Legislature(2021 - 2022)SENATE FINANCE 532
09/11/2021 01:00 PM Senate FINANCE
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| Audio | Topic |
|---|---|
| Start | |
| Presentation: Pfd Fiscal Modeling Scenarios | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
SENATE FINANCE COMMITTEE
THIRD SPECIAL SESSION
September 11, 2021
2:03 p.m.
2:03:38 PM
CALL TO ORDER
Co-Chair Bishop called the Senate Finance Committee meeting
to order at 2:03 p.m.
MEMBERS PRESENT
Senator Click Bishop, Co-Chair
Senator Bert Stedman, Co-Chair
Senator Lyman Hoffman
Senator Donny Olson (via teleconference)
Senator Natasha von Imhof
Senator Bill Wielechowski (via teleconference)
Senator David Wilson
MEMBERS ABSENT
None
ALSO PRESENT
Angela Rodell, Executive Director, Alaska Permanent Fund
Corporation; Alexei Painter, Director, Legislative Finance
Division; Senator Mike Shower; Representative Andy
Josephson; Representative Dan Ortiz.
SUMMARY
^PRESENTATION: PFD FISCAL MODELING SCENARIOS
2:04:57 PM
Co-Chair Bishop explained that the committee would hear
from the director of the Alaska Permanent Fund Corporation
(APFC) and hear a presentation on Permanent Fund Dividend
(PFD) fiscal modeling scenarios from the Legislative
Finance Division (LFD) director.
2:05:38 PM
ANGELA RODELL, EXECUTIVE DIRECTOR, ALASKA PERMANENT FUND
CORPORATION, stated she was present to answer questions.
Co-Chair Stedman recounted that the previous day, the
committee had discussion with the Department of Revenue
(DOR) that included the topic of an overdraw on the
Permanent Fund beyond the 5 percent payout cap. He thought
it had been insinuated that it was ok to overdraw on large
endowment funds without an adverse effect on the fund. He
could not correlate the statement to any other information
he had heard in the past. He asked if there was any impact
such as lost opportunity cost if the legislature started to
make ad hoc draws from the Permanent Fund.
2:07:20 PM
Ms. Rodell wanted to walk through the management of the
fund to illustrate the answer to Co-Chair Stedman's
question. She detailed that the corporation statutes had
not been touched other than to put in the Prudent Investor
Rule in 2005. Prior to that time, there was a list of
investments the board of trustees was allowed to use to
invest the funds. The rest of the statutes had been in
place since 1980, including the mission statement and the
legislative findings. The mission was for the board to
manage and invest the funds, and the findings stipulated
that the corporation maximize returns, minimize risk, and
ensure there was an intergenerational effect. She
paraphrased that none of the actions the trustees took
should cause a loss that could impair future generations
from benefitting from the fund.
Ms. Rodell continued that each year the board worked on
asset allocation designed to maximize returns (with a long-
term target of 5 percent plus inflation) as well as
considering risk and working to mitigate the risk
associated with the asset allocation. She listed the group
of funds under APFC's care: the principal of the Permanent
Fund, the Earnings Reserve Account (ERA), Alaska Mental
Health Trust funds, and Amerada Hess settlement funds.
According to the direction given in statute, all funds were
to be invested like the Permanent Fund. Currently the asset
allocation was 38 percent to stocks, 20 percent to bonds, 2
percent to cash, and a balance of 40 percent in private
alternative assets like real estate, and private equity and
income.
Ms. Rodell continued that the allocation considered a total
amount of a certain size. When there were ad hoc or
unplanned draws of the magnitude that had been discussed,
the amount of money invested was significantly decreased.
All of the money in the draws would come out of the public
side of investments, which had more liquidity. The effect
was an overweight in the private side of allocations, which
had a different risk profile than intended. To diminish
exposure took one to two years. She emphasized the
importance of known draw amounts in order to manage the
long-term investment in a risk adjusted way so as to not
get "upside down" in the asset allocation, risk tolerance,
and returns.
Ms. Rodell mentioned that private equity for FY 21 returned
59 percent versus 48 percent on the public equity side.
There were meaningful investments that had returned
incredible wealth to the state, that could not be unwound
quickly or easily. She mentioned that a downturn in the
market could also cause unintended consequences. She
mentioned the effect of having to move more funds than
intended out of certain buckets in order to assume
consequences of ad hoc draws.
2:12:47 PM
Co-Chair Stedman noted that the committee was considering
SB 53 [which proposed to establish a new statutory
framework for spending of permanent fund income], and the
current draft of the bill proposed to have a 1.5 percent
overdraw for two years. He asked if the amount was
significant and wondered at what point the legislature
should be paying attention to the matter.
Ms. Rodell thought Co-Chair Stedman's question was
difficult to answer. She reminded that it was the
legislature's responsibility to set policy on how the ERA
would be spent. She recounted that the trustees had
advocated for years (and reaffirmed in 2020) that to keep
balances in the ERA for four times the amount to help
cushion and plan for events. When SB 26 [which established
the current percent of market value (POMV) draw] statutes
were being discussed, the amount of 5.25 percent for three
years with a step down to 5 percent was discussed to
provide a "glide path," and the current amount was 5
percent. She thought it was a difficult conversation
because the state was in the position to decide what was
prudent.
Co-Chair Stedman asked if it would impact the fund's
management strategy if the legislature were to want the
Permanent Fund to generate the extra 1.5 percent for two
years. He asked Ms. Rodell to elaborate on the last two
year's performance. He made note of positive performance
returns in the previous year and thought the returns were
far from the mean. He asked if the legislature should be
more cautious that the returns would regress to the mean or
if it could be expected that the returns would stay high.
2:15:33 PM
Ms. Rodell thought Co-Chair Stedman highlighted an
important point. She recalled that FY 20 ended the fiscal
year with the fund earning 2.04 percent. From July 1, 2019,
through June 30, 2020 it was a really challenging year. In
March of 2020, the value of the fund dropped to $60 billion
at one point. The state had been fortunate that the fund
had been able to put cash into the market to recover and
receive the returns over the past year. She relayed that
all of the corporation's consultants had advised that the
fund should expect a lower return environment over the next
ten years. The all-time high valuations over all asset
classes would be difficult to sustain. She noted that the
recent returns had been the highest she had seen in her 30-
year career. She thought the situation should highlight how
rare the condition had been and how lucky the state was
that the fund was able to take the opportunity.
Co-Chair Stedman thought Ms. Rodell's response had tied
together his question about huge returns and taking
overdraws.
Senator von Imhof considered that 5 percent was the
prevailing draw rate for endowments and sovereign wealth
funds. She asked about the draw rate of the Mental Health
Trust Fund.
Ms. Rodell recalled that the trust's draw rate was either
4.25 or 4.75.
Senator von Imhof asked about the general draw rate of
other endowments, foundations, and sovereign wealth funds.
Ms. Rodell explained that a number of sovereign wealth
funds would have variable draw rates under certain
conditions. She mentioned limiters on gross domestic
product growth and other things. She relayed that generally
the amount ranged in between 3 percent and 5 percent.
Senator von Imhof asked about a recent draw rate change to
the sovereign wealth fund in Norway.
Ms. Rodell thought Norway's rate had been increased from 3
percent to four percent.
Senator von Imhof recalled that Norway had dropped the rate
from five percent to four percent in the previous few
years.
Ms. Rodell understood that the Norwegian fund's draw rate
could go to up five percent, but it had not. When she had
spoken with individuals at the Norwegian fund two weeks
previously, she learned that the fund had historically been
at a 3 percent draw rate but was increasing to a 4 percent
rate in the current year.
2:19:38 PM
Senator von Imhof thought the federal government assumed
the maximum draw rate for private foundations and
endowments was 5 percent, and all excise taxes on grants
were based on an assumed 5 percent give-away. She thought 5
percent was the "tried and true" tested draw amount across
decades and was sustainable over time.
Co-Chair Bishop referenced the 1.5 percent overdraw as
proposed in a bill the committee was considering. He
thought Ms. Rodell had indicated that it would take the
corporation two years to unwind some of the asset
allocations.
Ms. Rodell specified that in order to rebalance the
Permanent Fund portfolio to the risk and return allocation
set by the board, it would take up to two years to reduce
the exposure to private assets and get back to the asset
allocation.
Co-Chair Bishop asked about the potential for lost
opportunity cost by going to a 6.5 percent draw versus
leaving the draw at 5 percent.
Ms. Rodell thought there was a potential for opportunity
cost with the proposal in the sense that the provision
proposed to take money out of some of the highest and best
performing assets of the fund and putting them into lower
risk, lower returning assets by the nature of rebalancing.
There was a potential effect of lost return.
2:22:22 PM
Senator von Imhof thought if the committee were to discuss
an increased draw rate, it was important to consider
generation of returns to cover the five percent draw, as
well as inflation to avoid eroding the value of the dollar.
She contended that inflation went up and the draw was
larger than 5 percent, there were increased "return
hurdles" and it was harder and harder for the investing
team to meet the return goals for the Permanent Fund.
Co-Chair Stedman thanked Ms. Rodell for her work and her
presence at the meeting. He wondered if she could comment
on the $4 billion appropriated to the constitutionally
protected side of the fund that could not be spent. He
thought the appropriation, along with another $4.9 billion
appropriated a few years previously, were significant
actions that were taken on behalf of future generations.
Ms. Rodell commented that the $4 billion that was
appropriated in the FY 22 budget had been moved immediately
because the way the budgetary language had been drafted.
She noted that the APFC July 2021 statement would show the
effect of the transfer and would show a principal total of
$66.2 billion, including $15.2 billion of unrealized gains.
The core corpus and protected balance of the fund was $50.9
billion after the transfer.
Co-Chair Bishop echoed Co-Chair Stedman's comments.
^PRESENTATION: PFD FISCAL MODELING SCENARIOS
2:26:23 PM
ALEXEI PAINTER, DIRECTOR, LEGISLATIVE FINANCE DIVISION,
discussed the presentation "PFD Fiscal Modeling Scenarios"
(copy on file).
Mr. Painter showed slide 2, "Disclaimer":
Scenarios and adjustments in this presentation were
requested by the Finance co-chairs. LFD is policy
neutral and does not endorse a particular fiscal plan.
2:27:02 PM
AT EASE
2:27:39 PM
RECONVENED
Co-Chair Bishop clarified that the modelling that Mr.
Painter was presenting was a pre-cursor to what SB 53 was
attempting to achieve in the forthcoming Committee
Substitute (CS).
Co-Chair Stedman recalled that several years ago when the
legislature was struggling with the budgets, the decision
had been made to forward-fund education, as well as setting
the PFD for a couple of years in advance. He discussed
considering rewriting the dividend formula, which after 40
years was out of sync structurally with the composition and
size of the Permanent Fund. He noted that the committee had
been working on a substantial CS for SB 53, which would
propose setting a dividend rate of $1,100, $1,200, and
$1,300 over subsequent years. He mentioned a 50/50
provision that would split the 5 percent payout with half
to the dividends and half to the state.
Co-Chair Stedman continued his comments. He explained that
the CS for SB 53 was in the final edit and would be further
reviewed before consideration by the committee. The co-
chairs had thought the committee should consider the
financial implications of the CS due to the rapidly
advancing time frame of the special session. There would be
further review and discussion, as well as amendments when
the bill was before the committee. He hoped that whatever
dividend policy that was advanced in the legislature, it
would stand for 30 or 40 years.
2:31:51 PM
Co-Chair Bishop recognized that Representative Ortiz,
Representative Josephson, and Senator Shower were in
attendance.
Mr. Painter turned to slide 3, "Review of Modeling
Baselines":
? Legislative Finance's fiscal model is designed to
show policy makers the longer-term impact of fiscal
policy decisions.
? The baseline assumptions are essentially that
current budget levels are maintained, adjusted for
inflation. Policy changes are then applied against
that baseline.
? Our default is to assume that statutory formulas
will be followed.
Mr. Painter discussed slide 4, "Review of Modeling
Baselines (cont.)":
Revenue Assumptions
? LFD's baseline revenue assumptions are the
Department of Revenue's Spring Revenue Forecast.
This assumes $61 oil in FY22, growing with
inflation in future years.
DNR oil production forecast projects that
Alaska North Slope production will increase from
459.7 thousand barrels per day in FY22 to 565.5
thousand barrels per day in FY30.
? For the Permanent Fund, we assume actual FY21
returns and Callan's return assumption, which is 5.86%
for FY22 and 6.20% for FY23 and beyond.
Mr. Painter noted there had been a minor update since the
last time LFD had presented after receiving final numbers
from the Permanent Fund, which showed a slight increase
from prior numbers.
Co-Chair Bishop asked if Mr. Painter had checked with the
administration to ask if the numbers took into account what
had happened in Willow.
Mr. Painter noted that the spring forecast was based on the
Department of Natural Resources' (DNR) production forecast
from the previous fall, and did not take changes from the
Willow field into account. He thought the new fall forecast
would be released in December and would incorporate the
information. He noted that new fields did not provide a lot
of revenue because of gross value reduction, so even
delaying a new field by a few years did not make a huge
impact on revenue.
2:34:41 PM
Mr. Painter referenced slide 5, "Review of Modeling
Baselines (cont.)":
Spending Assumptions
? For agency operations, these scenarios assume 50% of
vetoes are restored to the FY22 enacted budget.
Budgets grow with inflation starting in FY23 (2.0% per
Callan).
? For statewide items, the baseline assumes that all
items are funded to their statutory levels beyond
FY22.
This includes School Debt Reimbursement, the
REAA Fund, Community Assistance, oil and gas tax
credits. We assume oil and gas tax credits are
unfunded in FY22 but statutorily funded beginning
FY23 until the credit balance is eliminated.
We also include a baseline Fund Transfers
amount that represents the ongoing cost of DEC's
Spill Prevention and Response program.
? For the capital budget, we assume the enacted FY22
capital budget, growing with inflation.
? For supplementals we assume $50.0 million per year.
This is based on the average amount of supplemental
appropriations minus lapsing funds each year.
Mr. Painter noted that in HB 3003, there were additional FY
22 appropriations. He also noted there was some funding in
the bill for statewide items. He noted that the capital
budget was about $240 million in unrestricted general funds
(UGF), significant amounts of which the governor had
vetoed.
Co-Chair Bishop noted that now it was known that when the
federal infrastructure package went through, the state
would have to provide a reasonable and customary match.
Mr. Painter presented slide 6, "A Note on Retirement
Funding":
? LFD's modeling generally uses the ARM Board's most
recent officially-adopted contribution schedule,
currently the one adopted in June 2021. However, this
does not include the impact of FY21 earnings.
? The September ARM Board meeting will adopt updated
projections that may resemble DOR's preliminary
numbers more closely than the June figures.
? This presentation uses preliminary actuarial
analysis presented by DOR in July and used by the
Comprehensive Fiscal Plan Working Group. The analysis
shows significantly lower retirement contributions
than the official June figures ordinarily used by LFD.
Mr. Painter spoke to slide 7, "A Note on Retirement Funding
(cont.)," which showed a data table entitled 'Comparison of
previous LFD assumption (June ARM Board adjusted for SB 55)
and July draft with FY21 earnings.'
Mr. Painter referenced the table on slide 7, and drew
attention to the first column, which showed the previous
assumption of $245 million in FY 23 growing to $323
million. The July draft numbers from DOR showed $180
million dropping to $108 million by FY 26, then growing
slightly. He explained that on a year-to-year basis, the
reductions started at $65 million and then grew to $205
million by FY 30. Cumulatively, the change in assumptions
reduced the budget by $1.26 billion over the forecast area.
Co-Chair Bishop made the point that eight years previously
the committee had wisely deposited $3 billion into state
retirement funding.
2:39:17 PM
Senator von Imhof understood that the Alaska Retirement
Management (ARM) Board reviewed the chart periodically. She
asked Mr. Painter how often the board reviewed the numbers.
Mr. Painter informed that the ARM Board reviewed the
numbers four times per year, and the board met in June,
September, December, and March.
Senator von Imhof thought the table looked wildly different
than it had four and six months previously. She thought the
quarterly change was relatively significant, especially if
the amount was $150 million dollars per year or more.
Mr. Painter agreed there was some volatility and noted that
the current swing was larger than normal. There was some
smoothing, but a year with numbers so far above the
actuarial projection such as 2021 could move the numbers
relatively quickly.
Senator von Imhof referenced Ms. Rodell's comments about a
market downturn to a 2 percent to 3 percent return, and she
thought the chart would adjust again.
Mr. Painter agreed.
Senator von Imhof dovetailed on Senator von Imhof's comment
and hoped the state did not make the same mistake twice.
Co-Chair Stedman thought that clearly the state was
underfunding the state's pension plan in the end of the
1980's and in the 1990's, and the state was paying the
price currently. He cautioned the committee to take the
numbers with a grain of salt and reexamine the figures in
February or March. He discussed running sensitivity tables
with the numbers. He hoped that with $65 million in
budgetary reductions in the current year the legislature
could continue with advanced shrinkage of the unfunded
liability and not make any historical mistakes such as were
made in the 1990's.
Mr. Painter addressed slide 8, "Fiscal Model: $1,100/person
PFD FY22-FY23, $1,200 FY24, $1,300 FY25, 50% of POMV PFD
FY26+," with two bar graphs. The first depicted a "stair-
step" PFD and no other policy changes. In FY 22 and FY 23,
there was an $1,100 PFD, in FY 24 there was a $1,200 PFD,
in FY 25 there was $1,300 PFD, and starting in FY 26 it
went to the 50/50 formula. The scenario showed deficits in
FY 21, FY 22, and FY 23, and then a roughly balanced budget
in FY 24 and FY 25, and when the 50/50 POMV kicked in there
would be a $700 million deficit. He noted that the scenario
assumed no further revenue replacement would be used from
American Rescue Plan Act (ARPA) funds. He noted that the
overdraw in FY 23 could probably be avoided if the state
used $250 million in ARPA funds as it had in the current
year.
2:44:01 PM
Mr. Painter turned to slide 9, "Fiscal Model: $1,100/person
PFD FY22-FY23, $1,200 FY24, $1,300 FY25, 50% of POMV PFD
FY26+," which showed two graphs depicting the same modeling
scenario on the previous page, with the actual returns from
FY 00 to FY 08 instead of using the Callan forecast. The
returns would include the "dot-com bust" and some negative
market performance in the early years. He noted that
compared to the previous scenario, the budget looked a
little worse and showed a $780 million deficit in FY 26. In
the scenario, the ERA dropped before recovering after the
recession period. He noted there was worse performance in
the later years due to factoring in the historical
recession.
Mr. Painter spoke to slide 10, "Fiscal Model: $1,100/person
PFD FY22-FY23, $1,200 FY24, $1,300 FY25, 50% of POMV PFD
FY26+," which showed two bar graphs depicting the same
scenario, but with building in the actual returns from FY
09 to FY 17. He characterized the depiction as an "extreme
stress test," as it incorporated the single worst year of
the fund's history (FY 09), which was the only year in
which there was negative statutory net income. There was
recovery in the following years. The scenario showed
deficits throughout the period, with the FY 26 deficit
being close to $900 million.
Senator von Imhof considered slides 8,9, and 10, and wanted
to clarify that Mr. Painter was modelling the same
assumptions with only a change in returns.
Mr. Painter agreed.
Senator von Imhof noted that slide 8 showed the highest
returns based on Callan's forecast, while the other slides
used actual returns. She thought in all three of the other
scenarios, the model "breaks" and would require either an
ERA draw or taxes.
Mr. Painter agreed that if there were no policy changes,
the scenarios would show the deficits were large enough to
have to overdraw the ERA.
Co-Chair Bishop added that there could also be cuts
implemented.
Mr. Painter agreed that there could be other policy choices
such as taxes or cuts, but the scenarios reflected nothing
but an ERA overdraw to cover the deficit.
2:47:32 PM
Senator Hoffman mentioned the 50/50 provision discussed by
Co-Chair Stedman, and thought it would be incumbent upon
the legislature to see what revenues were needed. He
mentioned the difference between the stair-stepped plan
versus the bridge funding discussed by the committee at an
earlier meeting.
Senator Hoffman added that he thought the end result was
that both of the plans called for a 50/50 payout in
dividends for the people of Alaska.
Mr. Painter displayed slide 11, "Fiscal Model:
$1,100/person PFD FY22-FY23, $1,200 FY24, $1,300 FY25, 50%
of POMV PFD FY26+," which showed what would happen with the
same PFD scenario, with the addition of $700 million of new
revenue starting in FY 26 to support the PFD going to the
50/50 plan. The scenario resulted in roughly balanced
budgets in the period examined.
Co-Chair Stedman commented that "one man's revenue was
another man's taxes." He thought there should be a footnote
to indicate that new revenue could be increased taxes or
budget cuts, or a combination of both.
Co-Chair Bishop considered the $700 million in new revenue
and referenced a report from the Bicameral Permanent Fund
Working Group. He thought there could be room for $250
worth of budget cuts, which would lower the revenue number.
Senator von Imhof expressed that all modelling was
generally two-dimensional. She thought the economic
consequences of taking $700 million out of the economy was
missing from the picture. She pondered the effects of
taking funds out of the economy and replacing them with a
dividend. She referenced the recent census and population
decline. She was concerned about continuing the trend.
2:52:31 PM
Mr. Painter turned to slide 12, "Fiscal Model:
$1,100/person PFD FY22-FY23, $1,200 FY24, $1,300 FY25, 50%
of POMV PFD FY26+; $700M New Revenue FY26+," which showed
the same scenario but with the FY 00 to FY 08 returns. He
noted reduced revenue starting in FY 24. The model showed
$700 in new revenue and a roughly balanced budget in FY 26
and beyond, but instead of generating surpluses the budget
stayed roughly balanced. The model showed the ERA dip but
balance in later years.
Mr. Painter showed slide 13, "Fiscal Model: $1,100/person
PFD FY22-FY23, $1,200 FY24, $1,300 FY25, 50% of POMV PFD
FY26+; $700M New Revenue FY26+," which showed the same
policy scenario but using FY 09 to FY 17 returns. With the
larger drop to the Permanent Fund, the deficits persisted
even with new revenue. There would be deficits through FY
27, then roughly balanced beyond that time. In contrast to
the models on other slides, there was overdraws from the
ERA to meet the deficit in several years, even once the new
revenue kicked in.
Co-Chair Stedman thought that the slide was a reminder that
the timeframe of FY 09 to FY 17 was the largest recession
relative to the great depression. He hoped it was most
likely the worst recession the state would ever see.
Co-Chair Bishop was hoping one of the more senior members
would discuss history and a time in 2009 and 2010 when the
legislature did not know if it could pay a dividend.
Co-Chair Stedman recalled that there was a time when there
was a substantial budget reduction. He recalled there was
significant concern by committee members at the time that
there would not be funds to pay a dividend. He relayed that
some members felt that the Permanent Fund actively turned
over the portfolio to create realized returns and income to
produce a dividend for the people. He suggested the current
and proposed statutes ensured that even if the Permanent
Fund had a significant decrease in value, there would still
be a payout based on a percentage of the five-year
lookback.
Co-Chair Bishop thought the goal of the legislature was to
ensure that the same problem never happened again and to
move forward with prudence.
2:56:20 PM
Mr. Painter spoke to slide 14, "Fiscal Model: $1,100/person
PFD FY22-FY23, $1,200 FY24, $1,300 FY25, $1,300 PFD growing
with inflation FY26+ Callan forecast for returns," which
showed the scenario with the stair-stepped PFD amounts but
including the result of no revenue coming resulting in a
dividend formula of $1,300 growing with inflation rather
than the 50/50 calculation. With the Callan returns
factored in, the scenario showed a budget surplus of $176
million starting in FY 25 and growing in future years.
There would be no need for ERA overdraws in future years.
Mr. Painter turned to slide 15, "Fiscal Model:
$1,100/person PFD FY22-FY23, $1,200 FY24, $1,300 FY25,
$1,300 PFD growing with inflation FY26+ FY00-08 Returns,"
which showed the same policy scenario but including actual
returns from FY 00 to FY 08. There was a similar pattern in
the ERA, with no overdraws, but with surpluses that were a
bit smaller than in the previous scenario.
Mr. Painter showed slide 16, "Fiscal Model: $1,100/person
PFD FY22-FY23, $1,200 FY24, $1,300 FY25, $1,300 PFD growing
with inflation FY26+ - FY09-17 Returns," which showed
similar return scenarios as the previous slides. The
scenario showed persistent deficits for a longer period.
The scenario still balanced the budget and showed surplus
at the end of the modelling period, but in the meantime the
ERA would vanish in FY 25 due to some of the overdraws to
get through the years. Even with the $1,300 PFD in the
scenario, the result was over-draws.
Senator von Imhof thought that the most recent model did
not show much room for inflation, capital expenditures, and
deferred maintenance. She thought the scenario considered
the governor's assumptions for oil production volume for
the next eight to ten years. She asked if the recent court
decision and permit for new oil production in Willow
materially impacted the potential volume estimates for the
future.
Mr. Painter thought the permit would have some impact. He
noted that DNR applied an assumption of risk when doing a
forecast for any new production. He thought the impact of
the court decision was not as great as if DNR had assumed
the production was going forward as originally projected.
Senator von Imhof asked if the scenario modelled the
Permanent Fund, but not revenue, which was about 25 percent
to 30 percent of the state's income. She thought it might
make sense to model high, medium, and low revenue
estimates, which could materially pile on the deficits.
3:00:27 PM
Senator Wilson asked about slides 11 through 13, which
discussed new revenue. He mentioned some contingency
language in a bill in committee and asked if additional
draws from the ERA would be considered new revenue.
Mr. Painter hoped the contingency language would clearly
define "new revenue." It was possible to use language to
stipulate that new revenue must consist of whatever mix the
legislature preferred. He emphasized that LFD would prefer
not to be in the position of having to try to interpret
legislative intent. Rather, LFD would prefer that in
crafting the language, the legislature make it clear if the
overdraw of an ERA would count as new revenue or not.
Senator Wilson asked about LFD's current interpretation of
the language.
Mr. Painter was not sure how to interpret the language
currently. He noted that the higher draw, because it was
ongoing, would not really affect the years in which the
dividend would be higher in the first couple of years. He
thought the language was ambiguous at best and encouraged
members to clarify the language.
Senator Wilson considered the scenarios being presented and
thought starting with the 50/50 scenario from the beginning
of the scenario would show good faith to the people of
Alaska. He wanted the committee to consider the idea.
3:03:27 PM
Co-Chair Stedman wanted to offer some clarity on the issue.
He thought it was a far stretch to overdraw the Permanent
Fund and classify it as new revenue. He thought it was
essential to be clear when discussing new revenue, which he
considered to be tax collections, advanced oil price or
volume, or budget reductions. He mentioned that it had been
difficult to bring the operating budget down since 2015. He
doubted that there would be $200 million in reductions that
would stick. He stated that the committee would be working
with the issue of new revenue.
Co-Chair Bishop thought it was necessary to ask the
administration if it was going to continue to be agnostic
towards taxes. He thought without taxes none of the plans
would work.
Co-Chair Stedman wanted to clarify that there was no
language being considered in SB 53 that would put the
proposed changes to the Permanent Fund into the
constitution. He thought it was up to future legislatures
to make adjustments to the formula. He acknowledged the
unknown future markets and stressed the importance of
flexibility to adjust to current economic conditions. He
thought the bill would be a starting point.
Co-Chair Bishop thanked Mr. Painter for his presentation.
ADJOURNMENT
3:07:28 PM
The meeting was adjourned at 3:07 p.m.
| Document Name | Date/Time | Subjects |
|---|---|---|
| 091121 Fiscal Modeling SFIN 9-11-21 edited.pdf |
SFIN 9/11/2021 1:00:00 PM |