Legislature(2015 - 2016)SENATE FINANCE 532
03/22/2016 09:00 AM Senate FINANCE
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| Audio | Topic |
|---|---|
| Start | |
| SB114 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| + | SB 114 | TELECONFERENCED | |
| + | TELECONFERENCED |
SENATE FINANCE COMMITTEE
March 22, 2016
9:00 a.m.
9:00:40 AM
CALL TO ORDER
Co-Chair MacKinnon called the Senate Finance Committee
meeting to order at 9:00 a.m.
MEMBERS PRESENT
Senator Anna MacKinnon, Co-Chair
Senator Pete Kelly, Co-Chair
Senator Peter Micciche, Vice-Chair
Senator Click Bishop
Senator Mike Dunleavy
Senator Lyman Hoffman
Senator Donny Olson
MEMBERS ABSENT
None
ALSO PRESENT
Senator Lesil McGuire, Sponsor; Jesse Logan, Staff to
Senator Lesil McGuire.
SUMMARY
SB 114 PERM FUND: EARNINGS, DEPOSITS, ACCOUNTS
SB 114 was HEARD and HELD in committee for
further consideration.
SENATE BILL NO. 114
"An Act relating to deposits into the dividend fund;
and relating to the Alaska permanent fund."
9:01:33 AM
AT EASE
9:03:33 AM
RECONVENED
SENATOR LESIL MCGUIRE, SPONSOR, introduced herself.
9:04:31 AM
Senator McGuire discussed the presentation, "Reducing the
Deficit: Investing Alaska's Vast Cash Reserves" (copy on
file).
9:04:43 AM
Senator McGuire looked at Slide 2, "Is there Fiscal
Problem? We have a $3.5 to $4 Billion Deficit":
The legislature has enacted heavy spending cuts over
the last 2 years
The state has several savings accounts, but revenue
models show that if oil prices do not rebound, those
savings will be gone in about 2 years
We cannot wait and hope for high oil prices
The price of inaction now could be disastrous for the
state's future
9:05:15 AM
Senator McGuire addressed Slide 3, "Alaska's Fiscal
Situation This Year (FY 16)." She felt that the chart was
simple to understand. She noted that the states output was
in blue and the amount of revenue coming in was detailed in
red, green, and black. She said that nearly $4 dollars of
every $5 spent would come from savings.
9:05:52 AM
Senator McGuire highlighted Slide 4, "The Cost of Doing
Nothing/Status Quo":
The longer we wait to act
• The lower are our reserves
• The higher the risk of failure
A lower reserve balance
• Simply takes away choices we have to fill
the deficit
Senator McGuire highlighted that the state's budget
reserves would be drained by FY 18, leaving only the
earnings reserve account which could be accessed only
through constitutional mechanisms.
9:06:39 AM
Senator McGuire discussed Slide 5, "The Cost of Doing
Nothing/Status Quo":
In FY 19 The choice will be made to fund Dividend OR
Deficit.
The slide offered a graph depicting that by FY 19, savings
would pay dividends but would not cover the fiscal gap, and
that the dividend program would end entirely by FY 22.
Senator McGuire felt that there should be a change in the
way that this dividend is distributed. She stressed that
the slide was the most important slide, because, without
the legislation, the permanent fund dividend (PFD) would
eventually cease to exist.
9:08:40 AM
Senator McGuire looked at Slide 6, "A Path Forward":
In crafting SB 114 I had these principles in mind:
The solution needed to:
1) Retain a dividend
a) Without making the dividend dependent on the
size of state spending
2) Reduce the volatility in the state budget
3) To clearly expose the size and cost of government -
so that downward pressure would ensure that Alaskans
could begin an honest assessment of needs vs. wants
4) Be enduring to allow maximum use of our wealth over
generations so that benefits and burdens are shared
5) Be simple and easy to implement
9:10:58 AM
Senator McGuire highlighted Slide 7, "The Five Stages of
Grief":
• Denial
• Anger
• Bargaining
• Depression
• Acceptance
Senator McGuire believed that the stages of grief applied
to Alaska's fiscal gap.
9:11:46 AM
Senator McGuire looked at Slide 8, "Other Options?":
3 Proposals have been introduced to the Legislature
-SB128 -Annuity Model
-SB114 5 percent POMV
-HB224 4.5 percent POMV
All Use the Permanent Fund Earnings
What else could we do?
-Constitutional Amendment to access the Corpus of the
Permanent Fund?
-Requires vote on next General Election
-New Taxes?
Continue with Strategic Cuts to the budget
But we cannot cut our way out of this
9:12:34 AM
Senator McGuire discussed Slide 9, "Potential New Revenue
From Sustainable Alaska Plan." She stated that if every
revenue measure contained in the Governor's Sustainable
Alaska Plan were to be adopted, the yearly revenue of $457
million would not close the fiscal gap.
Senator McGuire looked at Slide 10, "FY 16 Agency Share of
Total Agency Operations and the Appropriation for Permanent
Fund Dividends":
If you consider the PF Dividend as spending - it is
our single largest budget item (even without inflation
proofing)
Senator McGuire noted that the number reached $2.4 billion
after inflation proofing. She felt that it was important
that Alaskans know that the dividend program was the
biggest cost driver in the budget.
9:13:43 AM
Senator McGuire discussed Slide 12, "Current Cash Flow."
The slide illustrated the current cash flow of the
Permanent Fund into the General Fund. The slide reflected
that draws from the CBR would be made as necessary to fill
deficits. She noted that the Permanent Fund held
approximately $52 billion and was the state's largest
asset. She shared that the ERA had been created in 1980, by
the 12th Alaska State Legislature, and had done nothing
more than pay out dividends to Alaska residents.
9:14:59 AM
Senator McGuire highlighted Slide 13, "Proposed SB 114 Cash
Flow":
Changes
1) Royalties to PF equal 25 percent (the only
inflation proofing requirement contained in the
Constitution)
2) 4.5 percent POMV from ERA to GF
3) Dividend Calculation:
1) 15 percent of Royalties
2) 15 percent of ERA funds (from ERA)
3) 2 percent of CBR (from ERA)
Senator McGuire pointed out that the $.5 percent POMV was
the most important aspect of the bill that related to
budget stabilization. She relayed that the CBR would remain
the same and would be available to drawn on when necessary
to fill deficits, and only through the three-fourths vote
of the Legislature. She explained that the original bill
had the dividend coming exclusively from 74.5 percent of
all of the future rents and royalties of sub-surface
earnings, and believed that offered the simplicity of
connecting future dividend recipients to the source of the
revenue and would grow the economy.
9:19:48 AM
Senator McGuire discussed Slide 14, "The Overall Effect":
Reduces the Deficit by $2 Billion
Reduces volatility in budget
•Grows the Permanent Fund
•Maintains buying power of the corpus of the
fund
•Preserves the Dividend
•With a minimum of $1,000
•Reduces the CBR draw to cover deficit
•Helps maintain good state credit rating
•Maintains downward pressure on state Spending
9:22:08 AM
Senator McGuire addressed Slide 15, "SB 114 Dividend":
Historical PF Dividends
34 Dividends have been paid
18 Have been $1,000 or less
16 Have been greater than $1,000
Senator McGuire reiterated that the status quo's fiscal end
would come in FY22.
9:23:03 AM
Senator McGuire highlighted Slide 16, "The Size of the
Dividend":
SB 114 has a minimum $1,000 dividend
Status quo Dividend program WILL END
Senator McGuire believed that the committee would need to
address the issue in FY 19 because the CBR will be
exhausted and the legislature will be forced to go into the
ERA. She said that she usually used a billion dollar place-
hold for revenue in her charts, but based on the price of
oil the billion dollar revenue was no longer guaranteed.
She lamented that the state would have less money to work
with than had been expected because of low oil prices.
9:24:57 AM
Vice-Chair Micciche noted that all of the modeling assumed
a similar price of oil to the current price of oil.
Senator McGuire remarked that each of the bill sponsors had
shared their modeling and basic assumptions with each
other.
Senator McGuire discussed Slides 17, "The Reserves SB 114
vs. Status Quo." She announced that the chart comparison
helped the public to understand the differences between the
bill and the status quo.
Senator McGuire addressed Slide 18, "The Reserves SB 114/
Status Quo."
9:26:47 AM
Senator McGuire highlighted slide 19, "POMV and Inflation
Proofing", and shared that the bill provided leveling, so
the bond ratings could stabilize. She asserted that the red
line on the right hand chart could not be brought down
without major structural changes.
Senator McGuire addressed Slide 19, "POMV and Inflation
Proofing":
• Callan's Est. Return on Permanent Fund
Investments equals 6.9 percent
• POMV Draw equals 4.5 percent
• To the Earnings Reserve Account equals 2.4
percent
plus
• To the Corpus of the Permanent Fund equals 25
percent of Royalties
Total Royalties $690M multiplied by 25 percent
equals $172 million
The Bill also allows inflation proofing to the
Principle if the ERA is 4 times the size of the POMV
Draw
9:27:37 AM
Senator McGuire looked at Slide 20, "Review oversite":
Each year on or before January 30
The commissioner of revenue may consult with the
Permanent Fund board and recommend
•Adjustments to the percentages of money
appropriated to the dividend
Each year on or before January 30
The commissioner of revenue Shall provide a
legislative report that:
•Evaluates the sufficiency of the assets in
the ERA
•Evaluates the amount projected to be
distributed to the General Fund
9:28:39 AM
Senator McGuire addressed Slide 21, "Revenue Limitations
From POMV Draw":
For Oil revenue over $1B there is a corresponding
reduction of the POMV draw
This improves the sustainability of payouts from the
ERA
Reduces the risk of increasing spending in high years
of petroleum revenue
Reduces the volatility in the budgeting process for
UGF expenditures
Senator McGuire relayed that the original version of SB
114, as introduced in April of 2015, purposefully left out
a method of constraining growth of the size of government
in hopes that the legislature could weigh in on the issue.
She said that the original bill contained a simpler revenue
limitation that said that the amount of appropriation for
government spending could not exceed 110 percent of the
previous appropriation. She explained that the change in
the current version of the bill generated from the Senate
State Affairs Committee. She said that the chairman of that
committee had preferred the mechanism, which was currently
being extensively modeled. She related that the principal
of the amendment was that there would be a corresponding
reduction in the POMV draw for oil revenue over a billion
dollars. She elaborated that the mechanism would improve
sustainability of payouts from the ERA, reduce the risk of
increasing spending in high years of petroleum revenue, and
would reduce the volatility of the budget process. She
asserted that the POMV model was superior to the annuity
plan, but without a constraint on spending it could become
more volatile. She felt that in order for the public to
maintain faith in the legislature to bridge the fiscal gap
they needed assurances that the dividend was protected.
9:31:56 AM
Senator McGuire discussed Slide 22, "What SB 114 is and is
not":
SB 114 is NOT
•A raid on the Permanent Fund
•SB114 would only draw from the Earnings Reserve
Account
•A way for Government to increase spending
•A dividend Killer
SB 114 IS
•A way to share the risks and rewards of the states
fiscal health
•A way to protect the dividend into the future
•A way to ensure that services we enjoy continue to be
provided
•Police
•Firefighters
•Roads
•Education
•Health and Social Services
•The Marine Highway
•Parks and Recreation
•Fish and Game Management
Senator McGuire assured the committee that there was no
Constitutional change in the bill intended to invade the
corpus of the Permanent Fund. She strongly believed that
the bill was the only way to preserve dividends into the
future.
9:33:24 AM
Senator McGuire highlighted Slide 23, "Major Policy Calls":
POMV vs. Sovereign Wealth Model
Revenue Limitation
Percentage of POMV Draw
Dividend Calculation
CBR Investment
She stated that the biggest question was whether the
legislature would decide to restructure the Permanent Fund
based on POMV, or use a Sovereign Wealth Model (SEM). She
explained that a POMV approach would require the
establishment of a revenue limitation, the SWM guaranteed
the size and cost of government, and a specific draw. She
said that the original percentage of POMV draw was 5
percent, but was currently 4.5 percent; David Teal,
Director, Legislative Finance Division preferred 4.9
percent. She stated that the state currently used a
percentage of the ERA, a percentage of royalties, and a
percentage of the CBR to payout dividends; the committee
had the power to reconfigure that calculation. She thought
that it would be beneficial to explore how the CBR could be
invested in order to benefit the economy.
9:35:12 AM
Senator McGuire discussed Slide 24, "Major Policy Calls":
POMV vs. Sovereign Wealth Model
POMV is a 5 year look back (hindsight)
SWM is a 25 year look forward (foresight)
Which is better?
Senator McGuire reiterated that the fact that POMV models
worked had been documented numerous times. She added that
the SWM required foresight into the next 25 years.
Senator McGuire addressed Slide 25, "Major Policy Calls":
Revenue Limitation
Dramatically reduces volatility in the budget, however
current language does not limit revenue when Oil
Revenue exceeds $3.5Billion. Should it?
9:36:21 AM
Senator McGuire looked at Slide 26, "Major Policy Calls":
The Percentage of POMV draw is sustainable around 5
percent-total draw from ERA
Questions we must ask ourselves:
•Will this percentage include a portion for the
Dividend?
•The current bill excludes the 15 percent SNI of
the ERA and the 2 percent from CBR from the 4.5
percent POMV Draw
•4.5 percent POMV + 15 percent SNI + 2
percent CBR is probably closer to 5.2
percent total draw
•Is this Sustainable?
9:36:37 AM
Senator McGuire highlighted Slide 27, "Major Policy Calls":
Dividend Calculation
•Current bill holds the 2016 Dividend harmless (status
quo)
•This will cost the state $750M vs. implanting a
new calculation this year
•Current bill guarantee's a $1,000 Dividend minimum
•This protects Alaskans on the low side, but the
state pays out
•This must be drawn from savings and will
not be paid back when dividends increase
9:38:18 AM
Senator McGuire discussed Slide 28, "Major Policy Calls":
Dividend Calculation
Consideration
•The current bill draws a 4.5 percent POMV from
the ERA
•Then bases the dividend, in part, on 15
percent of a 5yr avg. SNI
•These two things are counter to each
other POMV vs. SNI payouts
This introduces Volatility to the
POMV over time
•Could consider a Flat dividend amount, or
•Better, a formula that
•Uses a percentage of Royalties and
•And percentage of the POMV
This could spread the risk and reward between
residents and the state
9:40:26 AM
Senator McGuire addressed Slide 29, "Major Policy Calls":
CBR Investment
Consideration
•AS 37.10.430
•(a) DOR may transfer management of the fund
to the APFC
•(c) The subaccount in the CBR can be
invested for higher returns IF
•The Commissioner of Revenue does not
expect them to be needed for the next 5
years.
•A sustainable POMV draw reduces the drain on the
CBR
•Some of it could be invested long for a higher
yield
9:41:33 AM
Co-Chair MacKinnon asked when the senator had first
introduced legislation on the topic of restructuring the
Permanent Fund.
Senator McGuire replied that she first introduced the
legislation in April 2015. She clarified that GCI, unions,
and corporations had not been behind the genesis of the
bill. She offered a brief history of the crafting of the
original legislation.
9:43:14 AM
Co-Chair MacKinnon stressed that Senator McGuire had begun
to develop a solution long before most other people. She
commended the work that the senator had done on the issue.
9:43:56 AM
Senator Dunleavy wondered whether the legislation needed to
catch up with changes in the Department of Revenue's spring
forecast.
Co-Chair MacKinnon interjected that there was $300 million
in foregone revenue in the new forecast, and $600 million
for FY 18.
9:44:28 AM
Senator McGuire replied that the general dollar figures
would have to reflect the spring forecast, but roughly
speaking the presentation had been changed to materially
reflect the three major changes that came from the Senate
State Affairs Committee. She publicly thanked staff that
had help to craft the legislation.
9:46:20 AM
Co-Chair MacKinnon pointed out to Senator Dunleavy that the
charts in the presentation would show less optimistic
numbers after being adjusted to reflect the spring
forecast.
9:46:58 AM
JESSE LOGAN, STAFF TO SENATOR LESIL MCGUIRE, added that the
models in the bar graphs in the presentation were modeled
at $50 bbl, and that time limitations had not allowed the
numbers to be adjusted in time for today's meeting. He
said, however, that the fundamental relationships remained
the same. He agreed that language changed would need to be
made in the bill, there were several places where drafting
errors had been found, and some mechanics would need to be
tweaked.
9:47:49 AM
Senator Hoffman looked at Slide 13, and expressed concern
that the percentages distributed out of royalties added up
to 101 percent. He felt that mistakes of the kind could be
costly in the big picture.
9:48:49 AM
Co-Chair MacKinnon stressed the importance of using
accurate numbers on public presentations.
Mr. Logan clarified that the percentage going to the
general fund should be 59.5.
9:49:04 AM
Senator Olson queried the approximate amount of the 4.5
percent of the POMV that would be going to the General
Fund.
Senator McGuire said that the figure would be based on the
forecasting. She said that it was originally modeled at
2.25 billion, now it would be reduced to reflect the $300
million drop.
9:49:53 AM
Senator Olson wondered how much deficit would remain in the
state budget if the bill were to pass.
Senator McGuire replied that the remainder would be a
moving target because there was no way to know what state
revenue would be.
9:51:30 AM
Co-Chair MacKinnon surmised that the bill would generate $1
billion that would offset any deficit that might remain.
Senator McGuire though it was closer to $2 billion.
9:52:10 AM
Vice-Chair Micciche looked at Slide 18. He understood that
the blue part of the bar graph on the left represented the
remaining fiscal gap. He thought that the graph reflected a
relatively sustainable budget.
Senator McGuire replied in the affirmative.
9:53:07 AM
Senator Bishop wondered whether the changes proposed by
Senator Coghill would make the dividend more of a
shareholder dividend.
Senator McGuire responded that she believed that was
conceptually the case, but for taxation purposes the
legislative legal opinion stated that the dividend would
still be taxable by the federal government. She thought
that the purely royalty dividend payout from the original
bill would have been a pure share, and could not be taxed
by the federal government. She said that Alaskans would
receive a share of the non-renewable resource in the ground
on an annual basis.
9:55:03 AM
Senator Olson looked at Slide 13. He assumed that as the
CBR dropped, the amount of the dividend would decrease. He
asked whether there was a backup plan if the dividend
dropped below $1000.
Senator McGuire replied that the ERA would be used to pay
out dividends. The hope was the 2 percent of CBR could be
sustained. She said that whether the CBR should be kept
would be a policy call for the committee.
9:57:09 AM
Vice-Chair Micciche commented that, provided the
legislature continued to apply downward pressure to the
Operating Budget, the state was likely within 10 years of a
fully sustainable draw without additional taxes. He thought
that use of the CBR should be discussed further.
9:57:57 AM
Senator Bishop stressed that the model depended on a
healthy mining and oil industry in order to produce
dividends. He remarked that there should be an examination
of possible production in 2030.
9:58:47 AM
Senator Dunleavy queried the reasoning of giving .5 percent
to the Public School Trust Fund.
Senator McGuire responded that the fund had been
established in 1972, at .5 percent, and continued to exist
under the current bill with no material change to the
percentage.
9:59:45 AM
Co-Chair MacKinnon interjected that a past lawsuit had
resulted in the creation of the .5 percent royalty, to
fulfill the state's obligation to the federal government in
providing for the people of Alaska through education.
10:00:10 AM
Senator Dunleavy asked whether changing the amount going
into the fund had ben contemplated.
Senator McGuire responded that a change in the percentage
was not reflected in the legislation. She thought that
changes could be made to the Public School Trust Fund
formula.
10:00:59 AM
Co-Chair MacKinnon looked at Slide 13, and wondered whether
there would be a discussion of the logistics surrounding
the 2 percent CBR, and how it would be voted on.
Mr. Logan explained that the 2 percent of the CBR was drawn
from the ERA, and was a calculation of the total value of
the CBR. He furthered that the value of the dividend would
be attached to three things; the long-term fiscal health of
the market (ERA), the short-term fiscal health of the state
(royalties), and the long-term fiscal health of the state
(CBR).
Co-Chair MacKinnon surmised that was a calculation rather
than a draw.
10:02:07 AM
Vice-Chair Micciche looked at Slide 10, and remarked that
the PFD was Alaskan's share of oil wealth. He wondered
whether Alaskans considered state services as part of the
royalties from mineral wealth, or would they rather have a
cash payout.
Senator McGuire believed that Alaskans understood that
basic government services were important and were worth
collective support. She felt that Alaskans had been uneasy
with the size of government and with the possibility of
smaller dividends. She thought that the campaign launched
by the legislature to educate the public had been
successful. She said that most would like to continue to
receive a dividend.
10:06:04 AM
Vice-Chair Micciche asserted that, over and above efficient
and constitutionally protected services, services that were
subtracting from dividend wealth needed to be determined.
He felt the government spending needed to continue to be
scrutinized.
Senator McGuire relayed that the dialogue that had
developed between the public and leaders in state
government would be helpful in determining the size and
cost of state government. She thought that tracking how the
Permanent Fund dollars were affecting the economy could
inform the committee's work going forward. She believed
that the issue was at the heart of the fiscal conversation.
10:10:05 AM
Mr. Logan explained the Sectional Analysis (copy on file):
Section 1. AS 37.13.010(a)
This section amends AS 37.13.010(a) to reduce the
share of mineral lease rentals, royalties,
royalty shale proceeds, net profit shares,
federal mineral revenue sharing payments, and
bonuses received by the state from certain
mineral leases contributed to the permanent fund
from 50 percent to 25 percent.
Previously, the contribution rate had been
set at 50 percent of mineral lease bonuses
(except from the Beaufort Sea, which had
been left at 25 percent) and 50 percent of
mineral lease royalties and net profits from
the Beaufort Sea and other future sales. The
rate for Prudhoe Bay had been at 25 percent.
The dates listed in sub-sections (1) and (2)
carve out the different geographical lease
sales at the time of the Free Conference
Committee Report of the Eleventh Alaska
State Legislature for the HCS for SB 161,
which chose to apply different percentages
to mineral lease rents, royalties, etc.,
from each area.
The distinction is that AS 37.13.010(a)(1)
addresses the Prudhoe Bay leases, and (a)(2)
addresses the Beaufort Sea leases.
Section 2. AS 37.13.010(a)
Repealing Section 1. This section reverts to the
current statute and is effective July 1, 2019.
Section 3. 37.13.015
This section creates a new way to calculate the
dividend. Under this section the dividend
calculation is as follows:
Drawn from the earnings reserve- 15 percent
of the five year average of the net income
of the permanent fund
Drawn from the earnings reserve- 2 percent
of the market value of the constitutional
budget reserve
From the general fund- 15 percent of the
money deposited to the general fund from all
mineral lease rents, royalties, sales and
bonuses.
Section 4. AS 37.13.140
This section does two things.
First, it directs the Alaska Permanent Fund
Corporation (AFPC) to determine the amount
available from the permanent funds earnings
reserve that is available for distribution.
It shall be calculated is 4.5 percent of the
average market value (POMV) of the permanent
fund, including the earnings reserve, for the
last 5 fiscal years immediately preceding the
fiscal year just ended.
Second, it places a revenue limitation on
the amount of the POMV draw based on the
amount of production taxes and mineral lease
rents, royalties and bonuses.
If the income from these sources is more than $1
Billion then the POMV draw will be reduced on a
dollar per dollar bases- less the 15 percent of
rents, royalties, and bonuses that are attributed
to the dividend under Section 3.
10:12:48 AM
Senator McGuire explained that philosophical concepts had
to be put into formulas in complicated ways, which had
resulted in several drafting errors in the bill, but that
she wanted to get the cs to the committee in time for the
hearing. She assured the committee that she would work with
David Teal, and the committee, to craft a clean bill.
Mr. Logan continued to discuss the sectional analysis:
Section 5. AS 37.13.140
Repealing Section 4. This section reverts to the
current statute and is effective July 1, 2019.
Section 6. AS 37.13.145(a)
Directs the APPC to deposit into the earnings
reserve income as it is realized and received
except for the income for deposit into the
general fund under Section 12 of this act.
Section 7. AS 37.13.145(a)
Repealing Section 7. This section reverts to the
current statute and is effective July 1,
2019.
Section 8. AS 37.13.145(c)
This section changes the statutorily defined
mechanism for inflation proofing the principle of
the permanent fund.
Under this section the AFPC can transfer to
the principle of the fund the difference
between 4 times the previous fiscal years
amount for distribution, determined in
Section 4, and the balance of the earnings
reserve.
If the earnings reserve has 4 times the previous
years' distribution, the excess can be used for
inflation proofing. This ensures that before
inflation proofing occurs, there is a 4:1
coverage spread for the POMV draw.
The amount transferred shall not be applied to
increase the value of the fund attributed to the
settlement of State v. Amerada Hess.
10:14:58 AM
Senator Hoffman asked whether the section included capital
and operating monies.
10:15:09 AM
Co-Chair MacKinnon wondered whether the figures were based
on the Operating Budget or the Capital Budget.
Mr. Logan replied that it was combined general fund money.
10:15:27 AM
Senator Hoffman queried the impact the section would have
on the Capital Budget.
Senator McGuire interjected that it could have a political
effect on the Capital Budget. She said that realistically,
operations would be funded first, but occasional Capital
Budget matches could be made. She referred to Slide 21, and
related that if the state reached $3.5 billion in
production taxes, the bill would allow for additions to the
Capital Budget.
10:16:49 AM
Senator Hoffman understood that funding the Operating
Budget was the first priority, he felt that section 4 would
create significant downward pressure on the Capital Budget,
with no way for the legislature to address the issue. He
worried that there could be no Capital Budget in a decade.
Senator McGuire agreed that adding a spending limit
provision would constrain the legislature's ability to make
judgement calls about future infrastructure needs. She
relayed that she had attempted to address the issue in the
previous committee. She felt that both the Operating
Capital Budgets were equally important. She reiterated that
a spending limit could decrease the legislature's ability
to make Capital Budget decisions.
10:18:43 AM
Co-Chair MacKinnon felt that there should be an analysis of
the AKLNG in order to show the people of Alaska how the
project would affect the Operating Budget.
10:19:38 AM
Mr. Logan continued to discuss the sectional analysis:
Section 9. AS 37.13.145(c)
Repealing Section 8. This section reverts to the
current statute and is effective July 1, 2019.
Section 10. AS 37.13.145(d)
Holds the settlement of State v. Amerada Hess
harmless from the general fund deposits.
Section 11. AS 37.13.145(d)
Repealing Section 10. This section reverts to the
current statute and is effective July 1, 2019.
Section 12. AS 37.13.145
(e) Subject to legislative appropriation, this
section directs the AFPC to deposit the amount
available for distribution, under Section 4 of
this act, into the general fund.
(f) The commissioner of revenue may recommend
adjustments to the percentage of money
appropriated to the dividend fund.
(g) The commissioner of revenue shall deliver an
annual report to the legislature evaluating the
sufficiency of assets in the earnings reserve and
the amount projected for distribution to the
general fund.
10:20:46 AM
Senator McGuire urged the committee to discuss the issue
with the director of the Permanent Fund Corporation, Angela
Rodell. She said that the section had been adopted from the
governor's plan, and knew that Ms. Rodell had expressed
concerns with the language. She
10:21:56 AM
Senator Bishop wondered whether the proposal would change
the investment strategy of the Permanent Fund. He thought
that the change could be dangerous.
10:22:22 AM
Co-Chair MacKinnon interjected that Ms. Rodell has
previously been before the committee, and that future
meetings were expected with the corporation.
10:22:41 AM
Mr. Logan continued to discuss the sectional analysis, with
Section 12, subsection (h):
(h) is assumed to be a drafting error, and would
only apply on or after July 1, 2019 when Section
3 is repealed under Section 27 of this act.
Section 13. AS 37.13.300(c)
Makes a conforming amendment to clarify that net
income from the Mental Health Trust Fund is not
included in the computation of income available
for distribution under Sec. 4 of the bill.
Section 14. AS 37.13.300(c)
Repealing Section 13. This section reverts to the
current statute and is effective July 1, 2019.
Section 15. AS 37.13.031 (c)
Conforms to Sec 4, so that the net income of the
Permanent Fund continues to be computed annually
as of the last day of the fiscal year in
accordance with generally accepted accounting
principles, excluding any unrealized gains or
losses.
Section 16. AS 37.14.031 (c)
Repealing Section 15. This section reverts to the
current statute and is effective July 1, 2019.
Section 17. AS 43.23.025(a)
Makes conforming amendments for determining the
value of the dividend under Sec. 3 of the bill.
Section 18. AS 43.23.025(a)
Repealing Section 17. This section reverts to the
current statute and is effective July 1, 2019.
Section 19. AS 43.23.025
Allows the legislature to appropriate from the
earnings reserve account an necessary funding to
maintain a dividend amount of at $1,000 in the
event that the calculation determined by Sec. 3
of this act falls below that amount.
Section 20. AS 43.23.045(d)
States that unexpended appropriations to
implement this act lapses into the dividend fund
at the end of a fiscal year and may be used in
determining the amount of and paying the
subsequent year's dividend.
Section 21. AS 43.23.045(d)
Repealing Section 20. This section reverts to the
current statute and is effective July 1, 2019.
Section 22.
Repeals AS 37.13.145(b)
Section 23. (Sunset Claus)e
On July 1, 2019, the following are repealed:
AS 37.13.015- New Dividend Calculation
AS 37.13.145(e) - Deposits of available funds
from ERA to general funds
AS 37.13.145(f) Commissioner of revenue can
recommend changes of percentages to dividend
fund
AS 37.13.145(g) Commissioner of revenue will
deliver a report to the legislature on assets of
PF
AS 43.23.025(c) minimum dividend of $1,000
Section 24. Transition:
(a) Holds the 2016 Dividend harmless and will be
calculated by status quo formula
(b) Commissioner of revenue and APFC may adopt
regulations
Section 25. Transition:
(a) The 2019 Dividend will be determined by the
new formula of this act, regardless of the repeal
language of Section 23.
(b) Commissioner of revenue and APFC may adopt
regulations
Section 26. Retroactivity
If the changes made to the calculation of the
dividend and the POMV draw from the earnings
reserve account are not signed into law by July
1, 2016, the act is retroactive to that date.
Sec. 1- All royalties, rents, bonuses etc.
changed from 25 and 50 percent deposited to
permanent fund principle, to 25 percent.
Sec. 3- New dividend calculation
Sec. 4- POMV draw and revenue limiter
Sec. 6- Deposits from the earnings reserve
account to general fund
Sec. 8- new inflation proofing mechanism
Sec 10- Holding earnings from Amerada Hess
settlement harmless from general fund
Sec. 12(e)-(g)- deposits from earnings
reserve account to general fund and
commissioner of revenue's new duties
Sec. 13 Holding mental health trust fund
earnings harmless from the calculation for
distribution
Sec. 15 Net income calculation for APFC
Sec 17 appropriation language to dividend
fund
Sec 19 minimum $1,000 dividend
Sec 20 - unexpended appropriation for
dividend fund lapse
Sec 24 Transition language holding 2016
dividend harmless
Section 27.
Effective date of July 1, 2019- repeals this act
Section 28.
Section 24 (2016 dividend held harmless) and
Section 26 (retroactivity) immediate effective
date
Section 29.
Effective date of this act is July 1, 2016
10:24:58 AM
Senator Hoffman looked at Page 4, section 23; the sunset
clauses. He remarked Section 19 set the dividend minimum at
$1000, but that Section 23 would apply a sunset date, after
which there were no minimum number applied to the dividend
payout.
Mr. Logan agreed with Senator Hoffman's assessment.
10:25:50 AM
Co-Chair MacKinnon wondered why the $1000 minimum would be
repealed after three years.
Mr. Logan explained that the sunset clause for the bill
would allow for a review period, after which the
legislature would need to extend the effective date of the
bill or repeal the sunset provisions, in order to keep the
program going forward.
10:26:31 AM
Senator McGuire added that the committee should discuss the
issue of a sunset date as they scrutinized the legislation.
10:28:08 AM
Co-Chair MacKinnon surmised that the bill would change the
pay out on the dividend for a period of time, and then
revert back to the current payment method. She stressed
that the legislature could revisit the statutory change in
three years.
10:29:30 AM
Senator Olson wondered whether three years would be long
enough to relieve the state's financial situation.
Senator McGuire replied the issue was that that now was the
time to fundamentally restructure how the budget was
funded. She did not believed that the program should be
sunsetted.
Senator Olson commented that Senator McGuire had been on
the Senate Finance Committee when it had had the
forethought to put billions into the CBR.
10:31:44 AM
Senator Hoffman commented that the proposed legislation
held harmless the dividend for 2016, which meant that the
dividend was only reduced for 2 years.
10:32:18 AM
Vice-Chair Micciche thought that it was important to
reevaluate the situation in two years, and not to keep more
revenue that was needed. He hoped that it looked like the
committee was taking revenue seriously, and in a way that
would have the least amount of impact on the public.
Senator McGuire trusted that the committee would work to
craft a balanced and effective piece of legislation, with
or without the sunset clause.
10:33:51 AM
Co-Chair Kelly wondered why the legislature did not follow
the constitutional spending limit. He hoped a
constitutional lawyer could testify before the committee on
the issue.
10:34:44 AM
Senator Dunleavy concurred with Co-Chair Kelly. He felt
that Section 16 of the Alaska Constitution discussed
capping the budget.
10:35:44 AM
Senator Hoffman pointed out that there were Constitutional
provisions that required the state to spend a larger
percentage on Capital Projects than was currently being
spent.
10:36:23 AM
Co-Chair MacKinnon agreed that the conversation would be
fruitful.
10:37:31 AM
Senator McGuire thanked the committee and committee staff.
10:37:46 AM
Co-Chair Kelly remarked that the price of oil was only a
proximate cause for the state's fiscal woes. He lamented
that spending was too high, but also that "silk suited
lawyers from the East Coast" had been "beating Alaska down"
in the courts and preventing the state from developing its
natural resources. He added that environmentalists had
interfered with the states development of natural
resources.
10:39:55 AM
Vice-Chair Micciche was bothered by the growth of
government. He hopped that as revenue increased the state
would be disciplined in its government spending.
10:41:02 AM
Senator Bishop reiterated the need for deferred maintenance
funding.
Co-Chair MacKinnon discussed housekeeping.
SB 114 was HEARD and HELD in committee for further
consideration.
ADJOURNMENT
10:42:42 AM
The meeting was adjourned at 10:42 a.m.
| Document Name | Date/Time | Subjects |
|---|---|---|
| CS for SS SB 114 Sectional Analysis Version T.pdf |
SFIN 3/22/2016 9:00:00 AM |
SB 114 |
| CS SS SB 114 (STA) Sponsor Statement.pdf |
SFIN 3/22/2016 9:00:00 AM |
SB 114 |
| CS SS SB114 Summary of Changes Version F to Version T.pdf |
SFIN 3/22/2016 9:00:00 AM |
SB 114 |
| SB 114 Letter of Support- Frank McQueary.pdf |
SFIN 3/22/2016 9:00:00 AM |
SB 114 |
| SB 114 supporting Document- APFC Resolution on POMV.pdf |
SFIN 3/22/2016 9:00:00 AM |
SB 114 |
| SB 114 Reducing the Deficit - Investing Alaska's Vast Cash Reserves McGuire.pdf |
SFIN 3/22/2016 9:00:00 AM |
SB 114 |