03/06/2024 06:00 PM House WAYS & MEANS
| Audio | Topic |
|---|---|
| Start | |
| HB110 | |
| HB266 | |
| HJR9 | |
| Adjourn |
+ teleconferenced
= bill was previously heard/scheduled
| += | HB 110 | TELECONFERENCED | |
| *+ | HB 266 | TELECONFERENCED | |
| += | HJR 9 | TELECONFERENCED | |
| + | TELECONFERENCED |
ALASKA STATE LEGISLATURE
HOUSE SPECIAL COMMITTEE ON WAYS AND MEANS
March 6, 2024
6:02 p.m.
MEMBERS PRESENT
Representative Ben Carpenter, Chair
Representative Jamie Allard
Representative Tom McKay
Representative Kevin McCabe
Representative Cathy Tilton
Representative Andrew Gray
Representative Cliff Groh
MEMBERS ABSENT
All members present
COMMITTEE CALENDAR
HOUSE BILL NO. 110
"An Act relating to the Alaska permanent fund; relating to
permanent fund dividends and the dividend fund; transferring the
dividend program from the Department of Revenue to the Alaska
Permanent Fund Corporation; relating to the duties of the
Department of Revenue; relating to the duties of the Alaska
Permanent Fund Corporation; and providing for an effective
date."
- HEARD & HELD
HOUSE BILL NO. 266
"An Act relating to the Alaska permanent fund; relating to
dividends for state residents; relating to the use of certain
state income; relating to contributions from permanent fund
dividends to the general and permanent funds; and providing for
an effective date."
- HEARD AND HELD
HOUSE JOINT RESOLUTION NO. 9
Proposing amendments to the Constitution of the State of Alaska
relating to the Alaska permanent fund and to appropriations from
the Alaska permanent fund.
- HEARD & HELD
PREVIOUS COMMITTEE ACTION
BILL: HB 110
SHORT TITLE: PERM FUND; XFER DIVIDEND PROG TO APFC
SPONSOR(s): REPRESENTATIVE CARPENTER
03/13/23 (H) READ THE FIRST TIME - REFERRALS
03/13/23 (H) W&M, FIN
03/27/23 (H) W&M AT 6:00 PM DAVIS 106
03/27/23 (H) Scheduled but Not Heard
03/29/23 (H) W&M AT 6:00 PM DAVIS 106
03/29/23 (H) Heard & Held
03/29/23 (H) MINUTE(W&M)
04/24/23 (H) W&M AT 6:00 PM DAVIS 106
04/24/23 (H) Heard & Held
04/24/23 (H) MINUTE(W&M)
04/25/23 (H) W&M AT 6:00 PM DAVIS 106
04/25/23 (H) Heard & Held
04/25/23 (H) MINUTE(W&M)
03/06/24 (H) W&M AT 6:00 PM DAVIS 106
BILL: HB 266
SHORT TITLE: PERMANENT FUND DIVIDEND; ROYALTIES
SPONSOR(s): REPRESENTATIVE CARRICK
01/16/24 (H) READ THE FIRST TIME - REFERRALS
01/16/24 (H) W&M, FIN
01/16/24 (H) REFERRED TO WAYS & MEANS
03/06/24 (H) W&M AT 6:00 PM DAVIS 106
03/06/24 (H) Heard & Held
BILL: HJR 9
SHORT TITLE: CONST AM: PERMANENT FUND; POMV;EARNINGS
SPONSOR(s): REPRESENTATIVE GROH
03/06/23 (H) READ THE FIRST TIME - REFERRALS
03/06/23 (H) W&M, JUD
03/08/23 (H) W&M AT 6:00 PM DAVIS 106
03/08/23 (H) -- MEETING CANCELED --
03/11/23 (H) W&M AT 9:00 AM DAVIS 106
03/11/23 (H) Heard & Held
03/11/23 (H) MINUTE(W&M)
03/06/24 (H) W&M AT 6:00 PM DAVIS 106
WITNESS REGISTER
KENDRA BROUSSARD, Staff
Representative Ben Carpenter
Alaska State Legislature
Juneau, Alaska
POSITION STATEMENT: Explained the changes that would be made by
a proposed committee substitute for HB 110 and answered
questions on behalf of the bill sponsor, the House Special
Committee on Ways and Means, on which Representative Carpenter
serves as chair.
DONNA ARDUIN, Staff
Representative Ben Carpenter
Alaska State Legislature
Juneau, Alaska
POSITION STATEMENT: Answered questions during the hearing on HB
110 on behalf of the House Special Committee on Ways and Means,
sponsor, on which Representative Carpenter serves as chair.
PAULYN SWANSON, Director
Alaska Permanent Fund Corporation
Juneau, Alaska
POSITION STATEMENT: Answered questions related to HB 110.
REPRESENTATIVE ASHLEY CARRICK
Alaska State Legislature
Juneau, Alaska
POSITION STATEMENT: As the prime sponsor, presented HB 266.
STUART RELAY, Staff
Representative Ashley Carrick
Alaska State Legislature
Juneau, Alaska
POSITION STATEMENT: Gave the sectional analysis for HB 266 on
behalf of Representative Carrick, prime sponsor.
ACTION NARRATIVE
6:02:03 PM
CHAIR BEN CARPENTER called the House Special Committee on Ways
and Means meeting to order at 6:02 p.m. Representatives Groh,
Gray, McCabe, McKay, Tilton, and Carpenter were present at the
call to order. Representative Allard arrived as the meeting was
in progress.
HB 110-PERM FUND; XFER DIVIDEND PROG TO APFC
6:03:02 PM
CHAIR CARPENTER announced that the first order of business would
be HOUSE BILL NO. 110, "An Act relating to the Alaska permanent
fund; relating to permanent fund dividends and the dividend
fund; transferring the dividend program from the Department of
Revenue to the Alaska Permanent Fund Corporation; relating to
the duties of the Department of Revenue; relating to the duties
of the Alaska Permanent Fund Corporation; and providing for an
effective date." [Before the committee was the proposed
committee substitute for HB 110, Version 33-LS0371\R, Nauman,
4/24/23, adopted as a working document.]
6:03:39 PM
REPRESENTATIVE MCCABE moved to adopt the proposed committee
substitute (CS), Version 33-LS0731\H, Nauman, 3/6/24, as a
working document.
CHAIR CARPENTER objected for the purpose of discussion.
6:04:01 PM
The committee took a brief at-ease at 6:04 p.m.
6:04:29 PM
KENDRA BROUSSARD, Staff, Representative Ben Carpenter, Alaska
State Legislature, on behalf of the bill sponsor, the House
Special Committee on Ways and Means, on which Representative
Carpenter serves as chair, explained the changes that would be
made by the proposed committee substitute. She spoke from the
document in the committee packet titled "CS For House Bill 110
(W&M) Summary of Changes Version R to Version H," which read as
follows [original punctuation provided]:
Title Change
Delete: relating to the duties of the Department of
Revenue; relating to the duties of the Alaska
Permanent Fund Corporation.
Add: relating to income of the Alaska permanent fund;
relating to the earnings reserve account.
Eliminates Sections
Eliminates sections 2, 3, 7, 8, 10 14, 17 24 from
Version R.
Section 1
Legislative Intent Language: It is the legislature's
intent to pass a constitutional amendment that
requires payment of permanent fund dividends to
eligible state residents, and, in statute, establish
the annual amount of the PFD and maximum draw from the
earnings reserve account.
Section 2
Amends Department of Administration accounting statute
to conform to moving the earnings reserve account from
the general fund to the permanent fund corporation.
Section 3
Changes Sec. 4 in Version R which amends 37.13.140
(permanent fund income) to conform to moving the
earnings reserve account to the permanent fund
corporation. This new CS keeps the calculation of
income for distribution from the fund at five percent
of the average market value of the fund for the first
five of the preceding six years and eliminates the 21
percent of net income calculation.
Section 4
Amends the disposition of income from the permanent
fund statute to move the earnings reserve account from
the general fund to the permanent fund.
Section 5
Changes Sec.5 of Version R that requires the earnings
of the fund to be transferred each year to the general
fund. As in Version R, the draw from the earnings
reserve account may not exceed the balance in the
account.
Section 6
Changes Sec. 6 from Version R which has conforming
language for the Amerada Hess exclusion for the
computation of income available for disposition.
Section 7
Changes Sec. 9 from Version R which has conforming
language for the Mental Health Trust exclusion for the
computation of income available for disposition.
Section 8
Adds conforming language for the power cost
equalization fund income exclusion for the computation
of income available for disposition.
Section 9
Changes Sec. 15, individual dividend calculation
language from Version R, to conform to the calculation
and transfer of the dividend payment in this
amendment.
Section 10
Changes Sec. 16 of Version R, public notice of the
value of the individual dividend amount, to conform to
transfer language.
Section 11
Requires the department of revenue to transfer 50% of
the amount of permanent fund earnings available for
distribution each year to the dividend fund for the
payment of dividends.
Section 12
Adds conforming language to the dividend fund section
of statute.
Section 13
Repeals AS 37.13.145(c) (inflation proofing), AS
37.13.145(e) (appropriations from the earning reserve
account), and AS 37.13.145(f) (total available for
appropriation).
Section 14
Adds to uncodified law a conditional effect. This act
only takes effect if a constitutional amendment to
art. IX, sec. 15, Constitution of the State of Alaska,
requiring an annual permanent fund dividend be paid to
eligible residents of the state, is passed by the
legislature, and approved by the voters at the 2024
general election.
Section 15
Provides for an effective date of July 1, 2025.
6:08:58 PM
CHAIR CARPENTER provided a correction regarding Section 14 that
it is a "conditional" effect, not a "constitutional" effect. He
said the intent of the language is to put a conditional effect
so that this legislation is contingent upon other legislation.
6:09:16 PM
REPRESENTATIVE GRAY inquired about why not make the proposed
conditional effect a statutory change in the way same way as the
[permanent fund] dividend.
CHAIR CARPENTER answered that the conditional effect language
communicates that this is part of a comprehensive plan, not a
stand-alone provision, and other pieces of legislation must also
be considered with this piece of legislation.
REPRESENTATIVE GRAY asked whether the dividend would come out to
be a 50-50 split.
CHAIR CARPENTER replied that he thinks that's what the language
is, as drafted.
REPRESENTATIVE GRAY asked what the harm would be in making it a
statutory change to go to a 50-50 split if HJR 7 isn't passed.
CHAIR CARPENTER responded that it would still be subject to the
appropriations process because the size of the dividend laid out
in statute is already there. The statute could be changed but
the appropriations process would decide whether to follow that
statute. So, HJR 7 would be the forcing function that points to
the statute and says the legislature has dedicated the fund and
therefore that must be followed.
6:11:17 PM
REPRESENTATIVE GROH thanked the chair for bringing this forward.
He pointed out that there is the rate and there is the base.
One base is the percent of market value (POMV) draw and the
other is the current statute of income available for
distribution which can be a larger amount. Income available for
distribution is a term that was created in the 1980s, while POMV
draw is from 2018 when the legislature adopted the POMV
statutes. When talking about the rate of 50 percent, the base
is important, and it is important to distinguish which base.
The current statutes refer to the income available for
distribution whereas this proposal would move it to 50 percent
of the POMV draw.
CHAIR CARPENTER confirmed there are two formulas. The formula
that has been around for a long time is 21 percent of the net
earnings of five of the last six [fiscal] years, which
identifies a sum of money. A recently passed bill, Senate Bill
26, established a different way of calculating a sum of money,
which is 5 percent of market value. This provision recognizes
that the legislature wants to use 5 percent of market value as
the way to calculate the sum of money that is available from the
permanent fund.
6:13:24 PM
REPRESENTATIVE GRAY recalled that while considering Version R of
the bill, there was talk about moving everything to the
Permanent Fund Corporation. He requested elaboration on what
would be moved to the Permanent Fund Corporation, how it is
different from today, and going from the "big bill" to this
smaller bill.
CHAIR CARPENTER answered that the original bill's intent was to
move responsibility for the entire program into the Permanent
Fund Corporation as opposed to the Department of Revenue (DOR).
The intent of Version H is to make the bill simpler by not
transferring the entire responsibility away from DOR.
REPRESENTATIVE GRAY inquired whether there would be any
difference to the way the permanent fund is currently paid if
this bill were in effect.
CHAIR CARPENTER replied that under this bill there would be no
difference with how it is currently being done, other than it
would move the earnings reserve account from the general fund to
the Permanent Fund Corporation to keep it in line with the
language in HJR 7.
6:15:21 PM
DONNA ARDUIN, Staff, Representative Ben Carpenter, Alaska State
Legislature, on behalf of the sponsor of HB 110, the House
Special Committee on Ways and Means, on which Representative
Carpenter serves as chair, explained that Version H conforms
with language in HJR 7, which is one step and then another. The
calculation is in statute, and in HB 110 it would be 5 percent
POMV to the general fund. Because HJR 7 takes the earnings
reserve account out of the general fund and puts it into the
permanent fund, HJR 7 says the only money that can come out of
the earnings reserve account constitutionally is whatever that
calculation is in statute. The first step of that change, then,
is to transfer the entire 5 percent POMV to the general fund and
then half of that to the dividend fund for the payment of
dividends. Technically it's just a different process.
REPRESENTATIVE GRAY asked whether DOR or the Permanent Fund
Corporation has a position on the proposed changes in Version H.
6:16:49 PM
PAULYN SWANSON, Communications Director, Alaska Permanent Fund
Corporation, responded that the corporation doesn't currently
have a position on the bill, but has reviewed the work draft.
She related that currently the Alaska Permanent Fund Corporation
does manage the earnings reserve account, which is a statutory
account as currently established. She offered her understanding
that [Version H] would transfer the earnings reserve account to
the permanent fund, as established in the constitution. Other
than that transfer, the corporation hasn't seen any other effect
per se on how it would then manage the fund at this time.
6:18:09 PM
CHAIR CARPENTER asked if Ms. Swanson believes the legislature
would be able to appropriate out of the earnings reserve account
any additional money than what the statute authorizes, should
the earnings reserve account be transferred from its current
location of the general fund and into the constitutional portion
of the permanent fund under the purview of the Alaska Permanent
Fund Corporation.
MS. SWANSON replied she would need to assess that, so doesn't
have a direct answer. She said she doesn't know that it would
change anything about the power of appropriation that the
legislature currently has over the earnings reserve account.
CHAIR CARPENTER said his intent is to be able to transfer that
earnings reserve account into the corpus portion that is not
appropriable from -
MS. ARDUIN interjected that she believes the question being
asked pertains to HJR 7. Given HJR 7 would constitutionally
move the earnings reserve account into the fund, she said she
believes HJR 7 walls it off, not HB 110.
CHAIR CARPENTER stated that that is an important distinction.
He said he would also like to run this by Legislative Legal and
Research Services.
6:20:02 PM
CHAIR CARPENTER removed his objection to the motion to adopt the
proposed CS to HB 110, Version H. There being no further
objection, Version H was before the committee.
6:20:18 PM
CHAIR CARPENTER announced that HB 110 was held over.
HB 266-PERMANENT FUND DIVIDEND; ROYALTIES
6:20:26 PM
CHAIR CARPENTER announced that the next order of business would
be HOUSE BILL NO. 266, "An Act relating to the Alaska permanent
fund; relating to dividends for state residents; relating to the
use of certain state income; relating to contributions from
permanent fund dividends to the general and permanent funds; and
providing for an effective date."
6:20:36 PM
The committee took an at-ease from `6:20 p.m. to 6:23 p.m.
6:23:17 PM
REPRESENTATIVE ASHLEY CARRICK, Alaska State Legislature, as
prime sponsor, introduced HB 266 as an alternative and
sustainable dividend model. She paraphrased from the sponsor
statement [included in the committee packet], which read as
follows [original punctuation provided]:
Alaska has long suffered from a volatile and uncertain
fiscal situation. Despite the efforts of many current
and previous members of the Alaska Legislature, these
issues persist. Resolving these longstanding fiscal
issues and preserving Alaska's economic future is a
top priority. The resolution of this perennial issue
will impact Alaska's current and future generations.
In 2018, the legislature took a decisive step toward
creating the components of a fiscal plan by passing SB
26, which established the mechanism to draw money from
the Permanent Fund. This stabilized our revenue stream
and helped fund government services. Since then,
earnings from the Permanent Fund now account for most
of our state's revenue. Despite its passage, SB 26 was
unfortunately incomplete, as it left us with
conflicting statutes relating to the Permanent Fund
and Permanent Fund Dividend (PFD) program. Since then,
the Legislature has continued to be deadlocked in
prolonged budget battles over the size of the PFD as
well as the amount to draw annually to balance our
state budget.
HB266 would provide a strong stabilizing mechanism for
our fiscal situation, allowing Alaskans and their
government to better resolve our persistent fiscal
issues by first resolving the conflicting statutes
surrounding the Permanent Fund and annual PFD
distributions. This bill designates where the money
for the dividend program comes from. More
specifically, this bill would decouple the dividend
from the Permanent Fund, instead designating all
revenue from royalties on mineral leases that is not
statutorily designated, or constitutionally dedicated
for other purposes toward annual dividend payments.
This money would then be utilized for yearly
dividends. This not only gives Alaskans a direct stake
in responsible resource development for our state, it
also reduces our reliance on the volatile revenue
stream from resource development by instead having its
resource revenue go directly into Alaskans pockets.
Different versions of this dividend reform concept
have been introduced as legislation over the years,
most recently as HB 202 in 2021. Additionally, this
bill adds the concept from HB 45 and gives Alaskans
the option to donate their dividend to the general
fund or the permanent fund if they choose.
Alaska is at a crossroads. We need to fix our
persistent fiscal issues and stop kicking the can down
the road. I hope you will join me in taking a decisive
step in the right direction toward resolving our
fiscal issues by supporting HB 266.
6:25:25 PM
STUART RELAY, Staff, Representative Ashley Carrick, Alaska State
Legislature, on behalf of Representative Carrick, prime sponsor,
paraphrased from the sectional analysis for HB 266 [included in
the committee packet], which read as follows [original
punctuation provided]:
Section 1. AS 37.13.140(a)
Removes language relating to the income available for
the distribution of Permanent Fund Dividends [PFDs].
Section 2. AS 37.13.145(c)
Makes conforming changes due to the repeal of AS
37.13.145(b) in section nine and updates language to
conform with the decision in Wielechowski v. State.
Section 3. AS 37.13.145(d)
Makes conforming changes due to the repeal of AS
37.13.145(b) in section nine and updates language to
conform with the decision in Wielechowski v. State.
Section 4. AS 37.13.145(e)
Reaffirms the prohibition on overdrawing the percent
of market value (POMV) draw on the Permanent Fund.
This is necessary due to the repeal of AS 37.13.145(f)
in section nine.
Section 5. AS 43.23.025(a)
Makes conforming changes as a result of sections one
and seven.
Section 6. AS 43.23.028(a)
Makes conforming changes as a result of section one.
Section 7. AS 43.23.045
Adds a new subsection (f) to designate 69% of all
mineral lease rentals, royalties, royalty sale
proceeds, federal mineral revenue sharing payments,
and bonuses by the state during the fiscal year for
the distribution of dividends.
Section 8. AS 43.23
Adds a new section with the following subsections. AS
43.23.135(a) requires the electronic PFD application
to allow Alaskans to donate their PFD in 25 dollar
increments to the general fund or the permanent fund
if they so choose. It allows increments to be between
25 dollars and the entire value of the PFD payment. It
also requires that applicants be notified that seven
percent of the value of the contributions to the
general or permanent fund under this section will be
used for the administrative costs of implementing this
section and that money from the dividend fund will not
be used for that purpose. AS 43.23.135(b) prohibits
agencies that claim PFD's on behalf an individual
under AS 43.23.015(e) to make contributions from that
individual's PFD to the general or permanent funds as
discussed in subsection (a). AS 43.23.135(c) specifies
that the option to donate a portion of your PFD under
this section is different than the Pick.Click.Give
option and shall be in a different section of the
electronic PFD application.
Section 9.
Repeals AS 37.13.145(b) and AS 37.13.145(f).
Section 10.
Effective Date This bill takes effect on July 1, 2024.
6:28:38 PM
REPRESENTATIVE CARRICK began a PowerPoint presentation of HB 266
titled "An Alternative and Sustainable Dividend HB 266" [hard
copy included in the committee packet]. She paraphrased from
slide 2, "WHO OWNS ALASKA'S RESOURCES?", which read as follows
[original punctuation provided]:
? Alaskas subsurface mineral rights are owned by
Alaskans collectively, not by Alaskans individually.
? From Governor Hammond:
? I believed the best, perhaps the only, way to
meet our constitutional mandate to manage our
natural resources for the maximum benefit of all
the people was to grant each citizen an ownership
share in Alaska's resource wealth to be used as
they, not the government, felt was for their
maximum benefit*."
? The Dividend is Alaskans individual share of our
collective revenues from our resource development.
REPRESENTATIVE CARRICK addressed slide 3, "THE CURRENT DIVIDEND
PROGRAM," which read as follows [original punctuation provided]:
? The current 1982 statutory formula, and all proposed
POMV formulas, are based off the performance of the
permanent fund itself rather than the direct
performance of resource development.
REPRESENTATIVE CARRICK explained that the graphs on slide 3
demonstrate the differentiation between the size of the
permanent fund dividend (lower graph) and petroleum revenue
including royalties (upper graph). She pointed out the long-
time volatility in the state's resource revenue versus the long-
time stability in the state's permanent fund. She noted that
while the dividend amount has fluctuated, an overall stable base
threshold has been maintained since the late 1970s.
REPRESENTATIVE CARRICK displayed slide 4, "OUR CURRENT FISCAL
SITUATION." She said the graph on the left shows the size of
Alaska's budgets since fiscal year 1981 (FY 81) and the graph on
the right shows the amount of money withdrawn from state savings
accounts since FY 14. Totaling over $19 billion, these
withdrawals have brought the state's savings accounts to
dangerously low levels, she warned, and action needs to be taken
to have a more stable fiscal situation.
6:31:24 PM
MR. RELAY spoke to slide 5, "SPECIFICS OF THE BILL," which read
as follows [original punctuation provided]:
? HB 266 gives Alaskans a direct stake in our resource
development while reducing budgetary volatility.
? It repeals the unsustainable 1982 dividend formula
and replaces it with a formula that designates all
royalty revenue not already constitutionally dedicated
or statutorily designated to the dividend
? This decouples more volatile revenue from our
budgeting process allowing for greater stability in
annual budgeting.
? Additionally, it allows Alaskans the ability to
contribute portions of their dividend to the general
fund or to the permanent fund if they choose.
? Allows for potentially larger annual dividend
payments.
MR. RELAY recalled that a bill similar to HB 266, House Bill 202
introduced in 2021 by now-Senator Merrick, designated only 30
percent of royalties. He posited that since HB 266 ties the
dividend directly to resource development, Alaskans could
possibly receive higher dividends with increased development,
providing an incentive to develop additional resources to ensure
a higher dividend payout.
6:33:55 PM
REPRESENTATIVE CARRICK explained that the chart on slide 6,
"PROJECTED ROYALTY DIVIDEND SIZE," shows the fiscal model put
together by the Legislative Finance Division for HB 266. She
related that per this fiscal model, the FY 25 dividend would be
$1,822, while the projected 75/25 POMV dividend for FY 25 is
just over $1,300. With this model, she added, there would be a
budget surplus through FY 28.
REPRESENTATIVE CARRICK specified that the graph on slide 7,
"PROJECTED BUDGET AND REVENUE OUTLOOK," prepared by the
Legislative Finance Division, looks at the revenue impact of the
dividend formula under HB 266. The bill itself is revenue
neutral, it doesn't increase royalty rates, oil and gas taxes,
or draws on the permanent fund or any other form of state
revenue. This model constitutes a budget surplus through FY 28,
she reiterated, which gives the legislature additional time to
address questions about state revenue and diversifying the
state's economy.
REPRESENTATIVE CARRICK summarized her presentation with slide 8,
WHY IS HB 266 IMPORTANT?" She said a benefit of HB 266 is that
it would tie the dividend formula to the direct performance of
resource development rather than the performance of the fund
itself, returning the dividend to its original intended purpose
of compensating Alaskans for their subsurface rights. The bill
would decouple volatile state revenue from the annual budget
process, she said, allowing the state to have a more predictable
budget cycle, a fiscally responsible dividend, and budget
surpluses through FY 28. She reiterated that the proposed
formula incentivizes greater resource development to satisfy
Alaskans' dividend needs. Lastly, she continued, the bill
incentivizes potentially a more robust tax structure or
conversation about natural resource development projects and tax
structure to meet Alaskans' dividend needs. The bill doesn't
specifically increase royalty rates or draw on permanent fund or
on any other sources of revenue, rather it provides a new
mechanism and new formula for the dividend.
6:37:02 PM
CHAIR CARPENTER said he appreciates the sponsor's outside-the-
box thinking and different approach than other bills the
committee has seen. He noted Governor Hammond's quote and
inquired about the governor's thoughts on the purpose of the
dividend itself.
REPRESENTATIVE CARRICK offered her understanding that the
original purpose of the dividend from Governor Hammond's
perspective was to help provide some stability for individual
Alaskans, compensate for subsurface rights, and make available a
program that would provide for Alaskans into the future.
MR. RELAY stated that the quote is from Governor Hammond's book
Diapering the Devil in which the governor discusses that there
is a component of the dividend as described by Representative
Carrick as well as a component of the dividend creating a
certain level of protection for the fund itself with Alaskans.
6:39:25 PM
REPRESENTATIVE MCCABE agreed and added that Governor Hammond's
idea was that should the legislature try to spend the corpus,
the permanent fund itself, Alaskans would rise in anger to stop
the stealing of their dividends. He maintained that while the
idea has merit, it isn't working well given the legislature's
actions over the last eight years. He said he likes HB 266 and
the idea of tying the permanent fund dividend to resource
development because maybe then the state's resources would be
developed as per the state's constitution.
REPRESENTATIVE CARRICK concurred that resource development would
be a consequence of HB 266 because Alaskans would have a direct
stake in promoting natural resource development. She allowed
she will get "dinged" by her constituents for pushing this
forward, but said she thinks it is a worthwhile conversation
along with conversation within the legislature about how to
allow industries to work and develop in Alaska.
6:41:51 PM
REPRESENTATIVE GROH stated that the permanent fund dividend has
many purposes and has achieved many good things, but now the
original formula isn't stable. He asked whether Representative
Carrick has contemplated a royalty trust where Alaskans would
each own individual shares of the state's interest in an oil
field.
REPRESENTATIVE CARRICK replied she hasn't thought about that
concept but thinks it is intriguing and worth looking at.
REPRESENTATIVE GROH suggested that it would be useful to provide
a precisely stated statement of how 69 percent was chosen.
REPRESENTATIVE CARRICK responded that under current statute 31
percent [of royalty revenue] is designated general funds. The
previous iteration of HB 266 only took a portion of the rest of
the undesignated general fund (UGF) to provide for a new
dividend formula. She said the dividend is critically important
to Alaskans and because oil revenue is volatile and therefore
revenue from royalties is volatile, her perspective for HB 266
was to take as much as is possible to take that isn't already
statutorily designated for other purposes.
MR. RELAY added that currently 25 percent of all royalty revenue
is constitutionally dedicated to the permanent fund and 6
percent is statutorily designated to [he believes] education, so
[HB 266] would be all other royalty revenue.
6:46:41 PM
REPRESENTATIVE GRAY asked what the next dividend would be if
royalties were changed from $5 per barrel to $8 per barrel.
MR. RELAY answered that that would be about a 30 percent
increase so it would be roughly a dividend of $2,358.60.
REPRESENTATIVE GRAY inquired about why the Pick.Click.Give
provision was included.
REPRESENTATIVE CARRICK replied that she co-sponsored another
legislator's bill about Pick.Click.Give to the state government.
She said she thought it was a concept that could fit into a
dividend bill as an option for how Alaskans could choose to use
their dividends.
6:48:30 PM
REPRESENTATIVE GROH noted HB 266 is about royalties and asked
whether it is accurate to say that royalties are set as a matter
of contract between the state and oil producers and not a matter
of taxes that the legislature could change.
REPRESENTATIVE CARRICK confirmed that that is her understanding
as well.
6:49:28 PM
CHAIR CARPENTER drew attention to Section 7 which states, "(f)
Each fiscal year, the legislature may appropriate to the
dividend fund an amount equal to 69 percent of all mineral lease
rentals, royalties, royalty sale proceeds, federal mineral
revenue sharing payments, and bonuses received by the state
during that fiscal year." He questioned whether, as drafted,
the legislature would be obligated to make the appropriation
from those sources of revenue. He asked whether it would be
fair to say that a formula is being set up by which to define a
sum of money and then the appropriation power of the legislature
would decide which account to pay it from.
REPRESENTATIVE CARRICK responded she would get back to the
committee but that typically when Legislative Legal Services is
asked to draft a dividend formula bill the word "may" is used
because that is what has been used in the past. She
acknowledged that her personal intent would not be to offer an
option to the legislature, so she would be comfortable with
changing that.
CHAIR CARPENTER offered his understanding that the sponsor's
intent is to ensure that the dollars coming in from this list of
royalties and such would go to the dividend payment as opposed
to any other source of revenue from which the state could make
appropriations.
REPRESENTATIVE CARRICK confirmed that that is her intent.
6:51:44 PM
REPRESENTATIVE MCCABE asked whether the list of sources in
Section 7 (f) would include the lease payments that certain
mines are currently paying to the Mental Health Trust for the
lands that they're on.
REPRESENTATIVE CARRICK answered that she doesn't know and will
get back to the committee with an answer.
6:53:05 PM
CHAIR CARPENTER announced HB 266 was held over.
HJR 9-CONST AM: PERMANENT FUND; POMV;EARNINGS
6:53:12 PM
CHAIR CARPENTER announced that the final order of business would
be HOUSE JOINT RESOLUTION NO. 9, Proposing amendments to the
Constitution of the State of Alaska relating to the Alaska
permanent fund and to appropriations from the Alaska permanent
fund.
6:53:42 PM
REPRESENTATIVE GROH, prime sponsor of HJR 9, recounted that in
the 1970s when the permanent fund was created, the common
accounting rules and legal structures were to have the
principal/corpus and the income/earnings, which is the structure
set out in the Constitution of the State of Alaska the
principal and the permanent fund earnings reserve account.
However, he said, today's understanding is that a single account
structure is needed for investments to work successfully.
REPRESENTATIVE GROH explained that HJR 9 would create a single
account structure for the permanent fund, along with importing
the statutory rules under percent of market value (POMV) draw in
the constitution so that a draw cannot be more than 5 percent.
This would fix three problems that the trustees of the Alaska
Permanent Fund Corporation have worried about for decades, he
said. One, it would provide regular and consistent inflation
proofing to prevent loss of the real value of the permanent fund
over time. This would fix the current problem of intermittent
inflation proofing. Two, it would prevent potential overdraw.
This would fix the current problem of the appropriation limit
being just a statutory rule. Since the limit of 5 percent of
market earnings in a year as a trailing average is a statutory
rule, the legislature could pass a statute in any year to
supersede that limit and spend all the permanent fund earnings.
Three, it would fix the potential problem that adverse market
conditions could, in a given year, lead to the earnings reserve
account becoming insufficient to pay the POMV draw, which pays
for roads, schools, public safety, and permanent fund dividends.
He noted that a new report on the Alaska Permanent Fund
Corporation's website, "A Rules Based Permanent Endowment Model
for Alaska," lays out the quantitative modeling aspects of why
fixing these problems in important. As well, he added, a single
account structure with the 5 percent limit on the draw each year
being in the constitution would protect the permanent fund
dividend over the long run.
6:59:49 PM
CHAIR CARPENTER, under a model of no earnings reserve account
and a constitutional allowance for up to a 5 percent draw, asked
what the effect would be on the corpus of the fund if a draw
exceeded the earnings of the fund with an account for the
trailing average as well.
REPRESENTATIVE GROH replied that it would provide protection
over the long run by having the limits and is the recommended
way by experts to prevent having a long run loss in value. By
this becoming part of the constitution, the earnings reserve
account can be eliminated. Including the draw to no more than 5
percent of the market value [creates] a sustainable basis and
keeps the permanent fund growing.
CHAIR CARPENTER posed a scenario where the trailing average is
less than the draw. He asked whether in the short run that
would be spending from the corpus to pay the annual up to 5
percent draw.
REPRESENTATIVE GROH responded that a single account structure
doesn't have a corpus, it has a total value. The single account
structure of total value and 5 percent draw builds in inflation
proofing. There no longer needs to be reliance on annual
appropriations or appropriating being light in some years and
bigger in others. A single account structure abolishes the
distinction between principal and earnings/income; it is a total
market value of the permanent fund itself that doesn't lose
value over time because of the way that the draws are limited.
CHAIR CARPENTER posed a scenario of the earnings from the fund
over a five-year period not being enough to account for a 5
percent draw, but a 5 percent draw is continued. He asked
whether this would draw down the principal of the fund.
REPRESENTATIVE GROH answered that it is protected over time
because of the way the earnings work. Under the current model,
all the earnings could be blown in one year because there is no
legal bar to doing that, which would severely deplete the fund.
CHAIR CARPENTER stated that the sponsor is talking about the
earnings, and he is talking about the principal of the fund.
REPRESENTATIVE GROH replied that moving to this structure would
abolish the distinction between principal and earnings; it would
be a sustainable model for growth over time.
CHAIR CARPENTER said the only way it would be sustainable is
that the earnings are greater than the draw.
REPRESENTATIVE GROH responded that the logic is the limit of no
more than 5 percent and the model shows --
CHAIR CARPENTER interjected that he understands that. He
proffered that if the fund's earnings aren't enough to keep up
with the draw, then the principal will decline to pay for that
draw, or a draw would need to be chosen that is less than 5
percent to keep the principal at the same level.
REPRESENTATIVE GROH confirmed that that is correct. He said it
doesn't require spending 5 percent, rather it requires spending
no more than 5 percent, so the legislature could always spend
less than 5 percent. The entire logic of modern investment
theory is that, over time, limiting the draw to a certain level
provides protection.
CHAIR CARPENTER asked whether currently there is protection from
spending the corpus/principal of the fund over time.
REPRESENTATIVE GROH answered that if all the earnings are spent
in one year then there aren't any more earnings to spend at all,
so the earnings would have to be built over time. This is the
way over the long run to grow and maximize [the fund] over time
while taking some earnings out on a sustainable basis.
CHAIR CARPENTER posed a scenario of spending all the earnings of
the current earnings reserve account and asked whether 5 percent
or some portion of 5 percent from the principal of the fund
could be drawn to pay under current statute.
REPRESENTATIVE GROH surmised that in this scenario spending all
the earnings means not putting any money into inflation
proofing, which would result in the value going down. The model
in HJR 9, he said, allows growth over time and the legislature
could choose not to go up to the 5 percent. This model also
prevents the risk of unsustainable ad hoc because it looks to
have both a fund and sustainable use of the fund's benefits
without wiping out the fund or having insufficient benefits.
CHAIR CARPENTER asked whether there is a way to have an ad hoc
draw from the principal of the fund under current statute.
REPRESENTATIVE GROH replied that it will shrink if the earnings
are overdrawn and there is no inflation proofing; and if all the
earnings are spent and there is no inflation proofing, it will
shrink by itself. Under HJR 9, inflation proofing is built in.
CHAIR CARPENTER said it would lose value because of inflation
proofing but it wouldn't be reduced because of appropriation
from the legislature.
REPRESENTATIVE GROH responded that the appropriations are
limited over time no more than 5 percent and the legislature
could always decide to spend less than that.
7:07:59 PM
REPRESENTATIVE MCCABE offered his understanding that it would be
a maximum of 5 percent, so the legislature could do 1 percent.
REPRESENTATIVE GROH answered that as matter of law, yes.
REPRESENTATIVE MCCABE surmised the legislature could do 0
percent.
REPRESENTATIVE GROH replied that as matter of law, yes.
7:08:34 PM
CHAIR CARPENTER announced that HJR 9 was held over.
7:08:59 PM
ADJOURNMENT
There being no further business before the committee, the House
Special Committee on Ways and Means meeting was adjourned at
7:09 p.m.
| Document Name | Date/Time | Subjects |
|---|---|---|
| HB110CS(WAM)-DOR-PFD-3-1-24.pdf |
HW&M 3/6/2024 6:00:00 PM |
HB 110 |
| HB110CS(WAM)-DOR-APFC-01-10-24.pdf |
HW&M 3/6/2024 6:00:00 PM |
HB 110 |
| HB 266.Version B.pdf |
HW&M 3/6/2024 6:00:00 PM |
HB 266 |
| HB 266.SponsorStatement.Version B.pdf |
HW&M 3/6/2024 6:00:00 PM |
HB 266 |
| HB 266.SectionalAnalysis.VersionB.pdf |
HW&M 3/6/2024 6:00:00 PM |
HB 266 |
| HB 266 Backup.LFD Fiscal Modeling 2024.03.02..pdf |
HW&M 3/6/2024 6:00:00 PM |
HB 266 |
| HB 266 House Ways and Means Presentation.pdf |
HW&M 3/6/2024 6:00:00 PM |
HB 266 |
| HB 266-DOR-PFD-3-1-24 Fiscal Note.pdf |
HW&M 3/6/2024 6:00:00 PM |
HB 266 |
| HB 266-DOR-APFC-3-1-24 Fiscal Note.pdf |
HW&M 3/6/2024 6:00:00 PM |
HB 266 |
| HJR009A.PDF |
HW&M 3/6/2024 6:00:00 PM |
HJR 9 |
| HJR 9 sponsor statement.pdf |
HW&M 3/6/2024 6:00:00 PM |
HJR 9 |
| HJR 9 sectional analysis.pdf |
HW&M 3/6/2024 6:00:00 PM |
HJR 9 |
| 2020-01-APFC-Resolution-POMV-Support.pdf |
HW&M 3/11/2023 9:00:00 AM HW&M 3/6/2024 6:00:00 PM |
HJR 9 |
| PF_TwoAccountgraphic.pdf |
HW&M 3/11/2023 9:00:00 AM HW&M 3/6/2024 6:00:00 PM |
HJR 9 |
| PF_singleaccount_graphic.pdf |
HW&M 3/11/2023 9:00:00 AM HW&M 3/6/2024 6:00:00 PM |
HJR 9 |
| 2003-05-APFC-Resolution-POMV.pdf |
HW&M 3/11/2023 9:00:00 AM HW&M 3/6/2024 6:00:00 PM |
HJR 9 |
| HJR009-OOG-DOE-3-1-24 Fiscal Note.pdf |
HW&M 3/6/2024 6:00:00 PM |
HJR 9 |
| CSHB 110 v.H.pdf |
HW&M 3/6/2024 6:00:00 PM |
HB 110 |
| HB 110 - New CS v. H vs. v. R Summary of changes.pdf |
HW&M 3/6/2024 6:00:00 PM |
HB 110 |