Legislature(2003 - 2004)

02/27/2004 08:00 AM JUD

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
                    ALASKA STATE LEGISLATURE                                                                                  
              SENATE JUDICIARY STANDING COMMITTEE                                                                             
                       February 27, 2004                                                                                        
                           8:00 a.m.                                                                                            
TAPE(S) 04-10 & 11                                                                                                              
MEMBERS PRESENT                                                                                                               
Senator Ralph Seekins, Chair                                                                                                    
Senator Scott Ogan, Vice Chair                                                                                                  
Senator Gene Therriault                                                                                                         
Senator Johnny Ellis                                                                                                            
Senator Hollis French                                                                                                           
MEMBERS ABSENT                                                                                                                
All members present                                                                                                             
COMMITTEE CALENDAR                                                                                                            
SENATE JOINT RESOLUTION NO. 18                                                                                                  
Proposing amendments to  the Constitution of the  State of Alaska                                                               
relating to  limiting appropriations from  and inflation-proofing                                                               
the Alaska  permanent fund  by establishing  a percent  of market                                                               
value spending limit.                                                                                                           
     MOVED CSSJR 18(STA) OUT OF COMMITTEE                                                                                       
SENATE JOINT RESOLUTION NO. 19                                                                                                  
Proposing amendments to  the Constitution of the  State of Alaska                                                               
relating to the Alaska permanent fund.                                                                                          
     MOVED CSSJR 19(JUD) OUT OF COMMITTEE                                                                                       
SENATE JOINT RESOLUTION NO. 24                                                                                                  
Proposing amendments to  the Constitution of the  State of Alaska                                                               
to  guarantee  the  permanent  fund  dividend,  establishing  the                                                               
earnings reserve  account, and relating  to the  Alaska permanent                                                               
fund; and providing for an effective date.                                                                                      
     MOVED CSSJR 24(JUD) OUT OF COMMITTEE                                                                                       
SENATE JOINT RESOLUTION NO. 32                                                                                                  
Proposing amendments to  the Constitution of the  State of Alaska                                                               
relating to appropriations  from the Alaska permanent  fund to be                                                               
used  for a  program of  dividends  for all  state residents  and                                                               
providing  a  conditional  effect  and  effective  date  for  the                                                               
     MOVED CSSJR 32(JUD) OUT OF COMMITTEE                                                                                       
PREVIOUS COMMITTEE ACTION                                                                                                     
BILL: SJR 18                                                                                                                  
SHORT TITLE: CONST. AM: PF APPROPS/INFLATION-PROOFING                                                                           
SPONSOR(s): RULES BY REQUEST OF LEG BUDGET & AUDIT BY REQUEST                                                                   
04/17/03       (S)       READ THE FIRST TIME - REFERRALS                                                                        
04/17/03       (S)       STA, JUD, FIN                                                                                          
05/01/03       (S)       STA AT 3:30 PM BELTZ 211                                                                               
05/01/03       (S)       Heard & Held                                                                                           
05/01/03       (S)       MINUTE(STA)                                                                                            
05/06/03       (S)       STA AT 3:30 PM BELTZ 211                                                                               
05/06/03       (S)       Moved CSSJR 18(STA) Out of Committee                                                                   
05/06/03       (S)       MINUTE(STA)                                                                                            
05/07/03       (S)       STA RPT CS 1DP 3NR  NEW TITLE                                                                          
05/07/03       (S)       NR: STEVENS G, DYSON, GUESS;                                                                           
05/07/03       (S)       DP: COWDERY                                                                                            
05/13/03       (S)       JUD AT 8:00 AM BELTZ 211                                                                               
05/13/03       (S)       Scheduled But Not Heard                                                                                
05/14/03       (S)       JUD AT 0:00 AM BELTZ 211                                                                               
05/14/03       (S)       -- Meeting Postponed to 5/15/03 --                                                                     
05/15/03       (S)       JUD AT 8:45 AM BELTZ 211                                                                               
05/15/03       (S)       -- Meeting Rescheduled from 5/14/03 --                                                                 
10/28/03       (S)       JUD AT 7:00 PM Kenai                                                                                   
10/28/03       (S)       CONST. AM: PERMANENT FUND INCOME                                                                       
10/29/03       (S)       JUD AT 7:00 PM Mat-Su LIO                                                                              
10/29/03       (S)       CONST. AM: PERMANENT FUND INCOME                                                                       
10/30/03       (S)       JUD AT 7:00 PM Anch LIO                                                                                
10/30/03       (S)       CONST. AM: PERMANENT FUND INCOME                                                                       
01/21/04       (S)       JUD AT 8:00 AM BELTZ 211                                                                               
01/21/04       (S)       -- Meeting Canceled --                                                                                 
02/09/04       (S)       JUD AT 8:00 AM BUTROVICH 205                                                                           
02/09/04       (S)       Heard & Held                                                                                           
02/09/04       (S)       MINUTE(JUD)                                                                                            
02/27/04       (S)       JUD AT 8:00 AM BUTROVICH 205                                                                           
BILL: SJR 19                                                                                                                  
SHORT TITLE: CONST. AM: PERMANENT FUND INCOME                                                                                   
SPONSOR(s): SENATOR(s) LINCOLN                                                                                                  
05/02/03       (S)       READ THE FIRST TIME - REFERRALS                                                                        
05/02/03       (S)       STA, JUD, FIN                                                                                          
05/13/03       (S)       STA AT 3:30 PM BELTZ 211                                                                               
05/13/03       (S)       Moved Out of Committee                                                                                 
05/13/03       (S)       MINUTE(STA)                                                                                            
05/14/03       (S)       STA RPT 1DP 3NR                                                                                        
05/14/03       (S)       NR: STEVENS G, COWDERY, DYSON;                                                                         
05/14/03       (S)       DP: GUESS                                                                                              
05/16/03       (S)       JUD AT 1:00 PM BELTZ 211                                                                               
05/16/03       (S)       Scheduled But Not Heard                                                                                
05/17/03       (S)       JUD AT 10:00 AM BELTZ 211                                                                              
05/17/03       (S)       Heard & Held                                                                                           
05/17/03       (S)       MINUTE(JUD)                                                                                            
10/28/03       (S)       JUD AT 7:00 PM Kenai                                                                                   
10/28/03       (S)       Heard & Held                                                                                           
10/28/03       (S)       MINUTE(JUD)                                                                                            
10/29/03       (S)       JUD AT 7:00 PM Mat-Su LIO                                                                              
10/29/03       (S)       Heard & Held                                                                                           
10/29/03       (S)       MINUTE(JUD)                                                                                            
10/30/03       (S)       JUD AT 7:00 PM Anch LIO                                                                                
10/30/03       (S)       Heard & Held                                                                                           
10/30/03       (S)       MINUTE(JUD)                                                                                            
01/21/04       (S)       JUD AT 8:00 AM BELTZ 211                                                                               
01/21/04       (S)       -- Meeting Canceled --                                                                                 
02/09/04       (S)       JUD AT 8:00 AM BUTROVICH 205                                                                           
02/09/04       (S)       Heard & Held                                                                                           
02/09/04       (S)       MINUTE(JUD)                                                                                            
02/27/04       (S)       JUD AT 8:00 AM BUTROVICH 205                                                                           
BILL: SJR 24                                                                                                                  
SHORT TITLE: CONST AM: GUARANTEE PERM FUND DIVIDEND                                                                             
SPONSOR(s): SENATOR(s) OGAN                                                                                                     
02/04/04       (S)       READ THE FIRST TIME - REFERRALS                                                                        
02/04/04       (S)       JUD, FIN                                                                                               
02/27/04       (S)       JUD AT 8:00 AM BUTROVICH 205                                                                           
BILL: SJR 32                                                                                                                  
SHORT TITLE: CONST AM: PERM FUND INCOME FOR DIVIDENDS                                                                           
SPONSOR(s): SENATOR(s) ELTON                                                                                                    
02/16/04       (S)       READ THE FIRST TIME - REFERRALS                                                                        
02/16/04       (S)       JUD, FIN                                                                                               
02/27/04       (S)       JUD AT 8:00 AM BUTROVICH 205                                                                           
WITNESS REGISTER                                                                                                              
Mr. Robert Storer                                                                                                               
Executive Director                                                                                                              
Alaska Permanent Fund Corporation                                                                                               
PO Box 25500                                                                                                                    
Juneau AK 99802-5500                                                                                                            
POSITION  STATEMENT:  Answered  questions about  the  percent  of                                                             
market value                                                                                                                    
Senator Kim Elton                                                                                                               
Alaska State Capitol                                                                                                            
Juneau, AK  99801-1182                                                                                                          
POSITION STATEMENT:  Sponsor of SJR 32                                                                                        
Mr. Mark Stopha                                                                                                                 
Staff to Senator Lincoln                                                                                                        
Alaska State Capitol                                                                                                            
Juneau, AK  99801-1182                                                                                                          
POSITION STATEMENT: Testified for the sponsor of SJR 19                                                                       
Mr. Mark Gnadt                                                                                                                  
Staff to Representative Croft                                                                                                   
Alaska State Capitol                                                                                                            
Juneau, AK  99801-1182                                                                                                          
POSITION STATEMENT:  Answered questions about SJR 19                                                                          
Ms. Mary Griswold                                                                                                               
Homer, AK                                                                                                                       
POSITION STATEMENT:  Supports SJR 18 and SJR 32 combined                                                                      
Mr. Mark Newman                                                                                                                 
Big Lake, AK                                                                                                                    
POSITION STATEMENT:   Supports maintaining the status  quo of the                                                             
permanent fund                                                                                                                  
Mr. Roger Gay                                                                                                                   
Big Lake, AK                                                                                                                    
POSITION STATEMENT:  Opposed to  inflation proofing the permanent                                                             
ACTION NARRATIVE                                                                                                              
TAPE 04-10, SIDE A                                                                                                            
CHAIR  RALPH   SEEKINS  called  the  Senate   Judiciary  Standing                                                             
Committee  meeting  to order  at  8:03  a.m.   All  members  were                                                               
present. Chair  Seekins announced that  he planned to  review all                                                               
four resolutions before taking any  action of them today and that                                                               
SJR 24 would be heard first.                                                                                                    
         SJR 24-CONST AM: GUARANTEE PERM FUND DIVIDEND                                                                      
SENATOR OGAN,  prime sponsor of  SJR 24, told members  he decided                                                               
to introduce this legislation because  of his sincere belief that                                                               
the voters  will not allow  any other  use of the  permanent fund                                                               
until the  permanent fund  dividend program  is protected  in the                                                               
Alaska Constitution. SJR 24 contains  a provision that delays its                                                               
effective  date   until  the  voters  approve   a  constitutional                                                               
amendment related to an appropriation limit. He explained:                                                                      
     I feel  if - even with  constitutionally protecting the                                                                    
     permanent  fund  dividend  that if  it  was  protected,                                                                    
     let's  say tomorrow,  that a  lot of  legislators would                                                                    
     perceive that  the rest of  the money is  available for                                                                    
     appropriation and  there would  be a feeding  frenzy. I                                                                    
     have a personal belief  that government generally grows                                                                    
     in direct  proportion to the amount  of money available                                                                    
     to  spend  and  so  I   think  we  should  protect  the                                                                    
     dividend, put  a spending  cap in  place and  then, and                                                                    
     only then,  discuss some of  the excess earnings  to be                                                                    
     used for some  of the critical needs that we  have as a                                                                    
     As  we  all  know,  oil   prices  have  been  high  but                                                                    
     production  will continue  to decline  in the  near and                                                                    
     far term  and, even with  the gas pipeline, we  are not                                                                    
     going to  have adequate revenues to  balance the budget                                                                    
     in  a few  short years.  I think  this is  an important                                                                    
     first step.                                                                                                                
He  explained that  SJR 24  essentially  enshrines the  permanent                                                               
fund dividend program, as it exists in current statute.                                                                         
SENATOR  FRENCH asked  if SJR  24 would  put the  entire earnings                                                               
reserve  account inside  the permanent  fund  itself, instead  of                                                               
leaving it as a separate account.                                                                                               
SENATOR OGAN said it would.                                                                                                     
SENATOR  FRENCH   asked  if  the  distribution   methodology  for                                                               
dividends would  remain the  same, that being  21 percent  of the                                                               
net income for the last five years.                                                                                             
SENATOR OGAN  said it would and  explained that Section 3  of SJR                                                               
24 enshrines  the existing dividend  formula. He said at  the end                                                               
of  the day,  if  the  percent of  market  value  (POMV) plan  is                                                               
adopted, SJR  24 would have to  be amended to use  that approach.                                                               
He said he does not believe the  POMV is a bad thing on its face,                                                               
but if  it is adopted  he believes  the dividend should  still be                                                               
SENATOR FRENCH asked how inflation  proofing would work under SJR                                                               
SENATOR OGAN deferred to Mr. Storer for an answer.                                                                              
MR.  ROBERT STORER,  Executive Director  of the  Alaska Permanent                                                               
Fund  Corporation  (APFC),  told  members as  he  reads  SJR  24,                                                               
inflation  proofing  would  remain  by  statute.  Currently,  the                                                               
dividend  formula  takes   precedence  over  inflation  proofing,                                                               
although both are appropriated annually.  He said if the existing                                                               
statute  were  memorialized  in the  Constitution,  the  dividend                                                               
would again take precedence over inflation proofing.                                                                            
SENATOR FRENCH  asked if SJR 24  requires that 50 percent  of the                                                               
income  available  for  distribution   be  transferred  from  the                                                               
earnings reserve account and used for the dividend program.                                                                     
SENATOR OGAN said that is correct.                                                                                              
SENATOR FRENCH asked how that  compares with the current dividend                                                               
MR. STORER said they are the same.                                                                                              
SENATOR  OGAN  explained  that  SJR 24  would  put  the  existing                                                               
statute in the Constitution, verbatim.                                                                                          
CHAIR SEEKINS announced that he  would take testimony on all four                                                               
resolutions before  the committee  simultaneously. He  then asked                                                               
for a motion to adopt version  H [SJR 24] as the working document                                                               
before the committee.                                                                                                           
SENATOR OGAN so moved.                                                                                                          
CHAIR  SEEKINS announced  the motion  carried without  objection;                                                               
therefore Version H was before  the committee. He then designated                                                               
a proposed amendment distributed to members as Amendment 1.                                                                     
SENATOR  OGAN moved  to adopt  Amendment  1 [for  the purpose  of                                                               
discussion], which reads as follows.                                                                                            
                      A M E N D M E N T  1                                                                                  
OFFERED IN THE SENATE                                                                                                           
     TO:  SJR 24                                                                                                                
Page 2, lines 14 - 15:                                                                                                          
     Delete "a new section"                                                                                                     
     Insert "new sections"                                                                                                      
Page 2, following line 18:                                                                                                      
          "Section 31.  Suspension and Repeal of amendments. (a)                                                              
     Notwithstanding  Section   1  of  Article  XIII,   the  2004                                                               
     amendments to Section 15 of  Article IX are suspended on the                                                               
     date  of an  initial determination  by the  Internal Revenue                                                               
     Service  that all  or a  portion  of the  permanent fund  is                                                               
     subject to  federal taxation.  The  suspension is terminated                                                               
     on the  date the amendments  are repealed under (b)  of this                                                               
     section  or one  hundred eighty  days  after the  date of  a                                                               
     final, nonappealable  judgment or  order by a  federal court                                                               
     deciding  that no  portion of  the permanent  fund would  be                                                               
     subject to federal  taxation as a result  of the amendments.                                                               
     During  the  period  of suspension  under  this  subsection,                                                               
     Section  15  of  Article  IX  shall  apply  as  it  read  on                                                               
     January 1, 2003.                                                                                                           
          (b) Notwithstanding Section 1 of Article XIII, the                                                                    
     2004 amendments  to Section  15 of  Article IX  are repealed                                                               
     one  hundred  eighty  days  after   the  date  of  a  final,                                                               
     nonappealable judgment or order  by a federal court deciding                                                               
     that all  or a portion of  the permanent fund is  subject to                                                               
     federal taxation.  Upon repeal  of the 2004 amendments under                                                               
     this  subsection, Section  15 of  Article IX  is amended  to                                                               
     read as it read on January 1, 2003."                                                                                       
CHAIR  SEEKINS noted  without objection,  Amendment 1  was before                                                               
the committee.                                                                                                                  
SENATOR TOM WAGONER  told members that he has  had great concerns                                                               
about enshrining the permanent fund  dividend in the Constitution                                                               
since before he took office  because of the differing opinions on                                                               
whether  or  not  doing  so  would enable  the  IRS  to  tax  the                                                               
permanent fund.  People knowledgeable  about tax  law say  if the                                                               
permanent  fund dividend  is enshrined  in the  Constitution, the                                                               
IRS's ability to  tax the permanent fund  becomes tenuous because                                                               
that money would no longer  be available for government services.                                                               
Amendment 1 contains  a safety valve so that if  the IRS attempts                                                               
to  tax  the permanent  fund,  the  dividend  would revert  to  a                                                               
statutory  mandate,  not a  constitutional  mandate.  He said  he                                                               
believes Amendment  1 should  be attached  to any  permanent fund                                                               
dividend bill because it gives the legislature final control.                                                                   
SENATOR  THERRIAULT felt  adopting Amendment  1 would  be prudent                                                               
because the  IRS will  not guarantee  that any  interpretation of                                                               
the tax  code and case  history is  correct.  He  noted, however,                                                               
that SJR 24  is structured so that the earnings  reserve is still                                                               
maintained and can  be used for a public  purpose, which probably                                                               
mitigates the threat of taxation by the IRS.                                                                                    
SENATOR ELLIS raised a point of  order and asked Chair Seekins to                                                               
clarify  whether   the  motion  involving  Amendment   1  was  to                                                               
introduce it for discussion.                                                                                                    
CHAIR  SEEKINS clarified  it was  to  adopt Amendment  1 for  the                                                               
purpose of discussion and not to incorporate it into SJR 24.                                                                    
SENATOR ELLIS noted  it is atypical to ask if  there is objection                                                               
to introducing an  amendment for discussion and  wanted to affirm                                                               
that the  committee did  not adopt the  amendment. He  then asked                                                               
Senator Wagoner  if he has  read the legal opinion  that Attorney                                                               
General Renkes solicited on the  taxation issue and, if so, asked                                                               
him  to comment  on it.  He maintained  that the  legislature has                                                               
spent  some money  to  get to  the heart  of  the taxation  issue                                                               
because it  has been a point  of debate for years.  Senator Green                                                               
introduced  a  bill years  ago  to  enshrine the  permanent  fund                                                               
dividend  but  it received  a  lot  of  criticism that  it  would                                                               
trigger unfavorable  IRS action  toward the  State of  Alaska. He                                                               
asked if  Senator Wagoner  has read those  materials but  did not                                                               
find those opinions definitive.                                                                                                 
SENATOR  WAGONER said  he  has  read a  couple  of opinions  that                                                               
contradict each  other or take  different approaches  toward what                                                               
the IRS can and cannot do.  He said Amendment 1 provides him with                                                               
a higher comfort level than any of the opinions he has read.                                                                    
CHAIR SEEKINS asked  if the IRS has ever been  constrained by the                                                               
opinion of a state attorney general.                                                                                            
SENATOR WAGONER  said the only  entity that can restrain  the IRS                                                               
is Congress.                                                                                                                    
SENATOR ELLIS  requested that Attorney  General Renkes  provide a                                                               
position  on the  need  for  Amendment 1.  He  said the  attorney                                                               
general  went  through the  time  and  expense of  soliciting  an                                                               
opinion from a  Washington, D.C. law firm so  he would appreciate                                                               
hearing his opinion.                                                                                                            
SENATOR WAGONER  said he didn't  think what the  attorney general                                                               
said would  matter because Amendment  1 provides a  comfort level                                                               
that he  wants anyway for himself  and a lot of  other people who                                                               
distrust  the IRS.  He  said he  feels  it would  be  a waste  of                                                               
Attorney General Renkes' time.                                                                                                  
CHAIR SEEKINS  asked if Attorney  General Renkes' opinion  was in                                                               
SENATOR WAGONER said if it is,  he would get a copy for committee                                                               
members.  He repeated  that he  feels  Amendment 1  is a  prudent                                                               
safety valve.                                                                                                                   
SENATOR  OGAN noted  the only  opinion that  really counts  is of                                                               
"the  guys that  wear  the robes  in the  U.S.  Supreme Court  so                                                               
everybody  else has  got an  opinion  about it."  He agreed  that                                                               
Amendment 1 is a circuit  breaker if an adversarial opinion kicks                                                               
in and removes the dividend program from the Constitution.                                                                      
SENATOR  THERRIAULT pointed  out that  the language  contained in                                                               
Amendment 1  is identical  to Section  3 of  SJR 19  that Senator                                                               
Ellis cosponsored.                                                                                                              
SENATOR  ELLIS  told  members  he was  not  arguing  against  the                                                               
inclusion of Amendment 1. He  maintained, "I was asking about the                                                               
attorney general  - the time  and expense we  went to as  a state                                                               
and that might be a legitimate  part of the committee record. I'd                                                               
hate for Senator Therriault to mischaracterize my...."                                                                          
CHAIR SEEKINS asked Senator Wagoner to  get a copy of the written                                                               
opinion to insert in the record.                                                                                                
SENATOR WAGONER offered to do so today.                                                                                         
SENATOR OGAN said one reason he  introduced SJR 24 was because of                                                               
a  lengthy discussion  he  had with  constituents  in the  Mat-Su                                                               
Valley  during  the interim  about  the  fact that  the  founding                                                               
fathers of Alaska decided the  state should retain the subsurface                                                               
rights  to land  in Alaska.  All residents  collectively own  the                                                               
subsurface mineral estate, with the  exception of the lands owned                                                               
by  Native  corporations  and lands  patented  before  statehood.                                                               
Additionally,  the Alaska  Constitution  declares the  subsurface                                                               
rights as dominant  so that a surface owner must  allow access to                                                               
the subsurface. That  is also included in  the Statehood Compact.                                                               
According to  Section (6)(i) of  that Compact, the  U.S. attorney                                                               
general  is  specifically  instructed  to litigate  in  the  U.S.                                                               
district  court  to  procure  those  subsurface  rights  for  the                                                               
federal government if the state  conveys the subsurface rights to                                                               
anyone else.  He feels  very strongly  that the  dividend program                                                               
needs to  be protected because  it represents the  people's share                                                               
of the collectively owned subsurface mineral rights.                                                                            
CHAIR  SEEKINS   announced  that   with  no   further  objection,                                                               
Amendment 1 was adopted.                                                                                                        
SENATOR  FRENCH said  he is  curious  about the  language in  the                                                               
appropriation  limit that  is currently  working its  way through                                                               
the legislature.                                                                                                                
SENATOR OGAN said no one  knows whether the legislature will have                                                               
an appropriation  limit at the  end of the  day, and how  it will                                                               
work, but SJR  24 will not take  effect without one.   He said he                                                               
believes they should all be linked. He added:                                                                                   
     And then we  get into the discussion of  whether or not                                                                    
     it's a revision  and I gotta put that on  the record. I                                                                    
     mean - and  it's a little risky, and at  the end of the                                                                    
     day we might wish to just  take that out and let it fly                                                                    
     on its  own. It could  be viewed  as a revision  and we                                                                    
     have to be honest with  people that's a possibility. Of                                                                    
     course they  may view this  as a revision  because this                                                                    
     effective  date affects  more than  one section  of the                                                                    
     Constitution and I think the  best case to address that                                                                    
     and - so  the committee needs to be  cognizant of that.                                                                    
     I don't want to try to hide it from anybody.                                                                               
CHAIR SEEKINS  pointed out, under  Bess v. Ulmer, any  section of                                                               
the  Constitution that  affects  too many  other  sections is  no                                                               
longer an amendment; it would be a revision.                                                                                    
SENATOR  OGAN   said  he  is  unsure   whether  a  constitutional                                                               
amendment  with   an  effective  date  contingent   upon  another                                                               
[constitutional amendment]  has ever  been put before  the voters                                                               
so it is an untested section of law.                                                                                            
CHAIR  SEEKINS  noted  that  according   to  Bess  v.  Ulmer,  an                                                               
amendment to the Constitution is  a clarification; a major change                                                               
is a revision.                                                                                                                  
SENATOR ELLIS asked whether the  governor has taken a position on                                                               
SJR 24.                                                                                                                         
SENATOR  OGAN  said  he  has   not  had  a  discussion  with  the                                                               
administration about it.                                                                                                        
SENATOR ELLIS asked if he plans to do so.                                                                                       
SENATOR  OGAN replied,  "I don't  think  it's a  function of  the                                                               
executive branch to - it's nice  when they support your work but,                                                               
frankly,  the separation  of powers,  I think  it's something  we                                                               
should  - it'd  be nice  to have  but isn't  required to  have to                                                               
consider an amendment."                                                                                                         
SENATOR ELLIS  agreed but said  the majority  frequently solicits                                                               
the  governor's position,  as  it  is important  to  the way  the                                                               
majority views various pieces of legislation.                                                                                   
CHAIR SEEKINS  asked Senator  Ellis to  restrict his  comments to                                                               
his  own conversations  with the  governor. He  expressed concern                                                               
that the  term "you all"  is inclusive  and other people  are not                                                               
available to defend their positions.                                                                                            
SENATOR  ELLIS asked  the chair  why  he wanted  to restrain  his                                                               
right  to speak  on  the issue.  He then  clarified  that he  was                                                               
referring to the Republican Majority when he said "you all."                                                                    
CHAIR SEEKINS  said the Republican  Majority was not  present and                                                               
he did not want Senator Ogan to answer for him.                                                                                 
SENATOR  ELLIS said  he would  ask the  chair separately  and was                                                               
only interested in Senator Ogan's position.                                                                                     
SENATOR  OGAN repeated  that he  has  not discussed  SJR 24  with                                                               
anyone in the governor's office.                                                                                                
SENATOR THERRIAULT pointed out that  SJR 24 prioritizes dividends                                                               
over inflation  proofing. He cautioned  that the state  could pay                                                               
dividends during  a down  market and give  the next  generation a                                                               
diminished asset. He views the  permanent fund as a mechanism for                                                               
taking a one-time asset and  making it multi-generational so that                                                               
possibility weighs heavy on his mind.                                                                                           
CHAIR SEEKINS  noted that with  no further discussion on  SJR 24,                                                               
he would set it aside until the end of the meeting.                                                                             
        SJR 32- CONST AM: PERM FUND INCOME FOR DIVIDENDS                                                                    
SENATOR KIM  ELTON, sponsor of  SJR 32, described the  measure as                                                               
"if POMV, then  SJR 32."  The  intent of SJR 32 is  to codify one                                                               
of  the  recommendations  of  the   Conference  of  Alaskans:  to                                                               
constitutionally protect the permanent fund  dividend. He said in                                                               
response  to  Senator  Therriault's  concern  about  prioritizing                                                               
inflation  proofing  over  dividends,  SJR 32  follows  the  POMV                                                               
method,  which does  just  that.  SJR 32  also  provides that  80                                                               
percent  of  the  earnings  from  the  POMV  would  be  used  for                                                               
dividends. He stated:                                                                                                           
     It would  probably be fair  to point out  that the                                                                         
     sharpest  minds  at  the [Alaska]  Permanent  Fund                                                                         
     Corporation  have, when  they look  out ahead  and                                                                         
     they compare  this recipe  to the  existing recipe                                                                         
     that's  in statute,  they  would suggest  that...a                                                                         
     return   that  would   probably  most   equal  the                                                                         
     existing  statutory  dividend   would  be  in  the                                                                         
     neighborhood  of  about  60-40 -  60  percent  for                                                                         
     dividends,  40 percent  for other  purposes to  be                                                                         
     determined by the legislature.  But, Mr. Chair, if                                                                         
     you   look   back  to   1990   and   you  take   a                                                                         
     retrospective look,  the formula,  if we  had been                                                                         
     operating  under a  POMV,  the  formula that  most                                                                         
     closely  would  replicate the  existing  statutory                                                                         
     language  would be  in the  neighborhood of  about                                                                         
     76-24 so  this errs  just slightly to  the benefit                                                                         
     of the dividend program, 80-20 does.                                                                                       
SENATOR ELTON  said he firmly  believes the  legislature has                                                                    
been able to protect the  growing pool of the permanent fund                                                                    
because  of the  nexus between  the permanent  fund and  the                                                                    
dividend  program. He  repeated that  SJR 32  is written  so                                                                    
that its enactment is contingent  upon legislative and voter                                                                    
approval of the POMV methodology.                                                                                               
SENATOR  OGAN moved  to adopt  Version H  of SJR  32 as  the                                                                    
working document before the committee.                                                                                          
CHAIR SEEKINS  announced that without objection,  the motion                                                                    
SENATOR  FRENCH  said  his  greatest  concern  is  inflation                                                                    
proofing and  that is protected  fairly well under  the POMV                                                                    
scheme.  He  said  he  tries  to  work  backwards  from  the                                                                    
election in  November to  figure out a  plan that  will gain                                                                    
favor with the  public to provide a dividend  and allow some                                                                    
earnings to  be used  for essential government  services. He                                                                    
believes SJR 32 goes a long  way toward doing that. He asked                                                                    
Senator  Elton if  he has  received feedback  about how  the                                                                    
public will receive this resolution.                                                                                            
SENATOR ELTON  said one reason  he introduced SJR 32  was to                                                                    
make sure  the legislature had  all of the  pieces necessary                                                                    
to accomplish the  goals of the Conference  of Alaskans. The                                                                    
one piece he  found missing was a mechanism  that provides a                                                                    
fairly simple and easily understood  division of the earning                                                                    
stream for dividends  and government services. He  has had a                                                                    
considerable  amount  of  discussion   with  people  in  his                                                                    
district and  also with people  at the conference.  He noted                                                                    
one way to accomplish policy,  especially when a revision of                                                                    
the  Constitution  is  required,  is  to  include  a  market                                                                    
component.    The    legislature    must    structure    the                                                                    
constitutional amendment  so that people can  understand its                                                                    
benefits. He believes  the POMV approach will  be adopted if                                                                    
the  citizens understand  its effect  on the  permanent fund                                                                    
CHAIR SEEKINS asked  Senator Elton if he has  any letters of                                                                    
support  or e-mail  messages showing  support that  could be                                                                    
inserted into the record.                                                                                                       
SENATOR  ELTON  said  that  SJR   32  closely  reflects  the                                                                    
Conference of Alaskans' recommendations.                                                                                        
CHAIR SEEKINS asked  Senator Elton to show a  nexus. He said                                                                    
he  read   the  Conference  of  Alaskans'   report  but  the                                                                    
recommendations were  not supported by enough  of a majority                                                                    
that the  legislature would have  passed them as  a proposed                                                                    
constitutional amendment.                                                                                                       
SENATOR ELTON said  it is unusual that a  bill he introduces                                                                    
is  heard within  10 days  so he  does not  have letters  of                                                                    
CHAIR SEEKINS  asked how many  bills he has had  referred to                                                                    
the Senate Judiciary Committee.                                                                                                 
SENATOR ELTON  said none. He then  indicated the suggestions                                                                    
from  the   Conference  of   Alaskans  were   not  supported                                                                    
unanimously but 37 of the  55 delegates suggested enshrining                                                                    
the dividend in the Constitution.                                                                                               
CHAIR  SEEKINS said  he  is  not aware  of  anything in  the                                                                    
conference report that suggested an 80/20 split.                                                                                
SENATOR  ELTON  said  the Conference  of  Alaskans  did  not                                                                    
identify  an appropriate  split for  earnings and  dividends                                                                    
but  SJR 32  comes  closest to  matching  what the  existing                                                                    
program has  provided over  the last  15 years.  He repeated                                                                    
that  despite  the fact  that  this  recommendation was  not                                                                    
approved  unanimously  by  the   conferees,  37  out  of  55                                                                    
delegates  did  suggest the  dividend  be  protected in  the                                                                    
Constitution.  He pointed  out that  kind of  a margin  in a                                                                    
legislative race would be considered as overwhelming.                                                                           
CHAIR SEEKINS  repeated [that margin] would  not suffice for                                                                    
a constitutional amendment to come from the legislature.                                                                        
SENATOR  ELTON  argued  that  would   if  the  threshold  is                                                                    
considered to be  what it would take to pass  on the general                                                                    
election ballot in November.                                                                                                    
CHAIR  SEEKINS  asked  if  he  believes  the  55  conference                                                                    
delegates were representative of the people of the state.                                                                       
SENATOR ELTON  said he does  not. The conferees were  from a                                                                    
much   higher  socio-economic   stratum  than   the  average                                                                    
Alaskan.  He   added  that   two-thirds  of   the  conferees                                                                    
indicated they earned over $100,000 per year.                                                                                   
SENATOR FRENCH  commented that the various  proposals before                                                                    
the committee  represent a  struggle between  the government                                                                    
and the people  for the earnings of the  permanent fund. The                                                                    
people  have repeatedly  expressed their  will to  get their                                                                    
share  of the  fund's earnings.  SJR 32  embodies that  will                                                                    
most closely.                                                                                                                   
CHAIR SEEKINS  asked Senator Elton  if he recalled  what top                                                                    
two funding sources the  conferees suggested the legislature                                                                    
look at.                                                                                                                        
SENATOR ELTON replied a unique  voting system was applied at                                                                    
the  Conference.  When  the  conferees  were  able  to  vote                                                                    
anonymously,  there was  a weighted  average. The  conferees                                                                    
were   asked  to   decide  on   their   top  three   revenue                                                                    
enhancements. The weighted average  showed an income tax was                                                                    
the  preferred method,  by a  very slight  margin, over  the                                                                    
earnings  of  the permanent  fund,  which  had a  relatively                                                                    
small margin over  natural resource taxes. He  said he would                                                                    
characterize the top two as  a virtual dead heat between the                                                                    
income tax and the permanent fund earnings.                                                                                     
CHAIR  SEEKINS responded,  "All  of which  are the  people's                                                                    
money, correct?"                                                                                                                
SENATOR ELTON agreed.                                                                                                           
SENATOR  THERRIAULT  asked Senator  Elton  why  he chose  an                                                                    
80/20  split rather  than  a  ratio that  is  closer to  the                                                                    
status quo.                                                                                                                     
SENATOR  ELTON  repeated  that the  sharpest  minds  at  the                                                                    
Alaska Permanent Fund Corporation  (APFC) did projections to                                                                    
the  year 2010  and  suggested that  to  best replicate  the                                                                    
statutory  dividend  formula,  60 percent  of  the  earnings                                                                    
stream  would be  necessary.  Because  many variables  could                                                                    
occur in that timeframe,  he personally took a retrospective                                                                    
look to  1990, had the  POMV methodology been in  place. The                                                                    
split  of earnings  would  have been  about  76 percent  for                                                                    
dividends and 24  percent for government. He  said he picked                                                                    
an 80/20 split in favor of the dividend.                                                                                        
SENATOR  THERRIAULT   said  if   the  POMV   methodology  is                                                                    
established,  the  earnings reserve  will  no  longer be  in                                                                    
existence. He  asked Senator Elton  to elaborate on  how the                                                                    
20 percent would be used.                                                                                                       
SENATOR ELTON said  the 20 percent is  unallocated and would                                                                    
be  available  for  government   spending,  which  would  be                                                                    
codified by the legislature and the budget process.                                                                             
SENATOR THERRIAULT noted  that under POMV, 80  percent of up                                                                    
to  5   percent  would  be   used  for  dividends.   If  the                                                                    
legislature uses 3 percent instead  of 5, 80 percent of that                                                                    
amount will be used for dividends.                                                                                              
SENATOR ELTON explained that SJR 32  is based on a 5 percent                                                                    
return from  POMV. If  the return is  less, the  80/20 ratio                                                                    
remains the same  but a lower amount would  be available for                                                                    
SENATOR THERRIAULT asked Senator Elton:                                                                                         
     Even though  it doesn't  say it  here, the  use of                                                                         
     the other 20 percent, it's  your intent that it be                                                                         
     available for appropriation and,  in fact, you say                                                                         
     here   at  least   80   percent   of  the   amount                                                                         
     appropriated  so   that  20  percent  has   to  be                                                                         
     appropriated for something.  You have appropriated                                                                         
     it  from  the  earnings   and  whatever  you  have                                                                         
     appropriated  out,  80  percent   shall  go  to  a                                                                         
     dividend but  you have appropriated that  other 20                                                                         
     percent  too and  you can't  get  to the  dividend                                                                         
     unless you appropriate that 20 percent.                                                                                    
SENATOR  ELTON said  he thinks  all  legislators would  view                                                                    
this as a revenue source in  the same way that an income tax                                                                    
or additional resource taxes would  provide an income stream                                                                    
available for  appropriation. This  constitutional amendment                                                                    
provides that  80 percent  of this  revenue stream  would be                                                                    
preserved  for the  dividend program.  The other  20 percent                                                                    
would be available for government spending.                                                                                     
SENATOR ELTON  said he appreciates  the fact that SJR  32 is                                                                    
linked  with  the  POMV.  He believes  there  is  a  growing                                                                    
realization that the POMV truly is  the best way to make the                                                                    
permanent fund permanent.                                                                                                       
TAPE 04-10, SIDE B                                                                                                            
SENATOR  FRENCH   maintained,  regarding  what   split  more                                                                    
accurately reflects  the current system, there  is no bright                                                                    
consensus. The  APFC board has  said a 60/40  split produces                                                                    
the  current  dividend.  However, Sharman  Haley,  from  the                                                                    
Institute of  Social and Economic Research  at UAA, recently                                                                    
wrote an article [in the  Anchorage Daily News] in which she                                                                    
said  the  appropriate split  is  70/30.  He indicated  that                                                                    
trying  to replicate  what is  basically an  earnings driven                                                                    
system  under  the  current  value  driven  system  is  like                                                                    
comparing apples to oranges. He  commended Senator Elton for                                                                    
erring on the side of caution.                                                                                                  
CHAIR SEEKINS indicated the discussion  is not about whether                                                                    
the POMV  system is a good  one but about how  much would be                                                                    
given to whom.                                                                                                                  
SENATOR ELTON agreed and pointed  out that during his tenure                                                                    
in the  legislature, the  asset management  of the  fund was                                                                    
changed. He added:                                                                                                              
     All  of   those  changes,  what  happens   in  the                                                                         
     marketplace,  all of  these  things  make it  very                                                                         
     difficult to  say with any kind  of real authority                                                                         
     it is 61.3  percent to most closely  replicate - I                                                                         
     mean  you can't  do that.  We can  trust the  best                                                                         
     minds  that we  have down  at the  permanent fund,                                                                         
     and I  do trust  them but it's  kind of  a rolling                                                                         
     target that could change next year also.                                                                                   
SENATOR OGAN  asked Senator Elton  how much new  money would                                                                    
be available to  spend on government services  with an 80/20                                                                    
SENATOR ELTON  estimated about $260  million, based on  a 20                                                                    
percent of the  5 percent return from the  POMV, which would                                                                    
be $1.3 billion this year.                                                                                                      
SENATOR  OGAN  said  he believes  offering  80  percent  for                                                                    
dividends is  very generous, but  his concern is that  a new                                                                    
$275  million funding  source for  government services  will                                                                    
cause government to  grow and the state will be  in the same                                                                    
situation  that it's  in today  in five  years. He  noted he                                                                    
wants to see a constitutional spending limit enacted first.                                                                     
SENATOR ELTON  commented that the  legislature has  acted in                                                                    
an  extremely  responsible  way regarding  the  use  of  the                                                                    
permanent  fund earnings.  Regarding Senator  Ogan's concern                                                                    
about new  money being available for  appropriation, he sees                                                                    
any new revenue stream  as backfilling deficit spending that                                                                    
will allow the  legislature to draw down  the budget reserve                                                                    
at a slower rate.                                                                                                               
CHAIR SEEKINS asked if all  of the earnings of the permanent                                                                    
fund  have been  available to  the legislature  for spending                                                                    
since the beginning of the dividend program.                                                                                    
SENATOR  ELTON said  they have  and because  the program  is                                                                    
statutory and not constitutional,  it only requires a simple                                                                    
majority vote.                                                                                                                  
SENATOR  OGAN expressed  concern that  SJR 32  means to  him                                                                    
that the  remaining budget gap  will have to be  filled with                                                                    
an income or sales tax to lock in the 80/20 split.                                                                              
SENATOR  ELTON agreed  but  noted  that additional  spending                                                                    
cuts are possible.  He said the discussion  is moving toward                                                                    
a philosophical  one and his  view is that  SJR 32 is  not a                                                                    
fiscal plan. It could be one component of a fiscal plan.                                                                        
CHAIR  SEEKINS asked  Senator Elton  if he  believes in  the                                                                    
need  for  an income  tax  before  looking at  spending  the                                                                    
permanent fund earnings.                                                                                                        
SENATOR ELTON  said his position  is most  closely reflected                                                                    
by that of  the fiscal policy caucus, a group  made up of 28                                                                    
members of  the legislature.  Its package included  a cruise                                                                    
ship tax, alcohol  tax, oil industry tax and  a small income                                                                    
tax. He  pointed out  that none of  the 28  members believed                                                                    
that plan was  a perfect one, however they agreed  it was as                                                                    
close as  they could  come to one.  On an  individual basis,                                                                    
they all preferred a different plan.                                                                                            
CHAIR SEEKINS announced a recess.                                                                                               
9:08 a.m.                                                                                                                       
           SJR 19-CONST. AM: PERMANENT FUND INCOME                                                                          
CHAIR  SEEKINS   called  the  meeting  back   to  order  and                                                                    
announced that SJR 19 was before the committee.                                                                                 
MR. MARK  STOPHA, staff to  Senator Lincoln, sponsor  of SJR                                                                    
19, said he was available to answer questions.                                                                                  
MR. MARK  GNADT, staff to  Representative Croft,  sponsor of                                                                    
House companion legislation, offered to answer questions.                                                                       
SENATOR  THERRIAULT noted  that Representative  Croft stated                                                                    
at  the   last  meeting  that  inflation   proofing  of  the                                                                    
permanent fund was  paramount, in his opinion.  He said some                                                                    
of  the  other  proposals  before the  committee  have  been                                                                    
drafted to do  just that so that the  permanent fund remains                                                                    
truly  permanent  and  is  not  eroded  by  the  effects  of                                                                    
inflation. He pointed  out that SJR 19 does  not; it freezes                                                                    
the  current  statutes  in place  giving  the  dividend  top                                                                    
priority.  SJR  19 also  provides  a  mechanism that  allows                                                                    
spending  on government  services with  the ratification  of                                                                    
the people.  Therefore, if dividends are  given a preference                                                                    
and dollars are  tight, he thinks the first  thing that will                                                                    
fall off  of the table  is inflation proofing. He  asked why                                                                    
Representative  Croft signed  on to  a piece  of legislation                                                                    
that does not make inflation proofing paramount.                                                                                
MR.  GNADT said  he is  correct in  that inflation  proofing                                                                    
falls second to  dividends under SJR 19 but,  to ensure that                                                                    
inflation proofing  occurs, it  requires ratification  of 50                                                                    
percent  of  the  voters   before  spending  for  government                                                                    
services.  Therefore,  inflation   proofing  is  prioritized                                                                    
above spending unless the people vote otherwise.                                                                                
SENATOR THERRIAULT responded:                                                                                                   
     That still  is a  concern of mine  because looking                                                                         
     out for  the next generation  is I think  what the                                                                         
     permanent  fund  is  all  about  and  that  allows                                                                         
     current people  to get a dividend  in their pocket                                                                         
     - the  current people  to vote  to just  use money                                                                         
     for governmental  services that they  support, and                                                                         
     I think  the tendency  is to  do those  things and                                                                         
     not look  out for the  next generation. So,  to me                                                                         
     that's one of the  whole beauties of the permanent                                                                         
He then  said the current permanent  fund dividend statutes,                                                                    
projected  forward, result  in a  60/40 split.  He asked  if                                                                    
Senator  Lincoln  and  Representative Croft  understand  and                                                                    
support that.                                                                                                                   
MR.  GNADT said  he  cannot speak  to  what percentage  they                                                                    
support but  they do support  putting the  existing dividend                                                                    
program into the Constitution.                                                                                                  
SENATOR THERRIAULT  repeated that means a  60/40 split going                                                                    
SENATOR  FRENCH pointed  out  that  several economists  have                                                                    
tried to  define the  split necessary under  a POMV  plan to                                                                    
restate  the current  program, which  is an  earnings stream                                                                    
driven plan.  He said no  one has arrived at  a "lock-tight"                                                                    
CHAIR SEEKINS  announced that with  no further  questions on                                                                    
SJR 19, the committee would take up SJR 18.                                                                                     
       SJR 18-CONST. AM: PF APPROPS/INFLATION-PROOFING                                                                      
CHAIR  SEEKINS asked  Mr. Storer  if the  percent of  market                                                                    
value (POMV)  system focuses the  attention of the  Board of                                                                    
Trustees  primarily  on  making   sure  the  permanent  fund                                                                    
investments produce  the highest  amount of  income possible                                                                    
for the citizens.                                                                                                               
MR.  ROBERT   STORER,  Executive  Director  of   the  Alaska                                                                    
Permanent Fund  Corporation (APFC),  said the  POMV embodies                                                                    
two  objectives.  The  first  is  to  memorialize  inflation                                                                    
proofing in the Constitution and  the second is to establish                                                                    
a  management   tool  that  gives  the   Board  of  Trustees                                                                    
direction  in how  to best  manage the  assets to  eliminate                                                                    
CHAIR  SEEKINS asked  Mr. Storer  to  provide the  committee                                                                    
with the history  of the 1996 anomaly in  the realized gains                                                                    
of the permanent fund.                                                                                                          
MR. STORER  said he was  not at the  APFC at that  time, but                                                                    
was close  enough to  describe what  occurred. He  noted the                                                                    
chart  of realized  income showed  a  lot of  spikes up  and                                                                    
down, with a  big spike up in 1996.  The distribution system                                                                    
is  based on  cash flow  from dividends,  interest, and  the                                                                    
profit or  loss from  the sale of  securities. In  1996, the                                                                    
[APFC board]  discussed the fact that  a substantial portion                                                                    
of the permanent  fund's equity investment was  in a passive                                                                    
portfolio  during the  bull market.  Passive portfolios  are                                                                    
designed to replicate the performance  of an index. They are                                                                    
very  low cost  with  virtually no  turnover.  The Board  of                                                                    
Trustees  was concerned  about  intergenerational equity  so                                                                    
the board decided  to liquidate some of the  profits in that                                                                    
passive  portfolio, which  then became  realized income  and                                                                    
were distributed according to the statutes.                                                                                     
CHAIR SEEKINS  asked if the  Board of  Trustees unilaterally                                                                    
decided to bring in a  higher amount of realized earnings in                                                                    
order to distribute them through the dividend program.\                                                                         
MR.  STORER  said  that  is  correct;  the  board  made  the                                                                    
decision  after  discussions  with   the  consultant  and  a                                                                    
lengthy discussion about  intergenerational equity. He noted                                                                    
POMV is indifferent to that  possibility because it captures                                                                    
the rising market  in a measured way, i.e.  the real income,                                                                    
and  it harmonizes  with  current  accounting practices  and                                                                    
ignores the need for arbitrary or market decisions.                                                                             
CHAIR  SEEKINS  asked if  the  APFC  board is  charged  with                                                                    
accommodating intergenerational equity under its charter.                                                                       
MR. STORER replied,  "Mr. Chairman, I'd say  embedded in all                                                                    
generations  being treated  equally  or benefiting  equally,                                                                    
that was, I assume, part of that evaluation."                                                                                   
CHAIR  SEEKINS  asked   if  the  board  is   the  body  that                                                                    
determines how  to equally treat  all generations  under the                                                                    
current system.                                                                                                                 
MR. STORER answered, "On that day, in that action."                                                                             
CHAIR SEEKINS  asked Mr. Storer  if he had $20+  billion and                                                                    
was to  recommend how  that fund should  be managed  for the                                                                    
benefit  of current  and future  generations,  how he  would                                                                    
convince  people to  use the  current system  over the  POMV                                                                    
MR. STORER  said that would  be difficult. The  hurdle would                                                                    
be  to  convince  people  to   use  a  methodology  that  is                                                                    
inconsistent with  current accounting methodology.  A second                                                                    
hurdle  would be  to  negate the  fact  that most  endowment                                                                    
funds use some form of the  POMV. He said the main criticism                                                                    
of the  realized income basis,  is that the  realized income                                                                    
can be  manipulated by making decisions  independent of what                                                                    
the market is doing. He  has given Chair Seekins' question a                                                                    
lot of thought  but has failed to come up  with a reasonable                                                                    
argument in support  of the current methodology.  He said it                                                                    
made a  lot of sense  in the  1970s when the  permanent fund                                                                    
was created.                                                                                                                    
CHAIR  SEEKINS  asked  Mr. Storer  if  he  could  reasonably                                                                    
defend the position that the  current realized income system                                                                    
meets the  fiscal responsibility of  a trustee, in  terms of                                                                    
the trustee's fiscal responsibility  to the beneficiaries of                                                                    
a fund.                                                                                                                         
MR.  STORER   replied  the  POMV  is   consistent  with  the                                                                    
methodology of most funds. He explained:                                                                                        
     Another way that  you see out there  is taking the                                                                         
     less  popular  -  you take  the  income  stream  -                                                                         
     dividends,  interest,  and  that's  part  of  your                                                                         
     payout and  then you in effect  inflation proof by                                                                         
     not  accounting  for   the  appreciation  in  your                                                                         
     assets,  whether  they're  realized or  not,  they                                                                         
     stay with  the fund.  So that's  kind of  a second                                                                         
     tier  so  now  you've created  inflation  proofing                                                                         
     through  appreciation and  a distribution  through                                                                         
     the income stream.                                                                                                         
     So now we go to  the third one, which memorializes                                                                         
     the  distribution of  the profits  that occur  and                                                                         
     creates  an  enormous  amount of  volatility.  The                                                                         
     statutes say  that we as fiduciaries,  this is how                                                                         
     we manage the  fund so the statutes  have given us                                                                         
     the fiduciary  responsibility [indisc.]  to manage                                                                         
     it and to be mindful with that.                                                                                            
CHAIR   SEEKINS   said  he   was   speaking   only  to   the                                                                    
responsibility  to better  meet the  long-term needs  of the                                                                    
beneficiaries under one's fiduciary role, not by statute.                                                                       
MR. STORER said  he believes he provided his  opinion on the                                                                    
hierarchy of  treating all generations  equally. He  said he                                                                    
has not heard  any better method being  discussed right now,                                                                    
which does  not mean  one won't be  proposed in  the future.                                                                    
The legislature  has the ability  to appropriate all  of the                                                                    
realized income  in the fund  right now. The more  insight a                                                                    
fiduciary has  as to how to  best manage a fund,  the better                                                                    
job the fiduciary  can do. The current  methodology leaves a                                                                    
lot of room for ambiguity.                                                                                                      
SENATOR OGAN commented  that many citizens do  not trust the                                                                    
legislature's  or APFC  Board of  Trustees' motivations  for                                                                    
wanting  to adopt  the POMV.  They  see it  as allowing  the                                                                    
legislature to  get more money  for government  spending. He                                                                    
asked Mr.  Storer if he  believes the POMV method  should be                                                                    
coupled with a  spending limit to assure the  people that it                                                                    
is not  just a  way for  the legislature  to get  more money                                                                    
from the permanent fund to spend.                                                                                               
MR. STORER  said he understands  the citizens'  distrust and                                                                    
thinks  it  is natural  and  healthy.  He believes  parallel                                                                    
issues are  facing the  legislature and  voters right  now -                                                                    
the proposed  POMV, which  addresses inflation  proofing and                                                                    
is a management  tool, and the state's  fiscal problems. The                                                                    
APFC  Board of  Trustees  would have  proposed  the POMV  no                                                                    
matter what the state's fiscal  situation was. The board and                                                                    
staff recognize  that the [earnings] distribution  is within                                                                    
the prerogative of the legislature.                                                                                             
SENATOR  THERRIAULT noted  that  the  previous question  was                                                                    
phrased as  public distrust of  the APFC  dividend trustees;                                                                    
however,  no such  body  exists. The  Board  of Trustees  is                                                                    
charged with  making sure that this  multigenerational asset                                                                    
is  not diminished  by  inflation and  that  is the  Board's                                                                    
motive behind proposing the POMV.                                                                                               
MR. STORER strongly agreed.                                                                                                     
SENATOR OGAN  thanked Senator Therriault for  correcting his                                                                    
misstatement  and  pointed  out   the  legislature  has  the                                                                    
responsibility for  paying the dividend. He  maintained that                                                                    
the  simultaneous discussion  of the  POMV proposal  and the                                                                    
budget  gap   is  making  everyone   very  suspect   of  the                                                                    
motivations behind the POMV proposal.                                                                                           
MR.  STORER  said the  Board  of  Trustees understands  that                                                                    
completely and  when it  is given  the opportunity  to speak                                                                    
directly to individuals and answer  questions, it has found,                                                                    
without  exception,  they  understand the  distinction.  The                                                                    
difficulty is conveying that message.                                                                                           
SENATOR THERRIAULT noted that under  SJR 19, there might not                                                                    
be enough revenue in a down  market to pay a dividend and/or                                                                    
inflation proofing. SJR 19 freezes  the existing statutes so                                                                    
that the dividend  takes precedence. He asked  Mr. Storer if                                                                    
that concerns him.                                                                                                              
MR.  STORER said  the Board  of  Trustees strongly  believes                                                                    
that  how the  funds are  used is  within the  legislature's                                                                    
prerogative. He stated:                                                                                                         
     If  you went  back to  June 30,  and this  is what                                                                         
     we've been  using, we're updating  it and  then in                                                                         
     any  given   year  under  the   existing  formula,                                                                         
     there's  about  a  10 percent  chance  that  there                                                                         
     would be no dividend -  I'm not saying every year,                                                                         
     I'm just saying within  that continuum. So that is                                                                         
     the risk with the existing formula.                                                                                        
     Now,  because the  market has  done  so well,  and                                                                         
     once  we  visit  our   asset  allocation  we  will                                                                         
     remodel  it and,  at  least  for some  foreseeable                                                                         
     time,  that  10   percent  probability  diminishes                                                                         
     because we have a much  larger cushion. But the 10                                                                         
     percent  probability  of a  significantly  smaller                                                                         
     dividend  would  still  exist under  the  existing                                                                         
     formula, and  then inflation proofing -  I haven't                                                                         
     really thought  through the -  if POMV  passes and                                                                         
     you have  this existing formula, you  have now put                                                                         
     inflation proofing ahead of that formula.                                                                                  
CHAIR SEEKINS took public testimony.                                                                                            
MS. MARY GRISWOLD, representing herself, said she supports                                                                      
a combination of CSSJR 18(STA) and SJR 32. She told                                                                             
     POMV provides long-term  protection for the buying                                                                         
     power for  the permanent fund  by constitutionally                                                                         
     inflation  proofing  the  entire fund.  Right  now                                                                         
     only the principal is  inflation proofed, and that                                                                         
     is  done by  an  annual legislative  appropriation                                                                         
     subject  to  available funds.  Equally  important,                                                                         
     POMV  prevents  erosion  of the  permanent  fund's                                                                         
     value  by  limiting  the   spending  in  times  of                                                                         
     plenty.   This   payout   method   complies   with                                                                         
     generally  accepted  accounting practices  and  is                                                                         
     appropriate  for  diversified  funds  composed  of                                                                         
     stocks, bonds and real  estate. Our current payout                                                                         
     method  is  outdated  because  we  are  no  longer                                                                         
     invested only in income-producing bonds.                                                                                   
     Implementing   POMV  must   be  kept   simple  and                                                                         
     comparable  to the  existing  dividend program  to                                                                         
     gain  voter   acceptance.  So   while  I   am  not                                                                         
     generally  in favor  of dedicating  appropriations                                                                         
     in the Constitution, this  case warrants doing so.                                                                         
     The political reality is that  we are going to get                                                                         
     nowhere   resolving   our   growing   difficulties                                                                         
     without  clearing  the  dividend  issue  from  the                                                                         
     table.  I  favor  an 80-20  split  of  the  payout                                                                         
     because  this  is  the  most  defensible  math  to                                                                         
     preserve  a  comparable  dividend formula.  It  is                                                                         
     consistent  with the  performance  model, which  I                                                                         
     trust better  than short-term projections  or look                                                                         
     backs.  The model  stipulates  80 percent  nominal                                                                         
     returns,  3 percent  inflation,  and  a 5  percent                                                                         
     real  return over  time. Right  now  we are  using                                                                         
     half  of the  nominal  returns  for dividends.  To                                                                         
     equal   this  after   POMV's  implicit   inflation                                                                         
     proofing, we must use 80  percent of the 5 percent                                                                         
     payout.  This  is  straightforward and  leaves  20                                                                         
     percent   available   for   essential   government                                                                         
     services,  which when  combined with  revenue from                                                                         
     revised  oil  taxes and  a  3  percent income  tax                                                                         
     based  on  federal   adjusted  gross  income  will                                                                         
     [indisc.] bridge our fiscal gap.                                                                                           
     SJR  19 and  SJR 24  continue our  outdated payout                                                                         
     method, which threaten the  value of the permanent                                                                         
     fund  by allowing  overspending in  years of  high                                                                         
     income. A combination of CSSJR  18 and SJR 32 is a                                                                         
     good  solution   to  protect  the  value   of  the                                                                         
     permanent  fund,  preserve  the  dividend  program                                                                         
     that Alaskans  have learned to count  on, and help                                                                         
     us take  a big step toward  fiscal responsibility.                                                                         
     Thank you.                                                                                                                 
MR.  MARK NEWMAN,  testifying  on his  own  behalf from  Big                                                                    
Lake,  informed  members  that  he was  a  delegate  to  the                                                                    
Conference of Alaskans. He has  repeatedly heard the comment                                                                    
that it is necessary to get  the POMV by the people. He said                                                                    
he has  recently talked to  many people who  understand that                                                                    
with  the current  method, dividend  checks  will be  higher                                                                    
when the  stock market is up  and lower when it  is down. He                                                                    
noted the  permanent fund  began in 1976  with a  deposit of                                                                    
$728 million and it now  amounts to $28 billion, which shows                                                                    
that the current  system is working very  well. A commission                                                                    
report from  1990 showed  the results  of two  questions put                                                                    
before Alaskans: what  is the purpose of  the permanent fund                                                                    
and what  role will  it play  in Alaska's  long-term future.                                                                    
The public clearly  stated that it wants  the permanent fund                                                                    
retained; the  principal of the fund  preserved; the current                                                                    
level of  state spending  lowered; and it  does not  want to                                                                    
use  fund   earnings  to  support  state   programs  in  the                                                                    
foreseeable  future.  Many   people  desperately  need  that                                                                    
dividend  check. He  expressed concern  that the  people are                                                                    
not  being listened  to by  the  politicians and  government                                                                    
officials.  He cautioned  that to  build  public trust,  the                                                                    
legislature must  listen to and  do what the people  say. He                                                                    
invited members to call him.                                                                                                    
MR. ROGER GAY, a resident of  Big Lake, said he was tired of                                                                    
hearing about  the issue of  inflation proofing  because the                                                                    
legislature  cannot  inflation  proof anything  by  throwing                                                                    
more money  into the permanent  fund. He told  members, "The                                                                    
only way to get the real  value of or from a fluctuating and                                                                    
intrinsically  worthless  currency is  to  spend  it now  at                                                                    
today's  value. Tomorrow  your money  is going  to be  worth                                                                    
TAPE 04-11, SIDE A                                                                                                            
MR. GAY said when inflation  eats the value of the permanent                                                                    
fund down to zero that should  be a lesson to the people who                                                                    
refuse  to control  their  own currency.  He  added, "If  it                                                                    
doesn't make  sense to inflation  proof the  dividend, let's                                                                    
stop    hearing   about    the    oxymoron   of    inflation                                                                    
proofing...double digit  inflation is going  to be  a bigger                                                                    
shock  than the  stock market  crash  and you  can bet  it's                                                                    
CHAIR  SEEKINS  announced  that with  no  further  witnesses                                                                    
wishing to testify, public testimony was closed.                                                                                
SENATOR OGAN  concurred with Mr.  Newman's statement  that a                                                                    
lot of people  need the dividend check. He said  he was glad                                                                    
Mr.  Newman  attended  the Conference  of  Alaskans,  as  he                                                                    
represented the "average guy."                                                                                                  
SENATOR  THERRIAULT commented  that  the legislature  always                                                                    
has to deal  with reality versus perception  and he believes                                                                    
there  is   the  perception  among   the  public   that  the                                                                    
management  scheme  of the  permanent  fund  has never  been                                                                    
changed. However,  had the  legislature never  tinkered with                                                                    
that  management structure,  the  permanent  fund would  not                                                                    
have increased  in value as  the result of the  stock market                                                                    
rise. He  explained that the  permanent fund  was originally                                                                    
set  up as  a bond  fund and  had the  legislature chose  to                                                                    
leave it  that way,  the stock market  would have  taken off                                                                    
and  left  the  fund  behind.  That  change  resulted  in  a                                                                    
tremendous payout  to the  public, which  people are  now so                                                                    
dependent on.                                                                                                                   
[The following testimony by Chair Seekins is verbatim.]                                                                         
CHAIR  SEEKINS: I  agree. Other  comments? Discussion  among                                                                    
the members?  My intent here is  to take a look  at all four                                                                    
of these bills  this morning and I think  that the Judiciary                                                                    
Committee has  discussed and  discussed and  discussed these                                                                    
bills.  I  think   it's  time  for  other   members  of  the                                                                    
legislature to  be able to  discuss them as well.  My intent                                                                    
here is to put an up and down  vote as to whether we put all                                                                    
four  of  these bills  forward  or  not.  I don't  have  any                                                                    
problem  with  them going  forward  and  being discussed  in                                                                    
further committees  of assignment.  I think  it's worthwhile                                                                    
to be able to do so.                                                                                                            
On a  personal level,  I support some  concepts and  I don't                                                                    
support other concepts  but I don't think  that they've been                                                                    
fleshed out to the  point where I would be on  an up or down                                                                    
vote except on  one thing, and that would be  that I believe                                                                    
that the POMV system is superior  to the system that we have                                                                    
now.  I'm   saying  that   both  as   a  legislator,   as  a                                                                    
businessperson  and as  a former  trustee. In  1991-1994, we                                                                    
had  discussions as  to whether  or not  the fund  should be                                                                    
operated on a  percent of market value way  back then rather                                                                    
than  the current  system  of realized  gains.  I think  our                                                                    
current  system  is  antiquated.   It's  subject  to  market                                                                    
variability.  It's subject  to  political manipulations  and                                                                    
it's not  the best system that  we should have in  place for                                                                    
my family  currently, my children now,  my grandchildren and                                                                    
their  children  to  come.  I  do  believe  that  we  should                                                                    
intrinsically inflation  proof the  fund and I  support that                                                                    
on that basis, and I think  that that is an added benefit to                                                                    
the POMV  system. I can't guarantee  what inflation proofing                                                                    
is  going  to be  next  year  but the  way  that  SJR 18  is                                                                    
written, it gives the legislature  the cap of 5 percent, not                                                                    
a  mandate to  spend  5  percent. I  don't  think people  in                                                                    
general understand that.                                                                                                        
As I've gone around the state  and talked to people, I found                                                                    
out that once they understand  that it's a management system                                                                    
and  it's  not  a  raid  on  the  permanent  fund,  as  some                                                                    
political opportunists  would like  to make  it be,  I think                                                                    
that  they say  well  maybe  that's not  a  bad system.  The                                                                    
discussion though, would tend to be  as to well how much and                                                                    
where  would  it go,  as  we  heard  in the  committee  this                                                                    
morning.  I'm not  at this  point in  favor of  limiting the                                                                    
fiscal responsibility  of the legislature, either  now or in                                                                    
the future to be able  to handle emergencies that may emerge                                                                    
and the flexibility that we would have to have.                                                                                 
On  a  personal basis,  I  don't  have  any problem  with  a                                                                    
spending limit  - a constitutional spending  limit, which is                                                                    
not part  of what  we're looking at  this morning,  where we                                                                    
would  be able  to  override  the provision  in  case of  an                                                                    
emergency or  collapse - some  kind of a  national disaster.                                                                    
My  primary responsibility  as a  legislator fiscally  is to                                                                    
make sure  that we  are meeting the  essential needs  of the                                                                    
government  in the  State of  Alaska  and I  think that  our                                                                    
Constitution was  very strong in assigning  that position to                                                                    
the legislature. I have not  been in favor of endowing money                                                                    
for any  purpose in my  past, and I'm  not at this  point in                                                                    
I don't  have any problem  - I  believe, based on  the track                                                                    
record  of the  legislature, we  would continue  to try  our                                                                    
dead level best to be able  to put a dividend into the hands                                                                    
of  the  people  of  the  State of  Alaska.  It's  a  strong                                                                    
economic force.  It's one of -  I don't know where  it would                                                                    
be but  it's one of the  top five economies in  the state of                                                                    
Alaska.  At  one time  I  know  it  was  second only  to,  I                                                                    
believe, fishing at that particular  time. So, it's a strong                                                                    
economy.  We   would  not  choose,   I  don't  think   as  a                                                                    
legislative  body, to  cripple  that economy,  nor would  we                                                                    
choose as a legislative body  to cripple the State of Alaska                                                                    
when dire circumstances were necessary  for us to be able to                                                                    
meet those essential needs of government.                                                                                       
So, I hope  that as we look  now - we're going to  ask on an                                                                    
individual basis, I'm going to  ask for recommendations from                                                                    
the  committee on  all four  of  these for  the purposes  of                                                                    
further discussion  down the line  in the rest of  the body.                                                                    
We  all  know  that  we're  coming up  to  a  date  when  we                                                                    
[indisc.] by the Governor and  we've agreed that we'd take a                                                                    
look at many different approaches to  be able to look at how                                                                    
we would  operate fiscally  in the State  of Alaska.  And we                                                                    
have got  recommendations from everywhere, including  the 55                                                                    
members  of the  Conference  of Alaskans.  So,  I would  ask                                                                    
first for  the will of the  committee as to SJR  24. Senator                                                                    
SENATOR  THERRIAULT   moved  SJR  24  from   committee  with                                                                    
individual recommendations.                                                                                                     
SENATOR  ELLIS objected  because he  believes the  committee                                                                    
has a  superior work  product before  it that  addresses the                                                                    
same issues.                                                                                                                    
The motion  to move  SJR 24  from committee  with individual                                                                    
recommendations carried with  Senators Ogan, Therriault, and                                                                    
Seekins in favor, and Senators Ellis and French opposed.                                                                        
SENATOR  THERRIAULT   moved  SJR  32  from   committee  with                                                                    
individual recommendations.                                                                                                     
SENATOR OGAN  moved a conceptual  amendment to SJR  32, that                                                                    
being to incorporate  Section 4 from SJR  24. That amendment                                                                    
     Sec. 4. Article XV, Constitution of the State of                                                                         
     Alaska, is amended by adding a new section to                                                                              
               Section 30. Conditional Effect. The                                                                            
     2004  amendments  to  the  Alaska  permanent  fund                                                                         
     (art. IX, sec.  15) take effect only  if, in 2004,                                                                         
     the voters approve an amendment relating to an                                                                             
     appropriation limit (art. IX, sec. 16).                                                                                    
SENATOR ELTON asked for clarification  of what the amendment                                                                    
SENATOR  OGAN explained  that it  would  also require  voter                                                                    
approval of a spending limit.                                                                                                   
SENATOR ELTON said he would prefer  to keep SJR 32 as simple                                                                    
as possible  and expressed concern about  predicating SJR 32                                                                    
on  another   action.  He   suggested  the   Senate  Finance                                                                    
Committee discuss that matter.                                                                                                  
SENATOR ELLIS objected to the adoption of the amendment.                                                                        
The  motion to  adopt  the amendment  carried with  Senators                                                                    
Therriault, Ogan  and Seekins in  favor, and  Senators Ellis                                                                    
and French opposed.                                                                                                             
There being no further discussion  on the motion to move SJR                                                                    
32 as amended  [CSSJR 32(JUD)] from committee,  the roll was                                                                    
called. The motion carried with all Senators in favor.                                                                          
SENATOR THERRIAULT  moved CSSJR 18(STA) from  committee with                                                                    
individual recommendations.                                                                                                     
SENATOR ELLIS objected.                                                                                                         
The  motion to  move  CSSJR 18(STA)  from committee  carried                                                                    
with Senators  French, Therriault and Seekins  in favor, and                                                                    
Senators Ellis and Ogan opposed.                                                                                                
SENATOR  ELLIS  moved  SJR  19  to  the  next  committee  of                                                                    
referral with individual recommendations.                                                                                       
SENATOR THERRIAULT  objected and asked Senator  Ellis, given                                                                    
the  testimony that  SJR 19  prioritizes  the dividend  over                                                                    
inflation proofing, whether he  wished the committee to take                                                                    
action as an  endorsement of the measure or just  to keep it                                                                    
alive as a vehicle.                                                                                                             
SENATOR  ELLIS   said  individual  recommendations   by  the                                                                    
members were inherent  in his motion. He believes  SJR 19 is                                                                    
a  proposal  that  merits  further  consideration  and  each                                                                    
member can make a recommendation on the committee report.                                                                       
SENATOR OGAN  moved to adopt  a conceptual amendment  to SJR                                                                    
19, that being  to incorporate Section 4 from SJR  24.  That                                                                    
amendment reads:                                                                                                                
     Sec. 4. Article XV, Constitution of the State of                                                                         
     Alaska, is amended by adding a new section to                                                                              
               Section 30. Conditional Effect. The                                                                            
     2004  amendments  to  the  Alaska  permanent  fund                                                                         
     (art. IX, sec.  15) take effect only  if, in 2004,                                                                         
     the  voters approve  an amendment  relating to  an                                                                         
     appropriation limit (art. IX, sec. 16).                                                                                    
SENATOR FRENCH said he is  opposed to this amendment because                                                                    
he has  a hard time  endorsing a spending limit  without any                                                                    
specifics in front of him at this time.                                                                                         
SENATOR OGAN  said he understands  that the  committee would                                                                    
be voting  on something that no  one is able to  describe at                                                                    
this time. However, the Senate could amend it on the floor.                                                                     
SENATOR ELLIS told  Senator Ogan that he  might believe that                                                                    
adding the spending limit provision  will enhance the chance                                                                    
of voter support but he  encouraged members to think through                                                                    
the constitutionality  of linking a  constitutional spending                                                                    
limit  with  these other  matters.  He  said it  is  unknown                                                                    
whether that goal  will ultimately fail [in  the courts]. He                                                                    
cautioned that  the legislature would be  asking for trouble                                                                    
down  the road,  past  the voters.  He  agreed with  Senator                                                                    
French  that it  is difficult  to  make a  decision on  this                                                                    
conceptual  amendment  in  the  timeframe  provided  by  the                                                                    
The   motion  to   amend  SJR   19  carried   with  Senators                                                                    
Therriault, Ogan  and Seekins in  favor and  Senators French                                                                    
and Ellis opposed.                                                                                                              
The motion  to move SJR  19 as amended [CSSJR  19(JUD)] from                                                                    
committee carried with all members in favor.                                                                                    

Document Name Date/Time Subjects