Legislature(2019 - 2020)SENATE FINANCE 532

03/07/2019 09:00 AM FINANCE

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Audio Topic
09:01:37 AM Start
09:04:45 AM Presentation: Economic Overview of Governor's Proposed Operating Budget
01:06:28 PM Confirmation Hearing: Joe Riggs, Alaska Mental Health Trust Authority (amhta)
02:29:58 PM Adjourn
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ Economic Overview of Governor's Proposed TELECONFERENCED
Operating Budget Continued by Mouhcine Guettabi,
Economist, Institute of Social & Economic
Research, University of Alaska
+ Economic Overview of Governor's Proposed TELECONFERENCED
Operating Budget by Ed King, Chief Economist,
Office of Management & Budget
+ Consideration of Governor's Appointees: TELECONFERENCED
Joe Riggs - AK Mental Health Trust
+ Bills Previously Heard/Scheduled TELECONFERENCED
                 SENATE FINANCE COMMITTEE                                                                                       
                       March 7, 2019                                                                                            
                         9:01 a.m.                                                                                              
                                                                                                                                
9:01:37 AM                                                                                                                    
                                                                                                                                
CALL TO ORDER                                                                                                                 
                                                                                                                                
Co-Chair  Stedman   called  the  Senate   Finance  Committee                                                                    
meeting to order at 9:01 a.m.                                                                                                   
                                                                                                                                
MEMBERS PRESENT                                                                                                               
                                                                                                                                
Senator Natasha von Imhof, Co-Chair                                                                                             
Senator Bert Stedman, Co-Chair                                                                                                  
Senator Click Bishop                                                                                                            
Senator Lyman Hoffman                                                                                                           
Senator Peter Micciche                                                                                                          
Senator Donny Olson                                                                                                             
Senator Mike Shower                                                                                                             
Senator Bill Wielechowski                                                                                                       
Senator David Wilson                                                                                                            
                                                                                                                                
MEMBERS ABSENT                                                                                                                
                                                                                                                                
None                                                                                                                            
                                                                                                                                
ALSO PRESENT                                                                                                                  
                                                                                                                                
Senator Cathy  Giessel; Senator  Mia Costello;  Senator Gary                                                                    
Stevens; Mouchine  Guettabi, Economist, Institute  of Social                                                                    
and Economic  Research; Ed King, Chief  Economist, Office of                                                                    
Management   and  Budget;   Bruce  Tangeman,   Commissioner,                                                                    
Department of Revenue.                                                                                                          
                                                                                                                                
PRESENT VIA TELECONFERENCE                                                                                                    
                                                                                                                                
Joe Riggs, Appointee, Alaska Mental Health Trust Authority                                                                      
                                                                                                                                
SUMMARY                                                                                                                       
                                                                                                                                
PRESENTATION:  ECONOMIC  OVERVIEW   OF  GOVERNOR'S  PROPOSED                                                                    
OPERATING BUDGET                                                                                                                
                                                                                                                                
CONFIRMATION HEARING: JOE RIGGS,  ALASKA MENTAL HEALTH TRUST                                                                    
AUTHORITY (AMHTA)                                                                                                               
                                                                                                                                
Co-Chair Stedman informed that  the committee would continue                                                                    
to  hear an  economic  overview of  the governor's  proposed                                                                    
budget. He  discussed scheduling. He expected  that the ISER                                                                    
presentation would take  most of the two  hours allotted for                                                                    
the morning portion of the meeting.                                                                                             
                                                                                                                                
Co-Chair Stedman  stated that the committee  would reconvene                                                                    
in the  afternoon to  consider the  confirmation of  Mr. Joe                                                                    
Riggs.                                                                                                                          
                                                                                                                                
9:04:45 AM                                                                                                                    
                                                                                                                                
^PRESENTATION:  ECONOMIC  OVERVIEW  OF  GOVERNOR'S  PROPOSED                                                                  
OPERATING BUDGET                                                                                                              
                                                                                                                                
MOUCHINE  GUETTABI,  ECONOMIST,   INSTITUTE  OF  SOCIAL  AND                                                                    
ECONOMIC  RESEARCH,  informed  that   he  was  an  associate                                                                    
professor  of  economics  at the  Institute  of  Social  and                                                                    
Economic  Research (ISER).  He was  a regional  economist by                                                                    
training and  had a PhD  from Oklahoma State  University. He                                                                    
had been  with the institute  since 2012. He  described that                                                                    
regional  economics  looked  at   the  economic  impacts  of                                                                    
development and  included doing  economic forecasts  for the                                                                    
state. He  had recently developed  a program to look  at the                                                                    
socio-economic  effects  of   the  Permanent  Fund  Dividend                                                                    
(PFD).                                                                                                                          
                                                                                                                                
Mr.  Guettabi continued  to discuss  his background.  He did                                                                    
research on  health economics and  healthcare costs.  He was                                                                    
part  of  a  team  in 2016  that  considered  the  potential                                                                    
economic  impacts  of  a  few  of  the  fiscal  options.  He                                                                    
continued  that  ISER  had   used  fairly  generic  options,                                                                    
investigating how  a potential  shock to government  jobs or                                                                    
the PFD would ripple through  the economy. He cautioned that                                                                    
there  was a  tremendous amount  of uncertainty  inherent in                                                                    
looking at impacts.  He would use the 2016 study  as a basis                                                                    
for   his   interpretation   of   the   potential   economic                                                                    
ramifications of the governor's proposed budget for FY 20.                                                                      
                                                                                                                                
Mr.  Guettabi discussed  the  presentation "Budget  options:                                                                    
What are the short term effects?" (copy on file).                                                                               
                                                                                                                                
Mr. Guettabi showed slide 2, "Outline":                                                                                         
                                                                                                                                
     A little bit of background                                                                                                 
     Some basics                                                                                                                
                                                                                                                                
     Short term impact of the proposed budget                                                                                   
     Short term employment effects of the cuts                                                                                  
     Short term employment effects of the higher dividends                                                                      
                                                                                                                                
     What is the current state of the economy?                                                                                  
     Is the recession over?                                                                                                     
     1980's recession                                                                                                           
     Final thoughts                                                                                                             
                                                                                                                                
Mr. Guettabi commented  that he would discuss  the extent to                                                                    
which the  proposed reductions would  add to  the recession.                                                                    
He commented that the state was  at a stage which if the oil                                                                    
recession extended a  year or two (and more  jobs were lost)                                                                    
it could become Alaska's biggest recession.                                                                                     
                                                                                                                                
9:08:18 AM                                                                                                                    
                                                                                                                                
Mr. Guettabi turned to slide 3, "Background":                                                                                   
                                                                                                                                
     In 2016,  at the  request of  the Alaska  Department of                                                                    
     Administration, UAA's Institute  of Social and Economic                                                                    
     Research's Gunnar  Knapp, Matthew Berman,  and Mouchine                                                                    
     Guettabi provided  an analysis  of the  economic impact                                                                    
     of  various   state  budget  options,   "The  Short-run                                                                    
     Economic Impacts of Alaska's Fiscal Options."                                                                              
                                                                                                                                
     The  analysis focused  on the  short  term impacts  and                                                                    
     therefore should not  be used to evaluate  the long run                                                                    
     impacts  of  the  budgetary decisions.  I  will  mainly                                                                    
     apply  these 2016  estimates to  the Governor's  FY2020                                                                    
     budget  to  provide  an assessment  of  the  near  term                                                                    
     employment impacts.                                                                                                        
                                                                                                                                
Mr.  Guettabi noted  that  the report  was  dated March  30,                                                                    
2016.  Mr. Guettabi  emphasized  that the  study focused  on                                                                    
short-term effects, which could be  described as a year to a                                                                    
year and a  half. He emphasized that the  effects took place                                                                    
before  firms  decided  to  do  things  differently,  before                                                                    
people started  out-migrating, and before wages  changed. He                                                                    
explained  that  the  study  was  concerned  with  ancillary                                                                    
effects  of economic  impacts; which  followed money  in its                                                                    
different  permutations  of   income,  spending,  and  other                                                                    
areas. He used  the example of a teacher whose  job had been                                                                    
cut.                                                                                                                            
                                                                                                                                
Mr. Guettabi  displayed slide 4, "What  were our conclusions                                                                    
from the original study?":                                                                                                      
                                                                                                                                
     ?Different  ways  of  collecting  money  from  Alaskans                                                                    
     affect  those   with  lower   and  higher   incomes  in                                                                    
     significantly different ways.                                                                                              
                                                                                                                                
     ?Anything  the state  does to  reduce the  deficit will                                                                    
     cost the economy  jobs and money. But  spending some of                                                                    
     the Permanent  Fund earnings the state  currently saves                                                                    
     would not have short-run  economic effects. Saving less                                                                    
     would, however,  slow Permanent Fund growth  and reduce                                                                    
     future earnings.                                                                                                           
                                                                                                                                
     ?Because the  deficit is so  big, the  overall economic                                                                    
     effects of closing the deficit will also be big.                                                                           
                                                                                                                                
Mr.  Guettabi  explained  that people  in  different  income                                                                    
brackets spent  different portions  of income.  He discussed                                                                    
the  concept   of  residentiary   adjustment  made   to  the                                                                    
analysis.  He  discussed how  the  concept  would affect  an                                                                    
income tax.  He noted that  there was a trade-off:  in order                                                                    
to  close  the  budget  gap,  money had  to  be  taken  from                                                                    
someone. He suggested that every  option aside from spending                                                                    
savings would  result in taking  money from the  economy and                                                                    
would have a negative consequence.                                                                                              
                                                                                                                                
Mr.  Guettabi noted  that  because the  budget  was so  big,                                                                    
anything that was done would  have negative consequences. In                                                                    
2016,  ISER had  warned that  the  state should  not try  to                                                                    
close  the  deficit all  at  once  because of  concern  with                                                                    
amount  of pressure  that would  be put  on the  economy. He                                                                    
thought the  conclusion still held  because the  deficit was                                                                    
very  large and  if the  state was  too aggressive  it could                                                                    
potentially have negative consequences on the economy.                                                                          
                                                                                                                                
9:13:22 AM                                                                                                                    
                                                                                                                                
Co-Chair von  Imhof thought it  was the job of  an economist                                                                    
to  understand the  interplay of  a series  of choices.  She                                                                    
commented on the complexity of  economic analysis. She asked                                                                    
about the  second bullet point  on slide 4,  which suggested                                                                    
saving  less would  slow Permanent  Fund  growth and  reduce                                                                    
future  earnings. She  thought that  in comparison  to other                                                                    
choices  such as  an income  tax  or sales  tax, the  matter                                                                    
became relative and more tolerable.  She hoped future slides                                                                    
would  not  contain  isolated   statements  that  might  not                                                                    
provide context.                                                                                                                
                                                                                                                                
Co-Chair von Imhof  continued her remarks. She  asked if the                                                                    
deficit was large.                                                                                                              
                                                                                                                                
Mr.  Guettabi  stated that  the  presentation  had thus  far                                                                    
addressed  conclusions from  the 2016  study, which  did not                                                                    
include discussion  of the  size of  the deficit.  The study                                                                    
had not  yet addressed  the percent  of market  value (POMV)                                                                    
draw from the Permanent Fund.  He thought it could be argued                                                                    
that the  size of the  deficit had shrunk because  the state                                                                    
was relying  more on the  fund. He qualified that  the slide                                                                    
was  taken to  give  context about  the  conclusions of  the                                                                    
study from 2016.                                                                                                                
                                                                                                                                
Mr.  Guettabi  continued  to address  Co-Chair  von  Imhof's                                                                    
question. He  did not  disagree with  Co-Chair von  Imhof in                                                                    
that  economic   choices  were  relative.  He   argued  that                                                                    
economists were  good at analyzing  reality rather  than how                                                                    
things should  be. He stated  that ISER had been  careful in                                                                    
highlighting  that  the  only   option  that  did  not  have                                                                    
negative consequences was to use savings.                                                                                       
                                                                                                                                
9:17:14 AM                                                                                                                    
                                                                                                                                
Senator  Hoffman thought  the administration  was trying  to                                                                    
solve the  budget equation  in one  year. He  referenced his                                                                    
comments  from the  previous day.  He asked  if the  deficit                                                                    
would  better  be addressed  over  two  or three  years.  He                                                                    
thought  the   committee  and  the  legislature   needed  to                                                                    
consider the question.                                                                                                          
                                                                                                                                
Senator Bishop referenced Co-Chair  von Imhof's comments. He                                                                    
suggested that the legislature had  solved 80 percent of the                                                                    
problem the previous year, and  the deficit was between $300                                                                    
and $400 million, and not $1.6 billion.                                                                                         
                                                                                                                                
9:19:00 AM                                                                                                                    
                                                                                                                                
Senator  Shower asked  if Mr.  Guettabi  argued that  taking                                                                    
from savings  did not affect  the economy. He  asserted that                                                                    
the  largest  source  of  revenue   was  earnings  from  the                                                                    
Permanent Fund. He thought there  would be an impact. He did                                                                    
not want the  public to take away the idea  that taking from                                                                    
savings would not impact the state.                                                                                             
                                                                                                                                
Mr.  Guettabi answered  in the  affirmative. He  stated that                                                                    
there  were trade-offs;  when money  was taken  from savings                                                                    
there was less base to  grow and therefore long-term returns                                                                    
were impacted.                                                                                                                  
                                                                                                                                
Mr. Guettabi  discussed slide 6,  "What tools did  we use?":                                                                    
                                                                                                                                
     ?To  analyze the  short term  impacts, we  relied on  a                                                                    
     standard  input output  model  which captures  linkages                                                                    
     across  Alaska's economic  sectors. This  allows us  to                                                                    
     determine  how changes  or "shocks"  to any  sector, or                                                                    
     household income reverberate through the economy.                                                                          
                                                                                                                                
     ?The technique  is therefore very useful  in estimating                                                                    
     how a  change in spending  or income attributable  to a                                                                    
     particular  industry  or  government  policy  "ripples"                                                                    
     through the economy  as a result of  further changes in                                                                    
     spending flows between industries and households.                                                                          
                                                                                                                                
Mr.  Guettabi  reiterated  that he  wanted  to  analyze  the                                                                    
downstream effects  of economic  changes. He  explained that                                                                    
he would  discuss direct, indirect,  and induced  effects of                                                                    
budget cuts  and job  loss. He discussed  an example  of the                                                                    
University  of Alaska.  He described  induced effects  as an                                                                    
aspect of employment and income effects.                                                                                        
                                                                                                                                
Mr.  Guettabi  reviewed  slide   7,  "How  are  the  effects                                                                    
estimated?":                                                                                                                    
                                                                                                                                
     ?It is important  to explain that the  total effects we                                                                    
     estimate  for  both  government cuts  and  higher  PFDs                                                                    
     include direct, indirect, and induced effects.                                                                             
                                                                                                                                
     ?For a change in income,  through a higher a PFD, there                                                                    
     are  no  direct  employment  effects  because  the  PFD                                                                    
     represents an income shock.                                                                                                
                                                                                                                                
     ?There   are,   however,    induced   effects   because                                                                    
     households  spend  a  portion  of  their  checks  which                                                                    
     result in retailers employing additional people.                                                                           
                                                                                                                                
     ?For  a  significant  number of  government  cuts,  the                                                                    
     person laid off  loses his or her  job which represents                                                                    
     a  direct  effect,  and then  the  economy  experiences                                                                    
     further   employment  losses   due  to   the  decreased                                                                    
     spending.                                                                                                                  
                                                                                                                                
Mr. Guettabi contended that people  were always surprised to                                                                    
hear  that the  employment effects  from cutting  government                                                                    
were larger  than employment effects  from cutting  the PFD.                                                                    
His  discussed the  effects of  government cuts  rather than                                                                    
the income shock of cutting the PFD.                                                                                            
                                                                                                                                
9:23:11 AM                                                                                                                    
                                                                                                                                
Senator Micciche recalled that  the previous year the Senate                                                                    
had constructed and passed a  spending limit. He thought Mr.                                                                    
Guettabi's  recommendation was  to  solve  the problem  over                                                                    
time rather than  all at once. He asked for  Mr. Guettabi to                                                                    
describe the time frame he was referring to.                                                                                    
                                                                                                                                
Mr. Guettabi  was referring to ISER's  recommendation at the                                                                    
end of the  2016 study. At the time, the  institute had felt                                                                    
the  economy   was  fragile  and  therefore   the  potential                                                                    
consequences from imposing a tax  or cutting $3 billion from                                                                    
government  would have  too  big a  negative  effect on  the                                                                    
economy. An alternative  would be to make  a three-year plan                                                                    
to  eliminate uncertainty,  but also  mitigate the  negative                                                                    
consequences  the economy  would feel  and give  the economy                                                                    
time to settle back and grow again.                                                                                             
                                                                                                                                
Co-Chair  von  Imhof asked  how  the  economic effects  were                                                                    
estimated.  She  asked what  percentage  of  the PFD  (under                                                                    
ISER's  model) was  assumed to  be spent  in the  state. She                                                                    
listed expenses  such as vacations, federal  taxes, college,                                                                    
and online purchasing.                                                                                                          
                                                                                                                                
Mr. Guettabi  stated he would  show high and  low estimates.                                                                    
In  the  high scenario,  he  removed  taxes and  savings  by                                                                    
household income bracket. He explained  that people who were                                                                    
low income  were assumed  to spend  everything. Going  up in                                                                    
the  income distribution,  the  calculation removed  federal                                                                    
taxes and  savings. In the  low scenario, ISER  considered a                                                                    
consumer  expenditure survey  and  looked at  how change  in                                                                    
income affected expenditures.                                                                                                   
                                                                                                                                
Co-Chair von Imhof  hoped ISER looked at  actual data within                                                                    
its  estimation.  She  considered a  presentation  from  the                                                                    
previous  day that  suggested that  jobs  remained the  same                                                                    
after a high PFD. She  asked if Mr. Guettabi was considering                                                                    
Department of  Labor and Workforce Development  (DOLWD) jobs                                                                    
over  different  years (and  different  PFD  sizes) to  help                                                                    
formulate estimates.                                                                                                            
                                                                                                                                
Mr. Guettabi explained that ISER  had a paper that looked at                                                                    
the  causal   effect  of  the   dividend  on   labor  market                                                                    
fluctuations;  which estimated  the  number  of jobs  gained                                                                    
after PFD distribution. His  analysis being presented looked                                                                    
at  how changes  in income  affected spending.  The analysis                                                                    
looked at how giving money  or taking money away from people                                                                    
influence the  number of  jobs and the  amount of  income in                                                                    
the economy.  He was happy  to provide the paper,  which had                                                                    
looked specifically  at how  variations in  the size  of the                                                                    
PFD influence employment in the months after distribution.                                                                      
                                                                                                                                
9:28:24 AM                                                                                                                    
                                                                                                                                
Mr.   Guettabi   spoke   to   slide   8,   "Some   important                                                                    
limitations":                                                                                                                   
                                                                                                                                
     ?Our  ability to  analyze impacts  of spending  cuts is                                                                    
     limited  by   uncertainty  about  how  they   would  be                                                                    
     implemented. Therefore our analysis uses generic cuts.                                                                     
                                                                                                                                
     ?Our analysis  focuses on the  short run  and therefore                                                                    
     does not  account for potential  behavioral adjustments                                                                    
     in spending,  wage rates, prices,  or migration  to and                                                                    
     from Alaska.  The best way  to interpret  our estimates                                                                    
     is to say  that they reflect immediate  income and jobs                                                                    
     losses  resulting from  less/more money  circulating in                                                                    
     the economy.                                                                                                               
                                                                                                                                
     ?Most  importantly, these  changes  do  not provide  us                                                                    
     with  guidance on  the long  term ramifications  of the                                                                    
     changes  in services,  quality  of education/life,  and                                                                    
     the attractiveness of the business environment.                                                                            
                                                                                                                                
     ?The devil is in the details.                                                                                              
                                                                                                                                
Mr.  Guettabi  showed  slide   9,  "Employment  losses  from                                                                    
deficit  reduction  measures,"  which  showed  a  bar  graph                                                                    
entitled 'Estimated  Job Losses per $100  Million of Deficit                                                                    
Reduction.' He  explained that the  graph showed a  high and                                                                    
low  option  depending  upon  how  people  spent  money.  He                                                                    
qualified  that the  first four  options on  the graph  were                                                                    
government options,  and the  remaining options  were income                                                                    
options. He thought  the takeaway was clearly that  if a job                                                                    
was eliminated  through a government  cut, the job  was lost                                                                    
as well  as the spending  that occurred  as a result  of the                                                                    
job. He  noted that  the burden  of a PFD  cut was  borne by                                                                    
residents. He  stated that the conclusions  of the estimates                                                                    
would be applied to his analysis of the governor's budget.                                                                      
                                                                                                                                
Co-Chair  von Imhof  looked at  slide 9  and gleaned  that a                                                                    
decrease  in  government spending  per  $100  million had  a                                                                    
bigger detrimental effect on jobs than a smaller dividend.                                                                      
                                                                                                                                
Mr. Guettabi answered in the affirmative.                                                                                       
                                                                                                                                
Co-Chair von  Imhof asked if there  were comparable choices,                                                                    
it would  have less  economic impact on  the economy  if the                                                                    
state reduced  the amount of  the dividend by a  few hundred                                                                    
million and instead invested the funds into state jobs.                                                                         
                                                                                                                                
Mr. Guettabi answered "yes."                                                                                                    
                                                                                                                                
9:31:52 AM                                                                                                                    
                                                                                                                                
Senator Micciche  recalled the  previous day there  had been                                                                    
criticism of the ISER study.  There had been claims that the                                                                    
study  was only  considering short-term  impacts; and  there                                                                    
was a claim that in the  real world, the economy adjusted to                                                                    
change to  "fill the void" that  was left. He asked  for Mr.                                                                    
Guettabi to comment.                                                                                                            
                                                                                                                                
Mr. Guettabi  was not  sure what "fill  the void"  meant. He                                                                    
stated  that  he  had  been very  transparent  that  he  was                                                                    
discussing short-term  effects. He continued  that long-term                                                                    
effects  were  unknown  and were  considerations  that  were                                                                    
beyond the  scope of  the study.  He was  not sure  what the                                                                    
criticism  of the  analysis  was. He  was  happy to  address                                                                    
specific concerns about how ISER  got to the numbers or what                                                                    
were the  shortcomings about thinking about  job effects. He                                                                    
was not trying  to suggest that the short-term  was the most                                                                    
important  dimension; or  that thinking  of job  effects was                                                                    
the  most  important.  He stated  that  how  much  potential                                                                    
damage  was  done  to  the  economy  in  the  short  run  to                                                                    
alleviate  budgetary  pressures  was  but one  part  of  the                                                                    
equation.                                                                                                                       
                                                                                                                                
Senator  Wielechowski  asked  for   an  explanation  of  the                                                                    
numbers  on  slide  9.  He  wondered  if  the  numbers  were                                                                    
specific to the state.                                                                                                          
                                                                                                                                
Mr.  Guettabi  stated  that  everything  on  the  slide  was                                                                    
Alaska-specific. Tax  numbers used  were from  multiple data                                                                    
sources and from an  Alaska-specific input-output model. For                                                                    
the PFD,  ISER had  treated it as  an income-shock  and used                                                                    
different household  brackets. For  state workforce  and the                                                                    
capital  budget,  ISER   used  Alaska-specific  content  and                                                                    
followed the  dollars from  the initial cut  to the  "end of                                                                    
the  road." He  was happy  to  provide more  details on  the                                                                    
mechanics.                                                                                                                      
                                                                                                                                
9:35:53 AM                                                                                                                    
                                                                                                                                
Senator  Wielechowski asked  if Mr.  Guettabi could  address                                                                    
slides from the administration.                                                                                                 
                                                                                                                                
Mr. Guettabi had  not seen the entire  presentation from the                                                                    
Office of Management  and Budget (OMB) the  previous day. He                                                                    
thought  the question  of how  responsive employment  was to                                                                    
government spending.  He thought the way  the administration                                                                    
showed the equation was not  how one would ask the question.                                                                    
In   causal   analysis,  counter-factual   information   was                                                                    
considered  to  hypothesize  what employment  have  been  if                                                                    
government spending had  stayed at a certain  same level. He                                                                    
thought  it  was  a  simplified  version  of  the  world  to                                                                    
consider  the  correlation  between budgetary  spending  and                                                                    
employment  without  accounting   for  other  macro-economic                                                                    
indicators.  He  suggested   resisted  reaching  conclusions                                                                    
based on an overcomplication of the relationship.                                                                               
                                                                                                                                
Senator Hoffman  looked at  slide 9.  He asked  Mr. Guettabi                                                                    
about the  level of  state pay cut  that was  considered. He                                                                    
pondered that  a combination of cutting  state workers' pay,                                                                    
a flat  income tax, and  a 4 percent  sales tax (at  the low                                                                    
end) would  equal cutting  the state work  force at  the low                                                                    
end.                                                                                                                            
                                                                                                                                
Mr. Guettabi estimated  that for every $100  million, if you                                                                    
cut the pay  of state workers, the state  would lose between                                                                    
459 and 727 jobs.                                                                                                               
                                                                                                                                
Senator Hoffman asked at what  level was ISER looking at the                                                                    
low end and high end of cutting state worker's pay.                                                                             
                                                                                                                                
Mr.  Guettabi  stated that  the  average  pay of  government                                                                    
workers was  $50,000; and  ISER had  used an  average worker                                                                    
that earned between  $50,000 and $75,000 as a  basis for the                                                                    
analysis.                                                                                                                       
                                                                                                                                
9:39:15 AM                                                                                                                    
                                                                                                                                
Co-Chair Stedman thought Senator  Hoffman had been asking if                                                                    
a  flat rate  income  tax  could be  added  to  a 2  percent                                                                    
property tax to determine effects.                                                                                              
                                                                                                                                
Mr. Guettabi thought  one could certainly add  up the items;                                                                    
ISER had  not considered  implementing multiple  options. In                                                                    
coming  up with  an overall  amount of  money that  could be                                                                    
raised, one could add the amounts.                                                                                              
                                                                                                                                
Senator Shower  considered the capital  budget, and  how the                                                                    
data was put together for slide  9. He asked if Mr. Guettabi                                                                    
made an assumption about the  often temporary jobs that were                                                                    
typical of capital projects.                                                                                                    
                                                                                                                                
Mr. Guettabi reiterated that the  study looked at short-term                                                                    
effects.                                                                                                                        
                                                                                                                                
Mr.  Guettabi  referenced  slide  10,  "Income  losses  from                                                                    
deficit  reduction  measures,"  which  showed  a  bar  graph                                                                    
entitled  'Estimated  Income  losses  per  $100  Million  of                                                                    
Deficit  Reduction.'  He  emphasized  that  for  every  $100                                                                    
million, the graph showed how  much money in income would be                                                                    
lost in  the economy.  He made  the point  that a  dollar in                                                                    
compensation  contained retirement  and  benefits. When  the                                                                    
dollar  of  income was  cut,  some  of  the dollar  did  not                                                                    
actually  make it  into the  economy.  His reasoning  showed                                                                    
that  one of  the reasons  it  appeared was  that cuts  from                                                                    
government options resulted in fewer income impacts.                                                                            
                                                                                                                                
Mr.  Guettabi considered  the income  effects from  the PFD,                                                                    
which were the  largest because all the burden  was borne by                                                                    
residents. He  questioned how much expenditure  was lost. He                                                                    
noted  that a  portion  of the  expenditures were  typically                                                                    
undertaken  by non-residents.  In each  of the  options save                                                                    
for  the  government  and  PFD  options,  someone  else  was                                                                    
bearing some of the burden; so  it was possible to raise the                                                                    
same  amount  of  money  without   losing  as  much  of  the                                                                    
expenditure.                                                                                                                    
                                                                                                                                
9:43:13 AM                                                                                                                    
                                                                                                                                
Mr. Guettabi  turned to slide  11, "What are the  effects of                                                                    
government cuts?                                                                                                                
                                                                                                                                
     ?The employment graph shows that for each $100 million                                                                     
     government related cut, we would expect about 1,086                                                                        
     jobs to be lost.                                                                                                           
                                                                                                                                
     ?This estimate is an average across three scenarios:                                                                       
     Government layoffs, broad-based state cuts, and pay                                                                        
     cuts for  government workers. State  government layoffs                                                                    
     would result in the  greatest job losses: between 1,414                                                                    
     jobs and1,  677 jobs.  We estimate broad-based  cuts to                                                                    
     result in  losses ranging between  980 and  1,260 jobs.                                                                    
     Pay  cuts would  result in  job losses  ranging between                                                                    
     459 and 727 jobs.                                                                                                          
                                                                                                                                
Mr. Guettabi stated  that his slide would  pivot towards the                                                                    
governor's  proposed  budget   and  the  potential  economic                                                                    
effect of the proposed cuts.  He mentioned the rule of thumb                                                                    
that for  every $100 million  in cuts,  there was a  loss of                                                                    
1,000 jobs.                                                                                                                     
                                                                                                                                
Mr. Guettabi  reviewed slide  12, "What is  the goal  of the                                                                    
summary?                                                                                                                        
                                                                                                                                
     ?This  summary  attempts  to   assess  the  short  term                                                                    
     employment impacts from the  decreases in spending, and                                                                    
     increases in the PFDs.                                                                                                     
                                                                                                                                
     ?Given  that we  are  interested  in understanding  the                                                                    
     aggregate  economic  effects,  we  need  to  take  into                                                                    
     account  how  the   proposed  changes  influence  state                                                                    
     spending,  local  government revenues,  federal  funds,                                                                    
     and households.                                                                                                            
                                                                                                                                
Mr.  Guettabi highlighted  that  it was  important to  think                                                                    
beyond  cuts in  thinking about  economic effects  and think                                                                    
about  loss   of  local  government  revenues   and  federal                                                                    
dollars. He  thought it was  important to consider  how much                                                                    
money  was being  pulled out  of the  economy, and  how much                                                                    
money was  being added  to the  economy as  a result  of the                                                                    
proposed changes.                                                                                                               
                                                                                                                                
Co-Chair von Imhof  thought it mattered very  much where the                                                                    
reductions took  place. She used  the example of  laying off                                                                    
workers  rather than  purchasing less  equipment. She  hoped                                                                    
that Mr. Guettabi would talk about his statement.                                                                               
                                                                                                                                
Mr. Guettabi apologized  for his lack of  clarity. He stated                                                                    
that  his  comment alluded  to  his  belief that  the  state                                                                    
needed to  be exhaustive  in how it  accounted for  how much                                                                    
money was  being pulled out  of the economy  irrespective of                                                                    
whether  it   was  coming  from   the  state,   the  federal                                                                    
government,  or  a loss  in  local  government revenues.  He                                                                    
qualified that the  bullet point and his  statement were not                                                                    
about consequences, but rather an accounting of losses.                                                                         
                                                                                                                                
9:48:00 AM                                                                                                                    
                                                                                                                                
Mr.  Guettabi  spoke to  slide  13,  "Describing the  cuts,"                                                                    
which  showed   a  bar  graph  representing   reductions  in                                                                    
spending   using  numbers   from  the   Legislative  Finance                                                                    
Division   (LFD).   He   thought  LFD's   presentation   had                                                                    
demonstrated very  well what was  a cut  and what was  not a                                                                    
cut. He characterized the estimated  reductions on the graph                                                                    
as  a   cornerstone  of  the  conversation.   He  had  heard                                                                    
differing  information about  potential  federal funds  lost                                                                    
through reductions to Medicaid and other programs.                                                                              
                                                                                                                                
Mr. Guettabi displayed slide 14, "What is not included?":                                                                       
                                                                                                                                
     ?School debt reimbursement and debt service.                                                                               
     ?Capital budget reductions.                                                                                                
     ?Use of reserves                                                                                                           
                                                                                                                                
Mr. Guettabi thought (according  to LFD's presentation) that                                                                    
there  was   an  estimated  $70   million  in   school  debt                                                                    
reimbursement  and debt  service. He  stated there  was more                                                                    
use of reserves  than was initially understood,  and the use                                                                    
of reserves was not used  in thinking about economic impacts                                                                    
as the  use of reserves  did not have a  short-term negative                                                                    
effect on the economy.                                                                                                          
                                                                                                                                
Co-Chair  Stedman asked  if the  three items  listed on  the                                                                    
slide were an economic stimulus or suppressant.                                                                                 
                                                                                                                                
Mr. Guettabi noted  that the use of reserves  was an example                                                                    
of  what  Co-Chair  von  Imhof had  mentioned.  The  use  of                                                                    
reserves cushioned the economic shock.                                                                                          
                                                                                                                                
Co-Chair Stedman asked about debt service for schools.                                                                          
                                                                                                                                
Mr.  Guettabi had  not considered  debt service  for schools                                                                    
and would have to think  about how communities would respond                                                                    
to  it. He  did  not  know how  to  model  debt service  for                                                                    
schools, and  it had not been  clear to him how  it would be                                                                    
absorbed.                                                                                                                       
                                                                                                                                
9:52:12 AM                                                                                                                    
                                                                                                                                
Senator Micciche pondered  "trickle-down economics," and how                                                                    
the  private  sector rushed  in.  In  the reduction  of  the                                                                    
deficit, there  was no cut  to income tax or  corporate tax.                                                                    
He discussed the increased local  taxes and wondered how the                                                                    
private  sector  filled  the  void  when  there  was  not  a                                                                    
positive effect.                                                                                                                
                                                                                                                                
Mr. Guettabi thought there was  no expansionary component of                                                                    
the proposed  budget except for  the larger PFD.  He thought                                                                    
one could potentially argue that  reaching a fiscal solution                                                                    
eliminated uncertainty, which  potentially improved economic                                                                    
conditions.  He thought  it was  also possible  to say  that                                                                    
cuts   were  a   negative  signal   to  businesses   and  to                                                                    
households, and hiring would fall.  He stated that dividends                                                                    
were a simulative  component that added more  money into the                                                                    
economy,  but quite  a  bit  of money  was  being taken  out                                                                    
through  reductions.  He   agreed  with  Senator  Micciche's                                                                    
assessment.                                                                                                                     
                                                                                                                                
9:54:00 AM                                                                                                                    
                                                                                                                                
Mr.  Guettabi  showed slide  16,  "What  are the  employment                                                                    
impacts?" which  showed a  bar graph  considering employment                                                                    
reductions from  declines in state  spending, loss  of local                                                                    
government  revenues,  and  federal revenues.  He  explained                                                                    
that  when losing  $650 million  in  agency operations,  the                                                                    
amount multiplied times 1,086  signified 7,000 jobs lost. He                                                                    
qualified that he was treating  the loss of local government                                                                    
revenues as an actual reduction  in economic activity, as he                                                                    
did not  know how communities would  potentially replace the                                                                    
dollars.                                                                                                                        
                                                                                                                                
Mr. Guettabi  discussed the  assumption that  if communities                                                                    
were able  to raise taxes  to replace the $448  million, the                                                                    
job   losses  would   be   lower.   He  questioned   whether                                                                    
communities had  the capacity to  replace the  reduction but                                                                    
reasoned that it was not possible.                                                                                              
                                                                                                                                
Co-Chair  von Imhof  hoped that  Mr. Guettabi's  analysis of                                                                    
local government  reductions considered how the  North Slope                                                                    
Borough  spent its  tax. She  pondered  whether the  borough                                                                    
spent or saved  the funds. She wanted to see  a more complex                                                                    
analysis of  what would happen.  She thought the  fourth leg                                                                    
of the equation was the Permanent  Fund. She wanted to see a                                                                    
fourth color on slide 16  to address potential job loss from                                                                    
a lack  of a PFD. She  thought the comparison was  the lever                                                                    
by which the legislature was evaluating the budget.                                                                             
                                                                                                                                
Mr. Guettabi  asked for Co-Chair  von Imhof to  explain what                                                                    
part of the Permanent Fund she was referring to.                                                                                
                                                                                                                                
Co-Chair von Imhof  reiterated that she had  asked about how                                                                    
much did  the North Slope  utilize its money. She  asked how                                                                    
much  the bars  on the  graph would  shrink if  the PFD  was                                                                    
decreased.                                                                                                                      
                                                                                                                                
Co-Chair Stedman  clarified that the reference  to the North                                                                    
Slope borough was referencing the  property tax. The borough                                                                    
received  a  substantial portion  of  the  property tax.  He                                                                    
thought the  other part of  the question dealt with  the PFD                                                                    
coming out of the percent  of market value (POMV), which was                                                                    
capped at 5.25 percent.                                                                                                         
                                                                                                                                
Co-Chair von  Imhof confirmed that  she was  considering the                                                                    
PFD portion of the Permanent Fund.                                                                                              
                                                                                                                                
9:59:33 AM                                                                                                                    
                                                                                                                                
Mr. Guettabi stated that it  was true that the borough saved                                                                    
some of its money. He wanted  to provide a sense of scale of                                                                    
the effects.  The budget proposal  had come out  three weeks                                                                    
ago, and  ISER had not  evaluated every element.  He thought                                                                    
there was  a great deal  of value in having  the information                                                                    
on the slide as a conversation  starter. He did not know how                                                                    
each borough  would respond to losses  from local government                                                                    
reductions. He  speculated but could  not comment as  to how                                                                    
likely  certain  outcomes would  be.  He  thought the  slide                                                                    
offered  a  realistic  perspective  if  boroughs  could  not                                                                    
replace the dollars from declines  in the three areas on the                                                                    
slide.  He  stated that  a  later  slide would  address  how                                                                    
communities responded  to the cuts would  determine the size                                                                    
of the actual job losses.                                                                                                       
                                                                                                                                
Mr.  Guettabi affirmed  that the  dividend was  part of  the                                                                    
equation.  He had  tried to  structure  the presentation  by                                                                    
focusing on separate pieces. He  thought adding a PFD bar to                                                                    
the graph would be a useful exercise.                                                                                           
                                                                                                                                
Mr. Guettabi referenced slide  17, "Table: Employment losses                                                                    
summary from reductions," which showed a data table.                                                                            
                                                                                                                                
Co-Chair  Stedman looked  at the  slide and  asked how  many                                                                    
total jobs were in the state.                                                                                                   
                                                                                                                                
Mr.  Guettabi  informed that  the  state  had about  330,000                                                                    
jobs.                                                                                                                           
                                                                                                                                
Senator  Micciche thought  Co-Chair von  Imhof brought  up a                                                                    
good  point.  He thought  using  a  2016  study as  a  basis                                                                    
required additional consideration the  impact of the PFD and                                                                    
broad-based tax on jobs included in slides 13 and 16.                                                                           
                                                                                                                                
Senator Olson commented that the  North Slope Borough budget                                                                    
was  very  complex  and   included  bonding  capability.  He                                                                    
remarked  that SB  57 [a  bill that  proposed repealing  the                                                                    
credit for municipal payments against  the state levy of tax                                                                    
on  oil  and  gas   exploration,  production,  and  pipeline                                                                    
transportation property],  would be  implemented for  a long                                                                    
time while savings were short term.                                                                                             
                                                                                                                                
10:04:30 AM                                                                                                                   
                                                                                                                                
Mr. Guettabi turned to slide 18:                                                                                                
                                                                                                                                
                                                                                                                                
     ?The North Slope borough would need to impose a tax                                                                        
     equaling 35,972 dollars per person in order to replace                                                                     
     the lost revenues.                                                                                                         
                                                                                                                                
     Table: Oil and gas property taxes                                                                                          
                                                                                                                                
Mr.  Guettabi  thought  the slide  clarified  the  scale  of                                                                    
proposed  reductions  by  population   of  each  borough  to                                                                    
understand  how much  in taxes  each borough  would have  to                                                                    
raise to  replace the funds.  He emphasized that he  was not                                                                    
supporting a course of action,  but thought the exercise was                                                                    
one  way  to   think  about  the  scale   of  numbers  being                                                                    
discussed.                                                                                                                      
                                                                                                                                
Co-Chair Stedman asked  if there was an  estimated 5 percent                                                                    
loss of statewide employment.                                                                                                   
                                                                                                                                
Mr. Guettabi answered  in the affirmative. He  stated he had                                                                    
yet  to talk  about potential  employment gains  from higher                                                                    
dividends.                                                                                                                      
                                                                                                                                
Senator  Bishop referenced  the capital  budget and  thought                                                                    
there  was a  tremendous amount  of deferred  maintenance in                                                                    
the  state. He  thought the  numbers on  the slide  could be                                                                    
bigger since there  had been a flat capital  budget for five                                                                    
years, and  liability of state assets  increased every year.                                                                    
He commented that there had  been jobs in the capital budget                                                                    
and there  was a  multiplier with construction  dollars that                                                                    
went through  the economy. He  asked if Mr.  Guettabi agreed                                                                    
or disagreed.                                                                                                                   
                                                                                                                                
Mr. Guettabi agreed  that there was a  significant amount of                                                                    
deferred  maintenance,  and  that  the  capital  budget  was                                                                    
immensely important  for the long-term health  of the state.                                                                    
He   thought  addressing   the   $2   billion  of   deferred                                                                    
maintenance  was a  necessary step  to ensure  the long-term                                                                    
welfare of the state.                                                                                                           
                                                                                                                                
10:07:36 AM                                                                                                                   
                                                                                                                                
Senator  Wielechowski  asked to  go  back  to slide  17.  He                                                                    
wondered  who  to believe.  He  referenced  a chart  in  the                                                                    
previous day's presentation  by OMB; which had  a slide that                                                                    
analyzed jobs  and state spending  from 1990. The  slide had                                                                    
concluded  that  there  was no  relationship  between  state                                                                    
spending  and  jobs in  Alaska.  He  asked if  Mr.  Guettabi                                                                    
agreed with the information. He  asked why he should believe                                                                    
Mr. Guettabi's information and not OMB's information.                                                                           
                                                                                                                                
Mr.  Guettabi disagreed  with OMB's  assessment. He  thought                                                                    
when considering  the causal  effect of  government spending                                                                    
on employment,  he would  not simply  run a  regression that                                                                    
controlled  for   population  and  inflation  as   OMB  had.                                                                    
Instead, he  would consider a "counter-factual,"  to look at                                                                    
what  employment would  be in  the absence  of spending.  He                                                                    
suggested  there  was  plenty  of  methods  to  capture  the                                                                    
positive  relationship   between  government   spending  and                                                                    
employment. He stated he would  be happy to share additional                                                                    
literature on the topic.                                                                                                        
                                                                                                                                
Chair Stedman asked for shorter  and more precise answers to                                                                    
members' questions.                                                                                                             
                                                                                                                                
Mr. Guettabi showed slide 19, "Outline":                                                                                        
                                                                                                                                
     A little bit of background                                                                                                 
          Some basics                                                                                                           
                                                                                                                                
     Short term impact of the proposed budget                                                                                   
         Short term employment effects of the cuts                                                                              
          Short term employment effects of the higher                                                                           
          dividends                                                                                                             
                                                                                                                                
     What is the current state of the economy?                                                                                  
          Is the recession over?                                                                                                
          1980's recession                                                                                                      
                                                                                                                                
     Final thoughts                                                                                                             
                                                                                                                                
Mr.  Guettabi stated  he would  try and  walk the  committee                                                                    
through the marginal  increases in the dividend  as a result                                                                    
of the proposed budget.                                                                                                         
                                                                                                                                
Mr. Guettabi reviewed slide 20, "What about the PFD?":                                                                          
                                                                                                                                
     ?Under  the  proposed  budget,  Alaska  residents  will                                                                    
     receive $2,932  instead of the  $1,800 that  they would                                                                    
     have received if the dividends were capped.                                                                                
                                                                                                                                
     ?This  year,   too,  most  Alaskans  will   receive  an                                                                    
     additional  1,061  dollars  to pay  back  for  previous                                                                    
     capped dividends.                                                                                                          
                                                                                                                                
     ?This  will result  in a  per-person increase  of about                                                                    
     $2,193,  which  translates  into an  additional  $1.348                                                                    
     billion in  the economy  if 615,000 people  receive the                                                                    
     PFD.                                                                                                                       
                                                                                                                                
Mr. Guettabi showed  slide 21, "Added dollars  due to higher                                                                    
PFDs,"  which showed  a bar  graph depicting  the additional                                                                    
amount of money  that would be in peoples'  bank accounts as                                                                    
a  result of  using the  PFD statutory  formula rather  than                                                                    
capped dividends.  Additionally, the  bar graphs  showed the                                                                    
additional dollars  that would be in  people's bank accounts                                                                    
as a result of the payback dividend.                                                                                            
                                                                                                                                
10:11:13 AM                                                                                                                   
                                                                                                                                
Mr. Guettabi  spoke to  slide 22,  "What are  the short-term                                                                    
impacts of the  higher PFDs?" The slide showed  a bar graph.                                                                    
He  calculated  that  if  the  high  and  low  options  were                                                                    
averaged,  then $100  million in  dividends resulted  in 725                                                                    
additional jobs.  He applied the  formula to  the additional                                                                    
dollars  he referenced  earlier, and  the result  (using the                                                                    
statutory  formula) resulted  in  about 5,047  jobs and  the                                                                    
one-time  dividend  payback  resulted  in  4,730  additional                                                                    
jobs.                                                                                                                           
                                                                                                                                
Mr. Guettabi  referenced slide 23, "Table:  Employment gains                                                                    
summary from higher PFDs." The  slide showed the calculation                                                                    
of  employment gains  using both  the statutory  formula and                                                                    
the proposed dividend pay-back.                                                                                                 
                                                                                                                                
Co-Chair  Stedman   asked  if   the  jobs   referenced  were                                                                    
permanent, full-time jobs.                                                                                                      
                                                                                                                                
Mr.  Guettabi stated  that  more  recent analysis  indicated                                                                    
that the jobs would last about 3 months.                                                                                        
                                                                                                                                
Co-Chair von Imhof referenced a  DOLWD presentation from the                                                                    
previous day  that suggested that  data did not  support the                                                                    
conclusion  that  the dividend  made  large  changes in  the                                                                    
economy.                                                                                                                        
                                                                                                                                
Senator Micciche felt  like the North Slope  Borough Oil and                                                                    
Gas Property  Tax monies could  be translated  directly into                                                                    
jobs.  He had  read a  report from  the administration  that                                                                    
suggested that more than 90  percent of PFD distribution did                                                                    
not  get  into  the  Alaska economy.  The  report  had  also                                                                    
suggested that  changes in  the PFD  had no  relationship to                                                                    
changes in the number of jobs.                                                                                                  
                                                                                                                                
Co-Chair  Stedman  thought  the  question  might  better  be                                                                    
addressed to the author of the report.                                                                                          
                                                                                                                                
Senator Micciche  asked what method  Mr. Guettabi  was using                                                                    
to interpret the dollars into jobs.                                                                                             
                                                                                                                                
Mr.  Guettabi  restated that  ISER  treated  the PFD  as  an                                                                    
income injection that resulted  in jobs through spending. He                                                                    
continued  that  ISER  had   good  evidence  through  recent                                                                    
analysis  that  there  was  a  causal  relationship  between                                                                    
variation  in  the  size  of  the  PFD  and  employment.  He                                                                    
referenced an  input-output model. He stated  that there was                                                                    
no good information as to how Alaskans used the PFD.                                                                            
                                                                                                                                
Co-Chair Stedman  thought the earlier  part of  the question                                                                    
would be addressed later in the afternoon.                                                                                      
                                                                                                                                
Senator Bishop  asked if Mr.  Guettabi could  reconfirm that                                                                    
the jobs were long term or short term.                                                                                          
                                                                                                                                
Mr. Guettabi stated that the jobs were short-term.                                                                              
                                                                                                                                
10:16:03 AM                                                                                                                   
                                                                                                                                
Mr.  Guettabi discussed  slide 24,  "Let's  put all  numbers                                                                    
together,"  which had  a bar  graph and  summarized previous                                                                    
slides. He  stated that ISER  was agnostic about  the length                                                                    
of  the jobs.  The  slide added  up  the employment  effects                                                                    
(using  the 2016  study) and  considering the  macroeconomic                                                                    
effect employment in the short run.                                                                                             
                                                                                                                                
Co-Chair Stedman asked what the slide showed.                                                                                   
                                                                                                                                
Mr.  Guettabi   stated  that  the   slide  showed   that  on                                                                    
aggregate, the  state would lose  more than 7,000  jobs even                                                                    
after accounting for  the simulative effect of  the PFD. The                                                                    
slide  also accounted  for the  job losses  that would  come                                                                    
from cutting agency operation, loss  of federal dollars, and                                                                    
potential loss  of jobs from  the loss of  local government.                                                                    
Between 2015  and 2018,  the state  lost between  12,500 and                                                                    
13,000 jobs.                                                                                                                    
                                                                                                                                
Co-Chair Stedman  estimated that the  job loss was  a little                                                                    
over 2 percent of the  workforce. He observed that the upper                                                                    
bars showed job  gains in the shorter term on  the chart. He                                                                    
observed  that  the lower  bars  were  negative numbers  and                                                                    
showed longer term effects.                                                                                                     
                                                                                                                                
Mr. Guettabi answered in the affirmative.                                                                                       
                                                                                                                                
Senator  Wilson asked  if ISER's  analysis took  into effect                                                                    
the  over $500  million  in increased  federal spending  for                                                                    
military services in Alaska.                                                                                                    
                                                                                                                                
Mr. Guetabbi answered in the negative.                                                                                          
                                                                                                                                
Senator  Wilson  asked  how   the  funds  would  offset  the                                                                    
negative effects (such as the green bar) on the slide.                                                                          
                                                                                                                                
Mr. Guetabbi did  not know the exact nature of  the jobs but                                                                    
stated  that if  the federal  funding was  similar it  would                                                                    
offset the job loss.                                                                                                            
                                                                                                                                
Senator Bishop asked if the  estimated job loss of 7,146 was                                                                    
immediate. He  assumed ISER had  no way of  forecasting what                                                                    
the long-term effect would be on the economy.                                                                                   
                                                                                                                                
Mr. Guettabi answered in the affirmative.                                                                                       
                                                                                                                                
Senator  Hoffman  asked  about  the average  salary  in  the                                                                    
state.                                                                                                                          
                                                                                                                                
Mr.  Guettabi  stated  the   average  salary  of  government                                                                    
workers was about $47,000.                                                                                                      
                                                                                                                                
Senator Hoffman  asked about the  aggregate amount  of money                                                                    
for the estimated 7,146 jobs lost.                                                                                              
                                                                                                                                
Mr. Guettabi  estimated that the  average wage in  the state                                                                    
was  close to  $50,000,  multiplied  by approximately  7,000                                                                    
would be close to $35 million.                                                                                                  
                                                                                                                                
Senator Hoffman thought the loss would be for decades.                                                                          
                                                                                                                                
Mr. Guettabi reminded  that the estimated total  job loss on                                                                    
the slide were  short-term jobs and would  potentially be on                                                                    
top of jobs already lost.                                                                                                       
                                                                                                                                
10:20:16 AM                                                                                                                   
                                                                                                                                
Senator Wielechowski  asked if all the  estimated job losses                                                                    
were for short term jobs.                                                                                                       
                                                                                                                                
Mr. Guettabi stated that the whole analysis was short-term.                                                                     
                                                                                                                                
Senator Micciche asked  if the study divided  the job losses                                                                    
from the PFD by four.                                                                                                           
                                                                                                                                
Mr. Guettabi stated that the  slide showed real numbers that                                                                    
were not adjusted for the length of time.                                                                                       
                                                                                                                                
Mr.  Guettabi turned  to slide  25, "A  few notes  about the                                                                    
comparison":                                                                                                                    
                                                                                                                                
     ?It is  important to  note that  the jobs  created from                                                                    
     the stimulative  effects of the  PFDs may  be different                                                                    
     than the ones lost through government cuts.                                                                                
                                                                                                                                
     ?Additionally, the  employment effects  of the  PFD may                                                                    
     be short lived.  Our recent (yet to  be published) work                                                                    
     shows that  the employment effects are  concentrated in                                                                    
     the three months post distribution.                                                                                        
                                                                                                                                
     ?There  is also  the  question of  how uncertainty  may                                                                    
     influence household spending patterns.                                                                                     
                                                                                                                                
     ?On the  spending reduction side, there  is significant                                                                    
     uncertainty  about  how  communities will  respond  and                                                                    
     if/how much  federal spending  the state  will actually                                                                    
     forgo.                                                                                                                     
                                                                                                                                
Mr. Guettabi  discussed the average salaries  for government                                                                    
jobs  and  retail  jobs  and thought  it  was  important  to                                                                    
consider if short-term  jobs replaced the type  of jobs that                                                                    
were lost  through government cuts.  He pointed out  that it                                                                    
was not  known whether  households would  spend in  the same                                                                    
way  as done  in the  past. He  thought the  environment was                                                                    
rife with uncertainty.                                                                                                          
                                                                                                                                
Senator Wielechowski  tried to understand how  the jobs were                                                                    
all short term. He asked if  Mr. Guettabi was saying that if                                                                    
the proposed budget  was passed then three  months later the                                                                    
state would bounce back and not have job losses.                                                                                
                                                                                                                                
Mr. Guettabi  answered in the  negative. He  emphasized that                                                                    
the  analysis   indicated  the  immediate  effects   of  the                                                                    
proposed cuts.                                                                                                                  
                                                                                                                                
10:24:04 AM                                                                                                                   
                                                                                                                                
Mr.  Guettabi   referenced  slide  27,   "Alaska  employment                                                                    
outlook,  which showed  a bar  graph considering  employment                                                                    
growth  in  Alaska.  He  stated that  he  would  present  an                                                                    
economic  forecast that  did not  account for  the potential                                                                    
losses  from  the  proposed  budget,   but  he  thought  the                                                                    
forecast provided  context. The state had  been in recession                                                                    
for about  three years;  with 1.82 percent  of jobs  lost in                                                                    
2016, and  1.25 percent  of jobs  lost in  2017. He  did not                                                                    
have  final numbers  for 2018  but believed  the state  will                                                                    
have lost about .7 or .8 percent of its jobs.                                                                                   
                                                                                                                                
Mr. Guettabi continued his remarks  on the Alaska employment                                                                    
outlook.  He  had  done  an  analysis  a  couple  of  months                                                                    
previously,  comparing Alaska  to other  energy states.  The                                                                    
conclusion  was that  Alaska  was the  only  state still  in                                                                    
recession and  still struggling.  His forecast for  2019 had                                                                    
been that  the economy was  going to stabilize, and  that it                                                                    
would be  the first  year the  state would  potentially gain                                                                    
jobs. The gains in jobs  were still fairly low. He clarified                                                                    
that none  of the data  on the  slide took into  account any                                                                    
significant reductions  in government spending. Even  in the                                                                    
absence of reductions, it would  take the state between four                                                                    
and five  years to  recover all  the jobs  that it  had lost                                                                    
between 2015 and 2018.                                                                                                          
                                                                                                                                
Co-Chair Stedman  mentioned the estimated loss  of 2 percent                                                                    
of jobs.                                                                                                                        
                                                                                                                                
Mr.  Guettabi stated  that  if  the state  was  to lose  the                                                                    
estimated 7,146 jobs;  the reductions in 2019  would be just                                                                    
as significant  as what was lost  in 2016 in the  worst year                                                                    
of the recession.                                                                                                               
                                                                                                                                
Mr. Guettabi reviewed  slide 28, "What is  the current state                                                                    
of the economy?":                                                                                                               
                                                                                                                                
     ?Since  the  start of  the  recession,  the state  lost                                                                    
     1.82% of its jobs in 2016 and another 1.25% in 2017.                                                                       
                                                                                                                                
     ?While  we  only  have   preliminary  data,  we  expect                                                                    
     employment  to  decline by  0.8%  in  2018. Before  the                                                                    
     announced cuts,  our forecast for 2019  showed positive                                                                    
     growth equaling  close to 0.8%. Between  2019 and 2025,                                                                    
     we anticipated  employment growth to average  0.68% per                                                                    
     year.                                                                                                                      
                                                                                                                                
Mr. Guettabi  reiterated that he had  expected the recession                                                                    
to end in 2019. As a  result of the changes, it appeared the                                                                    
recession would  go on  longer as a  result of  the negative                                                                    
pressure on employment in the short run.                                                                                        
                                                                                                                                
10:27:41 AM                                                                                                                   
                                                                                                                                
Mr.  Guettabi   spoke  to  slide   29,  "Short   summary  of                                                                    
employment losses":                                                                                                             
                                                                                                                                
     ?The  state   lost  between  12,500  and   13,000  jobs                                                                    
     between2015 and 2018.                                                                                                      
                                                                                                                                
     ?The  projected  job  losses from  the  spending  cuts,                                                                    
     higher  PFDs,  loss of  federal  dollars,  and loss  of                                                                    
     local government  revenues would potentially  result in                                                                    
     an additional 7,000jobs lost.                                                                                              
                                                                                                                                
     ?If  that  happens,  this  recession-oil  induced  plus                                                                    
     spending reductions-would potentially  be Alaska's most                                                                    
     pronounce done.                                                                                                            
                                                                                                                                
Mr. Guettabi discussed the compound  effect of the lost jobs                                                                    
between  2015 and  2018 in  combination  with the  estimated                                                                    
7,149 jobs  as a  result of declines  in state  spending. He                                                                    
discussed  the   1980s  recession,  which  he   thought  was                                                                    
important for context. Many people  had been surprised about                                                                    
how well  the housing  market had held  up during  the 1980s                                                                    
recession.  He  thought  some  of  the  job  loss  had  been                                                                    
absorbed by  non-residents, and that  the economic  floor of                                                                    
Alaska was  much higher. He  thought the  current recession,                                                                    
if  it  resulted  in  out-migration,  could  spread  to  the                                                                    
housing market.                                                                                                                 
                                                                                                                                
Co-Chair Stedman asked if Mr.  Guettabi was referring to the                                                                    
1980s recession.                                                                                                                
                                                                                                                                
Mr.  Guettabi answered  in the  affirmative.  The 1980s  had                                                                    
seen a  significant housing shock.  He stated that  the 2015                                                                    
recession,  induced by  oil price  decline, had  not seen  a                                                                    
housing effect.  He reiterated that  some of the  job losses                                                                    
in  the   most  recent  recession  were   absorbed  by  non-                                                                    
residents.  If  there were  more  job  losses added  (mostly                                                                    
borne  by  residents)  the recession  could  spread  to  the                                                                    
housing market.                                                                                                                 
                                                                                                                                
Co-Chair von Imhof stated she  had some consternation when a                                                                    
presenter made  extreme statements after stating  that there                                                                    
were many  assumptions and  that a  dynamic model  was being                                                                    
discussed.  She  thought  Mr.  Guettabi  was  describing  an                                                                    
extremist view.  She wanted  to see  a mixture  of different                                                                    
possible  outcomes. She  wanted  to see  more variation  and                                                                    
discussion of uncertainty.  She pointed out that  it was not                                                                    
possible to control human behavior.                                                                                             
                                                                                                                                
Mr. Guettabi  stated that the  amount of uncertainty  in the                                                                    
previous slide was immense. It  was known that the aggregate                                                                    
effects of  the proposed  changes would  result in  some job                                                                    
losses, but  it could be  less than estimated. He  stated he                                                                    
was  presenting the  committee with  what  he considered  as                                                                    
objective  an  assessment  of   the  information  that  ISER                                                                    
currently  had.  He  thought   clearly  how  households  and                                                                    
communities  spent  money  would   affect  the  numbers.  He                                                                    
appreciated the caution raised by Co-Chair von Imhof.                                                                           
                                                                                                                                
10:32:41 AM                                                                                                                   
                                                                                                                                
Senator Micciche  stated that there were  factors missing in                                                                    
the study and  thought there was potential for  things to be                                                                    
worse. He  did not  think that Mr.  Guettabi plugged  in the                                                                    
price of  uncertainty of industry  investment in  the state.                                                                    
He thought  there was a  giant target on industry.  He asked                                                                    
if  there was  potential  for the  economic  forecast to  be                                                                    
worse if the uncertainty continued.                                                                                             
                                                                                                                                
Mr.  Guettabi   stated  that  the   previous  hear   he  had                                                                    
calculated  that for  every year  of uncertainty,  the state                                                                    
lost between  $200 million and  $600 million  in investment.                                                                    
He   had  considered   the  years   when   there  had   been                                                                    
considerable  debate  over the  POMV  draw  and use  of  the                                                                    
Permanent Fund.  He hoped to  have more information to  do a                                                                    
specific assessment of each of the pieces.                                                                                      
                                                                                                                                
Co-Chair   Stedman  followed   up  to   ask  about   private                                                                    
enterprise and  backfilling job loss.  He discussed  the oil                                                                    
industry, which was run off  international economics and was                                                                    
not affected by  what happened in the state.  He thought the                                                                    
tax  policy  seemed  like  it   would  stay  as-is  for  the                                                                    
foreseeable  future.  He  mentioned  the  fishing  industry,                                                                    
which was  also not affected  by what happened in  the state                                                                    
economically. He asked how industry  could backfill the jobs                                                                    
and how long it would take.                                                                                                     
                                                                                                                                
Mr.  Guettabi reiterated  that the  question of  backfilling                                                                    
was  one  of  vision  rather   than  analysis.  He  did  not                                                                    
understand the elements that  would encourage investment. He                                                                    
thought there  was uncertainty due  to lack of  knowledge as                                                                    
to the size and placement of  budget cuts. He thought it was                                                                    
hard to  see how the  backfilling might occur.  He continued                                                                    
that even  in the  absence of  the proposed  reductions, his                                                                    
forecast data looked at very  slow growth of .8 percent gain                                                                    
in  jobs  total,  and  DOLWD was  forecasting  half  of  the                                                                    
amount.                                                                                                                         
                                                                                                                                
10:36:31 AM                                                                                                                   
                                                                                                                                
Senator Wielechowski  asked if  the industry  uncertainty in                                                                    
Alaska  was  greater  than   in  other  resource  extraction                                                                    
countries with dictators  that routinely confiscated assets,                                                                    
assassinated  workers,  faced  civil  wars,  and  raised  or                                                                    
lowered taxes at the whim of a dictator.                                                                                        
                                                                                                                                
Mr. Guettabi answered "no."                                                                                                     
                                                                                                                                
Mr. Guettabi addressed slide 30, "What about the 1980's?":                                                                      
                                                                                                                                
     ?The 2015-current recession has been longer but milder                                                                     
     than Alaska's most severe recession which lasted from                                                                      
     1985 to 1987.                                                                                                              
                                                                                                                                
     ?That recession resulted in significant outmigration,                                                                      
     and a severe collapse of the housing market.                                                                               
                                                                                                                                
Mr. Guettabi  stated he was one  of the first people  at the                                                                    
beginning  of  the oil-induced  recession  to  say that  the                                                                    
economy was much  more diversified, and had  many sources of                                                                    
income that  did not  exist in the  1980s. He  pondered that                                                                    
there had  been three years  of recession, and  now possibly                                                                    
an extension.                                                                                                                   
                                                                                                                                
Senator Shower asked about the  influx of military personnel                                                                    
and  the accompanying  jobs and  construction.  He asked  if                                                                    
there was a similar correlation in the 1980s.                                                                                   
                                                                                                                                
Mr. Guettabi stated  that the 1980s recession  was a housing                                                                    
recession with a boom followed  by a significant bust. There                                                                    
had also  been an oil  price component to the  recession. He                                                                    
reiterated  that the  current economy  had sources  of money                                                                    
that  went   well  beyond  the  1980s.   He  emphasized  the                                                                    
difference in economies  of the 1990s and  the current time.                                                                    
He wanted  to be clear that  he was not saying  "the sky was                                                                    
falling"  but  that  the  state  had  been  in  its  longest                                                                    
recession with potential to go longer.                                                                                          
                                                                                                                                
Mr.  Guettabi  referenced   slide  32,  "Employment,"  which                                                                    
showed  a line  graph depicting  wage and  salary employment                                                                    
during Alaska's  worst recession.  The state had  lost close                                                                    
to 19,000  jobs between  1985 and  1987. He  reiterated that                                                                    
the recession  of the 1980s  was still Alaska's  most severe                                                                    
recession in terms of job losses.                                                                                               
                                                                                                                                
10:40:23 AM                                                                                                                   
                                                                                                                                
Senator  Wilson asked  if Mr.  Guettabi knew  the total  job                                                                    
number and percentage of jobs lost in the 1980s.                                                                                
                                                                                                                                
Mr. Guettabi did not have  the number available but asserted                                                                    
that  20,000 jobs  in the  1980s constituted  a much  larger                                                                    
share of  employment than  20,000 jobs  would be  in today's                                                                    
economy.                                                                                                                        
                                                                                                                                
Co-Chair  Stedman observed  that the  chart showed  that the                                                                    
1980s recession had about 8 percent job loss.                                                                                   
                                                                                                                                
Senator  Bishop commented  that the  working people's  wages                                                                    
had stayed flat from 1985 to  1990 and there had even been a                                                                    
reduction of wages on the  North Slope. He thought the state                                                                    
had  experienced  the  same  effect  again  in  the  current                                                                    
recession.                                                                                                                      
                                                                                                                                
Mr.   Guettabi  discussed   slide  33,   "Migration,"  which                                                                    
addressed net  migration between 1982 and  1990. He asserted                                                                    
that  population  had  held  up   well  during  the  current                                                                    
recession.  He   discussed  factors  that   could  influence                                                                    
population   stability  such   as  more   multi-generational                                                                    
families and  housing prices holding  up. While  the economy                                                                    
was still in  recession, there were a lot  of positive signs                                                                    
and the  state was in the  last phase of the  recession. The                                                                    
recession  had  started  in  oil   and  gas,  had  moved  to                                                                    
professional  and business  services  and state  government,                                                                    
and then  moved to household  spending sectors. As  of 2019,                                                                    
the  recession was  concentrated  in the  retail sector.  He                                                                    
anticipated that  the current  recession would  stabilize in                                                                    
the current  year. He pondered  if there would be  some out-                                                                    
migration if the recession continued.                                                                                           
                                                                                                                                
Co-Chair  Stedman  quipped   that  out-migration  would  not                                                                    
happen via the Alaska Marine Highway System.                                                                                    
                                                                                                                                
Senator Bishop  asked for clarity  about the state  being in                                                                    
the  last  phase  of   the  recession,  notwithstanding  the                                                                    
potential proposed budget reductions.                                                                                           
                                                                                                                                
Mr. Guettabi answered in the affirmative.                                                                                       
                                                                                                                                
Co-Chair von  Imhof asked for Mr.  Guettabi's recommendation                                                                    
to avoid the fiscal cliff.                                                                                                      
                                                                                                                                
Mr. Guettabi turned to slide 34, "Housing":                                                                                     
                                                                                                                                
     ?The Alaska housing market  experienced a long downturn                                                                    
     with   a   significant    number   of   vacancies   and                                                                    
     foreclosures. According to an  ISER analysis from 1988,                                                                    
     there  were 14,000  vacant housing  units in  Anchorage                                                                    
     alone.                                                                                                                     
     ?The  Alaska department  of labor  has also  summarized                                                                    
     the  housing  experience  in the  1980's  stating  that                                                                    
     "Over 40percent of Alaska banks  failed, and Alaska led                                                                    
     the  nation  in  bank  failure rates  for  the  decade.                                                                    
     Foreclosures peaked in1988 at 6,821,  and by the end of                                                                    
     the decade, more than30,000 foreclosures"                                                                                  
                                                                                                                                
Mr.  Guettabi  displayed  slide  35,  "More  questions  than                                                                    
answers":                                                                                                                       
                                                                                                                                
     ?It  is  important to  reiterate  that  all options  to                                                                    
     close  the  budget  gaps  will  result  in  short  term                                                                    
     negative  consequences. Therefore,  it is  important to                                                                    
     think about the cost of the alternatives.                                                                                  
                                                                                                                                
     ?The  economy is  still in  a fragile  state as  it has                                                                    
     experienced employment decline for 39 straight months.                                                                     
                                                                                                                                
     ?There  is  still  considerable  uncertainty  on  which                                                                    
     changes will actually take place.                                                                                          
                                                                                                                                
     ?While  understanding   the  recessionary   effects  is                                                                    
     necessary,  the  long  run implications  are  far  more                                                                    
     important.                                                                                                                 
                                                                                                                                
     ?Many  of  these  decisions are  about  priorities  and                                                                    
     values.                                                                                                                    
                                                                                                                                
                                                                                                                                
10:45:00 AM                                                                                                                   
                                                                                                                                
Mr.  Guettabi addressed  Co-Chair von  Imhof's question.  He                                                                    
thought it  was good  that the state  had many  "levers." He                                                                    
mentioned the  state's immense  savings account  and thought                                                                    
the decision to  use the POMV to stabilize  the economy sent                                                                    
a strong positive signal. He  mentioned the fragility of the                                                                    
economy.  He cautioned  against taking  too aggressive  of a                                                                    
step in too short of a time.  He thought the size of the PFD                                                                    
and the  size of government  needed to be addressed.  He did                                                                    
not have  a policy recommendation. He  thought a combination                                                                    
of  factors  would be  used  over  multiple years  to  avoid                                                                    
damaging the economy and to  tell investors there was a long                                                                    
fiscal structure in place.                                                                                                      
                                                                                                                                
Senator Micciche  thought Mr.  Guettabi was  justifying some                                                                    
part of his study since  he worked for the University, which                                                                    
was  proposed to  be  significantly cut.  He  asked how  Mr.                                                                    
Guettabi  separated  his  research  from his  love  for  the                                                                    
University.                                                                                                                     
                                                                                                                                
Mr. Guettabi  pointed out that  the study was done  in 2016.                                                                    
He  stated  that  ISER  prided  itself  on  being  objective                                                                    
brokers. He contended that he  was an academic that believed                                                                    
in  good research  that  hopefully led  to  good policy.  He                                                                    
stated  that  any  policy   that  potentially  affected  the                                                                    
University or  ISER would be unfortunate  but had absolutely                                                                    
nothing to do with what he had said to the committee.                                                                           
                                                                                                                                
Senator  Olson referenced  the question  of objectivity  and                                                                    
thought all people  claimed to be objective.  He thanked Mr.                                                                    
Guettabi for  the presentation. He relayed  that someone had                                                                    
said the  previous day's presentation by  the administration                                                                    
was like  listening to  a used  car salesman.  He referenced                                                                    
earlier  remarks  about  backfilling  jobs  by  the  private                                                                    
sector.  He harkened  back to  Calvin  Coolidge and  Herbert                                                                    
Hoover, who had  claimed that the private  sector would bail                                                                    
the country out,  after which came the  Great Depression. He                                                                    
mentioned the  trickledown economics  of the Reagan  Era. He                                                                    
asserted that  the private sector  did not have the  duty to                                                                    
bail  anyone  out.   He  asked  if  Mr.   Guettabi  saw  the                                                                    
possibility  of a  depression with  unemployment in  double-                                                                    
digit numbers and a housing collapse.                                                                                           
                                                                                                                                
Mr.  Guettabi  reiterated that  Alaska's  economy  was in  a                                                                    
fragile  state. He  questioned  where  the state's  economic                                                                    
recovery would come  from; and pointed out that  oil and gas                                                                    
had always  been and would  continue to  be a big  sector of                                                                    
the state's economy. He had  not forecast significant growth                                                                    
even  before  the  proposed cuts.  He  thought  the  minimum                                                                    
effect of the proposed cuts  was to extend the recession. He                                                                    
did know what  the worst-case scenario was,  but though that                                                                    
taking more  jobs from the  economy in the short  term would                                                                    
postpone the state's recovery.                                                                                                  
                                                                                                                                
10:50:48 AM                                                                                                                   
                                                                                                                                
Senator  Olson  discussed  the   fragility  of  the  Alaskan                                                                    
economy and  the 2016  study. He asked  if Mr.  Guettabi saw                                                                    
the state going into an all-out depression.                                                                                     
                                                                                                                                
Mr. Guettabi thought  "depression" was too strong  of a word                                                                    
and  reiterated  that there  was  a  considerable amount  of                                                                    
uncertainty. He  thought putting  pressure on an  economy in                                                                    
recession  potentially  extended   the  recession  and  made                                                                    
things difficult going forward.                                                                                                 
                                                                                                                                
Senator   Hoffman   recalled    consideration   of   SB   26                                                                    
[legislation proposing  changing the amount of  the dividend                                                                    
and establishing the POMV] the  previous year and noted that                                                                    
the Senate  had eliminated many  provisions of the  bill. He                                                                    
thought  that  SB  26  had  provided  some  certainty  after                                                                    
stripping out  provisions and just  retaining the  POMV draw                                                                    
after a  compromise had  been made with  the other  body. He                                                                    
asked  if the  state  could continue  to  afford the  larger                                                                    
statutory dividend  of $3,000.  He recalled that  the Senate                                                                    
had come to  the conclusion that the state  could not afford                                                                    
the  statutory  dividend and  had  come  up with  a  20-year                                                                    
average PFD in  the amount of $1,100.  He questioned whether                                                                    
the state could continue to  afford the statutory amount. He                                                                    
stated that the governor (several  years ago) felt the state                                                                    
could not afford the statutory dividend and had reduced it.                                                                     
                                                                                                                                
Senator Hoffman continued his  remarks. He thought certainty                                                                    
was needed on  the amount of the dividend. He  did not think                                                                    
the dividend  would be  as low  as $1,100.  He asked  if Mr.                                                                    
Guettabi thought  there needed to  be certainty on  the size                                                                    
of the dividend in order to know the size of the deficit.                                                                       
                                                                                                                                
10:55:22 AM                                                                                                                   
                                                                                                                                
Mr.  Guettabi  generalized  that   certainty  was  good  for                                                                    
investors,  individuals, legislatures,  and for  an economy.                                                                    
He recalled  that setting the  POMV draw at 5.25  was deemed                                                                    
to  be  sustainable, and  his  and  other's work  showed  it                                                                    
potentially  was.  He  thought   there  was  a  question  of                                                                    
allocation.  Between 2005  and 2014,  90 percent  of General                                                                    
Funds came from  oil revenues; and SB  26 potentially solved                                                                    
the problem by guaranteeing the  amount of money coming from                                                                    
the fund.  He thought Senator Hoffman  correctly pointed out                                                                    
that how the  $2.9 billion coming in from the  fund was used                                                                    
was clearly important for setting  the stage for the size of                                                                    
the deficit and moving forward.                                                                                                 
                                                                                                                                
Senator  Micciche  thought  the   theory  and  execution  of                                                                    
trickle-down  economics was  made possible  by capital  made                                                                    
available  through a  significant  tax cut.  He thought  the                                                                    
proposed cuts  increased taxes. He  thought the idea  of the                                                                    
private sector  stepping in was  largely a myth.  He thought                                                                    
the  state was  extremely unique.  He asked  how to  convert                                                                    
other Lower-48  economics to what was  possible for decision                                                                    
making in  Alaska. He discussed  the differences  in Alaska.                                                                    
He asked how to "Alaskanize" the analysis.                                                                                      
                                                                                                                                
Mr.  Guettabi  acknowledged that  the  state  was unique  in                                                                    
several different  ways. He argued that  the state's economy                                                                    
was fairly  diversified, but its  revenue sources  were not.                                                                    
The state had  an over-reliance on one source  of revenue to                                                                    
pay  for   government.  He   thought  the   state's  economy                                                                    
structure had evolved  and did not look  much different than                                                                    
many others.  He pointed out  that a  lot of money  left the                                                                    
state.  He  opined  that when  thinking  about  the  state's                                                                    
economy one  must consider  the portion  of money  that left                                                                    
the state, and "plugging the leakage."                                                                                          
                                                                                                                                
Mr.  Guettabi  thanked  the committee  for  having  him  and                                                                    
acknowledged that it had a difficult task.                                                                                      
                                                                                                                                
Co-Chair  Stedman  stated  the   committee  would  stand  at                                                                    
recess. He  discussed the agenda  for the  afternoon portion                                                                    
of the meeting.                                                                                                                 
                                                                                                                                
11:00:03 AM                                                                                                                   
RECESSSED                                                                                                                       
                                                                                                                                
1:05:23 PM                                                                                                                    
RECONVENED                                                                                                                      
                                                                                                                                
Co-Chair Stedman reminded that  the committee would consider                                                                    
the appointment  of Joe  Riggs to  the Alaska  Mental Health                                                                    
Trust  Authority  (AMHTA). He  would  ask  the appointee  to                                                                    
discuss  his   background,  education,  work   history,  the                                                                    
position, and his opinion on  an AMHTA settlement. He wanted                                                                    
to hear about the appointee's resume.                                                                                           
                                                                                                                                
^CONFIRMATION  HEARING:  JOE  RIGGS,  ALASKA  MENTAL  HEALTH                                                                  
TRUST AUTHORITY (AMHTA)                                                                                                       
                                                                                                                                
1:06:28 PM                                                                                                                    
                                                                                                                                
JOE RIGGS,  APPOINTEE, ALASKA MENTAL HEALTH  TRUST AUTHORITY                                                                    
(via teleconference), discussed  his qualifications. He read                                                                    
from  an  introductory  letter to  the  committee  (copy  on                                                                    
file):                                                                                                                          
                                                                                                                                
     Thank  you   for  taking  the   time  to   consider  my                                                                    
     appointment to the Alaska Mental  Health Trust Board of                                                                    
     Trustees. I realize that you  have a busy schedule so I                                                                    
     will keep my introduction brief.                                                                                           
                                                                                                                                
     I moved to  Alaska just out of high school.  I drove up                                                                    
     in  an old  pickup with  a backpack,  snowboard, and  a                                                                    
     paramedic's  license in  hand. I  was off  on my  first                                                                    
     summer adventure to be a  paramedic on a Cook Inlet oil                                                                    
     platform. Like many of us,  I stayed. I'm now living in                                                                    
     Anchorage,  married to  a 3rd  generation Alaskan,  and                                                                    
     have two boys ages 10 and 4.                                                                                               
                                                                                                                                
     As  a  Trustee, I  consider  myself  to  be more  of  a                                                                    
     generalist. My  professional career  has taken  me down                                                                    
     two   paths  that   often   intertwined,  finance   and                                                                    
     healthcare.                                                                                                                
                                                                                                                                
     On  the finance  side, I  was a  financial advisor  for                                                                    
     several  years  and  have reentered  the  field  as  an                                                                    
     advisor  with a  major firm.  I have  experience across                                                                    
     the  spectrum   of  financial   instruments,  portfolio                                                                    
     management, trust management, and  have access to every                                                                    
     tool in  the box.  Bottom line,  I know  what fiduciary                                                                    
     responsibility  means, I  can interpret  the data,  and                                                                    
     can even do the math.                                                                                                      
                                                                                                                                
     On  the  medical  side I  have  experience  across  the                                                                    
     industry. From seeing first hand  as a paramedic to how                                                                    
     mental illness  and addiction  impacts the  daily lives                                                                    
     of  my   patients,  to  standing  side   by  side  with                                                                    
     healthcare  providers  to  help them  maximize  patient                                                                    
     outcomes while  minimizing cost.  The latter  has taken                                                                    
     me across the spectrum  of provider specialties and has                                                                    
     given  me a  unique perspective  of how  our incredibly                                                                    
     complicated healthcare system operates.                                                                                    
                                                                                                                                
1:09:27 PM                                                                                                                    
                                                                                                                                
Mr. Riggs continued to read from his statement:                                                                                 
                                                                                                                                
     But I'd  say my greatest  experience to prepare  me for                                                                    
     the  role as  a trustee  is one  that I  wish I  didn't                                                                    
     have, nor would I wish it  upon anyone. I am the parent                                                                    
     to a trust  beneficiary, and to my  knowledge, the only                                                                    
     trustee that  can say that.  10 years ago,  what should                                                                    
     have been  one of the  greatest days in my  life turned                                                                    
     into an  unexpected and extended  stay in the  NICU. My                                                                    
     son has cerebral palsy. To  put it simply, he has brain                                                                    
     damage  from  loss  of  oxygen  during  delivery.  Many                                                                    
     people think  that CP is  just a motor issue,  but with                                                                    
     my  son  his  difficulties  go beyond  motor  and  into                                                                    
     behavioral,  learning, sensory  processing, and  social                                                                    
     issues, etc.  Every aspect of his  life and personality                                                                    
     is affected.  I can go  on, but  bottom line is  that I                                                                    
     have  experience as  a parent  with obtaining  services                                                                    
     for multiple issues from  multiple provider types. Most                                                                    
     importantly,  I can  say that  I understand  what other                                                                    
     parents  and  caretakers  are  experiencing.  From  the                                                                    
     overwhelming  feeling of  finally  getting a  diagnosis                                                                    
     and  figuring out  how to  obtain services,  to knowing                                                                    
     what it's  like to  invest a  massive amount  of family                                                                    
     time,  money, and  energy to  ensure that  our children                                                                    
     get the best outcomes possible.                                                                                            
                                                                                                                                
     My  son as  also inspired  me  to get  involved in  the                                                                    
     community by  being on the  board of the Blood  Bank to                                                                    
     assist  with  their  fledgling stem  cell  program  and                                                                    
     being on the board of  Challenge Alaska where my son is                                                                    
     on  the  ski  team.  Recruiting a  trustee  with  board                                                                    
     experience  with beneficiary  programs who  also obtain                                                                    
     funding  from  the  trust  is   difficult  due  to  the                                                                    
     required 2  year waiting period from  board to trustee.                                                                    
     I  meet   that  requirement   and  gladly   bring  that                                                                    
     experience.                                                                                                                
                                                                                                                                
     Bottom line is that I  consider this position to be the                                                                    
     best  way  for  me  to   serve  a  community  that  I'm                                                                    
     passionate  about and  I  guarantee that  I  will be  a                                                                    
     tireless advocate  for our beneficiaries at  all times,                                                                    
     and at all levels.                                                                                                         
                                                                                                                                
     I look forward to serving.                                                                                                 
                                                                                                                                
Mr. Riggs continued to discuss his qualifications.                                                                              
                                                                                                                                
1:12:25 PM                                                                                                                    
                                                                                                                                
Co-Chair Stedman asked  Mr. Riggs to address  his resume. He                                                                    
asked if the resume was accurate.                                                                                               
                                                                                                                                
Mr. Riggs stated that his  resume was accurate. He qualified                                                                    
that there were some dates  that were rounded to the nearest                                                                    
unit  of  time. He  stated  he  was currently  working  with                                                                    
Merrill Lynch.  He still owned Alaska  Healthcare Strategies                                                                    
but had been phasing out  of the medical device industry for                                                                    
the  previous   two  years.  He  had   worked  with  another                                                                    
healthcare distributor firm. He had  helped his wife start a                                                                    
medical   practice.  He   discussed  his   history  in   the                                                                    
investment  business  and  as   a  paramedic  for  the  fire                                                                    
department in Fairbanks.                                                                                                        
                                                                                                                                
Co-Chair  Stedman MOVED  to FORWARD  the appointment  of Joe                                                                    
Riggs  in   accordance  with  AS   39.05.080,  to   a  joint                                                                    
legislative session  for consideration  as a trustee  of the                                                                    
Alaska Mental Health Trust Authority (AMHTA).                                                                                   
                                                                                                                                
Co-Chair Stedman  informed that  the action did  not reflect                                                                    
an intent by  any of the members to vote  for or against the                                                                    
confirmation of the individual during any further sessions.                                                                     
                                                                                                                                
1:14:40 PM                                                                                                                    
AT EASE                                                                                                                         
                                                                                                                                
1:30:17 PM                                                                                                                    
RECONVENED                                                                                                                      
                                                                                                                                
Co-Chair  Stedman stated  the  committee  would continue  to                                                                    
hear  a  presentation  from the  Office  of  Management  and                                                                    
Budget (OMB)  that was  given the  previous day.  He relayed                                                                    
that the committee  had asked for an addition to  slide 8 to                                                                    
include the PFD.                                                                                                                
                                                                                                                                
ED KING,  CHIEF ECONOMIST, OFFICE OF  MANAGEMENT AND BUDGET,                                                                    
believed  the  committee's  question  was  addressed  on  an                                                                    
upcoming slide.  He continued to  speak to  the presentation                                                                    
from  the  previous  day,  Macroeconomic  Impact  of  Fiscal                                                                    
Options," (copy on file).                                                                                                       
                                                                                                                                
Co-Chair  Stedman   referenced  an  earlier   question  from                                                                    
Senator  Micciche.   He  thought   the  question   was  best                                                                    
addressed to Mr. King, as it  was in reference to an article                                                                    
he had  written. He referenced  the document  "How Important                                                                    
is the PFD to Alaska's Economy?" (copy on file).                                                                                
                                                                                                                                
1:32:25 PM                                                                                                                    
                                                                                                                                
Senator  Micciche  asked  to  go  back to  slide  3  of  the                                                                    
presentation,  "Illustration of  a 10x  Multiplier Effect*,"                                                                    
which  had two  graphs  entitled 'One  Time Injection,'  and                                                                    
'Structural Shift.' He quoted  the article referenced by Co-                                                                    
Chair Stedman  and contrasted  it with  slide 3.  He thought                                                                    
the two pieces of  information were contradictory. The paper                                                                    
Mr.  King had  written over  a year  ago had  indicated that                                                                    
more than  90 percent  of PFD payments  went outside  of the                                                                    
state, and  that the multiplier  approach (mentioned  on the                                                                    
slide)  did not  pick  it  up. He  thought  that Mr.  King's                                                                    
previous economic  evaluation of  the PFD  was in  line with                                                                    
other  economic   experts,  and  the  slide   was  a  direct                                                                    
contradiction of the findings from a year previously.                                                                           
                                                                                                                                
Mr. King  did not see  the slide  as a contradiction  to the                                                                    
article. The graph  on slide 3 was to show  how the economic                                                                    
model  used  by  ISER  functioned.  He  qualified  that  the                                                                    
multiplier in Alaska  was not a 10x  multiplier, which would                                                                    
imply that  10 percent of  the money  left the state  and 90                                                                    
percent of the money circulated.  He stated that the article                                                                    
had discussed  how the multiplier was  probably the inverse;                                                                    
it was  more likely that a  large portion of the  money left                                                                    
the state  than it  was to circulate.  He asserted  that the                                                                    
indirect   impacts  (whether   from   the  PFD,   government                                                                    
spending, or  taxes) did not  generate the  indirect impacts                                                                    
that one would expect if using a larger multiplier.                                                                             
                                                                                                                                
Mr. King  continued to  address Senator  Micciche's remarks.                                                                    
He made  the point  that the article  stated that  PFD's did                                                                    
not show  up as  jobs. He  thought PFD's  had a  much bigger                                                                    
impact on people's lives than  jobs and improved the quality                                                                    
of individual's  lives. He thought people  missed the bigger                                                                    
picture when too much attention  was paid to job numbers. He                                                                    
discussed the  comparison of different ways  of spending the                                                                    
PFD and  emphasized that it  was impossible  to economically                                                                    
compare. He  thought the "numbers  being thrown  around" did                                                                    
not mean what people thought they meant.                                                                                        
                                                                                                                                
1:37:10 PM                                                                                                                    
                                                                                                                                
Senator  Micciche  thought  Mr.  King  illustrated  the  10x                                                                    
multiplier effect  and the  PFD when  he was  discussing the                                                                    
effects on  the budget. He  thought the slide should  have a                                                                    
footnote that stated it was theoretical.                                                                                        
                                                                                                                                
Mr.  King   stated  he   had  labelled   the  slide   as  an                                                                    
"illustration" and  had not  meant to  imply that  the slide                                                                    
depicted  impacts he  expected to  occur in  Alaska. He  had                                                                    
tried  to define  the economic  theory  behind what  happens                                                                    
when you inject money into  an economy. He was merely trying                                                                    
to illustrate  a theory behind  concepts and was  not trying                                                                    
to represent what he expected to happen.                                                                                        
                                                                                                                                
Mr. King addressed slide 9, "Fiscal Options":                                                                                   
                                                                                                                                
     ? Reduce Spending                                                                                                          
          ? Lost government jobs, lower level of services                                                                       
     ? Raise Taxes                                                                                                              
          ? Lost economic activity, lower standard of                                                                           
          living                                                                                                                
     ? Cut PFD                                                                                                                  
          ? Lost economic activity, lower standard of                                                                           
          living                                                                                                                
     ? Deplete Assets                                                                                                           
          ? Lower future earnings, bigger future problems                                                                       
                                                                                                                                
     All options hurt, but doing nothing is not an option                                                                       
                                                                                                                                
Mr. King stated that the  slide was to illustrate that there                                                                    
was no  solution in which  no negative impacts  occurred. He                                                                    
thought  the impact  was a  function  of the  fact that  the                                                                    
economy  was structurally  different  than  before, and  the                                                                    
economy  had to  adjust  to  the shock.  He  thought it  was                                                                    
important to build a counter  factual. He thought it was not                                                                    
possible to  compare the proposed  budget cut to what  FY 19                                                                    
looked like.                                                                                                                    
                                                                                                                                
1:40:22 PM                                                                                                                    
                                                                                                                                
Senator Micciche encouraged the  public to consider slide 9.                                                                    
He referenced  page 5 of  the article authored by  Mr. King,                                                                    
which  stated that  the PFD  did not  work to  stimulate the                                                                    
economy even  if theoretical models indicated  otherwise. He                                                                    
mentioned  other items  in the  article that  indicated that                                                                    
the PFD  was a 10  percent benefit with 90  percent leakage.                                                                    
He  would have  liked to  have  seen the  impacts ranked  on                                                                    
slide 9.                                                                                                                        
                                                                                                                                
Mr.  King  pointed  out  that  the same  was  true  for  all                                                                    
spending.  When considering  theoretical models  and output,                                                                    
and comparing  with the  data, it was  not possible  to find                                                                    
the impacts in  the data. He used  the hypothetical scenario                                                                    
of a science experiment in  which it was possible to combine                                                                    
two ingredients in a sterile  environment. He concluded that                                                                    
it was  not possible  to have a  sterile environment  in the                                                                    
real world  where there were outside  influences. He thought                                                                    
the economy would adjust to other factors.                                                                                      
                                                                                                                                
Senator Wielechowski could see  some consistency in what Mr.                                                                    
King had  stated but did  not necessarily agree with  all he                                                                    
had said. He thought Mr. King  was asserting that it was not                                                                    
possible to  discern the impacts  of the PFD  and government                                                                    
cuts;  while Mr.  Guettabi had  thought it  was possible  to                                                                    
measure the  impacts. He considered  page 5 of  the article,                                                                    
which asserted  that of  all the  tax proposals,  a head-tax                                                                    
PFD  reduction  did  have  the  largest  adverse  impact  on                                                                    
individuals  in the  economy. The  article also  stated that                                                                    
the PFD  cut was  the most likely  tax to  have flow-through                                                                    
impacts on the  economy because it took the  most money from                                                                    
the people  likely to  spend the  funds locally.  He thought                                                                    
there was some agreement between Mr. King and Mr. Guettabi.                                                                     
                                                                                                                                
Mr.  King  thought he  was  saying  the  same thing  as  Mr.                                                                    
Guettabi. He  thought Mr.  Guettabi was  saying that  if you                                                                    
could isolate all the other  effects, it was possible to see                                                                    
the  effects  of  the  economic  elements.  He  thought  the                                                                    
impacts  did  not show  in  the  data.  He agreed  that  the                                                                    
distributional  effects of  a PFD  were very  different than                                                                    
the distributional  effects to government cuts  or taxes. He                                                                    
continued that a  PFD cut would take more  money from people                                                                    
with lower incomes that were  more likely to spend the money                                                                    
locally.  He   thought  the  PFD  cut   would  affect  those                                                                    
individuals in a more extreme way than other proposals.                                                                         
                                                                                                                                
1:45:44 PM                                                                                                                    
                                                                                                                                
Senator Shower  discuss Mr. Guettabi's slide  on work force.                                                                    
He  thought   another  of   Mr.  Guettabi's   slide  claimed                                                                    
something  the inverse.  He asked  if Mr.  Guettabi's slides                                                                    
were  aligned with  Mr. King's.  He  thought Mr.  Guettabi's                                                                    
presentation focused on job losses  but not on the impact of                                                                    
reducing the PFD.                                                                                                               
                                                                                                                                
Mr.  King  answered  in  the  affirmative  and  thought  the                                                                    
largest  impact on  household income  was a  PFD cut,  which                                                                    
ISER said in its report. He  thought there was more value in                                                                    
comparing  the rank  order ISER's  analysis rather  than the                                                                    
magnitude of the impacts. He  thought it was not possible to                                                                    
see the magnitude  of the impacts in the  data. He discussed                                                                    
hypothetical  scenarios  to  demonstrate  that  the  economy                                                                    
could adjust itself to impacts.                                                                                                 
                                                                                                                                
Senator  Bishop  looked at  page  2  of the  article,  which                                                                    
stated that more than 90 percent  of PFD's were spent out of                                                                    
state. He asked what model Mr. King had used.                                                                                   
                                                                                                                                
Mr. King  stated that  the statement  was just  an inference                                                                    
from a statistical analysis that he ran of his own model.                                                                       
                                                                                                                                
Senator  Micciche  thought  there was  disagreement  in  the                                                                    
analysis  of  how  the  various  choices  would  affect  the                                                                    
state's  economy. He  thought the  income loss  was obvious,                                                                    
because there was  a one to one ratio.  He mentioned ranking                                                                    
the impacts  on slide  9. He wanted  to understand  which of                                                                    
the  choices were  best, and  how each  choice effected  the                                                                    
economy.                                                                                                                        
                                                                                                                                
Mr. King wanted to be clear  that the best way to talk about                                                                    
the economy was  circulation of money. He  thought the worst                                                                    
way to talk  about the economy was  through discussing jobs,                                                                    
because  of  inconsistency.  He  mentioned  the  $1  billion                                                                    
impact of the PFD in the economy.                                                                                               
                                                                                                                                
1:50:13 PM                                                                                                                    
                                                                                                                                
Senator  Micciche   asked  if   Mr.  King's   previous  work                                                                    
indicated that when  there was $1 billion  injected into the                                                                    
economy, there was a $100 million impact.                                                                                       
                                                                                                                                
Mr. King  clarified that he  meant there was a  $100 million                                                                    
impact on top of the  $1 billion that went towards household                                                                    
income. He stated  that most of the money  did not circulate                                                                    
through local business, but the amount was not trivial.                                                                         
                                                                                                                                
Mr. King highlighted  slide 10, "The "Avoid  Budget Cuts and                                                                    
Taxes" Scenario."  The slide showed bar  graph that depicted                                                                    
a scenario in which there  were no budget cuts or additional                                                                    
taxes.  He  observed  that  there was  enough  room  in  the                                                                    
current year  by reducing the PFD  to $400 or $500,  but the                                                                    
following  years  it would  shrink  by  $100 and  eventually                                                                    
government  growth would  spend  the funds.  He pointed  out                                                                    
different  ideas such  as  draining  savings and  summarized                                                                    
that the problem would have to be dealt with eventually.                                                                        
                                                                                                                                
Co-Chair  Stedman thought  clearly it  was important  to pay                                                                    
attention to the next three or  four years to start going in                                                                    
the right direction fiscally.                                                                                                   
                                                                                                                                
Mr. King  showed slide 11,  "Alaska's Changing  Economy: And                                                                    
how it will shape the reaction to the proposal."                                                                                
                                                                                                                                
Mr.  King  looked  at slide  12,  "Alaska's  Gross  Domestic                                                                    
Product Mix," which showed two pie charts.                                                                                      
                                                                                                                                
Mr. King  highlighted slide  13, "Alaska's  Age Distribution                                                                    
Change":                                                                                                                        
                                                                                                                                
     Takeaways:                                                                                                                 
     1. Alaska's population is much older and more rooted                                                                       
     than in the past                                                                                                           
     2. A large number of residents are near retirement                                                                         
     age, which will have economic impact                                                                                       
                                                                                                                                
Mr.  King observed  that current  demographics of  the state                                                                    
were  very different  than  back in  the  1980s. During  the                                                                    
1980s there  were many younger  people that were  mobile and                                                                    
easily  left the  state during  the  economic recession.  He                                                                    
made  the  point  that the  demographics  had  an  important                                                                    
impact on how the economy dealt with change.                                                                                    
                                                                                                                                
1:54:09 PM                                                                                                                    
                                                                                                                                
Mr.   King   discussed    slide   14,   "Alaska's   Changing                                                                    
Population":                                                                                                                    
                                                                                                                                
     ? Population growth based solely on aging Alaskans                                                                         
     will:                                                                                                                      
          ? Increase demand for healthcare                                                                                      
          ? Increase mortality rates                                                                                            
          ? Increase out-migration                                                                                              
          ? Increase retirement spending                                                                                        
     ? Labor force projection is stable                                                                                         
          ? But jobs forecast is for 17,000 added jobs by                                                                       
          2026                                                                                                                  
          ? Significant labor needs for new oil and mining                                                                      
          projects not included in forecast                                                                                     
          ? Future labor shortages are likely, which                                                                            
          provides seeds for growth                                                                                             
     ? Child population stable                                                                                                  
                                                                                                                                
Mr. King  observed that the labor  force remained relatively                                                                    
flat.  The  only  age  group   projected  to  grow  was  the                                                                    
retirement age  group. The labor force  itself was projected                                                                    
to stay  stable while the  population was expected  to grow,                                                                    
which  had  important  ramifications  on  the  economy.  The                                                                    
growth  in retirement  age  individuals  would increase  the                                                                    
demand for healthcare. Net out-migration  of the retired age                                                                    
group was  expected over time.  He pointed out that  the net                                                                    
impact of  job loss was  different according to  age groups.                                                                    
He explained  that the model assumptions  that generated the                                                                    
graphs assumed  that spending  went to zero  when a  job was                                                                    
lost. He suggested that if the  spending did not go to zero,                                                                    
the indirect effects did not  occur, and effects were not as                                                                    
severe as the model would suggest.                                                                                              
                                                                                                                                
Mr.  King  pointed out  that  because  the labor  force  was                                                                    
stable  while  there  was  a   projected  increase  in  jobs                                                                    
(largely in  healthcare), the state needed  more workers. He                                                                    
thought there were tremendous opportunities  for jobs in the                                                                    
state. He  discussed retiree  spending, which  would require                                                                    
more  labor.  He   thought  the  state  would   see  a  more                                                                    
productive  workforce  or  a pull  in  economic  growth.  He                                                                    
thought  the  picture  of  being  on  a  precipice  economic                                                                    
calamity  was not  consistent with  the demographics  of the                                                                    
state.                                                                                                                          
                                                                                                                                
Senator  Shower referenced  the  number of  people that  had                                                                    
jobs as  shown on  the slide. He  wondered how  to reconcile                                                                    
the number from the ISER presentation earlier in the day.                                                                       
                                                                                                                                
Mr.  King stated  that the  slide showed  the population  of                                                                    
people of age  to participate in the workforce,  but many of                                                                    
the people were voluntarily not working.                                                                                        
                                                                                                                                
1:58:28 PM                                                                                                                    
                                                                                                                                
Senator Wielechowski referenced the  impact of proposed cuts                                                                    
to education,  which he thought would  affect the workforce,                                                                    
the likelihood that young families  stayed in the state, and                                                                    
the  decisions  that  young  people  made.  He  thought  the                                                                    
proposed cuts would have a big effect on the future.                                                                            
                                                                                                                                
Mr.  King thought  that  it was  difficult  to forecast  the                                                                    
effect of the  proposed cuts to education.  He thought there                                                                    
was a  couple of ways  that education funding  translated to                                                                    
economic activity. He thought  the impacts to education were                                                                    
more about  the quality  to the  Alaskan versus  the Alaskan                                                                    
economy.  He discussed  the social  value  of education  and                                                                    
thought  it should  be considered  in the  subcommittees. He                                                                    
thought many things could not  be measured in the way people                                                                    
wished.                                                                                                                         
                                                                                                                                
Senator  Wielechowski pondered  that  a  young family  would                                                                    
leave the state if  faced with a choice of 40  to 50 kids in                                                                    
their  child's  classroom.  He  wondered  if  Mr.  King  was                                                                    
suggesting that someone would fill the family's place.                                                                          
                                                                                                                                
Mr. King  stated that if a  job was open and  recruiting, it                                                                    
would attract  a person that  wanted to live in  Alaska, and                                                                    
would accept  the wage and  circumstances. He  asserted that                                                                    
the labor market  still had a demand for the  labor, it just                                                                    
might be a different group  of people. He was not suggesting                                                                    
it was  not necessary to  fund education. He thought  it was                                                                    
needed to analyze the quality  and value of the monies being                                                                    
spent, and if  people were willing to pay the  price for the                                                                    
quality of education. He thought  it was important to figure                                                                    
the minimum  adequate level of education,  and then consider                                                                    
the value  of every  $100 million  increment above  what was                                                                    
adequate in order to reduce class size.                                                                                         
                                                                                                                                
Senator Bishop  heard in the Senate  State Affairs Committee                                                                    
that the  superintendent from Hoonah  had said  the proposed                                                                    
cuts  would  cause a  school  to  close.  He asked  if  such                                                                    
impacts  had   been  considered.  He  understood   that  Mt.                                                                    
Edgecombe School in Sitka was full.                                                                                             
                                                                                                                                
Mr. King  stated that the impacts  in individual communities                                                                    
were  very  important. He  posited  that  when there  was  a                                                                    
negative  impact in  one region,  and a  positive impact  in                                                                    
another region, from a statewide  perspective it was a wash.                                                                    
He reiterated that the impacts  were important and needed to                                                                    
be evaluated  but were  not in  the purview  of what  he was                                                                    
discussing.                                                                                                                     
                                                                                                                                
Senator Bishop disagreed.                                                                                                       
                                                                                                                                
2:03:08 PM                                                                                                                    
                                                                                                                                
Senator Micciche  thought it was important  to remember that                                                                    
the state was  struggling to hire teachers  and referenced a                                                                    
bill from the previous year  that dealt with teacher retiree                                                                    
rehire. He  cited the  same issue  with law  enforcement. He                                                                    
supported   the    private   sector   taking    over   other                                                                    
responsibilities when possible.  He referenced "Reaganomics"                                                                    
and  cash  incentives  through  a  reduction  in  taxes.  He                                                                    
reiterated  that   the  governor's  proposed   budget  would                                                                    
increase  local   taxes.  He  asked  what   would  fund  the                                                                    
replacement.                                                                                                                    
                                                                                                                                
BRUCE   TANGEMAN,  COMMISSIONER,   DEPARTMENT  OF   REVENUE,                                                                    
reiterated  his statement  from  the previous  day that  the                                                                    
discussion  would take  multiple  meetings.  He thought  the                                                                    
meeting  was venturing  into  discussion  into the  proposed                                                                    
budget's  effects  on the  economy.  He  suggested that  the                                                                    
administration return at  a later time to  present on deeper                                                                    
silos on the different parts of the budget.                                                                                     
                                                                                                                                
Co-Chair   Stedman  agreed   with  Commissioner   Tangeman's                                                                    
suggestion and expressed a desire  to complete review of the                                                                    
slides.                                                                                                                         
                                                                                                                                
Mr.  King  addressed  slide 15,  "Retirement  Income  Helped                                                                    
Cushion the Impact of Oil Price Crash":                                                                                         
                                                                                                                                
     Takeaways:                                                                                                                 
     1. The multiplier effects did not manifest, because                                                                        
     people adjusted to the shock without reducing                                                                              
     spending;                                                                                                                  
     2. The lack of spending reduction suggests that                                                                            
     retirement was a more likely reaction than migration                                                                       
                                                                                                                                
Mr.  King  summarized  that the  slide  reflected  a  recent                                                                    
recession,   significant  job   loss,   and  a   significant                                                                    
reduction  in wages.  He  asserted  that he  did  not see  a                                                                    
significant  reduction in  the amount  of money  people were                                                                    
spending, which  he thought refuted the  assumption that job                                                                    
loss  resulted  in  spending  going  to  zero  in  the  last                                                                    
recession. He  suggested that there  would be  less indirect                                                                    
effects  than   commonly  thought  as  the   result  of  the                                                                    
potential future job losses.                                                                                                    
                                                                                                                                
Mr.  King  looked at  slide  16,  "Retirement Income  Helped                                                                    
Cushion the Impact  of Oil Price Crash." The  slide showed a                                                                    
graph entitled 'Housing Prices Did  Not Crash.' He furthered                                                                    
that housing prices had not  recently crashed as they had in                                                                    
the 1980s due to residents  with more equity and deeper ties                                                                    
to  the community.  He thought  the state's  current economy                                                                    
was much  more robust and  able to handle more  changes than                                                                    
in the past.                                                                                                                    
                                                                                                                                
Co-Chair  Stedman   reminded  that  the  state   had  fairly                                                                    
substantial   capital   budgets  that   were   intentionally                                                                    
implemented to  counter the recession with  fiscal stimulus.                                                                    
He  reminded that  it  was difficult  to  compare Alaska  to                                                                    
other states.                                                                                                                   
                                                                                                                                
Mr. King asserted  that the idea of fiscal  stimulus to help                                                                    
an economy get  out of a recession was sound  but could have                                                                    
the  effect   of  lengthening  the  recession.   He  thought                                                                    
spending  money  from  savings   accounts  had  lowered  the                                                                    
intensity of  the recent recession  but had extended  it and                                                                    
delayed  growth.  He proposed  that  when  coming out  of  a                                                                    
recession, it was time to scale back on stimulus efforts.                                                                       
                                                                                                                                
2:07:19 PM                                                                                                                    
                                                                                                                                
Mr. King showed slide 17, "Impact of Proposed Budget."                                                                          
                                                                                                                                
Mr. King looked at slide 18, "State Budget Volatility":                                                                         
                                                                                                                                
     Takeaways:                                                                                                                 
     1. This proposal is not unprecedented in terms of                                                                          
     total spending;                                                                                                            
     2. This budget returns the state to 2005 levels of                                                                         
     inflation adjusted spending                                                                                                
                                                                                                                                
Mr. King  summarized that the  slide showed that  the budget                                                                    
had volatility every year.                                                                                                      
                                                                                                                                
Mr. King  highlighted slide 19,  "Impact of Budget  on Labor                                                                    
Market":                                                                                                                        
                                                                                                                                
     Takeaway: Prior increases/decreases did not generate                                                                       
     the type of impacts being discussed                                                                                        
                                                                                                                                
Mr. King  commented that  the data didn't  show the  kind of                                                                    
impacts  in  the  data  that  was shown  in  the  model.  He                                                                    
explained   that  it   didn't  mean   the  impacts   weren't                                                                    
happening, but that there were other factors.                                                                                   
                                                                                                                                
Commissioner Tangeman thought that  Dr. Guettabi had cleared                                                                    
up some of  the issue. He referenced  Dr. Guettabi's summary                                                                    
slide, which had  reduced the number of  expected job losses                                                                    
5o 1,700.  He thought there  was not a fixed  calculation to                                                                    
estimate   job  losses,   but   rather   a  combination   of                                                                    
considerations.                                                                                                                 
                                                                                                                                
Co-Chair  Stedman  asked  about the  increases  in  spending                                                                    
shown on slide 19 and  thought the vast majority of decrease                                                                    
was capital budget.                                                                                                             
                                                                                                                                
Mr. King thought Co-Chair Stedman had made a fair point.                                                                        
                                                                                                                                
Senator  Micciche commented  that  the slide  was scaled  on                                                                    
inflation but not population growth.                                                                                            
                                                                                                                                
Mr.  King  stated that  the  slide  was scaled  neither  for                                                                    
inflation nor population growth.                                                                                                
                                                                                                                                
Senator Micciche  had run the  graph with a  different scale                                                                    
to  see  more granularity.  He  suggested  that running  the                                                                    
numbers  corrected  for   population  growth  and  inflation                                                                    
showed a  very different picture.  He thought the  slide was                                                                    
worth reviewing  with the adjustment and  expressed interest                                                                    
in reviewing it with Mr. King.                                                                                                  
                                                                                                                                
Mr. King  pointed out that  the government spending  was not                                                                    
the only  thing to change over  the period on the  graph. He                                                                    
referenced  job  losses of  12,000  to  13,000; and  thought                                                                    
6,000  to 7,000  of  the  jobs were  directly  from the  oil                                                                    
companies. Some  indirect effect  of the  job losses  was in                                                                    
the  data, and  some of  the job  losses were  tangential. A                                                                    
small portion  represented state job  losses as a  result of                                                                    
budget cuts. He thought it was  not proper to say all of the                                                                    
impacts  were  attributable to  one  thing;  but there  were                                                                    
1,000 things going on.                                                                                                          
                                                                                                                                
Mr. King discussed slide 20, "Budget Impact on Total Jobs":                                                                     
                                                                                                                                
     Takeaway:   There  is   no  statistically   significant                                                                    
     relationship  between   State  spending  and   jobs  in                                                                    
     Alaska's  history, once  controlling for  inflation and                                                                    
     population growth                                                                                                          
                                                                                                                                
Mr. King stated that the point  of the slide was to show the                                                                    
correlation  of  government  spending on  agency  operations                                                                    
versus the  number of jobs  in the  economy on a  per capita                                                                    
basis. He thought that the  slide showed that government did                                                                    
not create jobs. He asserted  that the job of government was                                                                    
not to create jobs.                                                                                                             
                                                                                                                                
2:11:15 PM                                                                                                                    
                                                                                                                                
Mr. King looked at slide 21, "10-Year Jobs Forecast."                                                                           
                                                                                                                                
     Takeaway: The pre-budget forecast  of 17,000 job growth                                                                    
     included  some  expectation   of  future  budget  cuts,                                                                    
     meaning that  simply subtracting  those jobs  from this                                                                    
     forecast is improper                                                                                                       
                                                                                                                                
Mr. King  noted that the  slide showed  a graph of  the ten-                                                                    
year job forecast as published  by DOLWD. He pointed out the                                                                    
fact that healthcare services was  the biggest growth sector                                                                    
in the economy  largely because of the  aging population. He                                                                    
thought aging  of people would  be unaffected by  the budget                                                                    
but  that payment  for services  would be  affected; so,  he                                                                    
expected that some of the job increases would not occur.                                                                        
                                                                                                                                
Mr. King  continued that the DOLWD  forecast had anticipated                                                                    
some reduction  in state spending.  He noted that  the whole                                                                    
forecast  would  be  redone  and  would  paint  a  different                                                                    
picture. He concluded that the  state was not on a precipice                                                                    
of  a depression,  nor economic  calamity that  would result                                                                    
from a change  in budget. He acknowledged  that the proposed                                                                    
change  in  budget would  have  impacts,  but it  would  not                                                                    
destroy the economy.                                                                                                            
                                                                                                                                
Co-Chair Stedman thought  several communities might disagree                                                                    
with Mr.  King's assessment considering  that the  impact at                                                                    
the  local level.  He referenced  property tax  payments and                                                                    
mortgage  payments  and  thought Mr.  King's  statement  was                                                                    
broad.  He thought  the  statement should  be  taken with  a                                                                    
grain of salt.                                                                                                                  
                                                                                                                                
Mr. King did not want to  come off as belittling the impacts                                                                    
on  individuals. He  informed  that there  was a  difference                                                                    
between microeconomic impacts  and macroeconomic impacts. He                                                                    
acknowledged  that  there  would be  negative  and  positive                                                                    
impacts.  He  thought there  was  a  challenge in  balancing                                                                    
focusing on individual impacts versus the big picture.                                                                          
                                                                                                                                
Senator Wielechowski referenced  another article authored by                                                                    
Mr. King the previous  year. The article discussed Medicaid,                                                                    
and the challenges and complexity  of the issue. The article                                                                    
asserted  that  the  issue had  huge  ramifications  on  the                                                                    
economy,  the  general  population,   and  the  budget.  The                                                                    
article estimated  that there could be  savings from cutting                                                                    
optional Medicaid programs in the  range of $100 million. He                                                                    
asked if  Mr. King  agreed that  the proposed  Medicaid cuts                                                                    
would have huge ramifications on  the economy as he asserted                                                                    
the previous year.                                                                                                              
                                                                                                                                
Mr. King  stated that he was  in "a tricky position"  due to                                                                    
his role and asked not to answer the question.                                                                                  
                                                                                                                                
Co-Chair Stedman  stated that it  was fine for Mr.  King not                                                                    
to  answer the  question.  He suggested  that  the chart  on                                                                    
slide 21 be  taken with caution because of  the magnitude of                                                                    
the budget issue being considered.  He expected the chart to                                                                    
be restated and look different after the budget was signed.                                                                     
                                                                                                                                
2:15:33 PM                                                                                                                    
                                                                                                                                
Senator Wielechowski did  not know that Mr.  King could pass                                                                    
on the question.  He thought that Mr. King had  made a broad                                                                    
statement that budget cuts by  the governor would not impact                                                                    
the economy;  yet had said  two months previously  that cuts                                                                    
to Medicaid would have huge ramifications on the economy.                                                                       
                                                                                                                                
Co-Chair Stedman understood the  question. He wanted to move                                                                    
on.                                                                                                                             
                                                                                                                                
Senator   Wilson  thought   a  more   in-depth  conversation                                                                    
pertaining   to   Medicaid   would   aid   in   more   fully                                                                    
understanding  the issue.  He thought  it  was important  to                                                                    
understand the waiver program.                                                                                                  
                                                                                                                                
Co-Chair  Stedman stated  that  there would  be further  and                                                                    
more  in-depth  committee  meetings  on  the  topic  of  the                                                                    
Department of  Health and Social Services  budget, Medicaid,                                                                    
Medicare,  and Alaska  Pioneer Homes.  He  relayed that  the                                                                    
commissioner   enthusiastically  invited   himself  to   the                                                                    
meeting and would be participating.                                                                                             
                                                                                                                                
Senator Micciche discussed  the assumption of a  $500 PFD as                                                                    
listed on slide  22. He asserted that no one  was assuming a                                                                    
$500 PFD.  He referenced the  ISER estimate of  14,272 jobs.                                                                    
He thought  Mr. King had  found no relationship  between PFD                                                                    
payments and changes in jobs.                                                                                                   
                                                                                                                                
Co-Chair Stedman asked for Mr. King to address slide 22.                                                                        
                                                                                                                                
Mr.  King  addressed  Senator  Wielechowski's  question  and                                                                    
clarified that he had not meant  to say that there would not                                                                    
be impacts from  budget cuts. He stated there  would also be                                                                    
impacts from  other things,  and the  net projection  of the                                                                    
economy was not  as dire as people might want  to believe it                                                                    
would be. He  was not trying to  say contractionary spending                                                                    
had no impact.                                                                                                                  
                                                                                                                                
2:19:46 PM                                                                                                                    
                                                                                                                                
Mr. King addressed slide 22, "Expected Jobs Impacts":                                                                           
                                                                                                                                
     ? State Jobs                                                                                                               
          o Unclear  depends on privatization efforts                                                                           
                   Up to 1,000                                                                                               
     ? Education related jobs                                                                                                   
          o Unclear - depends on school board decisions                                                                         
          (instruction vs non-instruction vs efficiencies)                                                                      
          and change in local contributions                                                                                     
                   Up to 3,000 jobs                                                                                          
     ? University related jobs                                                                                                  
          o Unclear  depends of board of regents decisions                                                                      
          (close campuses vs horizontal cuts vs raise                                                                           
          revenue)                                                                                                              
                   Up to 1,500 jobs                                                                                          
     ? Healthcare related jobs                                                                                                  
          o Unclear      depends on market reaction to                                                                          
          changing payment system                                                                                               
              Industry projected to grow regardless, so                                                                      
               slower growth is more likely than net job                                                                        
               losses                                                                                                           
     ? Trade related jobs                                                                                                       
          o Injection from larger PFDs will spur more                                                                           
          spending and create more labor demand                                                                                 
                ISER estimate is 14,272 jobs (892 jobs per                                                                   
                  $100 million x $1.6 billion)                                                                                  
          o Reduced employment from budget reductions will                                                                      
          offset part of this increase                                                                                          
          o Improved fiscal stability should generate                                                                           
          additional   investment    (although   timing   is                                                                    
          uncertain)                                                                                                            
                                                                                                                                
     Note: Jobs counts are not the best measurement of                                                                          
     economic impacts                                                                                                           
                                                                                                                                
Mr. King  discussed mitigating factors  of the  expected job                                                                    
impacts  of  the  proposed budget.  He  thought  there  were                                                                    
people studying  the expected job impacts  on the healthcare                                                                    
related  jobs,  which was  a  complex  issue that  warranted                                                                    
close  attention. He  discussed proposed  reductions to  the                                                                    
PFD. He did  not believe the ISER  estimate of trade-related                                                                    
job loss.  He thought jobs  were not  a good measure  of how                                                                    
the economy was functioning.                                                                                                    
                                                                                                                                
Mr. King spoke  to trade related jobs. He  thought the topic                                                                    
related  to  the  ability of  investors  to  feel  confident                                                                    
enough in  Alaska's economy  to invest in  it. He  thought a                                                                    
reduction  in  uncertainty   would  generate  stability  and                                                                    
thereby  some investment.  He thought  the theory  supported                                                                    
that a  stable environment that  had low taxes was  going to                                                                    
attract more investment and more economic growth.                                                                               
                                                                                                                                
Co-Chair Stedman  recalled the  ISER estimate of  7,000 jobs                                                                    
lost.                                                                                                                           
                                                                                                                                
Senator  Bishop  thought there  was  a  lot to  discuss.  He                                                                    
thought the  slide was  a rough draft  bid proposal.  He was                                                                    
stunned with Mr. King's assertion  that jobs were not a good                                                                    
indicator of an economy.                                                                                                        
                                                                                                                                
Senator Bishop  discussed attracting business to  the state.                                                                    
He thought  industry looked  at factors  such as  the health                                                                    
and quality  of schools,  the University, crime,  roads, and                                                                    
services. He  thought the committee needed  to address those                                                                    
factors that would bring business to the state.                                                                                 
                                                                                                                                
2:25:37 PM                                                                                                                    
                                                                                                                                
Mr. King showed slide 23, "Expected Impacts":                                                                                   
                                                                                                                                
     ? Regional  impacts will be more  pronounced than total                                                                    
     State impacts                                                                                                              
     ?  Every  individual   will  be  impacted  differently,                                                                    
     regardless of fiscal solution                                                                                              
     ? There will be initial job losses from smaller budget                                                                     
          o It will not be 17,000 jobs                                                                                          
     ? There will also be additional jobs from larger PFDs                                                                      
     ?   Some  job   losses  will   result  in   retirement,                                                                    
     relocation, new employment, and new                                                                                        
          o Net job loses will be smaller than anticipated                                                                      
          by static models                                                                                                      
          o Indirect effects will be smaller than                                                                               
          anticipated as a result                                                                                               
     ?  Household income  will  be higher,  as  a result  of                                                                    
     larger PFDs                                                                                                                
          o Alaskans will decide how to best improve their                                                                      
          quality of life                                                                                                       
     ?   Local  governments   will  replace   some  spending                                                                    
     reductions                                                                                                                 
          o Mitigates some of the direct effects                                                                                
          o Brings spending and revenue decisions closer to                                                                     
          user groups                                                                                                           
     ? Economic  growth will  still occur  through increased                                                                    
     resource  development,  tourism,  military,  retirement                                                                    
     spending, health care demand, and private investment                                                                       
                                                                                                                                
Senator Micciche understood the  challenge of the short time                                                                    
span in which  to create the governor's  proposed budget. He                                                                    
though it had  been demonstrated that a cut  of $1.6 billion                                                                    
was  not  possible so  local  taxes  were shifted  to  state                                                                    
coffers.  He  mentioned   federal  requirements  that  local                                                                    
governments  had   to  deliver.   He  thought  it   was  the                                                                    
legislature's  job   to  understand   the  impacts   of  the                                                                    
governor's  proposal. He  wanted to  see more  evaluation of                                                                    
the  impacts of  the proposed  budget. He  acknowledged that                                                                    
the task  took time. He asked  if the work of  analyzing the                                                                    
effects of  the proposed cuts  was taking place.  He thought                                                                    
the budget  demonstrated the enormity  of the issue  for the                                                                    
public.  He  asked  Mr.  King if  the  proposed  budget  was                                                                    
illustrative to discuss  options and get to  a better place.                                                                    
He felt the budget had to be reduced.                                                                                           
                                                                                                                                
Commissioner  Tangeman   knew  that  Senator   Micciche  was                                                                    
referencing the administration when  he had said "you guys."                                                                    
He  reminded   that  the  Department  of   Revenue  and  the                                                                    
economists  did  not put  the  budget  together, but  helped                                                                    
analyze  it  and continued  to  look  into the  details.  He                                                                    
thought Senator Micciche's question  might be best addressed                                                                    
to OMB.                                                                                                                         
                                                                                                                                
Senator Wielechowski referenced a sentence on slide 20:                                                                         
                                                                                                                                
     Takeaway:   There  is   no  statistically   significant                                                                    
     relationship  between   State  spending  and   jobs  in                                                                    
     Alaska's  history, once  controlling for  inflation and                                                                    
     population growth                                                                                                          
                                                                                                                                
Senator Wielechowski  pointed out that expected  job impacts                                                                    
on slide  22 said "unclear."  He summarized that  Mr. King's                                                                    
position was that  it didn't matter what the  state did, the                                                                    
budget  could be  decreased by  a couple  of billion  and it                                                                    
would  not have  a  statistical impact  on  the economy.  He                                                                    
thought the same could be said of the PFD.                                                                                      
                                                                                                                                
Commissioner Tangeman thought Mr.  King and Mr. Guettabi had                                                                    
both expressed  that all  decisions would  have consequences                                                                    
and impacts.                                                                                                                    
                                                                                                                                
Co-Chair  Stedman discussed  the  agenda  for the  following                                                                    
day.                                                                                                                            
                                                                                                                                
ADJOURNMENT                                                                                                                   
2:29:58 PM                                                                                                                    
                                                                                                                                
The meeting was adjourned at 2:29 p.m.                                                                                          
                                                                                                                                

Document Name Date/Time Subjects
030719 Joe Riggs Letter.doc SFIN 3/7/2019 9:00:00 AM
Confirmations 2019
Confirmation Resume FIN Mental Health Trust Riggs 2019.pdf SFIN 3/7/2019 9:00:00 AM
Confirmations 2019
030719 ISER economic impact handout (002).pdf SFIN 3/7/2019 9:00:00 AM
030719 How Important is the PFD to Alaska's Economy_ - King Economics Group provided by Senator Micciche.pdf SFIN 3/7/2019 9:00:00 AM
SB 20
030619 OMB Economic Impacts of Policy Decisions 3.6.19.pdf SFIN 3/7/2019 9:00:00 AM
SB 20