Legislature(2015 - 2016)SENATE FINANCE 532
02/02/2016 09:00 AM Senate FINANCE
| Audio | Topic |
|---|---|
| Start | |
| SB138 || SB139 || SB140 | |
| Presentation: New Sustainable Alaska Plan | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| + | TELECONFERENCED | ||
| *+ | SB 138 | TELECONFERENCED | |
| *+ | SB 139 | TELECONFERENCED | |
| += | SB 140 | TELECONFERENCED | |
SENATE FINANCE COMMITTEE
February 2, 2016
10:23 a.m.
10:23:03 AM
CALL TO ORDER
Co-Chair Kelly called the Senate Finance Committee meeting
to order at 10:23 a.m.
MEMBERS PRESENT
Senator Anna MacKinnon, Co-Chair
Senator Pete Kelly, Co-Chair
Senator Peter Micciche, Vice-Chair
Senator Click Bishop
Senator Mike Dunleavy
Senator Lyman Hoffman
Senator Donny Olson
MEMBERS ABSENT
None
ALSO PRESENT
Randall Hoffbeck, Commissioner, Department of Revenue; Pat
Pitney, Director, Office of Management and Budget, Office
of the Governor.
SUMMARY
SB 138 BUDGET: CAPITAL
SB 138 was HEARD and HELD in committee for
further consideration.
SB 139 APPROP: OPERATING BUDGET/LOANS/FUNDS
SB 139 was HEARD and HELD in committee for
further consideration.
SB 140 APPROP: MENTAL HEALTH BUDGET
SB 140 was HEARD and HELD in committee for
further consideration.
PRESENTATION: NEW SUSTAINABLE ALASKA PLAN
SENATE BILL NO. 138
"An Act making appropriations, including capital
appropriations, reappropriations, and other
appropriations; making appropriations to capitalize
funds; and providing for an effective date."
SENATE BILL NO. 139
"An Act making appropriations for the operating and
loan program expenses of state government and for
certain programs, capitalizing funds, making
reappropriations, making supplemental appropriations,
and making appropriations under art. IX, sec. 17(c),
Constitution of the State of Alaska, from the
constitutional budget reserve fund; and providing for
an effective date."
SENATE BILL NO. 140
"An Act making appropriations for the operating and
capital expenses of the state's integrated
comprehensive mental health program; and providing for
an effective date."
10:24:17 AM
^PRESENTATION: NEW SUSTAINABLE ALASKA PLAN
10:24:20 AM
RANDALL HOFFBECK, COMMISSIONER, DEPARTMENT OF REVENUE,
discussed the PowerPoint, "New Sustainable Alaska Plan:
Pulling Together to Build Our Future" (copy on file). He
stated that there were short-term, mid-term, and long-term
issues that must be addressed.
Commissioner Hoffbeck highlighted slide 2, "Fiscal
Challenge":
Unrestricted General Funds Gap
$3.8 billion (30 percent)
Unrestricted General Funds
$1.6 billion (13 percent)
Designated General Funds and Other State Funds
$1.5 billion (12 percent)
Permanent Fund Inflation Proofing and Dividends
$2.3 billion (18 percent)
Federal Funds
$3.4 billion (27 percent)
Commissioner Hoffbeck looked at slide 3, "Fiscal
Challenge." He stressed that the mid-term challenge was due
to the significant draw from savings. He remarked that the
withdrawal from the constitutional budget reserve (CBR)
would not bring relief to the long-term crisis. He stressed
that, without a change to the fiscal system, the CBR would
be greatly depleted after two years. He stated that there
would be small tax increases and earnings from the
permanent fund that would cover the issue.
Commissioner Hoffbeck discussed slide 4, "Fiscal
Challenge." He stressed that there was only one funding
source: petroleum, which was the main source of revenue for
the state. He stated that state budget was very much based
on the oil price volatility. He stressed that there should
be more long-term stability in government spending.
10:29:55 AM
Commissioner Hoffbeck highlighted slide 5, "Message
Received":
Take action now, not later:
-Government must be cut further
-Protect essential services
Use of Permanent Fund earnings is acceptable if:
-Protect the Permanent Fund Corpus
-Preserve a Dividend Program
New Revenues are acceptable if:
-They are not supporting a "bloated" government
-The burden is shared equitably
Commissioner Hoffbeck shared that the list on the slide was
developed based on recommendations from citizens of the
state.
Senator Dunleavy wondered if the administration's
reductions were aligned with the recommendations of the
people of the state. Commissioner Hoffbeck replied that the
reductions were directly aligned with the desire to protect
the essential services. He furthered that the public
expected more than a $100 million reduction.
10:34:10 AM
Co-Chair MacKinnon noted that the governor's budget was an
increase from the previous year. She asked how the governor
expected the legislature to justify an increased budget.
She shared that her district wanted a "right sized
government." Commissioner Hoffbeck responded that the
administration wanted to protect as many services as
possible, which resulted in using as many revenue sources
as possible. He stressed that the goal was only to reduce
GF expenditures.
Co-Chair MacKinnon shared that she had recently read an
article that highlighted the use of nonrecurring money in
the short-term budget, which would result in long-term
spending issues. She queried the administration's
perspective on the difference between the words "equitable"
and "fair." She felt that her district wanted an equitable
solution, rather than a fair solution. Commissioner
Hoffbeck replied that there was a benefit to cyclical
spending in difficult economic times. He felt that there
was an advantage to one-time spending. He had not
considered the nuance of the difference between the words
"equitable" and "fair." He stated that industry had desired
an "equitable" solution.
10:40:47 AM
Senator Dunleavy shared a story about some districts using
or not using the federal "bailout" money, but then desired
more money related to inflation.
Vice-Chair Micciche looked at slide 3, and felt that the
real revenue picture would look different in the forecast.
Commissioner Hoffbeck shared that the numbers were based on
the Department of Revenue (DOR) Revenue Forecast.
Vice-Chair Micciche felt that there should not be a focus
on filling the budget gap, because that would probably be
filled by the energy revenue. He stressed that there were
not enough Alaskans or alternate resources to fill the
budget gap. He shared that his district showed support for
the use of the earnings reserves, but demanded additional
efficiencies. He pointed out that Alaskans should not be
intimidated into believing that there should be an "all or
nothing solution." Commissioner Hoffbeck understood that
the chart was the "worst case scenario." He wanted to
attempt to find an overall solution.
10:45:48 AM
Vice-Chair Micciche wondered if the administration would
consider a change in the plan, with the possibility of an
increase in oil price. Commissioner Hoffbeck replied that
there could be a modification in the plan.
Co-Chair Kelly commented that the committee had dealt with
many revenue issues. He remarked that using federal funds
was a common solution, but he did not want to use federal
funds. He stressed that he wanted to reduce the size of
government.
Commissioner Hoffbeck addressed slide 6, "The New
Sustainable Alaska Plan":
•Alaska Permanent Fund Protection Act
•FY17 Budget and Future Spending Reductions
•Revenue Increases
Commissioner Hoffbeck discussed slide 7, "Alaska Permanent
Fund Protection Act":
A fiscal framework for using our wealth to:
Help resolve this year's fiscal challenge
Sustainably fund government operations into the
future
Provide the maximum benefit to the broader
economy
Main components of the framework:
Royalties and production taxes into the Permanent
Fund
Endowment draw
Royalty dividend
Periodic review
Commissioner Hoffbeck addressed slide 8, "Alaska Permanent
Fund Protection Act." He shared that 30 percent of the
royalties flowed through the corpus. The earnings reserve
must be built to four times the annual draw. After that
draw, 100 percent of the royalties would flow to the
corpus.
10:52:18 AM
AT EASE
10:52:52 AM
RECONVENED
10:53:15 AM
Commissioner Hoffbeck continued to discuss slide 8. He
explained that the funds would flow to the corpus, when
there was four times the draw. He stated that there were
two outflows from the earnings reserve: a $3.3 billion
annual appropriation to the general fund; and an
appropriation to the PFD that would equal 50 percent of the
prior year's royalty revenues. He stated that the
combination of the $3.3 billion and the other revenues to
the general fund would provide the totality of the amount
of revenue available for government spending under the
current program.
Commissioner Hoffbeck discussed slide 9, "The New
Sustainable Alaska Plan":
Alaska Permanent Fund Protection Act (annual draw):
$3,300
Revenue from existing taxes and fees: $850
Earnings on Savings: $135
TOTAL: $4,285
Spending Reductions (estimated amounts)
FY17-FY19 Cuts:($240)
Reform OandG Tax Credits: ($400)
FY17 Priority Investments: $40
TOTAL: ($ 600)
New Revenue Components (estimated amounts)
Mining: $6
Fishing: $18
Tourism: $15
Motor Fuel: $49
Alcohol: $40
Tobacco: $29
Oil and Gas: $100
Individual Alaskans (Income Tax): $200
TOTAL: $457
Senator Bishop looked at slide 7 and slide 5. He wondered
if the periodic review was intended to protect the
permanent fund corpus. Commissioner Hoffbeck replied that
the review was intended to ensure that there was enough
reserves to allow for a draw.
Senator Bishop wondered if the permanent fund board would
continue to function in the same manner. Commissioner
Hoffbeck replied that the corpus would not change the fund.
The mechanism from moving the corpus to the reserve would
still align with statute. He explained that there would be
a change to manage the draw, because of the dividend.
10:59:04 AM
Senator Hoffman asked if the protection act was intended to
protect the dividend, and the number of the payout.
Commissioner Hoffbeck replied that the act was intended to
protect the dividend, corpus, and earnings reserve. He
stressed that the act would allow for a sustainable
dividend in perpetuity.
Senator Hoffman wondered how the dividend would be
protected under the plan. Commissioner Hoffbeck replied
that the bill did not offer a constitutional amendment. He
hoped that the plan would be a robust and stable way to
finance government. He stressed that there was no intention
to take away the PFD.
Senator Hoffman stressed that the dividend was not
protected. Commissioner Hoffbeck agreed.
Vice-Chair Micciche remarked that the ISER study was
fundamentally flawed, because approximately $60 billion in
revenue was not included. The lowest price assumption was
$70 in FY 17. He stressed that the study did not portray
the current gap. He remarked that people were concerned
about supporting the plan, when there was possibility for
turnaround. He stated that there could be a level of
revenue from the production tax, and he asserted that there
could possibly be $3 billion from that tax. He also stated
that there could be an opportunity to adjust the revenue
for tax relief, whether income tax, fuel tax, or sales tax.
He also noted that there could be revenue from the corpus,
which would increase the dividend at a certain level of
return. He offered that there could possibly be a 12 to 15
percent level of return. He stressed that a system that
promised a return to more normalcy, if revenues or corpus
returns were larger than expected, people may be more
susceptible to a new revenue plan. He stressed that an
increase in production tax revenue would result in tax
relief.
Co-Chair MacKinnon wondered if the proposal affected
inflation proofing statutes. Commissioner Hoffbeck replied
that with no payment for inflation proofing, the plan would
change the statute. The modeling was done, so the value of
the corpus of the fund would be the FY 16 value plus
inflation. The modeling allowed for the fund to grow at the
rate of inflation, but there was no specific inflation
proofing deposit. The $3.3 billion draw was calculated at a
level that allowed the fund to grow with inflation.
Co-Chair MacKinnon wondered if the language for inflation
proofing was removed from statute in the bill.
11:07:06 AM
PAT PITNEY, DIRECTOR, OFFICE OF MANAGEMENT AND BUDGET,
OFFICE OF THE GOVERNOR, replied that the component would be
repealed in the legislation.
Co-Chair Kelly felt that the assumptions were failing, and
queried some suggestions.
Commissioner Hoffbeck highlighted slide 10, "The New
Sustainable Alaska Plan." He stated that the slide showed
the per capita broad based tax burden on the people of the
state. He shared that the state currently had the lowest
personal tax burden for broad based taxes. He stated that
the slide was a reflection of the ISER study. He shared
that the tax burden for the state was approximately $500
per person, and the national average was approximately
$2300. He stated that, even with the personal income tax
and other taxes, there would only be approximately $1000
per person tax burden. He stressed that there would not be
a situation where a person was taxed beyond their
capabilities. He remarked that the state may begin to look
like some of the other states.
Commissioner Hoffbeck displayed slide 11, "The New
Sustainable Alaska Plan":
•Lowest taxes in the nation.
•Receive a dividend.
•Grow our savings.
•Continue to provide essential services.
•Invest in future
Co-Chair MacKinnon announced that the state owed the CBR
the amount of the previous year's withdrawal. Commissioner
Hoffbeck deferred to DOL. He stated that the earnings
reserve could not be "sweepable" into the CBR.
11:12:08 AM
Co-Chair MacKinnon surmised that there was no plan to
"recharge" the savings. Commissioner Hoffbeck replied that
there was no additional money for the CBR.
Co-Chair MacKinnon would like to know about the pension
payments. She stressed that the state owed a significant
amount of money for the pension liability. She queried the
administration's efforts in paying down the pension
obligation. Commissioner Hoffbeck replied that the state
could still borrow at a low rate; and the market was
beginning to correct, therefore the risk may be lower. He
stated that there was also an examination of whether the
pension obligation would take more of the fixed draw. He
stressed that there would be no additional debt with the
use of pension obligation bonds. He felt that the
obligation would be replaced with another obligation. He
proposed that the obligation for the debt would stay in the
general fund.
Co-Chair Kelly surmised that the plan comingled the GF with
the earnings reserve. Commissioner Hoffbeck agreed.
Co-Chair Kelly stressed that approval of the plan should be
done with caution.
Senator Dunleavy stressed that someone had to pay for the
state government and state services. He remarked that the
plan was meant to pay for state, not the pension group.
Commissioner Hoffbeck agreed, and stated that the bonds
would pay for the state.
Senator Dunleavy wondered if there was a model that showed
an increase of the value of the dollar, and how it impacted
the state of Alaska. Commissioner Hoffbeck replied that
inflation put pressure on anyone with outstanding debt. He
preferred a deeper discussion on that issue.
11:20:07 AM
Senator Bishop noted the recent $3 billion deposit for the
pension obligation. He stressed that the current obligation
was $225 million, and the fund was at 80 percent. He felt
that many states in the country would be envious of
Alaska's pension obligation percentage.
Commissioner Hoffbeck shared that the modeling at the $3.3
billion projected that the earnings reserve would go to
zero 30 percent of the time. He stressed that a move to
zero at any time in its life was considered a failure.
Co-Chair Kelly asked for a restatement.
Commissioner Hoffbeck stated that the modeling showed that
there would be an extended period of low oil prices and low
draw on the earnings reserve 30 percent of the time. He
stressed that the periodic review would allow for the
opportunity to correct a possible systemic problem. He
stressed that the draw could always be reduced, but a
statutory change was required for an increased draw. He
shared that the move to zero would be in the out years. He
felt that the plan was fairly robust, in order to eliminate
the possibility of failure.
Co-Chair Kelly asked if there had been analyses of the
sustaining the corpus at current levels. Commissioner
Hoffbeck replied in the affirmative.
Vice-Chair Micciche queried the reasoning behind an income
tax versus sales tax. He looked at slide 10, and noted that
New Hampshire and Delaware did not have a significant sales
tax. He felt that there were polls conducted that preferred
sales tax. Commissioner Hoffbeck agreed to that discussion.
Senator Dunleavy shared that there would be a lunch and
learn that was related to health care costs.
SB 138 was HEARD and HELD in committee for further
consideration.
SB 139 was HEARD and HELD in committee for further
consideration.
SB 140 was HEARD and HELD in committee for further
consideration.
ADJOURNMENT
11:27:01 AM
The meeting was adjourned at 11:27 a.m.
| Document Name | Date/Time | Subjects |
|---|---|---|
| SB 139 020216 OMB FY2017 10-year plan.pdf |
SFIN 2/2/2016 9:00:00 AM |
SB 139 |
| SB 139 020216 Senate Finance - NSAP DOR-OMB.pdf |
SFIN 2/2/2016 9:00:00 AM |
SB 139 |