
| HB 4008 Sectional.pdf |
HW&M 10/22/2021 10:00:00 AM |
|
| HB 4008 Presentation, 10.22.21.pdf |
HW&M 10/22/2021 10:00:00 AM |
HB4008 |
| LFD Presentation - POMV and PFD bills,10.22.21.pdf |
HW&M 10/22/2021 10:00:00 AM |
|
| HB 4008 Sectional.pdf |
HW&M 10/22/2021 10:00:00 AM |
HB4008 |
| HB 4008 Presentation, 10.22.21.pdf |
HW&M 10/22/2021 10:00:00 AM |
HB4008 |
| HB 4008 Sponsor Statement.pdf |
HW&M 10/22/2021 10:00:00 AM |
HB4008 |