Legislature(2003 - 2004)

05/02/2004 12:04 PM FIN

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
                              MINUTES                                                                                         
                     SENATE FINANCE COMMITTEE                                                                                 
                           May 02, 2004                                                                                       
                             12:04 PM                                                                                         
                                                                                                                                
                                                                                                                                
TAPES                                                                                                                       
                                                                                                                                
SFC-04 # 103, Side A                                                                                                            
SFC 04 # 103, Side B                                                                                                            
                                                                                                                              
CALL TO ORDER                                                                                                               
                                                                                                                                
Co-Chair  Gary Wilken convened  the meeting  at approximately  12:04                                                            
PM.                                                                                                                             
                                                                                                                                
PRESENT                                                                                                                     
                                                                                                                                
Senator Lyda Green, Co-Chair                                                                                                    
Senator Gary Wilken, Co-Chair                                                                                                   
Senator Con Bunde, Vice Chair                                                                                                   
Senator Fred Dyson                                                                                                              
Senator Ben Stevens                                                                                                             
Senator Donny Olson                                                                                                             
                                                                                                                                
Also  Attending:  REPRESENATIVE  MIKE  HAWKER;  REPRESENTATIVE  BILL                                                          
STOLTZE; SENATOR GRETCHEN  GUESS; ROBERT STORER, Executive Director,                                                            
Alaska  Permanent Fund  Corporation,  Department  of Revenue;  LUCKY                                                            
SCHULTZ,  Staff  to  Senator  Fred  Dyson;  BRUCE  TANGEMAN,  Fiscal                                                            
Analyst,  Legislative Finance;  CHERYL FRASCA,  Director, Office  of                                                            
Management and Budget, Office of the Governor                                                                                   
                                                                                                                                
Attending   via  Teleconference:   There   were  no  teleconference                                                           
participants.                                                                                                                   
                                                                                                                                
SUMMARY INFORMATION                                                                                                         
                                                                                                                                
HJR 26-CONST. AM: PF APPROPS/INFLATION-PROOFING                                                                                 
                                                                                                                                
The  Committee  heard  from  the  bill's   sponsor  and  the  Alaska                                                            
Permanent Fund Corporation. The bill was held in Committee.                                                                     
                                                                                                                                
HJR 9-CONST AM: APPROPRIATION/SPENDING LIMIT                                                                                    
                                                                                                                                
The Committee  heard from the bill's sponsor as well  as the sponsor                                                            
of  SJR 3.  Additional  testimony  from the  Alaska  Permanent  Fund                                                            
Corporation, Legislative  Finance, and the Office  of Management and                                                            
Budget was presented. The bill was held in Committee.                                                                           
                                                                                                                                
SB 284-PF DIVIDEND APPLICATION RECORDS PRIVATE                                                                                  
                                                                                                                                
The  Committee   heard  from  the   sponsor,  adopted  a   committee                                                            
substitute and one amendment,  and reported the bill from Committee.                                                            
                                                                                                                                
HB 298-DISTRIBUTIONS OF APPROPS FROM PERM FUND                                                                                  
                                                                                                                                
This bill was scheduled but not heard.                                                                                          
                                                                                                                                
AT EASE 12:06 PM /12:06 PM                                                                                                      
                                                                                                                                
                                                                                                                                
     CS FOR HOUSE JOINT RESOLUTION NO. 26(FIN)                                                                                  
     Proposing  amendments  to  the  Constitution  of the  State  of                                                            
     Alaska relating to  and limiting appropriations from the Alaska                                                            
     permanent fund based  on an averaged percent of the fund market                                                            
     value.                                                                                                                     
                                                                                                                                
                                                                                                                                
This  was the first  hearing  for this  bill in  the Senate  Finance                                                            
Committee.                                                                                                                      
                                                                                                                                
Co-Chair  Wilken noted that  CS HJR 26  (FIN), Version 23-LS1006\Z,                                                             
which is sponsored by the  House of Representatives Rules Committee,                                                            
by  request of  the  Legislative  Budget  & Audit  Committee,  would                                                            
provide the opportunity  to amend the State's Constitution  in order                                                            
to limit  annual appropriations  from the  Alaska Permanent  Fund to                                                            
five percent of the Fund's average market value.                                                                                
                                                                                                                                
REPRESENTATIVE MIKE HAWKER,  Chair, House of Representatives (House)                                                            
Ways and  Means Committee,  stated  that the  Alaska Permanent  Fund                                                            
Corporation  (APFC)  Board  of Trustees  originated  this  proposal,                                                            
which is  commonly referred  to as  the "'clean'  Percent of  Market                                                            
Value  (POMV)   method."  He  characterized   the  proposal   as  "a                                                            
management tool"  for the operations of the APFC,  as it would "best                                                            
protect the value  of the fund over the long-term  future" and would                                                            
"provide  for  a stable  and  predictable"  amount  of money  to  be                                                            
available   from  the   Permanent   Fund  for   future  Legislative                                                             
appropriation.  He also acknowledged that "a number  of conceptions"                                                            
are  being  discussed  through  which  to  accomplish  the  proposed                                                            
objectives.                                                                                                                     
                                                                                                                                
ROBERT   STORER,   Executive   Director,   Alaska   Permanent   Fund                                                            
Corporation, Department  of Revenue, reiterated that  the APFC Board                                                            
of Trustees, after  several years of study, developed  this proposal                                                            
and considers  it to be a "superior method" through  which to manage                                                            
Fund assets.                                                                                                                    
                                                                                                                                
Mr. Storer explained that  the proposal would "memorialize inflation                                                            
proofing in the Constitution  … by limiting the amount of funds that                                                            
can be  appropriated from  the Permanent  Fund to  no more than  the                                                            
real income  or no more than five  percent of the Permanent  Fund in                                                            
any given year."  He stated that the proposal would  also "marry the                                                            
management of the Fund with current investment strategies."                                                                     
                                                                                                                                
Mr. Storer  expressed that  one benefit derived  from this  proposal                                                            
would be  that Legislators  would  be assured of  "an annual  payout                                                            
from  year to  year."  Continuing,  he declared  that  the  proposed                                                            
payout  methodology   would  be  "more  stable  than   the  existing                                                            
methodology based  on realized income." He cautioned,  however, that                                                            
were the State to implement  the proposed methodology there could be                                                            
times when no payout would be available.                                                                                        
                                                                                                                                
Mr. Storer shared  that as a result of current "considerable  market                                                            
appreciation,"  the Fund has approximately "five billion  dollars in                                                            
profits separated  between realized  income and unrealized  income,"                                                            
and that,  due to market  conditions, "in  just twelve short  months                                                            
the  amount  of  money   that  has  become  available   has  changed                                                            
dramatically."  He cautioned,  however,  that the  reverse  scenario                                                            
could occur  depending on  financial market  volatility. He  pointed                                                            
out  that,  while  the  Fund has,  historically,   reflected  steady                                                            
growth,  market   volatility  has  not  been  incorporated   in  the                                                            
extrapolations.   He  communicated  that,  were  market   volatility                                                            
included,  the proposed methodology  would  prove to provide  a more                                                            
stable payout.                                                                                                                  
                                                                                                                                
Mr. Storer stated that  this proposal "would prevent overspending in                                                            
the good years"  as had previously  occurred during the Bull  Market                                                            
years; specifically  in the areas  of the State's Retirement  Plans,                                                            
Endowment   Funds,  and   Foundations.   He  stated   that   without                                                            
"discipline"  in spending,  that scenario  might re-occur under  the                                                            
current  methodology.  He  declared  that the  proposed  plan  would                                                            
maintain the  purchasing power of  the entire Fund rather  than just                                                            
the principal.                                                                                                                  
                                                                                                                                
Senator  Bunde asked  whether the  proposed plan  would address  the                                                            
issue of double  inflation proofing  which is argued to result  from                                                            
inflation   proofing  combined  with   additional  revenue   derived                                                            
annually from oil royalties.                                                                                                    
                                                                                                                                
Mr. Storer  responded that  the APFC does  not support the  argument                                                            
that the Permanent Fund  is being double inflation proofed. In fact,                                                            
he continued,  he would provide Committee  Members with a  copy of a                                                            
paper [copy not provided]  recently developed by the Fund's Director                                                            
of Finance  that addresses  this issue. Continuing,  he stated  that                                                            
"the  key reason"  the  Fund  is not  considered  as  being  double-                                                            
inflation  proofed "is  that once  the appreciation  of equities  is                                                            
converted  into realized  income, it  can be  distributed under  the                                                            
current  scenario."   He  noted  that  the  Royalties   issue  is  a                                                            
Constitutional   question  "as  it  is  embedded"   in  the  State's                                                            
Constitution.                                                                                                                   
                                                                                                                                
Senator Bunde stated that  the financial methodologies of funds such                                                            
as  the  Harvard University   Trust Fund  are  often  exampled  when                                                            
proponents discuss the  POMV plan. However, he attested, these funds                                                            
do not  incorporate royalties  and instead  grow as a result  of the                                                            
interest  generated by the  endowment. Therefore,  he declared  that                                                            
comparing the  Permanent Fund to such things as Harvard's  endowment                                                            
fund is a more complicated issue.                                                                                               
                                                                                                                                
Mr. Storer  responded that  the comparison  of the POMV proposal  to                                                            
plans such as the Harvard  University Endowment Fund revolves on the                                                            
issue that  "the payout is limited  to a percentage of the  value of                                                            
the total fund."  Continuing, he declared  that while the  Permanent                                                            
Fund receives  additional  contributions in  the form of  royalties,                                                            
these other endowment  funds annually receive donations  from former                                                            
students  and other sources.  These contributions,  he attested  are                                                            
recognized  as on-going contributions  and  are incorporated  in the                                                            
anticipated growth of the funds.                                                                                                
                                                                                                                                
Senator Bunde observed  that were the State to continue to guarantee                                                            
inflation  proofing of the  Fund, continuing  discussions  regarding                                                            
this issue  should be encouraged,  as he stated, the scenario  could                                                            
be likened to parents continuing  to contribute to a 401K plan while                                                            
their children were starving.                                                                                                   
                                                                                                                                
Senator Dyson voiced appreciation  for the back-up material the APFC                                                            
supplied to the  Committee; specifically the handout  titled "Alaska                                                            
Permanent Corporation Percent  of Market Volume talking points April                                                            
2004" [copy on file]. He  referenced a section of that material that                                                            
states, "Inflation  proofing is inherent  and no longer requires  an                                                            
appropriation.  *The Fund is invested  for a 5% real rate  of return                                                            
after inflation.  If 5% is withdrawn,  the increase in value  due to                                                            
inflation  will  remain  in the  Fund."  He asked  the  location  of                                                            
language that supports this statement in the bill.                                                                              
                                                                                                                                
Mr.  Storer   responded  that  this   language  is  "probably   not"                                                            
specifically addressed  in the bill. Continuing, he  stated that the                                                            
Fund's payout  target is limited to no more than five-percent  "over                                                            
time."  He also noted  that currently  the Fund's  asset  allocation                                                            
targets  "a five-percent   return in  excess  of inflation"  on  its                                                            
investments,  and  he stated  that this  legislation  would  provide                                                            
"guidance"  that would assist the  PFC " He voiced confidence  "that                                                            
over  time, we  will  achieve  that goal."  He  noted  that HB  298-                                                            
DISTRIBUTIONS OF APPROPS  FROM PERM FUND is companion legislation to                                                            
this bill as  it would provide additional  statutory guidance,  such                                                            
as a "a ten-year  moving average"  as "the benchmark" upon  which to                                                            
compare  Fund returns  to inflation.  He noted that  were this  goal                                                            
unmet, less money would be available for appropriation.                                                                         
                                                                                                                                
Representative  Hawker  understood Senator  Dyson's  question to  be                                                            
whether  this  bill explicitly  states  that,  "the Fund  makes  its                                                            
investments  for  a five-percent  rate  of return."  Continuing,  he                                                            
noted that language in  Section 2(b), on page two, lines one and two                                                            
addresses the amount of money that could be appropriated.                                                                       
                                                                                                                                
     (b) Appropriations  from the  permanent fund for a fiscal  year                                                            
     may  not exceed  five  percent  of the  average  of the  market                                                            
     values  of the fund on  June 30 for the  first five of  the six                                                            
     fiscal years immediately preceding that fiscal year.                                                                       
                                                                                                                                
Representative  Hawker stated that  this language would provide  the                                                            
Board of Trustees and the  Fund's employees and managers a target of                                                            
a five percent  return after inflation  as the necessary  investment                                                            
benchmark  upon which to  develop investment  models. Therefore,  he                                                            
opined that this  legislation does establish that  benchmark rate of                                                            
return.                                                                                                                         
                                                                                                                                
Senator  Dyson  voiced  that  the  responses  to  his  question  are                                                            
"somewhat" unsatisfying  as he had hoped they would acknowledge that                                                            
the amounts reflected in  Section 2(b) be adjusted for inflation. He                                                            
suggested  that the language  be changed  to a  five percent  of the                                                            
market value in real rather than "inflated dollars."                                                                            
                                                                                                                                
Representative  Hawker responded that adding language  to the effect                                                            
of allocating  up to five  percent of after  inflation dollars  each                                                            
year would lead  to the boarder discussion of what  "is implicit" in                                                            
the "pure market  value formulation." Continuing,  he explained that                                                            
the investment model this  bill is based upon recognizes that in the                                                            
future  there might  be individual  or  combined  years "with  great                                                            
market gains"  or market declines.  He stated that the goal  of this                                                            
legislation  is to adopt  "the concept of  aggregate value"  in that                                                            
the  Fund's investments  would  demonstrate  that,  over time,  they                                                            
could perform  at levels in which their rate of return  is in excess                                                            
of  five  percent  as opposed  to  dwelling  on  whether  the  gains                                                            
resulted from inflation proofing or royalties.                                                                                  
                                                                                                                                
Mr. Storer declared that  the Corporation "invests to achieve a five                                                            
percent real  rate of return" and  "strongly" believes this  goal is                                                            
achievable.  He stated  that  Senator  Dyson's suggestion  that  the                                                            
language  be more explicit  could create more  problems as  it might                                                            
require  "time to achieve  that goal."  He reflected  that with  the                                                            
exception of the most recent  years, the Fund's historical real rate                                                            
of return, over time, has  been in excess of six-percent. Therefore,                                                            
he stressed that  the period of time over which to  achieve the goal                                                            
would be an issue.                                                                                                              
                                                                                                                                
Senator Dyson  commented that even  though the bill is strengthened                                                             
by  language  mandating  that  a payout  be  based  on  a  five-year                                                            
average,  he  is  concerned  that  the  resolution's  sponsors  "are                                                            
reluctant"  to specify in  the resolution that  the payout  would be                                                            
based on a five-percent real rate of return after inflation.                                                                    
                                                                                                                                
Mr. Storer  declared that the Corporation  stands by that  fact that                                                            
the payout  would be  based on a  five-percent  real rate of  return                                                            
after inflation, as depicted  on the Corporation's website. However,                                                            
he  declared the  concern  is  that adding  further  language  would                                                            
confuse the issue regarding long-term verses short-term issues.                                                                 
                                                                                                                                
Senator  Dyson opined  that the  inclusion of  the language,  "after                                                            
inflation," would  serve to garner more support for  the resolution.                                                            
                                                                                                                                
AT EASE 12:26 PM / 12:27 PM                                                                                                     
                                                                                                                                
Senator  Dyson asked  the  sponsors to  provide the  Committee  with                                                            
further  information  regarding  their  position  on  this  language                                                            
issue.                                                                                                                          
                                                                                                                                
Mr. Storer responded that a "good answer" would be forthcoming.                                                                 
                                                                                                                                
Senator Bunde  commented that while he supports this  resolution, he                                                            
is worried about citizens'  response to the complexity of the issue.                                                            
                                                                                                                                
Co-Chair Wilken ordered the bill HELD in Committee.                                                                             
                                                                                                                                
                                                                                                                                
     CS FOR HOUSE JOINT RESOLUTION NO. 9(FIN) am                                                                                
     Proposing amendments to the Constitution of the State of                                                                   
     Alaska relating to an appropriation limit.                                                                                 
                                                                                                                                
                                                                                                                                
This  was the first  hearing  for this  bill in  the Senate  Finance                                                            
Committee.                                                                                                                      
                                                                                                                                
Co-Chair  Wilken  explained that  CS  HJR 9  (FIN) am,  Version  23-                                                            
LS0435\O.A  would allow Alaskan voters  to decide whether  or not to                                                            
adopt a Constitutional  spending limit amendment in the 2004 General                                                            
Election. He noted  that following testimony by Representative  Bill                                                            
Stoltze,  the sponsor  of this  bill, Senator  Dyson  and his  staff                                                            
would  explain the  differences between  this bill  and the  related                                                            
bill, SJR 3-CONST  AM: APPROPRIATION/SPENDING  LIMIT, that  they are                                                            
sponsoring.                                                                                                                     
                                                                                                                                
REPRESENTATIVE  BILL STOLTZE, the  bill's sponsor, stated  that this                                                            
legislation   was   introduced  "as   an   independent  stand-alone                                                             
Constitutional  amendment" that is not linked to other  legislation.                                                            
He noted  that  in order  to address  the State's  fiscal crisis,  a                                                            
multitude  of ideas including  such things  as using Permanent  Fund                                                            
earnings,   instituting  new  taxes,   and  developing  other   non-                                                            
traditional  revenue  sources   are being   discussed.  However,  he                                                            
continued,  the intent  of this legislation  is  to assure that  the                                                            
State  proceed  in  these manners  in  "a  controlled  fashion."  In                                                            
conclusion,  he stated that  the best action  to take in regards  to                                                            
this bill  and the  Senate bill,  SJR 3, that  similarly proposes  a                                                            
Constitutional  amendment  pertaining to an  appropriation  spending                                                            
limit would be to understand  the differences between the two bills.                                                            
                                                                                                                                
LUCKY SCHULTZ,  Staff to Senator Fred  Dyson, the sponsor  of SJR 3,                                                            
referred  the Committee to  a comparison analysis  of the two  bills                                                            
titled "Comparison  of HJR 9 and SJR  3" [copy on file].  He pointed                                                            
out that one of the four  major differences between the two bills is                                                            
a "no ratchet  down provision" is  included in SJR 3 but  not in HJR                                                            
9. This provision  in SJR 3, he explained, specifies  that in a year                                                            
in  which  the  formula  reflects  an appropriation   decrease,  the                                                            
spending limit  would be retained  at the previous year's  level. He                                                            
disclosed   that   other   states   that   increase   and   decrease                                                            
appropriations depending  on a formula have been negatively impacted                                                            
when  their appropriation  decreases.  As  a result,  he  continued,                                                            
Colorado  and  other states  have  implemented  a "no  ratchet  down                                                            
provision."                                                                                                                     
                                                                                                                                
Mr.  Schultz  stated   that  the  comparison  chart  also   reflects                                                            
provisions that  are included in HJR 9 but not included  in SJR 3 as                                                            
follow:  Item  #11,  which  pertains   to  language  in  Section  1,                                                            
Subsection  16(c) located on page  two, lines five through  seven of                                                            
HJR 9, specifies that in  order to exceed the appropriation limit by                                                            
up to two-percent, a 2/3  vote of the legislature would be required;                                                            
Item  # 12  which pertains  to  language  in Section  1,  Subsection                                                            
16(c), page  two, lines seven  through ten  of HJR 9 that  specifies                                                            
that in order  to exceed the limit  above two-percent but  less than                                                            
four-percent,  a 3/4 vote of the legislature would  be required; and                                                            
Item #13 which pertains  to language in Section 1, subsection 16(c),                                                            
page two,  lines ten through  twelve of HJR  9 that would not  allow                                                            
exceeding  the limit by  more that four-percent.  He explained  that                                                            
while  SJR  3 does  not  include this  limiting  language,  it  does                                                            
include  provisions through  which the  limit could  be exceeded  in                                                            
order to address "extraordinary circumstances."                                                                                 
                                                                                                                                
Mr. Schultz noted  that both bills include provisions  with which to                                                            
address disasters or emergencies as declared by the Governor.                                                                   
                                                                                                                                
Mr. Schultz stated that  another difference between the two bills is                                                            
addressed  in Item #3 on  the aforementioned  handout regarding  how                                                            
the appropriations are determined in each bill.                                                                                 
                                                                                                                                
[NOTE: HJR 9 appropriation  language being referenced  is located in                                                            
Section 1, subsection  16 (a) on page one, beginning  on line six of                                                            
the bill that reads as follows.]                                                                                                
                                                                                                                                
     Section 16. Appropriation  Limit. (a) Appropriations made for a                                                            
     current  fiscal  year  shall  not  exceed  the  average  amount                                                            
     appropriated  for the earliest  three of the four fiscal  years                                                            
     immediately  preceding that current  fiscal year, increased  or                                                            
     decreased by the less of                                                                                                   
          (1) seventy-five percent of the sum of the following:                                                                 
                (A) the percentage rate of change in the cost of                                                                
     living  for the  three calendar  years preceding  the  calendar                                                            
     year during which  the immediately preceding fiscal year began;                                                            
     plus                                                                                                                       
                (B) the percentage rate of change in the State                                                                  
     population for the  three calendar years preceding the calendar                                                            
     year during which  the immediately preceding fiscal year began;                                                            
     or                                                                                                                         
          (2) the percentage rate of change in the personal incomes                                                             
     of State  residents for the three calendar years  preceding the                                                            
     calendar  year during  which the immediately  preceding  fiscal                                                            
     year began.                                                                                                                
                                                                                                                                
[NOTE: The SJR 3 appropriation  language being referenced is located                                                            
in Section 1,  subsection 16 (a) on page one, beginning  on line six                                                            
of the bill that reads as follows.]                                                                                             
                                                                                                                                
     Section  16. Appropriation  Limit. (a)  Subject to (b)  of this                                                            
     section  and except as  provided in (d),  (e), and (f)  of this                                                            
     section,  appropriations made  for a current fiscal  year shall                                                            
     not  exceed the average  amount appropriated  for the  earliest                                                            
     three  of the  four  fiscal years  immediately  preceding  that                                                            
     current fiscal year by more than the sum of the following:                                                                 
          (1) the percentage rate of change in the Consumer Price                                                               
     index  for all urban consumers  for the Anchorage metropolitan                                                             
     area  compiled  by a  federal agency  during  the two  calendar                                                            
     years preceding the  calendar year during which the immediately                                                            
     preceding  fiscal year began, but not to exceed  the percentage                                                            
     change  in personal income  of State  residents during  the two                                                            
     calendar  years preceding  the calendar  year during which  the                                                            
     immediately preceding fiscal year begins; plus                                                                             
          (2) the percentage rate of change in the State population                                                             
     during  the  two calendar  years  preceding the  calendar  year                                                            
     during  which  the  immediately  preceding  fiscal  year  began                                                            
     compiled by a State department.                                                                                            
                                                                                                                                
Mr. Schultz pointed  out that the appropriation formula  utilized by                                                            
HJR 9 would  designate 75-percent  of the sum of cost of  living and                                                            
population  whereas  SJR  3 would  use 100  percent  of  the sum  of                                                            
inflation and population.                                                                                                       
                                                                                                                                
Mr.  Schultz  also noted  that,  as identified  in  Item  #7 of  the                                                            
comparison chart, the HJR  9 appropriation calculation is based upon                                                            
the  rate of  change being  the sum  of three  years  whereas SJR  3                                                            
specifies  the  rate  of change  as  being  the  sum of  two  years.                                                            
Furthermore, he  pointed out that these differences  would equate to                                                            
"a one percent per year  increase in HJR 9 on the limit over SJR 3."                                                            
He  further explained  that  this  would equate  to  an $85  million                                                            
difference  between  the  two bills  through  FY  09, which  is  the                                                            
termination date identified for both bills.                                                                                     
                                                                                                                                
Senator  Dyson   asked  for  confirmation  that   HJR  9,  with  its                                                            
determining  factor  of 75  percent  of the  sum of  population  and                                                            
inflation, "has  a steeper" uphill curve because its  rate of change                                                            
is over a three-year period  as compared to SJR 3's two-year period.                                                            
                                                                                                                                
Mr.  Schultz affirmed.  He  stated that,  according  to information                                                             
provided by Legislative  Finance, the State is projected to annually                                                            
experience  a  three-percent  inflation  factor  and  a one-percent                                                             
population  growth factor  for a  total factor  of four-percent  per                                                            
year.  Continuing,  he stated,  that  utilizing HJR  9's  three-year                                                            
timeline with  this four-percent factor would equate  to 12 percent.                                                            
Therefore,  he calculated that the  HJR 9 appropriation calculation                                                             
formula would be nine percent  based on its 75-percent of 12-percent                                                            
formula.  In  contrast,  he continued,  the  four-percent  per  year                                                            
factor would  equate to an eight percent  appropriation calculation                                                             
utilizing  SJR  3's  two-year  100-percent  formula.  Therefore,  he                                                            
summarized,  HJR 9's formula  would reflect  a one-percent  increase                                                            
per year over that of SJR 3.                                                                                                    
                                                                                                                                
Co-Chair  Wilken asked  that the  graph titled  "CS  SJR3 & CS  HJR9                                                            
Compare" [copy  on file], dated May 2, 2004, be reviewed  as the HRJ                                                            
9 numbers it  reflects surprised many  Senators, including  himself,                                                            
as they  had understood  that  the provisions  of HJR  9 were  "more                                                            
restrictive."  Specifically,  he  asked for  details  about how  the                                                            
University of Alaska receipts  factor into the equation, as depicted                                                            
on Line #17 of the graph,  which states that, " The most significant                                                            
difference  between the two  bills is that  HJR9 exempts  university                                                            
tuition  only. SJR3  exempts all  non-GF [general  fund]  university                                                            
receipts".                                                                                                                      
                                                                                                                                
Mr. Schultz affirmed that  how University receipts are recognized in                                                            
the formulas  is one of the  four major areas  of difference  in the                                                            
two bills.  Continuing, he explained  that while SJR 3 would  exempt                                                            
numerous University  receipts including  tuition and other  receipts                                                            
that are  not federally  or state  funded, HJR  9 would only  exempt                                                            
University   tuition  receipts.   He  shared   that  the   differing                                                            
approaches  to University  receipts  would  amount  to a  difference                                                            
between  the  two  proposals  of  approximately   $150  million,  as                                                            
reflected in the graph  with SJR 3's FY 05 appropriation limit being                                                            
approximately $150 million less than that proposed for HJR 9.                                                                   
                                                                                                                                
Co-Chair Wilken asked for  confirmation that the appropriation limit                                                            
difference reflected in  the graph could be contributed specifically                                                            
to University receipts.                                                                                                         
                                                                                                                                
Mr. Schultz confirmed.                                                                                                          
                                                                                                                                
Co-Chair  Wilken understood  therefore,  that while  the  comparison                                                            
slope of  each bill's  appropriations  as depicted  on the graph  is                                                            
"about the same", the lesser  appropriation level shown for SJR 3 is                                                            
the result of how University receipts are factored.                                                                             
                                                                                                                                
Mr. Schultz  clarified that  the HJR 9 slope  is similar to  that of                                                            
SJR  3 except  that  it's  slope reflects  the  one  percent  higher                                                            
formula calculation.                                                                                                            
                                                                                                                                
Co-Chair  Wilken asked  for confirmation,  therefore,  that HJR  9's                                                            
slope increase  in the out-years  is the result  of the one  percent                                                            
factor difference.                                                                                                              
                                                                                                                                
Mr. Schultz concurred.                                                                                                          
                                                                                                                                
Senator Dyson  explained that the  difference "in the vertical  axis                                                            
is the University receipts,"  and that the out-year slope difference                                                            
is the result of the one-percent formula calculation difference.                                                                
                                                                                                                                
Co-Chair Wilken acknowledged that explanation.                                                                                  
                                                                                                                                
Co-Chair Green  stated that she had  expected to view corresponding                                                             
numbers somewhere  in the comparison  charts, perhaps in  FY 2000 or                                                            
FY 2001, as she  expected that there should be a base  from which to                                                            
begin both bills'  calculations. Continuing, she inquired  as to the                                                            
reason  that, FY 02  and FY 03,  which reflect  actual numbers,  are                                                            
different.                                                                                                                      
                                                                                                                                
Mr.  Schultz responded  that  the  graph  was adjusted  to  reflect,                                                            
"going backwards", exemptions such as the University receipts.                                                                  
                                                                                                                                
Co-Chair  Green asked  the reason  it was deemed  necessary to  make                                                            
these adjustments when looking at previous years.                                                                               
                                                                                                                                
Mr.  Schultz responded  that  these  adjustments were  conducted  in                                                            
order "to compare apples to apples."                                                                                            
                                                                                                                                
Co-Chair Green argued that  only the dollars looking forward from FY                                                            
04 should be adjusted  to reflect these exemptions.  She opined that                                                            
previous years'  dollars are unaffected and should  reflect actuals.                                                            
                                                                                                                                
Mr.  Schultz responded  that  in  order to  calculate  the  proposed                                                            
formulas, it was deemed  necessary to exempt the University receipts                                                            
in the preceding years.                                                                                                         
                                                                                                                                
Co-Chair Green  argued that any prior year adjustments  would affect                                                            
the slopes reflected on the graph.                                                                                              
                                                                                                                                
Co-Chair  Wilken  understood  that,  in  FY 06,  the  annual  growth                                                            
projection  for  HJR  9  would  be  $164  million   and  the  growth                                                            
projection for  SJR 3 would be $112 million. He recalled  recent and                                                            
separate testimony  that specified that the State  would be required                                                            
to provide $107.6 million  for the Public Employee Retirement System                                                            
[PERS] and  Teachers Retirement Systems  [TRS] in FY 06.  Therefore,                                                            
he asked  whether these PERS  and TRS obligations  must be  provided                                                            
for from these projected amounts.                                                                                               
                                                                                                                                
Mr. Schultz  affirmed that  this would be  required. Continuing,  he                                                            
clarified  that some  funding for  the PERS and  TRS obligation  was                                                            
included "in the fixed  base for FY 04 and FY 05, both to smooth the                                                            
chart but also for transition" purposes.                                                                                        
                                                                                                                                
Co-Chair Wilken  concluded therefore  that PERS and TRS obligations                                                             
for  FY  07,  FY  08,  and  FY  09  must  be  subtracted   from  the                                                            
projections. In summary,  he surmised that the annual growth for the                                                            
forthcoming  four  years  would  be  "more  than  consumed"  by  the                                                            
projected PERS and TRS obligation.                                                                                              
                                                                                                                                
Mr. Schultz agreed.                                                                                                             
                                                                                                                                
Co-Chair  Wilken informed  the Committee that  he had requested  the                                                            
Division  of Retirement  and Benefits  to provide  "official"  FY 06                                                            
PERS and TRS projections.                                                                                                       
                                                                                                                                
Co-Chair Green  asked whether "the transition language"  in HJR 9 is                                                            
similar to that of SJR 3.                                                                                                       
                                                                                                                                
Mr.  Schultz  responded  that  the  transition   language  is  "very                                                            
similar"  with the exception  of the differing  base numbers  due to                                                            
the University receipt exemptions.                                                                                              
                                                                                                                                
Senator  B.  Stevens observed  that  in  Section  30, which  is  the                                                            
transition  language section  of each  bill, reference  is made,  on                                                            
page three,  line 21 of HJR  9, to Section  16 (D) of Article  IX of                                                            
the Constitution,  whereas  in SJR  3's Section  30, on page  three,                                                            
line 19,  the reference is  to Section 16  (C) of Article IX  in the                                                            
Constitution.  He stated that this  appears to be a technical  error                                                            
as, otherwise, the language in each section is identical.                                                                       
                                                                                                                                
Mr. Schultz understood that the language should be identical.                                                                   
                                                                                                                                
Senator B. Stevens stated  that this discrepancy should be examined.                                                            
                                                                                                                                
Mr. Schultz agreed.                                                                                                             
                                                                                                                                
Senator  Dyson asked  regarding the  base year  adjustment that  was                                                            
required in order to apply the proposed formulas.                                                                               
                                                                                                                                
BRUCE  TANGEMAN,  Fiscal  Analyst,  Legislative   Finance  Division,                                                            
responded  that,  while it  is too  early  to determine  the  budget                                                            
outcomes of FY 04 and FY  05, the numbers utilized would provide the                                                            
$120 to $150  million "headroom" necessary  for projected  budgetary                                                            
requirements for such as PERS and TRS in FY 06.                                                                                 
                                                                                                                                
Senator  Dyson  specified  that, in  light  of the  State's  "recent                                                            
budget reductions  … a  cushion" of approximately  $150 million  was                                                            
built into  the projections  "in order to  make the formulas  work."                                                            
This, he continued,  would provide  a floor from which to  expand to                                                            
provide  for  projected   PERS,  TRS,  and  Medicare   and  Medicaid                                                            
increases.                                                                                                                      
                                                                                                                                
Senator Bunde  expressed the understanding that the  State's deficit                                                            
would exceed  $10 billion in ten years  as the result of  inflation,                                                            
PERS, TRS, Medicare and Medicaid expenses.                                                                                      
                                                                                                                                
CHERYL FRASCA, Director,  Office of Management and Budget, Office of                                                            
the Governor,  affirmed that, based on the FY 05 budget  projections                                                            
and going  forward, the  Department of Revenue  projects that  there                                                            
could be a one  billion dollar budgetary shortfall  in approximately                                                            
six or seven  years based on a $22  per barrel of North Slope  crude                                                            
oil price.                                                                                                                      
                                                                                                                                
Senator Bunde  understood therefore  that the deficit amount  he had                                                            
shared was "in the ballpark."                                                                                                   
                                                                                                                                
Ms. Frasca replied that, "they could be."                                                                                       
                                                                                                                                
In response  to Senator  B. Stevens earlier  question regarding  the                                                            
differing articles  identified in Section 30, Mr.  Schultz clarified                                                            
that the language  is correct, as the adoption of  either bill would                                                            
change the Constitution  in that were HJR 9 adopted, the language in                                                            
the Constitution being  referenced would be Section 16(d) of Article                                                            
IX, and were SJR  3 adopted, the language in the Constitution  being                                                            
referenced would be Section 16(c) of Article IX.                                                                                
                                                                                                                                
Representative Stoltze  affirmed that this is a complicated process.                                                            
                                                                                                                                
Co-Chair Wilken  complimented the  efforts being undertaken  in this                                                            
endeavor and ordered the bill HELD in Committee.                                                                                
                                                                                                                                
                                                                                                                                
     CS FOR SENATE BILL NO. 284(STA)                                                                                            
     "An Act  relating to an optional  election to prevent  the name                                                            
     and address  of a permanent fund dividend applicant  from being                                                            
     disclosed,  except  to a local,  state,  or federal  government                                                            
     agency, or in compliance with a court order."                                                                              
                                                                                                                                
                                                                                                                                
This was  the second  hearing for  this bill in  the Senate  Finance                                                            
Committee.                                                                                                                      
                                                                                                                                
Co-Chair  Wilken  stated that  this  legislation would  require  the                                                            
Alaska  Permanent Fund  Corporation  (APFC) to  keep Permanent  Fund                                                            
Dividend (PFD)  applicant application  information private  with the                                                            
exception  being in  cases  where information  was  required by  the                                                            
State or federal  government. He reminded the Committee  that during                                                            
the first hearing  on this bill, Co-Chair Green had  asked regarding                                                            
the confidentially of voter registration information.                                                                           
                                                                                                                                
                                                                                                                                
SFC 04 # 103, Side B 12:52 PM                                                                                                   
                                                                                                                                
                                                                                                                                
Co-Chair  Green moved  to  adopt committee  substitute,  CS SB  284,                                                            
Version 23-LS1596\U as the working document.                                                                                    
                                                                                                                                
There being  no objection,  Version "U" was  ADOPTED as the  working                                                            
document.                                                                                                                       
                                                                                                                                
SENATOR GRETCHEN GUESS,  the bill's sponsor, explained that with the                                                            
exception   of  an  applicant's  name,   additional  PFD   applicant                                                            
information  must be kept  confidential. The  Version "U"  committee                                                            
substitute,   she  explained,   would  expand   the  confidentially                                                             
requirement  to include  voter  registration information  and  would                                                            
allow a  voter to  request that  their residential  address be  kept                                                            
private and not open to  public inspection were the voter to provide                                                            
a separate mailing address.                                                                                                     
                                                                                                                                
Senator Bunde  asked for  verification that  language in Section  1,                                                            
subsection  (b)(2) on  page two,  lines  six and  seven, "would  not                                                            
impede"  the Division  of  Elections'  requirement  that a  person's                                                            
voter  registration  include  their residential  address  when  they                                                            
have, for  instance, a  post office mailing  address. The  residency                                                            
information,  he continued, is necessary  to uphold the requirement                                                             
that a person must vote in the precinct in which they reside.                                                                   
                                                                                                                                
Senator Guess  responded that this legislation would  not affect the                                                            
Division  of Elections  ability  to do  its  job, as  it would  only                                                            
restrict information  that would be  open to the public.  She stated                                                            
that language  in Section  1 subsection (c)(1)  addresses the  issue                                                            
regarding local,  state, or federal government agencies'  ability to                                                            
access needed information.                                                                                                      
                                                                                                                                
Amendment  #1:  This  amendment  deletes   language  in  Section  1,                                                            
subsection (b)(1) on page  two, lines four and five that would allow                                                            
a voter's name  to kept confidential were they a victim  of domestic                                                            
violence.                                                                                                                       
                                                                                                                                
Co-Chair Green moved to adopt Amendment #1.                                                                                     
                                                                                                                                
Co-Chair Green stated that  this amendment is being offered in order                                                            
to allow  the  Division of  Elections  voter registration  lists  to                                                            
contain the  names of all  persons registered  to vote. Continuing,                                                             
she  pointed out  that  domestic violence  victim's  security  would                                                            
continue  to  be  maintained  without  this   language  as  separate                                                            
language  in Section 1, Subsection  (b)(2)  would allow a person  to                                                            
elect  to   have  their  residential   address  kept  confidential.                                                             
Therefore,  she continued,  this  amendment  would  serve to  remove                                                            
unnecessary language from the bill.                                                                                             
                                                                                                                                
There being no objection, Amendment #1 was ADOPTED.                                                                             
                                                                                                                                
Co-Chair  Wilken asked whether  this legislation  would comply  with                                                            
federal laws.                                                                                                                   
                                                                                                                                
Senator Guess responded in the affirmative.                                                                                     
                                                                                                                                
Senator Dyson moved to report the bill, as amended, from Committee                                                              
with individual recommendations and accompanying fiscal note.                                                                   
                                                                                                                                
There being no objection, CS SB 284 (FIN) was REPORTED from                                                                     
Committee with a new zero fiscal note from the Department of                                                                    
Revenue, dated April 30, 2004.                                                                                                  
                                                                                                                                
RECESS TO THE CALL OF THE CHAIR 1:00 PM / 3:07 PM                                                                               
                                                                                                                                
ADJOURNMENT                                                                                                                 
                                                                                                                                
Co-Chair Gary Wilken adjourned the meeting at 03:07 PM.                                                                         

Document Name Date/Time Subjects