Legislature(2005 - 2006)SENATE FINANCE 532

04/05/2005 09:00 AM FINANCE


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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+= SB 141 PUBLIC EMPLOYEE/TEACHER RETIREMENT TELECONFERENCED
Heard & Held
+= SB 100 ENHANCED 911 SURCHARGES TELECONFERENCED
Heard & Held
+ SB 88 POLICY ON GENERAL FUND REVENUE SHORTFALL TELECONFERENCED
Heard & Held
*+ SB 151 DECOUPLING FROM FED TAX DEDUCTION TELECONFERENCED
Heard & Held
+ SB 70 CRIMES INVOLVING CONTROLLED SUBSTANCES TELECONFERENCED
Bill Postponed
+ Bills Previously Heard/Scheduled TELECONFERENCED
                              MINUTES                                                                                         
                     SENATE FINANCE COMMITTEE                                                                                 
                           April 5, 2005                                                                                      
                             9:10 a.m.                                                                                        
                                                                                                                                
                                                                                                                              
CALL TO ORDER                                                                                                               
                                                                                                                                
Co-Chair Green convened the meeting at approximately 9:10:37 AM.                                                              
                                                                                                                                
PRESENT                                                                                                                     
                                                                                                                                
Senator Lyda Green, Co-Chair                                                                                                    
Senator Gary Wilken, Co-Chair                                                                                                   
Senator Con Bunde, Vice Chair                                                                                                   
Senator Fred Dyson                                                                                                              
Senator Bert Stedman                                                                                                            
Senator Lyman Hoffman                                                                                                           
Senator Donny Olson                                                                                                             
                                                                                                                                
Also  Attending:   BILL   DOOLITTLE,  Project   Manager,   Anchorage                                                          
Telephone  System;  WALT  MONEGAN,  Police  Chief,  Municipality  of                                                            
Anchorage; JOHN FULLEMWIDER,  Fire Chief, Municipality of Anchorage;                                                            
STAN   HERREA,   Director/Chief   Technology   Officer,   Enterprise                                                            
Technology  Services, Department of  Administration; DAN  DICKENSON,                                                            
Director,  Tax Division,  Department  of Revenue;  CHUCK  HARLAMERT,                                                            
Juneau  Section Chief,  Tax  Division,  Department  of Revenue;  ROB                                                            
CARPENTER,   Fiscal    Analyst,   Legislative   Finance    Division,                                                            
Legislative Affairs Agency                                                                                                      
                                                                                                                                
Attending via  Teleconference: From  Anchorage: JIM ROWE,  Executive                                                          
Director,  Alaska  Telephone  Association;  From Offnet  Sites:  TIM                                                            
ROGERS,  Alaska   Municipal  League;  DON  SAVICH,  Wasilla   Police                                                            
Department,   City  of   Wasilla;  From   Anchorage:  STEVE   HEBBE,                                                            
Lieutenant,  Anchorage Police  Department;  From Kenai: CHUCK  KOPP,                                                            
Kenai Police Department                                                                                                         
                                                                                                                                
SUMMARY INFORMATION                                                                                                         
                                                                                                                                
SB 100-ENHANCED 911 SURCHARGES                                                                                                  
                                                                                                                                
The Committee  heard from the sponsor  and took public testimony.  A                                                            
committee substitute  was offered but withdrawn from  consideration.                                                            
The bill was held in Committee.                                                                                                 
                                                                                                                                
SB 151-DECOUPLING FROM FED TAX DEDUCTION                                                                                        
                                                                                                                                
The  Committee  heard  from  the  Department   of  Revenue  and  the                                                            
Legislative Finance Division. The bill was held in Committee.                                                                   
                                                                                                                                
SB 88-POLICY ON GENERAL FUND REVENUE SHORTFALL                                                                                  
                                                                                                                                
The bill's sponsor reviewed  a power-point presentation and the bill                                                            
was held in Committee.                                                                                                          
                                                                                                                                
SB 141-PUBLIC EMPLOYEE/TEACHER RETIREMENT                                                                                       
                                                                                                                                
This bill was scheduled but not heard.                                                                                          
                                                                                                                                
                                                                                                                                
     CS FOR SENATE BILL NO. 100(L&C)                                                                                            
     "An Act relating to enhanced 911 surcharges imposed by a                                                                   
     municipality."                                                                                                             
                                                                                                                                
                                                                                                                                
This was  the second  hearing for  this bill in  the Senate  Finance                                                            
Committee.                                                                                                                      
                                                                                                                                
Co-Chair  Green   informed  the  Committee   that  the  forthcoming                                                             
committee substitute was  developed as the result of pubic testimony                                                            
to  a similar  bill  she  had  sponsored  the  previous Legislative                                                             
session.  The  committee  substitute   changes  are  detailed  in  a                                                            
Memorandum from her office,  dated April 5, 2005 [copy on file]. The                                                            
Memorandum also corrects  inadvertent language omissions in Sections                                                            
4 and  5, as  requested by  the bill  drafter.  These changes  would                                                            
allow  the bill  "to  apply  to all  municipalities,  regardless  of                                                            
organization, equally".                                                                                                         
                                                                                                                                
Co-Chair  Wilken   moved  to  adopt  the  aforementioned   committee                                                            
substitute,  CS SB 100(FIN), Work  Draft Version 24-LS0407\S  as the                                                            
working document.                                                                                                               
                                                                                                                                
Co-Chair Green  objected for purposes  of explanation. She  reviewed                                                            
the changes as outlined in the Memorandum as follows.                                                                           
                                                                                                                                
     Work Draft to CSSB 100 (FIN) "Version S"                                                                                   
                                                                                                                                
     Section 1. AS 29.10.200(37) is amended to include the enhanced                                                             
     911 system under Home Rule applicability.                                                                                  
                                                                                                                                
     Section 2. AS 29.35.131(a)911 surcharge                                                                                    
          Page 2                                                                                                                
             ΠLine 11 - $1.50 surcharge for wireline and wireless                                                              
                     (from $2.00)                                                                                               
             ΠLine 23 - requires notification by the municipality                                                              
                when the  surcharge is assessed and when it is                                                                  
                changed.                                                                                                        
             ΠLine 27 - links the 911 surcharge to the federal                                                                 
                     definitions.                                                                                               
             ΠLine 29 - requires the Borough to reimburse the                                                                  
                municipalities for their expenses first and that                                                                
                reimbursement shall occur at least every three                                                                  
                months.                                                                                                         
                                                                                                                                
     Section 3. AS 29.35 is amended to include Private Branch                                                                   
     Exchange (PBX) phone identification to ensure that responders                                                              
     go to the actual location of the caller.                                                                                   
                                                                                                                                
     Section 4. AS 29.35 is amended to apply to home rule and                                                                   
     general law municipalities.                                                                                                
                                                                                                                                
     Section 5. AS 29.35.131(h) is repealed (home rule                                                                          
     applicability).                                                                                                            
                                                                                                                                
Co-Chair  Green noted  that the proposed  change  to lines four  and                                                            
five  of  Section  1, are  supported  by  the  bill's  drafter.  The                                                            
customer  notification language  being proposed  in Section  2, page                                                            
two, beginning  on line  23 is included  because, historically,  the                                                            
telephone  utility has borne  the responsibility  for explaining  to                                                            
their customers  that they did not  increase the rate on  their own;                                                            
the cost of providing  Enhanced 911 (E-911) is allowed  to be passed                                                            
on to the ratepayer.  In addition,  aligning state definitions  with                                                            
federal  definitions  would further  clarify to  municipalities  the                                                            
proper usage of  the E-911 or 911 "funds for the purposes  for which                                                            
they were intended".  This is specified  in Section 2(a),  page two,                                                            
beginning  on line  27. This  expense reimbursement  language  would                                                            
clarify that Boroughs  with multiple Public Safety  Answering Points                                                            
(PSAPs)  municipal  service areas  within  their boundaries  and  in                                                            
which the Borough  is the primary collector of the  E-911 surcharge,                                                            
must distribute  those funds to the  municipalities. She  noted that                                                            
the  primary  purpose  of E-911  systems  is  to  provide  emergency                                                            
responders  both the location of the  caller and the caller's  phone                                                            
number.                                                                                                                         
                                                                                                                                
Senator Bunde,  the bill's sponsor, noted that SB  100 was developed                                                            
at  the request  of  municipalities  who,  while being  required  to                                                            
comply with E-911  service regulations, had no funding  mechanism in                                                            
place through which to  pay the associated expenses. This bill would                                                            
provide  that funding mechanism.  He noted  that several  testifiers                                                            
were available to further explain the situation.                                                                                
                                                                                                                                
9:16:36 AM                                                                                                                    
                                                                                                                                
JIM  ROWE,   Executive  Director,   Alaska  Telephone  Association,                                                             
testified  via  teleconference  from  Anchorage  in support  of  the                                                            
Version  "S" committee  substitute  on behalf  of the Association's                                                             
fourteen-member companies  that serve Rural Alaska. The hope is that                                                            
the  bill would  be  adopted  this Legislative  Session.  While  the                                                            
original version of SB  100 proposed a $2.00 maximum surcharge limit                                                            
for E-911  services,  the Association  is  in support  of the  $1.50                                                            
surcharge proposed  in Version "S". "This is double  the amount that                                                            
is currently charged".  Language in Section 2(a),  line 16, page two                                                            
would  address "parity  in the  payment between  wireless  telephone                                                            
service  and  wireline   telephone  system".  This   issue  is  very                                                            
important  to  the  members  of  the  Association   because  of  the                                                            
competition   between  wireless  and   wireline  service   carriers.                                                            
"Competitive  neutrality   is  important"  and  if  one  service  is                                                            
required  to implement  a rate increase  on its  service, then  "the                                                            
competing service should  also be required to do that". The language                                                            
incorporated  into line  24,  page two  of Section  2(a) that  would                                                            
require a municipality  to inform the utility's customers  about the                                                            
rate increase  is important, as it would further clarify  the reason                                                            
for the increase.                                                                                                               
                                                                                                                                
Mr. Rowe  stated that the  PBX and other  telephone system  language                                                            
identified  in Section 3, page three,  is an area that could  easily                                                            
invoke confusion.  In layman's  terminology,  there are "dumb  PBXs"                                                            
and  "smart  PBXs".  Smart  PBXs   are  systems  that  are  able  to                                                            
communicate  both  the caller's  phone  number and  location.  There                                                            
would  be costs associated  with  upgrading or  replacing the  older                                                            
"dumb"  PBXs. Consideration  should  be given to  specifying a  time                                                            
frame in this  legislation in which entities that  provide telephone                                                            
systems  must implement  the required  upgrade.  In conclusion,  the                                                            
Association supports the bill.                                                                                                  
                                                                                                                                
9:20:35 AM                                                                                                                    
                                                                                                                                
TIM   ROGERS,  Alaska   Municipal   League  (AML),   testified   via                                                            
teleconference  from an offnet  site and noted  that, while  he does                                                            
not have access  to a copy of the  Version "S" committee  substitute                                                            
and therefore  could not address it specifically,  AML does not take                                                            
issue with the customer  notification process that would be required                                                            
of municipalities. AML  is, however, concerned about the proposal to                                                            
reduce the surcharge from  $2.00 to $1.50, as AML considers $2.00 to                                                            
be a more reasonable  amount based  on some of the local  government                                                            
needs. Nonetheless, the bill would be acceptable.                                                                               
                                                                                                                                
DON SAVICH,  Wasilla Police Department,  City of Wasilla,  testified                                                            
via teleconference from an offnet site in support of the bill.                                                                  
                                                                                                                                
9:23:09 AM                                                                                                                    
                                                                                                                                
BILL DOOLITTLE, Contract  Project Manager, Municipality of Anchorage                                                            
911 System, testified in  Juneau and informed the Committee that two                                                            
components  of the bill could generate  "significant impediments  to                                                            
911 programs within  the State". The first, located  in Section 2(a)                                                            
line  26,   page  two,   is  the  language   specifying  that   "The                                                            
municipality  may only use  the enhanced 911  surcharge for  phase I                                                            
and phase II enhanced 911  services, as described in 47 CFR 10.18 as                                                            
revised…" That  specific code of federal  regulations "only  applies                                                            
to wireless carriers".  This would, in effect, "block  using the 911                                                            
surcharge for even a basic 911 system within the State".                                                                        
                                                                                                                                
Mr. Doolittle  explained that the  initial step in developing  a 911                                                            
system  is "the  basic" 911  system, which  allows 911  calls to  be                                                            
made. An E-911  system, which is built upon the basic  system, would                                                            
provide  both  the phone  number  and  the address  of  the  caller.                                                            
Wireless phase I capability,  which would provide the address of the                                                            
cell site transmitting  the call, and Wireless phase  II capability,                                                            
which  would provide  the  latitude  and  longitude of  the  handset                                                            
making the call, are programs developed upon the basic 911 and E-                                                               
911 systems.                                                                                                                    
                                                                                                                                
Mr. Doolittle noted that  the second significant matter involves the                                                            
issue of reimbursement  to the municipality, as specified in Section                                                            
2(a), line 28,  on page two. The language specifies  that "A borough                                                            
must use  the enhanced 911  surcharge to  fully reimburse each  city                                                            
within the borough  for expenses borne by the city  for the enhanced                                                            
911 services  before  the enhanced  911  surcharge may  be used  for                                                            
other expenses  of the enhanced  911 system".  He noted that  "there                                                            
are necessarily  some area-wide types of expenses,  such as the "the                                                            
database management piece",  that must be put in place" prior to the                                                            
911 system  becoming operational.  "The database management  piece …                                                            
aggregates  the subscriber  records from all  the carriers"  for the                                                            
location identification  capabilities for the E-911 system. "This is                                                            
generally a super-jurisdictional  area", and in addition to its one-                                                            
time start-up  fee, continuous monthly expenses would  be associated                                                            
with the maintenance of those records.                                                                                          
                                                                                                                                
Mr. Doolittle  continued that  trunking and  circuitry from  each of                                                            
the carriers  to  the primary  PSAP would  also be  necessary.  In a                                                            
situation where  there might be multiple  PSAPs, there could  be the                                                            
opportunity  to  identify  municipal-specific  expenses;  "but  they                                                            
would be equally  reimbursable to all municipalities  or a borough's                                                            
911  center".  He  offered  "as  an  alternative"  the  ability  "to                                                            
determine  precedence of  cost" of  such things  as database  costs,                                                            
infrastructure  costs, and technology costs. These  components would                                                            
be less  expensive  were they aggregated  among  agencies. Doing  so                                                            
would allow  for some of the surcharge  revenues to reimburse  call-                                                            
taking and  operational  expenses associated  with the 911-program.                                                             
The current  challenge is that the  existing surcharge program  does                                                            
not allow reimbursement  for many  of these costs, and, as  a result                                                            
of an inadequate  surcharge,  many 911 programs  are operating  at a                                                            
deficit.                                                                                                                        
                                                                                                                                
Co-Chair  Green asked  what specific  changes would  be required  to                                                            
address  these  concerns.  The purpose  of  this legislation  is  to                                                            
remind the collectors  and the recipients of the 911-surcharge  that                                                            
the funds are  generated for "specific  use", as defined  in federal                                                            
law.                                                                                                                            
                                                                                                                                
Mr. Doolittle  pointed out that there  are two classes of  carriers:                                                            
local exchange  carriers who  are regulated  at the local level  and                                                            
wireless carriers  who are regulated  by the Federal Communications                                                             
Commission  (FCC). Therefore, two  sets of rules govern such  things                                                            
as surcharges  and collections. The  federal government has  allowed                                                            
each state to establish  its own 911 program. As a result, 50 unique                                                            
programs exist  in the nation, and 27 states impose  differing rates                                                            
for  the two  carrier systems.  Therefore,  State  "statute is  what                                                            
directs or  allows what a  local level 911  program would be".  As a                                                            
result of interaction  with numerous municipalities  and boroughs in                                                            
the State,  it has been determined  that "one of the challenges"  is                                                            
achieving an inter-local  agreement about the scope  of services and                                                            
the  scope  of  the  911 program.   Current  statutes  provide  wide                                                            
latitude to municipalities  in that regard. "Many municipalities and                                                            
boroughs  are challenged"  in regards  to specifying  the roles  and                                                            
responsibilities and the  allocation of surcharges. "The priority of                                                            
those costs  could be specified  on a Statewide  basis based  on the                                                            
reality of  how you make  those expenditures.  But really the  needs                                                            
and  configurations   of  dispatch  centers  within   a  borough  or                                                            
municipality  …  is a  local  selection".  The local  public  safety                                                            
agencies  "get to choose  who will  dispatch for  them". This  would                                                            
include decisions regarding  whether to have a radio dispatch center                                                            
and 911-call taking and service area responsibilities.                                                                          
                                                                                                                                
Mr. Doolittle  concluded  that some alternative  language  regarding                                                            
these  issues could  be developed  and  provided  to the  Committee.                                                            
However, being unsure as  to whether the Committee wished to further                                                            
delay the bill,  he noted that there "is great support  for the bill                                                            
as written  today", and his comments  could be viewed as  cautionary                                                            
in  regards  to  how  some  of  the  language  is  written  and  the                                                            
challenges it might create.                                                                                                     
                                                                                                                                
Co-Chair Green  voiced the desire  to correct the bill in  Committee                                                            
rather than allowing it to move out of Committee "flawed".                                                                      
                                                                                                                                
Co-Chair Green noting that  Mr. Doolittle's first concern dealt with                                                            
the federal regulations,  asked for further clarification  regarding                                                            
his second concern.                                                                                                             
                                                                                                                                
Mr. Doolittle  verified that the federal concern involved  tying the                                                            
surcharge to  Phase I and Phase II.   His second concern  dealt with                                                            
"reimbursement to municipalities as a priority".                                                                                
                                                                                                                                
Co-Chair  Green   acknowledged  and  asked  whether   Mr.  Doolittle                                                            
understood the issue the legislation was intended to address.                                                                   
                                                                                                                                
Mr. Doolittle  assured that he understood,  as he has worked  with a                                                            
number of  municipalities.  There "is a  question regarding  program                                                            
scope and accountability  to municipalities within boroughs", as not                                                            
all 911 programs  hold monthly, quarterly, and annual  meetings. The                                                            
scopes of many  programs are not published  and explicit.  "It would                                                            
be  very easy  to  have that  requirement.  It  is very  simple  and                                                            
straight forward to do that on a local level."                                                                                  
                                                                                                                                
Co-Chair  Green asked  how the  issue could  be  addressed in  State                                                            
Statute.                                                                                                                        
                                                                                                                                
Mr. Doolittle  suggested  that there  be a requirement  "that  a 911                                                            
program   explicitly  document   the  scope   of  the  program   and                                                            
reimbursement  to agencies". This  would establish "the groundwork"                                                             
for establishing  a mechanism through which to address  "a bona fide                                                            
request" for reimbursement from an agency.                                                                                      
                                                                                                                                
9:31:15 AM                                                                                                                    
                                                                                                                                
AT EASE 9:31:41 AM / 9:39:45 AM                                                                                             
                                                                                                                                
Co-Chair  Green stated that  upon the conclusion  of today's  public                                                            
testimony,  staff would work with  "experts" to further develop  the                                                            
bill's language.                                                                                                                
                                                                                                                                
Co-Chair Wilken voiced  being pleased that the bill would be further                                                            
refined as  he has a few  problems with  it; specifically whether  a                                                            
surcharge level of $1.50  would be appropriate. Continuing, he asked                                                            
regarding the  home rule city within second-class  borough situation                                                            
that exists  in Fairbanks; if the  City of Fairbanks is responsible                                                             
for the  911/E-911 system  and they wished  to adjust the rate,  the                                                            
question is who  would vote on the issue: the residents  of the City                                                            
or the residents of the Fairbanks North Star Borough.                                                                           
                                                                                                                                
Co-Chair Green  asked for further  clarification as to which  entity                                                            
manages the 911-system.                                                                                                         
                                                                                                                                
Co-Chair Wilken affirmed that the City does.                                                                                    
                                                                                                                                
Senator  Bunde speculated  that  the vote  would depend  on who  the                                                            
subscribers  of  the telephone  utility  system  were:  whether  the                                                            
subscriber base  was limited to the City or included  other areas of                                                            
the Borough.                                                                                                                    
                                                                                                                                
Co-Chair  Wilken noted that  he would ask  the community to  provide                                                            
the answer to this question.                                                                                                    
                                                                                                                                
STEVE HEBBE, Lieutenant,  Anchorage Police Department,  Municipality                                                            
of Anchorage testified  in Juneau and agreed with Senator Bunde that                                                            
anyone assessed the surcharge  would vote on it. Therefore, were the                                                            
surcharge  borough-wide,   there  would  be  a  borough-wide   vote.                                                            
Allowing only the City  subscribers to vote on an Areawide surcharge                                                            
would prevent  the borough-wide subscribers  from having  a voice in                                                            
the matter.                                                                                                                     
                                                                                                                                
Co-Chair  Green understood  therefore  that anyone  residing in  the                                                            
telephone  service area should  be provided  the ability to  vote on                                                            
the issue. It  should not be limited solely to the  residents of the                                                            
City of Fairbanks.                                                                                                              
                                                                                                                                
Lieutenant Hebbe affirmed  that anyone to whom the surcharge rate is                                                            
charged should have the right to vote on it.                                                                                    
                                                                                                                                
Co-Chair Green asked Mr. Rogers his position on the issue.                                                                      
                                                                                                                                
Mr. Rogers concurred  with Lieutenant Hebbe that the  entire service                                                            
area should vote.                                                                                                               
                                                                                                                                
Co-Chair Wilken  stated that his office  would develop a  definitive                                                            
answer to the question.                                                                                                         
                                                                                                                                
Co-Chair Green  agreed, as she recalled the issue  of whom should be                                                            
charged  the  surcharge   was  the  crux  of  Fairbanks   residents'                                                            
discussions last year during the discussions on her bill.                                                                       
                                                                                                                                
9:44:18 AM                                                                                                                    
                                                                                                                                
Senator  Bunde  commented  that  the  intent  of  the  language,  as                                                            
drafted,  was to provide  "that combination  of flexibility  for the                                                            
municipality  and  protection from  the  municipality"  in that  the                                                            
people in the  service areas would be allowed to vote  regarding the                                                            
surcharge assessment.  How this would affect other  divisions in the                                                            
area should be further clarified.                                                                                               
                                                                                                                                
CHUCK KOPP,  Kenai Police Department,  testified via teleconference                                                             
from Kenai and recounted  that, in 1985, the Kenai Peninsula Borough                                                            
included three  home rule cities:  Kenai, Homer, and Seward  and one                                                            
first  class  city:  Soldotna.   Each  had  their  own  911  program                                                            
supported  by residents  of that  particular  city. Eventually,  all                                                            
four cities  transferred  their individual  authorities  to a  singe                                                            
borough-wide  authority to which all  borough-wide residents  paid a                                                            
surcharge.  The situation  in Fairbanks  mirrors  that of the  Kenai                                                            
Peninsula  in that the City  of Fairbanks  has agreed to manage  the                                                            
911-program  for the entire Borough,  Therefore, the entire  borough                                                            
would vote on  the surcharge. A single unified 911  system should be                                                            
the preferred  choice instead  of a "fragmented"  system, which  was                                                            
originally the  case in the Kenai Peninsula Borough.  He appreciated                                                            
the Committee's  work in  addressing this  complicated issue  and he                                                            
supported moving the bill forward.                                                                                              
                                                                                                                                
Mr.   Kopp  supported   Mr.  Doolittle'   comments   regarding   the                                                            
establishment  of program management  guidelines. "Any borough  that                                                            
has 911  authority must  have a program,  documented, that  explains                                                            
how the  program is  managed",  to include language  addressing  the                                                            
program's reimbursement methodology.                                                                                            
                                                                                                                                
WALT  MONEGAN, Police  Chief,  Municipality  of Anchorage  spoke  in                                                            
Juneau in support  of the bill. He  noted that the Anchorage  Police                                                            
Department is the manager  of the Anchorage PSAP of which Lieutenant                                                            
Hebbe  was the commander.  He voiced  appreciation  for the  efforts                                                            
being exerted  regarding the  surcharge. The  bill is supported  "in                                                            
that  every dollar  that  is now  being  utilized to  subsidize  the                                                            
shortfall  could be reallocated  to its  proper duties".  Addressing                                                            
the funding shortfall  "would effectively enhance  all public safety                                                            
efforts within our municipality".                                                                                               
                                                                                                                                
Senator  Olson asked  Mr. Monegan  his  position in  regards to  the                                                            
proposal to reduce the surcharge from two dollars to $1.50.                                                                     
                                                                                                                                
Mr.  Monegan  voiced the  preference  for  a  two-dollar  surcharge.                                                            
Adopting a two-dollar  levy would provide "more breathing  room" for                                                            
managers and would negate  the expense of possibility being required                                                            
to conduct an election to increase the fee over time.                                                                           
                                                                                                                                
Senator  Olson asked  whether "a  significant  decrease in  service"                                                            
might occur absent that fifty-cents.                                                                                            
                                                                                                                                
Mr. Monegan replied "not at this point".                                                                                        
                                                                                                                                
JOHN FULLEMWIDER,  Fire Chief, Municipality  of Anchorage,  spoke in                                                            
Juneau and  stated that a great deal  of discussion has occurred  in                                                            
regards  to the language  in this  bill and changes  that should  be                                                            
made. While he, like Mr.  Monegan, supported the bill as written, he                                                            
opined that  a few changes could be  made to further enhance  it and                                                            
make  it   a  "little   bit  more  palatable   from  the   borough's                                                            
standpoint". He reiterated  Lieutenant Hebbe's remarks to the effect                                                            
that the  Municipality  of Anchorage  "does not have  a dog  in that                                                            
fight". Representatives  of the Anchorage fire and  police community                                                            
are testifying  today "because of public safety issue".  When people                                                            
call 911, they  anticipate that the call would be  answered and that                                                            
the  response  would  be to  the  correct  location,  regardless  of                                                            
whether the  call is made from a hardwire  or wireless phone.  "That                                                            
is what  this legislation  is all about …  it's the ability  to turn                                                            
the switch  on so that we can find  you or somebody else  that has a                                                            
cell  phone and  go  forward". Anchorage  has  been  "the first"  to                                                            
address  the  wireless  issue, but  the  communities  of  Fairbanks,                                                            
Kenai,  Nome,  and  Juneau  "are right  behind  us".  He  asked  the                                                            
Committee to support the legislation.                                                                                           
                                                                                                                                
Co-Chair Green requested  that those willing to work on revising the                                                            
bill's language to address  the issues raised by Mr. Doolittle, work                                                            
with her and Senator Bunde's staff in that regard.                                                                              
                                                                                                                                
Senator  Hoffman  asked whether  information  could  be provided  in                                                            
regards  to how  the Alaska  State  Troopers' Department  of  Public                                                            
Safety, emergency services system operates on a statewide basis.                                                                
                                                                                                                                
STAN   HERREA,   Director/Chief   Technology   Officer,   Enterprise                                                            
Technology  Services, Department  of Administration  responded  that                                                            
the Department's  role in  the 911 program  is two-fold in  that the                                                            
Department  of Administration  and  the Department  of Military  and                                                            
Veterans  Affairs jointly  house the coordinator  for the  Statewide                                                            
911 program. The Department's role with regards to the 911-                                                                     
coordinator "is  to ensure compliance with the law,  or the statutes                                                            
that are established,  for 911". This  would include such  things as                                                            
the collection  of the surcharge and  the compliance with  the terms                                                            
within   the  legislation.   The  Department   of  Public   Safety's                                                            
commissioner,  William  Tandeske,  "has  voiced  concern  about  the                                                            
affects of the collection  of 911 surcharges; specific … to the Mat-                                                            
Su Borough  and how  that affects  the PSAP  and …  the role of  the                                                            
Alaska State  Troopers in  that". The question  is "who is  actually                                                            
getting the funds verses  who is having to provide the services". He                                                            
stated that  a Department  representative  would work with  Co-Chair                                                            
Green's staff to address language revisions.                                                                                    
                                                                                                                                
Senator  Hoffman commented  that 911  programs must  be operated  24                                                            
hours  a day, seven  days  a week, year-round.  To  that point,  the                                                            
question is how  the Alaska State Trooper 911 program  is manned and                                                            
funded, specifically as  it applies to responding to Rural calls for                                                            
assistance  from anywhere in the State.  A response from  the Alaska                                                            
State Troopers would be appreciated.                                                                                            
                                                                                                                                
Co-Chair Green responded  that the Troopers would be contacted for a                                                            
response.                                                                                                                       
                                                                                                                                
Co-Chair Wilken  asked to withdraw the motion to adopt  Version "S".                                                            
                                                                                                                                
There being  no objection,  the motion to  adopt Version "S"  as the                                                            
working document was WITHDRAWN.                                                                                                 
                                                                                                                                
Co-Chair  Green  ordered the  bill  HELD in  Committee  in order  to                                                            
further modify its language.                                                                                                    
                                                                                                                                
9:56:29 AM                                                                                                                    
                                                                                                                                
                                                                                                                                
     SENATE BILL NO. 151                                                                                                        
     "An  Act excepting  from  the  Alaska Net  Income  Tax Act  the                                                            
     federal  deduction  regarding  income attributable  to  certain                                                            
     domestic production  activities; and providing for an effective                                                            
     date."                                                                                                                     
                                                                                                                                
                                                                                                                                
This  was the first  hearing  for this  bill in  the Senate  Finance                                                            
Committee.                                                                                                                      
                                                                                                                                
Co-Chair  Green explained  that this  legislation  would decouple  a                                                            
federal tax deduction from the Alaskan Net Income Tax Act.                                                                      
                                                                                                                                
DAN  DICKENSON,  Director,  Tax  Division,  Department  of  Revenue,                                                            
explained  that,   beginning  in  2005,  the  Qualified   Production                                                            
Activities  Income  (QPAI)  section  of the  federal  American  Jobs                                                            
Creation  Act of  2004, would  phase in  tax relief  to certain  tax                                                            
payers  by excluding  a specified  percentage  of  their net  income                                                            
earned from extraction,  production, and manufacturing activities in                                                            
the United  States. Several handouts,  including "The American  Jobs                                                            
Creation  Act of  2004", the  "Tax  Analysis Special  Report"  dated                                                            
February  21, 2005, and  the "Primer: IRC  199 Qualified  Production                                                            
Activity Income  (QPAI)" dated April 4, 2005, [copies  on file] were                                                            
provided to Members to provide additional information.                                                                          
                                                                                                                                
Mr. Dickenson stated that  QPAI is "an attempt" by the United States                                                            
(U.S.) Congress  "to advantage these kind of activities"  that occur                                                            
in the nation  "relative to those activities occurring  abroad". The                                                            
affected  industries in this  State would  include the construction                                                             
industry,  the fishing  and  fish processing  industry,  the  mining                                                            
industry, and  the refinery/production  and marketing activities  of                                                            
the oil  and gas  industry.  The QPAI  would allow  a three  percent                                                            
deduction of their  QPAI for the specified activities  in 2005-2006,                                                            
a six percent  deduction in 2007-2008, and a nine  percent deduction                                                            
thereafter.                                                                                                                     
                                                                                                                                
Mr. Dickenson stressed  that the QPAI deduction would not be limited                                                            
to new  activity.  Companies  would operate  "exactly"  as they  had                                                            
before; however,  under this new tax  law, their "taxable  income is                                                            
going  to decrease",  as a percentage  of the  specified  activities                                                            
income  "would  be deducted,  or  excluded"  from  the calculation.                                                             
Alaska typically "adopts  the federal tax code by reference" and, as                                                            
a result, the  Alaska tax is based  on the business's "worldwide  or                                                            
U.S."  taxable income.  As  of the  year 2005,  QPAI  would lower  a                                                            
business's  taxable income  by three percent.  This would in  effect                                                            
reduce the amount of money Alaska would collect in taxes.                                                                       
                                                                                                                                
Mr. Dickenson  informed that  the State has  the option to  decouple                                                            
from federal  law. This has  occurred in other  areas of State  law:                                                            
for example, Alaska's  depreciation deductions differ  from those of                                                            
the federal  government.  He  pointed out  that the  impact of  QPAI                                                            
would be more  severe on Alaska than  on any other state  due to the                                                            
fact  that  "natural resources  …  form  the  base" of  the  State's                                                            
taxable income.  The State  has limited service  industry income  in                                                            
its tax base.                                                                                                                   
                                                                                                                                
Mr. Dickenson  also observed that it is impossible  for the State to                                                            
mirror  the concept  of  the federal  QPAI,  which is  to  encourage                                                            
business  activities  in the  United  States  rather than  in  other                                                            
countries,  as the  State  is prohibited  from  passing  a law  that                                                            
would, in effect,  lower a business's  tax on an activity  occurring                                                            
in Alaska rather than in another state.                                                                                         
                                                                                                                                
Mr. Dickenson  theorized that had the entire nine-percent  deduction                                                            
been  in effect  in Fiscal  Year  (FY) 2004,  the  State would  have                                                            
received  approximately  $24.7  to $27.4  million less  revenue.  He                                                            
reminded  that the  deduction would  gradually  increase from  three                                                            
percent  in the year  2005 to nine  percent beginning  in 2009.  The                                                            
projected  revenue loss,  by year, is  depicted on  page two  of the                                                            
aforementioned  "Primer:   IRC 199  Qualified  Production   Activity                                                            
Income (QPAI)"  in the section titled "Projected State  Revenue Loss                                                            
from QPAI Deduction".  As reflected  on that chart, the State  would                                                            
lose  approximately  $100  million in  tax  revenues over  the  next                                                            
decade "as a consequence" of this federal tax.                                                                                  
                                                                                                                                
Mr. Dickenson  reiterated  that this  federal tax  and its  economic                                                            
policy goals  could "not be replicated"  by the State. In  addition,                                                            
the income  of foreign oil and gas  corporations is viewed  in terms                                                            
of corporations' worldwide  income rather than their U.S. income. To                                                            
that point, the State is  required to create a deduction table based                                                            
on those companies' worldwide  income. "We believe that we would" be                                                            
required  to  allow QPAI-like  deductions  for  activities  done  in                                                            
places  outside of  the United  States  such as  Nigeria. The  State                                                            
would be prohibited  "from drawing  that line between interior  U.S.                                                            
and exterior  U.S."  activities in  the same manner  as allowed  the                                                            
federal government.                                                                                                             
                                                                                                                                
Mr.  Dickenson   detailed  that  when  the  State   audits  a  large                                                            
multinational  oil company, it relies  on the federal government  to                                                            
conduct 95-percent  of the work. While the State does  not replicate                                                            
any audit work  that the federal government conducts,  it does audit                                                            
any income  that  might be  attributed to  Alaska or  how a  company                                                            
managed  rules exclusive  to Alaska.  Were the State  to accept  the                                                            
QPAI deduction,  it must be recognized  that the federal  government                                                            
would not be auditing a  company's construction activities occurring                                                            
outside  of the  U.S.; therefore,  the  State would  be required  to                                                            
either conduct  that audit or ignore  it. To that point,  the fiscal                                                            
notes accompanying this  legislation do not reflect that, absent the                                                            
adoption  of  this  legislation,   more  State  resources  would  be                                                            
required as the  State would be required to conduct  audits "without                                                            
the support  of the  federal Internal  Revenue  System. This  effort                                                            
would not be required were the legislation adopted.                                                                             
                                                                                                                                
[NOTE Co-Chair Wilken assumed chair of the meeting.]                                                                            
                                                                                                                                
10:04:50 AM                                                                                                                   
                                                                                                                                
Mr.  Dickenson  noted  that  when  this  issue  was  discussed  with                                                            
Governor  Frank Murkowski,  "his quick reaction"  was that  this was                                                            
"another unfunded federal  mandate. Basically the feds have passed a                                                            
law, it has desirable policy  goals for the federal government". The                                                            
State could  recognize QPAI  as being beneficial  to taxpayers  even                                                            
though the State  would lose revenue. However, unlike  most unfunded                                                            
federal mandates,  the State,  in this case,  has the option  to not                                                            
participate.                                                                                                                    
                                                                                                                                
Mr. Dickenson  clarified that  were the State  to decouple  the QPAI                                                            
for State  taxes, that  action would  "not make  any changes  to the                                                            
benefits the taxpayers  receive when they file their  federal income                                                            
taxes".  The  State's action  would  have  no  affect on  the  rules                                                            
governing a taxpayer  and the federal government.  Were the State to                                                            
decouple the  QPAI section of the  federal revenue code,  the affect                                                            
on a taxpayer would be  that the information filed on the taxpayer's                                                            
federal  tax return  would  be used  as the  basis  for their  State                                                            
filing. This  legislation would simply  specify that one  section of                                                            
the federal tax code would not apply in this State.                                                                             
                                                                                                                                
Mr. Dickenson  qualified  that this legislation  would require  some                                                            
transitional  rules  to be  developed in  order to  avert  confusion                                                            
regarding such things as estimated payments.                                                                                    
                                                                                                                                
Mr. Dickenson remarked  that the backup material in Members' packets                                                            
is  extensive  in comparison  to  "the  brevity  of the  bill".  The                                                            
aforementioned  "The American  Jobs  Creation Act  of 2004"  handout                                                            
explains the  history of the Act and  briefly explains QPAI  and the                                                            
other sections  of the Act. Were this legislation  adopted, with the                                                            
exception of the decoupling  of the QPAI section, the other sections                                                            
of the Act would  become part of State law. Another  handout, titled                                                            
the "Tax Analysts Special  Report" is a 24-page report that provides                                                            
information to  companies about how to deal with the  Act. The third                                                            
piece  of  material   is  a  brochure  notifying  the  Department's                                                             
Certified  Public Accountants  (CPAs), who  are required to  undergo                                                            
continuing  professional  education,  about an  upcoming  conference                                                            
that would  educate CPAs  on how "to maximize  U.S. tax benefits  on                                                            
domestic  production activities".  Department  participation  in the                                                            
conference  might be  beneficial,  as it  would allow  the State  to                                                            
review tax  codes and issues  that could be  relevant to the  Alaska                                                            
Tax Code.                                                                                                                       
                                                                                                                                
Mr. Dickenson stated that  Chuck Harlamert with the Department's Tax                                                            
Code Division could address Members' technical questions.                                                                       
                                                                                                                                
10:09:26 AM                                                                                                                   
                                                                                                                                
Senator Stedman  voiced apprehension about whether  this legislation                                                            
is "as  simple of  an issue as  stated". His  understanding  is that                                                            
other  than decoupling  domestic  production  activities,  no  other                                                            
activity would  be excepted from the federal Act.  To that point, he                                                            
asked for further  clarification regarding  whether specific  groups                                                            
of industries,  such as the oil and gas industry for  instance, have                                                            
been identified for exclusion.                                                                                                  
                                                                                                                                
Mr.  Dickenson  responded  that the  State  has not  identified  any                                                            
particular industry:  the oil and gas industry would  be treated the                                                            
same  as the  fishing  and  construction  industries.  However,  the                                                            
federal  tax exemption's  application  to the oil  and gas  industry                                                            
would  have significant  impact  as  that  industry "is  paying  the                                                            
majority of the dollars" under the State's tax system.                                                                          
                                                                                                                                
Senator Stedman  asked for further  information about how  the State                                                            
would  be  affected  by  the federal  nine-percent   taxable  income                                                            
reduction.                                                                                                                      
                                                                                                                                
Mr.  Dickenson  explained  that  a  company  would  calculate  their                                                            
taxable  income based  on revenues  less taxable  expenses. The  Act                                                            
would allow  an additional  deduction of up  to nine percent  of the                                                            
income  derived  from  qualified  production  activity.  This  would                                                            
essentially  allow  some  expenses   to  be "deducted   twice".  One                                                            
limiting factor is that  expenses could not exceed 50-percent of the                                                            
business's W-2 wages.                                                                                                           
                                                                                                                                
10:12:02 AM                                                                                                                   
                                                                                                                                
Senator  Stedman  asked  whether this  legislation  would  permit  a                                                            
business to incorporate  an appreciation schedule, referred to as an                                                            
Accelerated   Cost  Recovery  System   (ACRS),  which  would   allow                                                            
appreciation  to occur, for instance,  over a 15-year period  rather                                                            
than a 30-year  period. Such compression would increase  deductions.                                                            
                                                                                                                                
Mr. Dickenson  responded  no, current appreciation  schedules  would                                                            
continue unaffected. The  only other change specifically included in                                                            
this legislation  would be an accelerated  appreciation schedule  in                                                            
regards to an Alaska gas plant "for federal purposes".                                                                          
                                                                                                                                
Senator  Stedman  asked,  were  this legislation   to fail  and  the                                                            
federal Act to become effective  in its entirety, whether a business                                                            
would  be  able  to incorporate  an  ACRS  instead  of  the  regular                                                            
depreciation schedule.                                                                                                          
                                                                                                                                
Mr.  Dickenson  stated  that  neither  the  action  of  adopting  or                                                            
rejecting  this legislation  would  provide  a business  "access  to                                                            
that".                                                                                                                          
                                                                                                                                
10:13:38 AM                                                                                                                   
                                                                                                                                
Senator Olson  understood  that the theory  behind this federal  Act                                                            
was to  create jobs. He  asked whether that  theory would hold  true                                                            
for Alaska, regardless of the outcome of this legislation.                                                                      
                                                                                                                                
Mr. Dickenson agreed that  the purpose of the Act was to create jobs                                                            
in the U.S.  There is "no sense" that  this would result  in jobs in                                                            
Alaska. The  Act would essentially  provide a "tax advantage  if you                                                            
create  jobs"  in the  United  States.  No tax  advantage  would  be                                                            
provided  were  an entity  to  create  jobs outside  of  the  United                                                            
States. Alaska  is prohibited "from  drawing that same line".  There                                                            
is no doubt that  this legislation would provide the  economic tools                                                            
to encourage new jobs in  the nation; however, "the point is that it                                                            
doesn't help Alaska at all".                                                                                                    
                                                                                                                                
Senator Olson  calculated that, absent  this legislation,  the State                                                            
would experience a $10,000,000  a year revenue loss for the next ten                                                            
years. He inquired  to the cost associated  with the implementation                                                             
of this legislation.                                                                                                            
                                                                                                                                
Mr. Dickenson  expressed that this  legislation would not  incur any                                                            
expenses.  To the  contrary,  costs would  be incurred  absent  this                                                            
legislation,  as the State  would be required  to conduct  deduction                                                            
auditing on  "QPAI-like activities  that occur outside of  the U.S".                                                            
                                                                                                                                
Senator  Bunde questioned  the Department  of Revenue indeterminate                                                             
Fiscal Note  #1, dated March  22, 2005, [copy  on file], as  it does                                                            
not reflect the cost to  the State were the legislation not enacted,                                                            
as specified in  the Note's analysis on page two under  the "Revenue                                                            
Discussion" heading.                                                                                                            
                                                                                                                                
Mr. Dickenson replied that  the Department based its calculations on                                                            
FY  2004, "which  was  a  very high"  taxable  income  year.  Future                                                            
taxable  income level  projections,  which consider  such things  as                                                            
falling oil prices,  are lower than FY 2004. Projections  indicate a                                                            
range of losses  from five million  dollars in the initial  years to                                                            
$16 million dollars  in FY 2013. Losses could amount  to $25 million                                                            
were a year similar to FY 2004 to occur.                                                                                        
                                                                                                                                
Co-Chair  Green commented  that  the fiscal  note is  "a little  bit                                                            
misleading in that the  information on page two must be brought into                                                            
consideration.                                                                                                                  
                                                                                                                                
10:17:12 AM                                                                                                                   
                                                                                                                                
Senator Stedman  understood that this legislation  would, in effect,                                                            
opt the  State  of Alaska  out of  this federal  "economic  stimulus                                                            
concept". To that  point, he asked whether that action  would affect                                                            
the  accounting  practices  of such  entities  as  "Sub-chapter  "S"                                                            
corporations.                                                                                                                   
                                                                                                                                
Mr. Dickenson  reiterated  that the State  would be uncoupling  from                                                            
only  one  section  of  a  large  multi-section   piece  of  federal                                                            
legislation.                                                                                                                    
                                                                                                                                
CHUCK HARLAMERT,  Juneau Section Chief, Tax Division,  Department of                                                            
Revenue, expressed  that while the  QPAI section is "a major  piece"                                                            
of The  American Jobs  Creation Act  of 2004, it  does not have  any                                                            
specific  affect on "S"  Corporations under  Alaska law.  "Basically                                                            
the affect  of this  bill would  be to  reverse in  your Alaska  tax                                                            
return",  one line item  in the  Other Deductions  category of  your                                                            
federal  tax return.  "Only corporations  who pay  tax now would  be                                                            
affected; S Corps would not".                                                                                                   
                                                                                                                                
Senator Stedman  noted that the State  has two options: to  uncouple                                                            
from the  QPAI or  to incorporate  the federal  Act in its  entirety                                                            
into  State  tax   code.  The  question  is,  "from  the   corporate                                                            
standpoint  and  from  the State  standpoint"  which  of  these  two                                                            
options would  encourage development  of refineries and other  large                                                            
capital projects in the State.                                                                                                  
                                                                                                                                
Mr. Harlamert  voiced being unaware  of any element in this  federal                                                            
Act that would incentivize  construction of a refinery in Alaska; as                                                            
regardless  of the location,  be it in Alaska,  Texas, or any  other                                                            
state, the  company would  benefit from the  federal tax  exemption.                                                            
This benefit  would also be allowed  under Alaska tax code  were the                                                            
State to adopt the Act in its entirety.                                                                                         
                                                                                                                                
Senator Stedman  asked which state would be in a better  position to                                                            
attract development  of a refinery:  a state that has chosen  not to                                                            
opt out or one that opted out.                                                                                                  
                                                                                                                                
Mr. Harlamert responded  that that would depend on a mix of economic                                                            
factors including the specific  state's taxation. Texas's income tax                                                            
laws, for example, differ  from Alaska's. However, were the tax laws                                                            
identical and Texas to  accept the Act in its entirety and Alaska to                                                            
uncouple the  QPAI, the tax rate for  the refiner would be  lower in                                                            
Texas.  However, it  should be  noted that  even  were the  refinery                                                            
built in Alaska,  the refiner would  receive the same tax  deduction                                                            
in Texas; the refiner would  not receive the tax deduction in Alaska                                                            
regardless of whether the  refinery was built in Texas or Alaska. In                                                            
conclusion, regardless  of where the refinery was built, the refiner                                                            
would receive the same result under the State tax law.                                                                          
                                                                                                                                
Senator  Stedman   stressed  that  the  encouragement   of  economic                                                            
development  in the State is important.  The concern is,  therefore,                                                            
that  the State  not  position  itself  at a  disadvantage  in  that                                                            
regard.                                                                                                                         
                                                                                                                                
Senator  Bunde  asked  whether  any  taxpayer  would  be  testifying                                                            
regarding this legislation.                                                                                                     
                                                                                                                                
Co-Chair  Green  replied  that  none  have,  of yet,  signed  up  to                                                            
testify.                                                                                                                        
                                                                                                                                
Senator Bunde stated that  that could be an indication of "a lack of                                                            
concern" as he doubted their being unaware of the issue.                                                                        
                                                                                                                                
Senator  Stedman requested  that the  bill be held  in Committee  to                                                            
allow for further discussion.                                                                                                   
                                                                                                                                
Co-Chair Green agreed.                                                                                                          
                                                                                                                                
Senator  Olson  referenced  the "Status  of  QPAI in  Other  States"                                                            
section  on  page  three  of  the  Department's   "Primer:  IRC  199                                                            
Qualified  Production  Activity  Income  (QPAI)" report,  and  asked                                                            
whether  the  desire is  to  move the  State  from the  "Conform  to                                                            
Federal QPAI Deduction"  column to the "Decoupled  from Federal QPAI                                                            
Deduction" column.                                                                                                              
                                                                                                                                
Mr. Dickenson responded that would be correct.                                                                                  
                                                                                                                                
Senator Olson  commented that none  of the states in the  "Decoupled                                                            
from Federal  QPAI Deduction" column  resemble the State  of Alaska.                                                            
Alaska is an oil producing  state and has no personal income tax. He                                                            
inquired to the  reason that Alaska should consider  decoupling when                                                            
other  oil producing  states  such as  Oklahoma and  Louisiana  were                                                            
listed in the "Conform to Federal QPAI Deduction" column.                                                                       
                                                                                                                                
Mr.  Harlamert expressed  that  the  information reflected  on  page                                                            
three was voluntary, was  not all-inclusive, and was not up-to-date.                                                            
One  issue on  which  the State  "stands  alone  in the  nation  for                                                            
applying worldwide  combined reporting" is that major  industries in                                                            
the  State,  specifically  oil and  gas  companies,  represent  "80-                                                            
percent of the  State's tax base". There is no other  state in which                                                            
the implications  of the bill would  be "as dramatic as they  are in                                                            
Alaska".                                                                                                                        
                                                                                                                                
Mr. Harlamert  continued that there "is a good argument  for staying                                                            
in conformity  with federal law …  [it] keeps things simple".  Minor                                                            
timing  differences  should  be avoided,  as  they  would  "generate                                                            
headaches for  taxpayers and the State for years to  come". However,                                                            
this legislation  addresses  "a permanent  difference"  … the  State                                                            
"would  never be  able to  recoup the  revenue" once  its gone.  The                                                            
affect of this  Act would be more  dramatic for Alaska than  for any                                                            
other  state. Most  states typically  adopt federal  standards  in a                                                            
manner similar  to how Alaska does as that is the  easiest approach:                                                            
it "takes an effort to come forth and change it".                                                                               
                                                                                                                                
Mr.  Dickenson  observed  that West  Virginia,  Montana,  and  North                                                            
Dakota, which  are also considered resource states,  have decoupling                                                            
legislation pending.                                                                                                            
                                                                                                                                
10:26:53 AM                                                                                                                   
                                                                                                                                
Co-Chair  Green recognized  Arkansas,  which has  already  decoupled                                                            
from the Federal QPAI Deduction, as a resource state.                                                                           
                                                                                                                                
Mr. Dickenson voiced that  the Department would be available to work                                                            
with the Committee to address further concerns.                                                                                 
                                                                                                                                
Co-Chair Green ordered the bill HELD in Committee.                                                                              
                                                                                                                                
AT EASE 10:27:37 AM / 10:30:35 AM                                                                                           
                                                                                                                                
     SENATE BILL NO. 88                                                                                                         
     "An  Act relating  to the  policy  of the state  regarding  the                                                            
     source  of funding used  to cover a  shortfall in general  fund                                                            
     revenue."                                                                                                                  
                                                                                                                                
                                                                                                                                
This  was the first  hearing  for this  bill in  the Senate  Finance                                                            
Committee.                                                                                                                      
                                                                                                                                
Co-Chair  Wilken, the bill's  sponsor, informed  the Committee  that                                                            
this  legislation  is  an  enhanced   and  updated  version  of  the                                                            
information  that  he presented  during  the June  2004 Legislative                                                             
Special Session.  In addition  to the bill,  the sponsor  statement,                                                            
and a  zero Fiscal  Note from  the Department  of Revenue,  Members'                                                            
packets contain  a copy of  a March 2, 2005  letter he had  received                                                            
from Chris  Phillips, Director  of Finance  of the Alaska  Permanent                                                            
Fund  Corporation.  A  copy of  the  "Senate  Bill  88 A  Bridge  to                                                            
Development A policy on  General Fund Revenue Shortfall" power point                                                            
presentation  titled dated  April 5,  2005 [copy  on file] has  also                                                            
been provided.                                                                                                                  
                                                                                                                                
Co-Chair Wilken read his sponsor statement as follows.                                                                          
                                                                                                                                
     Senate Bill 88                                                                                                             
     A Policy on General Fund Revenue Shortfall                                                                                 
                                                                                                                                
     Senate Bill 88 reads  as follows: It is the policy of the State                                                            
     of  Alaska that  the  amounts necessary  to  cover a  projected                                                            
     shortfall  in  general fund  revenue  during a  fiscal year  be                                                            
     appropriated  equally  from the Constitutional  Budget  Reserve                                                            
     fund and the Earnings  Reserve Account. These few words adopt a                                                            
     course  of  action  that  balances  the  state  budget  when  a                                                            
     shortfall in general fund revenue exists.                                                                                  
                                                                                                                                
     Senate Bill 88                                                                                                             
                                                                                                                                
          · When needed, fills the potential fiscal gap in a way                                                                
             that minimizes the financial impact on Alaska                                                                      
             families.                                                                                                          
          · When needed, provides a bridge over the gap between                                                                 
             general fund expenditures and general fund revenues                                                                
             until our state's natural resources can be further                                                                 
             developed.                                                                                                         
          · Doubles the life expectancy of the Constitutional                                                                   
             Budget Reserve fund.                                                                                               
          · May strengthen the State of Alaska bond rating, and                                                                 
             save millions of dollars on future bond offerings.                                                                 
                                                                                                                                
        Senate Bill 88  affirms a policy of the state  that provides                                                            
        fiscal  certainty   when   the  general   fund  revenue   is                                                            
        insufficient to fully fund  the state budget. Please join me                                                            
        in support of this legislation.                                                                                         
                                                                                                                                
Co-Chair  Wilken  pointed  out that  the  term  "'the bridge'  is  a                                                            
metaphor [meaning]  to get us from  here to there." "There  are only                                                            
nine letters that  describe economic development in  this State: Oil                                                            
and Gas … it's  not mining, it's not fishing, it's  not tourism, and                                                            
its certainly not taxes."                                                                                                       
                                                                                                                                
Co-Chair   Wilken  noted   that  the  aforementioned   power   point                                                            
presentation     is     available     on     the     Internet     at                                                            
"www.akrepublicans.org/Wilken".                                                                                                 
                                                                                                                                
Co-Chair Wilken stated  that were this legislation adopted, it would                                                            
be a component  of the AS 37.07.010 Executive Budget  Act as opposed                                                            
to being incorporated  into State  Statute. "It's policy  and can be                                                            
ignored as  needed". The fact that  it would not be mandated  is "an                                                            
important consideration".                                                                                                       
                                                                                                                                
Co-Chair  Wilken stated  that the  pie chart  on page  three of  the                                                            
presentation depicts the  FY 06 $7,600,000,000 Operating and Capital                                                            
Budget, as proposed  by Governor Frank Murkowski.  75-percent of the                                                            
State's revenue  budget is attributed  to three primary things:  the                                                            
Permanent Fund  (PF) equating to $1.42 billion or  19 percent of the                                                            
budget; federal funds of  $2.52 billion or 33 percent of the budget;                                                            
and General  Fund  (GF) Revenue  amounting  to $2.63  billion or  34                                                            
percent of the  budget. The General Fund "is the home  of the fiscal                                                            
gap". He  noted that  Oil and  Gas Tax Revenues  typically  comprise                                                            
between 68-percent and  90-percent of the State's GF revenues. It is                                                            
anticipated that  they would amount of 87-percent  of the GF revenue                                                            
in FY 06. It  should also be noted  that, in FY 06, the federal  and                                                            
GF funding are  expected to mirror each other. The  State should "be                                                            
vary of  any changes" that  might alter federal  funding support  in                                                            
the future.                                                                                                                     
                                                                                                                                
Senator Dyson  asked for examples of what types of  funding comprise                                                            
the "Statutory  Restricted" component, which at $744  million, would                                                            
equate to ten percent of the proposed FY 2006 budget.                                                                           
                                                                                                                                
Co-Chair Wilken  replied that those revenues consists  of Department                                                            
of Fish and Game receipts  or federal money that is considered "flow                                                            
through  money"  in that  it  is earmarked  to  support  a  specific                                                            
program.                                                                                                                        
                                                                                                                                
Co-Chair Wilken  remarked that the  information on page four  titled                                                            
"What's the  problem?" presents three  variables in graph  form: the                                                            
State's  General Fund  Budget, the  General Fund  Baseline, and  New                                                            
General  Fund Revenue  from the years  FY 1990  through FY 2020.  As                                                            
shown,  the General  Fund  Baseline  tapers  downward  as the  years                                                            
advance;  the General  Fund  Budget trends  upward  two percent  per                                                            
year; and  the New General  Fund Revenue  reflects the insertion  of                                                            
new oil and gas development revenue in approximately FY 2013.                                                                   
                                                                                                                                
Co-Chair Wilken stated  that this graph depicts the fiscal gap issue                                                            
facing the State:  the General Fund budget would exceed  the General                                                            
Fund  Baseline beginning  in  approximately  FY 2007;  however,  the                                                            
receipt of New General  Fund Revenue is not projected until the year                                                            
FY 2013.                                                                                                                        
                                                                                                                                
Senator  Stedman asked  for further  information  about the  General                                                            
Fund Baseline".                                                                                                                 
                                                                                                                                
Co-Chair Wilken  responded that the  General Fund Baseline  reflects                                                            
general  unrestricted  revenues  as calculated  by  the Division  of                                                            
Legislative Finance.  As mentioned earlier, 87-percent  of the FY 06                                                            
General Fund  Baseline component  would be  attributable to  Oil and                                                            
Gas Tax  revenue.  The General  Fund Baseline,  as  depicted on  the                                                            
graph,  is based "on  current reserves  and  current production  and                                                            
their forecast out to the year 2020".                                                                                           
                                                                                                                                
Senator Stedman understood  therefore that the General Fund Baseline                                                            
is General Fund revenue.                                                                                                        
                                                                                                                                
Co-Chair Wilken affirmed.                                                                                                       
                                                                                                                                
Senator  Dyson   asked  for  confirmation   that  the  Division   of                                                            
Legislative Finance based the forecast on oil prices.                                                                           
                                                                                                                                
Co-Chair Wilken confirmed.                                                                                                      
                                                                                                                                
Co-Chair  Wilken stated that  he valued the  information in  the " …                                                            
and things  can change  quickly 'For  the Good  and the Bad'"  graph                                                            
depicted on page five,  so much that he had a small wallet size card                                                            
[copy on file]  of the information made for distribution.  The graph                                                            
depicts  a variety of  fiscal scenarios  based on  the price  of oil                                                            
ranging from $25 to $50  per barrel. The graph indicates that, given                                                            
the Governor's  FY 06 budget, the State's break even  point would be                                                            
a North  Slope Crude  Oil price  of $42  per barrel.  The oil  price                                                            
scenarios  are  accompanied  by  projections  of  the "Unrestricted                                                             
General Fund Revenue" as well as projected "Surplus" levels.                                                                    
                                                                                                                                
Co-Chair Wilken  stated that, as exampled, the State's  FY 06 budget                                                            
"would break  even at  $42 per barrel";  a price  of $50 per  barrel                                                            
would  generate a  surplus  of approximately  $450  to $500  million                                                            
dollars.                                                                                                                        
                                                                                                                                
Co-Chair  Wilken  pointed out,  however,  that, "things  can  change                                                            
quickly for the  good or for the bad." The price of  oil on April 1,                                                            
2004 was  approximately $32  dollars a barrel.  The Legislature  was                                                            
ecstatic at  the time that the price  had surpassed $30 per  barrel.                                                            
"Money was rolling out  of our pockets" at that price. However, were                                                            
that price applied  to the Governor's FY 06 budget  there would be a                                                            
$600 million shortfall.  "That's how fast" the scenario  changes. In                                                            
1999, the per-barrel  price was ten  dollars and the State  was $1.3                                                            
billion out of balance.  Therefore, when people bring up the subject                                                            
of how  much money the  State has, showing  them the aforementioned                                                             
card would open the discussion to "what if" scenarios.                                                                          
                                                                                                                                
In response  to a  question from  Senator Stedman,  Co-Chair  Wilken                                                            
calculated that  the Governor's FY 06 budget would  exceed the FY 05                                                            
budget by approximately  $400 million.  The current price  of oil is                                                            
in the  $33 range.  A price of  $42 per barrel  would "essentially"                                                             
generate sufficient revenue  to absorb the difference between the FY                                                            
05 and the FY 06 budget.                                                                                                        
                                                                                                                                
Senator Hoffman  argued that the information conveys  "only half the                                                            
story" as, while the per-barrel  price has increased, oil production                                                            
has  been   experiencing   "a  steady  decline"   over  the   years.                                                            
Continuance of this trend would further increase the fiscal gap.                                                                
                                                                                                                                
Co-Chair  Green  asked whether  the  Division  had factored  in  the                                                            
reduction in oil production.                                                                                                    
                                                                                                                                
Co-Chair  Wilken  affirmed   that  the decline   in  production  was                                                            
factored  into the projections.  The projection  is based on  a flat                                                            
930,000 barrels  per day. Were the Trans Alaska Pipeline  to operate                                                            
at full  capacity  the scenario  would definitely  change. The  fact                                                            
that things do change is  exemplified by the fact that the State has                                                            
had to withdraw a total  of $5.5 billion from the CBR over eight out                                                            
of the last twelve years, in order to balance the budget.                                                                       
                                                                                                                                
Co-Chair Wilken  stated that the information on page  six specifies,                                                            
as authorized  by Article  IX of the Alaska  Constitution,  that the                                                            
CBR  was established  in  1990 as  a  separate fund  to  be used  to                                                            
support the State budget when necessary.                                                                                        
                                                                                                                                
Co-Chair  Wilken stated that  the chart on  page seven reflects  the                                                            
draws on the CBR since  the initial draw in 1994. The chart depicts,                                                            
from  FY 94 through  FY 05,  the "CBR  Ending  Balance", the  "Draw"                                                            
amount, and the  "Average Draw". $369,000,000 was  drawn in FY 94, a                                                            
peak draw of  $1,042,000,000 was drawn  in FY 99, no draws  occurred                                                            
in FY 97 or FY 01, and  a low draw of $11,000,000 occurred in FY 04.                                                            
No draw is expected  for FY 05. The "Average Draw"  is approximately                                                            
$320,000,000.  The CBR  Balance is  currently $2.1  billion and  the                                                            
balance is expected to increase to $2.5 billion by June 2005.                                                                   
                                                                                                                                
Senator Bunde  asked whether the presentation would  address the ERA                                                            
balance.                                                                                                                        
                                                                                                                                
Co-Chair  Wilken assured  that ERA  information  is forthcoming.  He                                                            
reiterated that the current CBR balance is $2.1 billion.                                                                        
                                                                                                                                
Co-Chair  Green  understood  therefore,  that contrary  to  previous                                                            
projections, the CBR would not be depleted by the year 2006.                                                                    
                                                                                                                                
Co-Chair  Wilken affirmed  and recalled  that, at  one time,  it was                                                            
thought that the CBR would  be depleted by the year 2002. "It's like                                                            
the furniture  store at the corner, it's been going  out of business                                                            
in the same location for  years." "The CBR is pretty healthy" today.                                                            
                                                                                                                                
10:43:39 AM                                                                                                                   
                                                                                                                                
Co-Chair Wilken  noted that page eight of the presentation  provides                                                            
samplings of  press releases pertaining  to the State's oil  and gas                                                            
resource  opportunities. Reiterating  that Oil  and Gas Tax  revenue                                                            
would  generate 87-percent  of  the FY  06 General  Fund monies,  he                                                            
noted  that in  order  for the  State  to continue  to  pay for  the                                                            
demands  placed on  State  government, the  State  must develop  its                                                            
natural resources.                                                                                                              
                                                                                                                                
Co-Chair   Wilken  stated   that   because  new   natural   resource                                                            
development would evolve  gradually rather than overnight, the State                                                            
must address the points  in time between now and then. This scenario                                                            
is  depicted  in  the  "  …  a  bridge  is  needed   from  today  to                                                            
development"  chart on  page nine.  This page projects  oil and  gas                                                            
revenues from the years 2006 through 2016.                                                                                      
                                                                                                                                
Co-Chair  Wilken noted  that the General  Fund Budget  on the  chart                                                            
encompasses a  two percent growth factor. The "Unfilled  Fiscal Gap"                                                            
in  the General  Fund  is  depicted  as is  the  "onset of  the  Gas                                                            
Pipeline" and  new oil expected from  the development of  the Arctic                                                            
National Wildlife Refuge  (ANWR). The projected unrestricted General                                                            
Fund Revenue is also included.                                                                                                  
                                                                                                                                
10:45:03 AM                                                                                                                   
                                                                                                                                
Senator Bunde asked for  further information about the "General Fund                                                            
Budget"  variable  depicted   on the  chart,   as,  oftentimes,  the                                                            
argument is heard that  the State's fiscal gap could be addressed by                                                            
reducing State  expenditures. He commented  that the inclusion  of a                                                            
two percent per year growth  factor in the General Fund Budget would                                                            
be  less  than  the  inflation  rate  that  would   be experienced.                                                             
Therefore,  what is depicted  in the information  "is a very  modest                                                            
budget growth prediction".                                                                                                      
                                                                                                                                
Co-Chair Wilken  agreed. He shared  that during his Special  Session                                                            
presentation   of  this  proposal,  the  General  Fund   Budget  was                                                            
presented with  no growth. "Many people  took exception to  that and                                                            
rightfully   so".   The  two-percent   growth   included   in   this                                                            
presentation  "is  the literary  license  to just  kind  of throw  a                                                            
number  up there":  three percent  "is  probably too  high" and  one                                                            
percent "is probably too low".                                                                                                  
                                                                                                                                
Senator  Bunde pointed  out that  a two percent  growth calculation                                                             
would  be  less  than  that  proposed  in  separate  spending  limit                                                            
legislation proposed by Senator Dyson.                                                                                          
                                                                                                                                
Co-Chair Wilken expressed  that a two-percent growth in general fund                                                            
spending  over a  15-year  period  would reflect  "a  great deal  of                                                            
fiscal constraint."                                                                                                             
                                                                                                                                
Senator  Stedman commented  that a two-percent  general fund  growth                                                            
rate  would be  a lesser  level  than  that proposed  in  the FY  06                                                            
budget.                                                                                                                         
                                                                                                                                
Co-Chair Wilken agreed.                                                                                                         
                                                                                                                                
Co-Chair  Wilken stated that,  as portrayed  on page ten, there  are                                                            
seven  possible sources  or "pots"  of  money for  the State:  State                                                            
spending  could be  reduced; between  $50 and  $100 million  dollars                                                            
might be raised through  increased Corporate Taxes; between $200 and                                                            
$300 million  might  be raised by  implementing  a State Sales  Tax;                                                            
$400 to $600  million dollars might  be generated by a State  Income                                                            
Tax; approximately  $30 million could be raised under  Other Revenue                                                            
by  increasing  such   things  as  Tobacco  Taxes,  Alcohol   Taxes,                                                            
Fisheries  Taxes,  Car Rental  Taxes,  and  Studded Tire  Fees;  the                                                            
Constitutional  Budget Reserve could  provide $2.1 billion;  and the                                                            
$2.1 billion  in realized earnings  of the Permanent Fund,  referred                                                            
to as  the Earnings  Reserve  Account (ERA),  could  be used,  after                                                            
accounting for the Permanent  Fund Dividends and Inflation-proofing.                                                            
Utilizing the ERA is the focus of this legislation.                                                                             
                                                                                                                                
Co-Chair  Wilken stated that,  as depicted  in the chart titled  " …                                                            
why  not just  the CBR?"  the CBR  could be  used  to sustain  State                                                            
Budget  shortfalls for  a finite  time, as,  absent another  funding                                                            
source,  the CBR  would  be deleted  by FY  2010.  However, at  that                                                            
point, there would still be "a gap to bridge".                                                                                  
                                                                                                                                
Co-Chair Wilken stated,  therefore, that the question, as written on                                                            
page twelve, is  " … so what if … The Legislature  splits the future                                                            
fiscal gaps with equal  contributions from the Constitutional Budget                                                            
Reserve and the Earnings Reserve Account?"                                                                                      
                                                                                                                                
Co-Chair Wilken  conveyed that the graph on page thirteen,  titled "                                                            
… and we build a bridge"  portrays the scenario were both an ERA and                                                            
CBR  draw to  occur.  This  scenario  would provide  "a  bridge"  of                                                            
funding that  would support the State's  budget until the  time when                                                            
"Potential  Resource Development Revenue"  could support  the budget                                                            
beginning in approximately the year 2013.                                                                                       
                                                                                                                                
Co-Chair Wilken  declared, "so, there's the bridge  to development."                                                            
                                                                                                                                
Senator Hoffman  asked how, in this  scenario, the capital  needs of                                                            
State would be addressed.                                                                                                       
                                                                                                                                
Co-Chair Wilken clarified  that capital projects are included in the                                                            
operating budget in the overall State budget.                                                                                   
                                                                                                                                
Senator Hoffman understood  therefore that the proposed FY 2006 $2.5                                                            
billion budget would include capital expenditures.                                                                              
                                                                                                                                
Co-Chair Wilken affirmed.                                                                                                       
                                                                                                                                
Senator Hoffman  asked regarding the  level of capital funding  that                                                            
would be included in the FY 06 budget.                                                                                          
                                                                                                                                
Co-Chair  Wilken responded  that it is embodied  in the two  percent                                                            
growth.                                                                                                                         
                                                                                                                                
Senator Hoffman  asked whether  the amount  would be above  or below                                                            
$100 million.                                                                                                                   
                                                                                                                                
Co-Chair  Wilken stated  that the  Division of  Legislative  Finance                                                            
would provide specific information in that regard.                                                                              
                                                                                                                                
Co-Chair  Wilken  stated  that the  information  presented  on  page                                                            
fourteen, affirms  that the Legislature, by a simple  majority vote,                                                            
could access the earnings of the Permanent Fund.                                                                                
                                                                                                                                
10:52:05 AM                                                                                                                   
                                                                                                                                
Senator  Bunde suggested  that consideration  be given to  obtaining                                                            
the information  that included in the State's voter  pamphlet at the                                                            
time the  Establishment of  the Permanent Fund  was voted on  in the                                                            
early 1970s. That information  "clearly" stated that the money would                                                            
be available  "for appropriation and  use to support State  services                                                            
when oil revenues have diminished".                                                                                             
                                                                                                                                
Co-Chair Wilken assured that that would be done.                                                                                
                                                                                                                                
Senator Hoffman,  referencing  the graph on  page 13, asked  whether                                                            
the total  CBR/ERA  Draw amount  that would  be  required until  new                                                            
resource development comes on line is known.                                                                                    
                                                                                                                                
Co-Chair  Wilken stated  that  that information  was  included in  a                                                            
Division of  Legislative Finance spreadsheet  titled "50/50  model",                                                            
dated  Feb  18,  2005  [copy  on  file]  that  had  been  previously                                                            
distributed.                                                                                                                    
                                                                                                                                
Senator Hoffman  asked whether this proposal would  deplete the CBR.                                                            
                                                                                                                                
Co-Chair Wilken replied in the affirmative.                                                                                     
                                                                                                                                
Co-Chair  Green  asked  whether  CBR  growth  was  included  in  the                                                            
projections.                                                                                                                    
                                                                                                                                
Co-Chair Wilken deferred to the Division of Legislative Finance.                                                                
                                                                                                                                
Senator Hoffman restated  his question regarding the total amount of                                                            
the CBR and ERA draws that would be expected.                                                                                   
                                                                                                                                
ROB CARPENTER,  Fiscal  Analyst,  Division of  Legislative  Finance,                                                            
Legislative Affairs Agency,  clarified that the proposal would split                                                            
the draws  equally between  the CBR  and the ERA.  The total  amount                                                            
required  from  the ERA  and  the  CBR would  exceed  $2.1  billion.                                                            
Earnings of the funds would also be utilized.                                                                                   
                                                                                                                                
Senator Hoffman estimated  that the total could exceed $4.2 billion.                                                            
                                                                                                                                
Mr. Carpenter responded  that the amount would be approximately $2.4                                                            
billion.                                                                                                                        
                                                                                                                                
Mr.  Carpenter  re-distributed  the  aforementioned  spreadsheet  to                                                            
Members.                                                                                                                        
                                                                                                                                
Senator Stedman suggested  that a "sensitivity table" be included in                                                            
the presentation in order  to recognize the changing price of oil as                                                            
it increases  and decreases.  This would  reflect the expansion  and                                                            
retraction and the price of oil that would be required.                                                                         
                                                                                                                                
Co-Chair Wilken stated  that such a presentation could be developed.                                                            
Continuing, he noted that  the thrust of the issue is whether or not                                                            
the Legislature,  after  considering  all these  components,  should                                                            
adopt a policy  that would allow joint  use of the CBR and  the ERA.                                                            
                                                                                                                                
Co-Chair  Wilken  stated  that  the  Alaska   Permanent  Fund,  Fund                                                            
Financial History & Projections  as of December 31, 2004 spreadsheet                                                            
is provided  on page 15.  It was included  as verification  that the                                                            
numbers provided  in the presentation have a legitimate  basis. This                                                            
sheet is the source for  the forthcoming conclusions reached in this                                                            
proposal.                                                                                                                       
                                                                                                                                
10:56:55 AM                                                                                                                   
                                                                                                                                
Co-Chair Wilken  voiced the importance  of the realization  that, as                                                            
reflected on page  16, there are two pots of money  in the Permanent                                                            
Fund: the principal  consisting of  25-percent of oil revenues  with                                                            
the exception  of  the National  Petroleum  Reserve-Alaska  (NPR-A);                                                            
"special  deposits" authorized  by  the Legislature;  and  inflation                                                            
proofing  drawn  from  the ERA.  The  Permanent  Fund  principal  is                                                            
protected in the State's  Constitution. While it is highly unlikely,                                                            
it "would be  a dark day" for the  State were the time to  come that                                                            
it would  be required  to  ask voters  to approve  accessing the  PF                                                            
principal to provide for State services.                                                                                        
                                                                                                                                
Co-Chair Wilken  continued that the  second pot of money  comprising                                                            
the Permanent  Fund is the  ERA, currently  valued at $3.3  billion.                                                            
Money from  the ERA  is used to  provide for  annual Permanent  Fund                                                            
Dividends,  inflation proofing  of the Principal,  and, by  a simple                                                            
majority vote  of the Legislature, the balance of  the fund could be                                                            
accessed  in order to fund  a State fiscal  gap. He voiced  surprise                                                            
that a  large portion  of the population  are  unaware that  the ERA                                                            
could be accessed in this manner.                                                                                               
                                                                                                                                
Co-Chair  Green   commented  that   the  "Other"  ERA  expenditure,                                                             
reflected  on page  16  as $2.1  billion, could  be  referred to  as                                                            
"excess earnings".                                                                                                              
                                                                                                                                
Co-Chair  Wilken asserted  that Co-Chair  Green's  term or the  word                                                            
"remaining" would be descriptively appropriate.                                                                                 
                                                                                                                                
10:59:09 AM                                                                                                                   
                                                                                                                                
Senator Bunde shared the  suggestion that the excess earnings be put                                                            
toward Permanent  Fund Dividends. It should be pointed  out however,                                                            
that the previous  year, Alaskans sent $180 million  to the Internal                                                            
Revenue Service  (IRS) as the federal  tax on that year's  dividend.                                                            
"A  great deal"  more  money  would  be sent  to  the IRS  were  the                                                            
Dividend  increased substantially.  That  money, being  sent out  of                                                            
State,  would not  thereby  support  the building  of  new roads  or                                                            
schools or some other "State service that people would value".                                                                  
                                                                                                                                
Co-Chair   Wilken  stressed   the  importance   of  clarifying   the                                                            
distinction  between  the principal  of the  Fund and  the ERA  when                                                            
discussing the Permanent Fund with people.                                                                                      
                                                                                                                                
Senator Bunde concurred.                                                                                                        
                                                                                                                                
Co-Chair  Wilken characterized  the  CBR and  the  ERA as  "Alaska's                                                            
Crown Jewels" as referenced  on page 17. We are the only Legislature                                                            
in  the nation  "deciding  how to  manage  $31 billion  for  650,000                                                            
people". Only  a few countries have  that sort of wealth.  While the                                                            
State  is  not  at  the  financial  level  of  major  oil  producing                                                            
countries  like Qatar  or Saudi  Arabia, "it  is in  the next  level                                                            
down". The  power of the PF earnings  could be a big consideration,                                                             
and each  day, through a  variety of avenues  such as the  financial                                                            
market,  "the  world helps  build  Alaska".  Stock market  and  real                                                            
estate investments  assist  in building the  State's Permanent  Fund                                                            
holdings. It is a form of economic development for the State.                                                                   
                                                                                                                                
11:01:47 AM                                                                                                                   
                                                                                                                                
Co-Chair  Wilken reminded that  the average  CBR draw has been  $318                                                            
million.  Under this  proposal,  a hypothetic  $500  million  annual                                                            
fiscal gap for  the next ten years would be equally  split with $250                                                            
million being  drawn each  year from both the  CBR and the  ERA. The                                                            
chart  depicted  on  page eighteen  was  developed  to  address  the                                                            
concern about  how withdrawing money  from the ERA would  affect the                                                            
Permanent  Fund Dividend  (PFD)  check. The  $250  million ERA  draw                                                            
specified in this example,  would result in a total PFD reduction of                                                            
$446 for the ten-year period.  "This is a very important" chart, "as                                                            
it brings home" the realization  of how much money is in the ERA. In                                                            
order  to communicate  this  information  to  the public,  the  page                                                            
eighteen chart is duplicated  on the flip side of the aforementioned                                                            
wallet sized card.                                                                                                              
                                                                                                                                
Co-Chair Green agreed that this is "great" information.                                                                         
                                                                                                                                
Senator  Hoffman   suggested  that,  to  further  alleviate   public                                                            
concern,  a column that  reflects the expected  dividend amount  for                                                            
each  of  the ten  years  should  be  included on  the  chart.  This                                                            
information would  be based upon the "Alaska Permanent  Fund History                                                            
and Projections  as of December  31, 2004"  information on  page 15,                                                            
and  would assure  people  that their  dividends  would continue  to                                                            
grow.                                                                                                                           
                                                                                                                                
Senator Bunde  stated that  the information  on page eighteen  could                                                            
address the  difficulty that some  citizens have in recognizing  the                                                            
fact that,  unlike the  federal government,  the State cannot  print                                                            
more money. State  services are supported in a manner  somewhat akin                                                            
to "robbing  Peter to  pay Paul",  in that,  through either  citizen                                                            
taxation  or other  means, the  State must  raise money  to pay  for                                                            
services. While  some people opine that a State income  tax would be                                                            
the most  fair, others  say it  would be regressive.  Therefore,  it                                                            
might be  instructive to  develop "a parallel  chart" to the  one on                                                            
page eighteen that would  reflect what folks might pay were an State                                                            
income tax in place.                                                                                                            
                                                                                                                                
Co-Chair Wilken replied  that a forthcoming presentation chart might                                                            
address Senator Bunde's suggestion.                                                                                             
                                                                                                                                
Co-Chair Wilken stated  that the chart on page nineteen provides, as                                                            
suggested Senator  Hoffman, information regarding  the estimated PFD                                                            
for the next ten years  compared to the PFD amount were $250 million                                                            
withdrawn  from the  ERA as  per this  proposal.  After his  initial                                                            
review  of the numbers,  he had  asked the  Division of Legislation                                                             
Finance  to recalculate  them,  as  they appeared  "too  good to  be                                                            
true". They are legitimate.                                                                                                     
                                                                                                                                
Co-Chair Wilken  noted that the information on page  twenty reflects                                                            
the potential impact of  this proposal to one's PFD in common terms:                                                            
there would be almost no  impact the first year; the amount lost the                                                            
second year could  equate to the cost of a specialty  cup of coffee;                                                            
the amount lost the third  year might amount to the price of a movie                                                            
ticket; the  amount the fourth year  could equate to the  price of a                                                            
large pizza;  the amount  lost the  fifth year  could equate  to the                                                            
price  of a woman's  haircut,  and the  amount lost  the tenth  year                                                            
would  equate  to  the  price  of  a  dinner  for  two  at  a  fancy                                                            
restaurant.                                                                                                                     
                                                                                                                                
Co-Chair  Wilken  stated  that  the information   on page  21  might                                                            
address  Senator  Bunde's  earlier  suggestion  as it  compares  the                                                            
affect  of an ERA  draw to that  of implementing  alternate  revenue                                                            
generating  sources such as a State  income or sales tax.  An income                                                            
tax  would  cost a  married  couple  with two  children  earning  an                                                            
adjusted  gross income  of $57,000  approximately  $1,000 a year;  a                                                            
State  sales tax  would cost  that  family approximately  $950;  and                                                            
tapping  the ERA  would cost  that  family approximately  $12.  This                                                            
information is based on the second year of implementation.                                                                      
                                                                                                                                
11:10:10 AM                                                                                                                   
                                                                                                                                
Senator Bunde  suggested that a comparison  reflecting the  costs to                                                            
someone  earning  $30,000  a year  be  developed,  as that  was  the                                                            
minimum  income   baseline  utilized  during  income   tax  proposal                                                            
discussions.                                                                                                                    
                                                                                                                                
Co-Chair Wilken stated  that the graph depicted on page 22 indicates                                                            
how adopting  this policy  would extend the  life of the CBR  to the                                                            
time when resource development revenues would come online.                                                                      
                                                                                                                                
Co-Chair  Wilken stated that  "unlike" the  Percent of Market  Value                                                            
(POMV)  budgeting   concept  legislation  that  had   been  recently                                                            
considered, the  policy proposed in SB 88 would only  be implemented                                                            
when there were  a fiscal gap. Years might pass without  there being                                                            
the need to tap the CBR  or the ERA or they could be tapped one year                                                            
and  not  the next.  This  legislation  would  establish  a  "unique                                                            
accountability"  between the Legislature and the electorate  because                                                            
the affect  of the  decision could  be quantified.  As presented  on                                                            
page 23, this  legislation "demands spending accountability  because                                                            
… (1) the  Earnings Reserve  Account is the  people's money  and (2)                                                            
each legislator  must  answer to the  public on  how much was  spent                                                            
from the Earnings Reserve to fund state services."                                                                              
                                                                                                                                
Co-Chair Wilken  read the summary of the presentation,  as presented                                                            
on pages 24 and 25.                                                                                                             
                                                                                                                                
   The Bridge to Development Plan                                                                                               
     ·  Bridges the State of Alaska  revenue needs until development                                                            
        can occur                                                                                                               
     ·  Recognizes   Alaska's   natural   resource   potential   and                                                            
        opportunity for jobs                                                                                                    
     ·  Recognizes  the power of  the Earnings  Reserve - the  crown                                                            
        jewel of a fiscal plan                                                                                                  
     ·  Establishes   accountability   by   forming   a   investment                                                            
        partnership will all voters                                                                                             
                                                                                                                                
   … and …                                                                                                                      
                                                                                                                                
     ·  When  needed,  minimizes  the  financial  impact  on  Alaska                                                            
        families                                                                                                                
     · Doubles the life of the CBR                                                                                              
     ·  Strengthens the  Alaska's bond rating and  saves millions of                                                            
        dollars                                                                                                                 
     ·  Provides  Alaska  with a  stable  and dependable  long  term                                                            
        fiscal plan                                                                                                             
                                                                                                                                
Senator Bunde  pointed out that, were this legislation  adopted, the                                                            
CBR  and the  ERA  would not  be  utilized  in FY  06  as oil  price                                                            
projections indicate  that sufficient revenue would  be generated to                                                            
support that  year's budget.  In addition,  were those who  are more                                                            
optimistic  than him about oil prices  and production correct,  this                                                            
might be the scenario for the next several years.                                                                               
                                                                                                                                
Co-Chair  Wilken  agreed,  but  cautioned   that  oil  prices  could                                                            
decrease  as quickly  as they had  increased. He  voiced the  belief                                                            
that the State  "has a structural  deficit" in that over  a ten-year                                                            
period,  State revenues  would be  inadequate more  often than  they                                                            
were "flush". "We need to be ready."                                                                                            
                                                                                                                                
Senator  Stedman "liked  the  presentation  and the  concept" of  "a                                                            
bridging mechanism"  that could be utilized until  the time that new                                                            
resource revenues  came on line, but opined that further  discussion                                                            
should  occur on a  couple of issues.  To that  point, he  suggested                                                            
that "some sidebars" or  a maximum limit on the amount that could be                                                            
drawn from  the ERA be  considered. This  would address the  concern                                                            
that  there  might be  budget  increases  of  five, ten,  or  twelve                                                            
percent were  no limits placed  on the revenue  side. The  objective                                                            
would be include  "sidebars" in order  to prevent the occurrence  of                                                            
"ballooning budgets". "This year's a good example."                                                                             
                                                                                                                                
Senator  Hoffman  declared   that,  "this  year  is  a  really  good                                                            
example".  To that point,  however, he opined  that, "when  it's all                                                            
said and done, we would find that we were the sideboards".                                                                      
                                                                                                                                
11:18:08 AM                                                                                                                   
                                                                                                                                
Co-Chair  Green   applauded  the  presentation,  and   reminded  the                                                            
Committee that  regardless of the  outcome of this legislation,  the                                                            
ability  for  the  Legislature  to  access  the ERA,  via  a  simple                                                            
majority vote,  has always been an  option. She agreed with  Senator                                                            
Hoffman that the  Legislature does play the roll of  the sideboards.                                                            
She  doubted   that  the   Legislature  "would   limit,  under   any                                                            
circumstances",  the amount  that could be  withdrawn as that  could                                                            
jeopardize appropriate action in the case of an emergency.                                                                      
                                                                                                                                
11:18:53 AM                                                                                                                   
                                                                                                                                
Senator  Bunde  stated   that  while  the  Legislature   could  have                                                            
exercised its  ability to access the  money in the ERA "many  times"                                                            
that has not occurred.  There is a "huge political dike between" the                                                            
Legislature  and  its  ability  to spend  the  ERA.  Therefore,  the                                                            
question  is were  a mechanism  such  as the  one  provided by  this                                                            
legislation   available,   would  future   Legislators  take   "more                                                            
political courage" and utilize it.                                                                                              
                                                                                                                                
Senator  Bunde also  noted that, in  order to  further the  spending                                                            
limit  goal  as  previously  proposed  in  separate  legislation  by                                                            
Senator  Dyson, provisions  could  be included  in this legislation                                                             
that would  allow this ERA/CBR  mechanism to  be utilized only  were                                                            
the budget  no more than perhaps a  three percent increase  over the                                                            
previous year's budget.                                                                                                         
                                                                                                                                
Co-Chair Green  remarked that such  a provision would prohibit  this                                                            
CBR/ERA funding  mechanism from being utilized in  regards to the FY                                                            
06 budget.                                                                                                                      
                                                                                                                                
Senator  Bunde  continued  that, while  such  legislation  could  be                                                            
modified, it  would put in place "pretty  serious sideboards  that a                                                            
future Legislature  would be changing  at its own political  peril."                                                            
                                                                                                                                
Senator Dyson  suggested that the passage of this  legislation could                                                            
be contingent on the passage of a Constitutional spending limit.                                                                
                                                                                                                                
Co-Chair  Wilken, in  response to  Senator Bunde's  comment,  stated                                                            
that his recent bid for  re-election to his Senate seat had provided                                                            
him the opportunity  to discuss this ERA/CBR concept  with a variety                                                            
of people. Although  he had been initially "afraid"  to discuss this                                                            
plan, which  his opponent  painted as a raid  on the PF, the  public                                                            
response to it was gratifying.  The opportunity proved successful in                                                            
enlightening  people about the power  of the earnings of  the PF. He                                                            
encouraged people who might  run for a public office to continue the                                                            
dialogue of positioning the earnings "as an asset".                                                                             
                                                                                                                                
Co-Chair  Wilken commented  that  the idea  of imposing  a  spending                                                            
limit  of two  or three  percent above  the previous  year's  budget                                                            
could be  doable provided  the Legislature  "could define what  goes                                                            
into the two or three percent increase".                                                                                        
                                                                                                                                
Senator   Bunde   commented   that,   "the   groundwork   has   been                                                            
established".                                                                                                                   
                                                                                                                                
Senator  Hoffman  asked Co-Chair  Wilken's  position  in regards  to                                                            
placing this proposal on a Statewide ballot.                                                                                    
                                                                                                                                
Co-Chair  Green interjected  that  this proposal  would not  require                                                            
voter approval.                                                                                                                 
                                                                                                                                
Co-Chair  Wilken stated  that  this issue  is not  addressed in  the                                                            
proposal.                                                                                                                       
                                                                                                                                
Senator Hoffman agreed.                                                                                                         
                                                                                                                                
Co-Chair Wilken  expressed that the  Legislature should not  request                                                            
voter permission to spend the ERA. "That's our job".                                                                            
                                                                                                                                
Senator Hoffman  argued that,  rather than  the issue being  whether                                                            
the Legislature  could  access the  ERA, the issue  is whether  this                                                            
proposal, rather  than a State sales  tax, income tax, or  user tax,                                                            
would be  the mechanism  through which  to fill  the State's  fiscal                                                            
gap. Rather than  his concern being that voter permission  should be                                                            
required to  spend money from the  ERA, his concern is whether  this                                                            
proposal  should be the  long-term solution.  He surmised that  upon                                                            
voter review of the various  options, this option "would have a high                                                            
potential of passing."                                                                                                          
                                                                                                                                
11:24:43 AM                                                                                                                   
                                                                                                                                
Co-Chair  Wilken characterized  this  legislation  as "soft  policy"                                                            
which  future  Legislators   could  either  use  or  ignore.  Future                                                            
legislators would  continue to have the opportunity  to pursue other                                                            
options   if  needed  to   raise  revenue.   The  ramifications   of                                                            
implementing  a  sales  tax  or income  tax  would  include  placing                                                            
pressure upon  corporations and families.  He opined that  were this                                                            
legislation  in place and  used, it would  work. At that point,  "it                                                            
would become the  standard". He voiced discomfort  at the thought of                                                            
asking the voters whether this should be "the" fiscal plan.                                                                     
                                                                                                                                
Senator  Hoffman   questioned  the  reason  for  Co-Chair   Wilken's                                                            
unwillingness to allow  the people to vote on the issue since he had                                                            
previously mentioned that  after discussing the proposal with people                                                            
during  his re-election  campaign,  they had  recognized its  worth.                                                            
Therefore, they would support it.                                                                                               
                                                                                                                                
Co-Chair Wilken stated  that it would be a challenge to discuss this                                                            
issue with 640,000 citizens.                                                                                                    
                                                                                                                                
In response to a comment from Co-Chair Green, Senator Hoffman re-                                                               
stated Co-Chair  Wilken's remarks about how, during  his bid for re-                                                            
election, he  had broached the subject  of this bill and  that, as a                                                            
result,  people had warmed  up to  the idea. The  other options  had                                                            
drawbacks; this proposal "is markedly different".                                                                               
                                                                                                                                
Senator Bunde questioned  the reason for there being such a thing as                                                            
the Senate Finance  Committee, were the Legislature  "to accept what                                                            
State  law  says"   regarding  the  availability   of  the  ERA  for                                                            
appropriation, but nonetheless  putting that action to a vote of the                                                            
people.  Were that to  occur, perhaps  all spending  of State  funds                                                            
should be put  before a vote of the  people. There is no  difference                                                            
between  the ERA, "corporate  income  tax, and any  other source  of                                                            
funds that the State has access to".                                                                                            
                                                                                                                                
Senator Olson  recognized there to be "a lot of difference"  between                                                            
a State  income tax and  corporate income  tax, and the spending  of                                                            
the ERA. He  echoed Senator Stedman's  concern that, were  a "bigger                                                            
and  bigger and  more swollen  budget"  to evolve,  few individuals                                                             
would possess  the ability to hold a budget in line.  He praised the                                                            
work  conducted  by  the  chair  of  the Senate   Finance  Committee                                                            
Department  of Natural Resources  subcommittee,  who, in an  earlier                                                            
presentation, had held that Department's budget down.                                                                           
                                                                                                                                
Co-Chair  Wilken clarified,  in response  to  Senator Stedman's  and                                                            
Senator Olson's  concerns, that the  only time this policy  would be                                                            
necessary would  be when State revenue were insufficient  to support                                                            
the  State's  budget. "That  automatically  dampens  the  desire  to                                                            
spend, spend,  spend". It  is not something  that would occur  every                                                            
year.                                                                                                                           
                                                                                                                                
Senator  Olson  respectively  disagreed  by commenting  that,  "when                                                            
somebody spends someone  else's money, there is always a shortage of                                                            
money".                                                                                                                         
                                                                                                                                
The bill was HELD in Committee.                                                                                                 
ADJOURNMENT                                                                                                                 
                                                                                                                                
Co-Chair Green adjourned the meeting at 11:29 AM.                                                                               

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