Legislature(2021 - 2022)BUTROVICH 205

09/08/2021 01:30 PM JUDICIARY

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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+= SJR301 CONST. AM: APPROP LIMIT TELECONFERENCED
Heard & Held
-- Public Testimony --
*+ SJR302 CONST. AM: PFD/SUSTAINABLE DIVIDEND/PCE TELECONFERENCED
Heard & Held
**Streamed live on AKL.tv**
                    ALASKA STATE LEGISLATURE                                                                                  
              SENATE JUDICIARY STANDING COMMITTEE                                                                             
                       September 8, 2021                                                                                        
                           1:32 p.m.                                                                                            
                                                                                                                                
                                                                                                                                
MEMBERS PRESENT                                                                                                               
                                                                                                                                
Senator Roger Holland, Chair                                                                                                    
Senator Shelley Hughes                                                                                                          
Senator Robert Myers                                                                                                            
Senator Jesse Kiehl                                                                                                             
                                                                                                                                
MEMBERS ABSENT                                                                                                                
                                                                                                                                
Senator Mike Shower, Vice Chair                                                                                                 
                                                                                                                                
OTHER LEGISLATORS PRESENT                                                                                                     
                                                                                                                                
Representative James Kaufman                                                                                                    
Senator Lora Reinbold                                                                                                           
                                                                                                                                
COMMITTEE CALENDAR                                                                                                            
                                                                                                                                
SENATE JOINT RESOLUTION NO. 301                                                                                                 
Proposing amendments to the Constitution of the State of Alaska                                                                 
relating to an appropriation limit; and relating to the budget                                                                  
reserve fund.                                                                                                                   
                                                                                                                                
     - HEARD & HELD                                                                                                             
                                                                                                                                
SENATE JOINT RESOLUTION NO. 302                                                                                                 
Proposing amendments to  the Constitution of the  State of Alaska                                                               
relating to  the Alaska permanent fund,  creating the sustainable                                                               
dividend  account  and power  cost  equalization  account in  the                                                               
permanent fund, and relating to a dividend for state residents.                                                                 
                                                                                                                                
     - HEARD & HELD                                                                                                             
                                                                                                                                
PREVIOUS COMMITTEE ACTION                                                                                                     
                                                                                                                                
BILL: SJR 301                                                                                                                 
SHORT TITLE: CONST. AM: APPROP LIMIT                                                                                            
SPONSOR(s): SENATOR(s) MYERS                                                                                                    
                                                                                                                                
09/01/21       (S)       READ THE FIRST TIME - REFERRALS                                                                        
09/01/21       (S)       JUD, FIN                                                                                               
09/03/21       (S)       JUD AT 1:30 PM BUTROVICH 205                                                                           
09/03/21       (S)       Heard & Held                                                                                           
09/03/21       (S)       MINUTE(JUD)                                                                                            
09/08/21       (S)       JUD AT 1:30 PM BUTROVICH 205                                                                           
                                                                                                                                
BILL: SJR 302                                                                                                                 
SHORT TITLE: CONST. AM: PFD/SUSTAINABLE DIVIDEND/PCE                                                                            
SPONSOR(s): SENATOR(s) BEGICH                                                                                                   
                                                                                                                                
09/01/21       (S)       READ THE FIRST TIME - REFERRALS                                                                        
09/01/21       (S)       JUD, FIN                                                                                               
09/08/21       (S)       JUD AT 1:30 PM BUTROVICH 205                                                                           
                                                                                                                                
WITNESS REGISTER                                                                                                              
                                                                                                                                
QUINN TOWNSEND, Policy Manager                                                                                                  
Alaska Policy Forum                                                                                                             
Anchorage, Alaska                                                                                                               
POSITION STATEMENT: Testified in support of a constitutional                                                                  
spending limit during the hearing on SJR 301.                                                                                   
                                                                                                                                
VIOLET APALAYAK, representing self                                                                                              
Dillingham, Alaska                                                                                                              
POSITION STATEMENT: During the hearing on SJR 301, stated                                                                     
support for protecting the permanent fund into perpetuity.                                                                      
                                                                                                                                
DON DYER, President                                                                                                             
Mat-Su Economic Development Corporation                                                                                         
Palmer, Alaska                                                                                                                  
POSITION STATEMENT: Testified in support of SJR 301.                                                                          
                                                                                                                                
MERCEDES COLBERT, Staff                                                                                                         
Senator Tom Begich                                                                                                              
Alaska State Legislature                                                                                                        
Juneau, Alaska                                                                                                                  
POSITION STATEMENT: Delivered a PowerPoint and sectional                                                                      
analysis of SJR 302 on behalf of the sponsor.                                                                                   
                                                                                                                                
CONOR BELL, Fiscal Analyst                                                                                                      
Legislative Finance Division                                                                                                    
Legislative Agencies and Offices                                                                                                
Legislative Affairs Agency                                                                                                      
Juneau, Alaska                                                                                                                  
POSITION STATEMENT: Answered questions during the discussion of                                                               
SJR 302.                                                                                                                        
                                                                                                                                
EMILY NAUMAN, Attorney                                                                                                          
Legislative Legal Services                                                                                                      
Legislative Affairs Agency                                                                                                      
Juneau, Alaska                                                                                                                  
POSITION STATEMENT:  Answered questions during the  discussion of                                                             
SJR 302.                                                                                                                        
                                                                                                                                
CURTIS THAYER, Executive Director                                                                                               
Alaska Energy Authority                                                                                                         
Department of Commerce, Community & Economic Development                                                                        
Anchorage, Alaska                                                                                                               
POSITION  STATEMENT: Testified  on behalf  of the  administration                                                             
during the discussion of SJR 302.                                                                                               
                                                                                                                                
ACTION NARRATIVE                                                                                                              
                                                                                                                                
1:32:40 PM                                                                                                                    
CHAIR  ROGER   HOLLAND  called  the  Senate   Judiciary  Standing                                                             
Committee meeting  to order at 1:32  p.m. Present at the  call to                                                               
order were Senators Myers, Hughes, Kiehl and Chair Holland.                                                                     
                                                                                                                                
                SJR 301-CONST. AM: APPROP LIMIT                                                                             
                                                                                                                                
1:33:25 PM                                                                                                                    
CHAIR  HOLLAND  announced  the   consideration  of  SENATE  JOINT                                                               
RESOLUTION NO.  301 Proposing amendments  to the  Constitution of                                                               
the  State of  Alaska  relating to  an  appropriation limit;  and                                                               
relating to the budget reserve fund.                                                                                            
                                                                                                                                
1:33:43 PM                                                                                                                    
CHAIR HOLLAND recognized Senator Reinbold's presence.                                                                           
                                                                                                                                
CHAIR HOLLAND opened public testimony on SJR 301.                                                                               
                                                                                                                                
1:34:16 PM                                                                                                                    
QUINN TOWNSEND,  Policy Manager, Alaska Policy  Forum, Anchorage,                                                               
Alaska, read the following written testimony:                                                                                   
                                                                                                                                
     Chair Holland  and members of the  Judiciary Committee,                                                                    
     thank you  for the opportunity  to testify today.  I am                                                                    
     Quinn Townsend  testifying on  behalf of  Alaska Policy                                                                    
     Forum.                                                                                                                     
                                                                                                                                
     Alaska has had a history  of high spending during times                                                                    
     of  economic growth  that has  led  to fiscal  problems                                                                    
     today.  One  mechanism  to reign  in  the  tendency  to                                                                    
     increase  spending when  times are  good is  through an                                                                    
     appropriation limit,  or spending cap.  Implementing an                                                                    
     effective  spending  cap  will  help  stabilize  future                                                                    
     state budgets and can encourage private sector growth.                                                                     
                                                                                                                                
     Economic  literature  shows  that  a  spending  cap  is                                                                    
     beneficial in curbing the growth  of state spending, as                                                                    
     long  as it  is  structured correctly.  There are  four                                                                    
     main aspects   that    are   integral   to    a   well-                                                                    
     designed cap: how it  is enforced, what it  limits, how                                                                    
     it   limits  spending   growth,  and how   it  can   be                                                                    
     overridden.                                                                                                                
                                                                                                                                
1:35:15 PM                                                                                                                    
MS. TOWNSEND continued:                                                                                                         
                                                                                                                                
     First, how  should a  spending cap  be enforced?  To be                                                                    
     effective,  limits  need  to be  constitutional  rather                                                                    
     than  statutory.  Constitutional limits are  much  more                                                                    
     resilient  to  the  ups  and  downs  of  politics  than                                                                    
     statutory   limits. This   means  that   constitutional                                                                    
     spending     caps     are     more     binding     than                                                                    
     statutory constraints.                                                                                                     
                                                                                                                                
     Second, what  should a spending cap  limit? Ineffective                                                                    
     spending  caps  allow  for workarounds  and  loopholes,                                                                    
     such   as  only   including  appropriations   from  tax                                                                    
     revenues. Instead, the base of  spending limited by the                                                                    
     cap needs  to be  broad. All  state expenditures  for a                                                                    
     fiscal  year  should  be  covered,  not  just  budgeted                                                                    
     general  revenue  fund  items. This  includes fee-  and                                                                    
     user charge-based activity.                                                                                                
                                                                                                                                
     Third,  how does  an effective  spending cap  limit the                                                                    
     growth  of  state  spending?  Economic  literature  has                                                                    
     demonstrated  that  the  most  effective  spending  cap                                                                    
     grows by population and  inflation rather than personal                                                                    
     income  or  another  economic  measure.  However,  that                                                                    
     literature also  acknowledges that Alaska's  economy is                                                                    
     unique and  typically excludes the state  from national                                                                    
     analyses.  Therefore, using  a running  average of  GDP                                                                    
     minus government  services to reflect  Alaska's private                                                                    
     sector  may  also be  an  effective  growth rate,  even                                                                    
     though  it  is  not   a  mechanism  that  other  states                                                                    
     typically use.                                                                                                             
                                                                                                                                
1:36:42 PM                                                                                                                    
     Fourth, what are  the ways to override  a spending cap?                                                                    
     An   effective  spending   cap   should  be   extremely                                                                    
     difficult to override and have  few exceptions, such as                                                                    
     disasters. To  allow spending  beyond the  limit should                                                                    
     require either  a vote of  the people,  a supermajority                                                                    
     legislative vote, or even both.                                                                                            
                                                                                                                                
     Alaska  needs an  effective  limit  on state  spending.                                                                    
     Every dollar spent  by the state is a  dollar not being                                                                    
     used by the private sector.  Alaska also needs a strong                                                                    
     private   sector,  especially   now  as   Alaskans  are                                                                    
     recovering from  the economic effects of  the pandemic.                                                                    
     Alaska  Policy Forum  encourages the  implementation of                                                                    
     an effective constitutional appropriation limit.                                                                           
                                                                                                                                
     Again, thank you for the opportunity to testify.                                                                           
                                                                                                                                
1:38:39 PM                                                                                                                    
At ease                                                                                                                         
                                                                                                                                
1:39:00 PM                                                                                                                    
CHAIR HOLLAND reconvened the meeting.                                                                                           
                                                                                                                                
1:39:18 PM                                                                                                                    
VIOLET  APALAYAK, representing  self, Dillingham,  Alaska, stated                                                               
that  late  Governor Jay  Hammond's  wife,  Bella, was  from  the                                                               
region.  She  referred to  his  book,  Diapering the  Devil:  How                                                               
Alaska  Helped  Staunch Befouling  by  Mismanaged  Oil Wealth:  A                                                               
Lesson for  Other Oil Rich  Nations. She offered her  support for                                                               
issues other  than SJR 301.  She offered support  for restriction                                                               
of disposal  sites under  the Clean Water  Act, Section  404 (c),                                                               
and requiring  Alaska Native cultural  courses in  Alaska history                                                               
curriculum.  She recalled  that then  Governor Hammond  suggested                                                               
that  tax  revenue   from  natural  resources  be   placed  in  a                                                               
conservatively  managed  account  and   issuing  a  new  dividend                                                               
earnings  stock. In  closing, she  stated support  for protecting                                                               
the permanent fund into perpetuity.                                                                                             
                                                                                                                                
1:42:17 PM                                                                                                                    
DON  DYER, President,  Mat-Su  Economic Development  Corporation,                                                               
Palmer,  Alaska,  stated support  for  SJR  301. He  offered  his                                                               
belief that the structure is  based on common sense and practical                                                               
ways  of  accomplishing  things   to  provide  the  right  budget                                                               
controls   in  Alaska.   It  will   also   help  drive   economic                                                               
development.  He  emphasized  elements, including  the  five-year                                                               
rolling average, which can be  adjusted annually but is capped at                                                               
14  percent. He  stated  the spending  cap could  be  a boon  for                                                               
investment in  Alaska because it would  provide predictability to                                                               
Alaska's   budget  and   it   guarantees  constitutional   budget                                                               
controls. He stated support for basing the cap on GDP.                                                                          
                                                                                                                                
1:44:42 PM                                                                                                                    
CHAIR HOLLAND closed public testimony on SJR 301.                                                                               
                                                                                                                                
[SJR 301 was held in committee.]                                                                                                
                                                                                                                                
        SJR 302-CONST. AM: PFD/SUSTAINABLE DIVIDEND/PCE                                                                     
                                                                                                                                
1:45:02 PM                                                                                                                    
CHAIR  HOLLAND  announced  the   consideration  of  SENATE  JOINT                                                               
RESOLUTION NO.  302 Proposing amendments  to the  Constitution of                                                               
the  State  of Alaska  relating  to  the Alaska  permanent  fund,                                                               
creating  the   sustainable  dividend  account  and   power  cost                                                               
equalization account  in the  permanent fund,  and relating  to a                                                               
dividend for state residents.                                                                                                   
                                                                                                                                
1:45:49 PM                                                                                                                    
MERCEDES  COLBERT,  Staff,  Senator   Tom  Begich,  Alaska  State                                                               
Legislature, Juneau,  Alaska, said the  intent is to  present SJR
302 as an  option for discussion. She stated  that Senator Begich                                                               
is open  to other ideas but  keeping the same goals  in mind. She                                                               
reviewed the goals of SJR 302 on slide 2:                                                                                       
                                                                                                                                
        o Remove the risk of unstructured draws from the                                                                        
          Earnings Reserve Account;                                                                                             
        o Resolve the tension of choosing between spending on                                                                   
          services versus dividends;                                                                                            
        o Constitutionally protect the Permanent Fund Dividend                                                                  
          and PCE;                                                                                                              
        o Invest our state savings with the Permanent Fund to                                                                   
          generate more earnings; and                                                                                           
        o Help Alaska households and state lawmakers budget for                                                                 
          a sustainable PFD amount indefinitely.                                                                                
                                                                                                                                
1:47:05 PM                                                                                                                    
MS. COLBERT presented the sectional analysis for SJR 302,                                                                       
which read:                                                                                                                     
                                                                                                                                
        Section 1: Amends Article IX, section 15, of the                                                                      
     Alaska State Constitution, redesignating this section                                                                      
     as 15(a):                                                                                                                  
     • Changes the existing language  to  clarify that  25                                                                      
        percent of all earnings of the Alaska Permanent Fund                                                                    
        are placed into the principal.                                                                                          
     • Creates the Sustainable  Dividend  Account and  the                                                                      
        Power Cost Equalization Account within the Permanent                                                                    
        Fund.                                                                                                                   
     • The income-producing investments  of the  Permanent                                                                      
        Fund  and  these   two  new  subaccounts   shall  be                                                                    
        designated by law.                                                                                                      
     • Requires the principal and  income earnings  of the                                                                      
        fund and the two  new subaccounts to be  kept in the                                                                    
        fund or subaccount.                                                                                                     
     • The legislature may appropriate  from the  fund and                                                                      
        accounts only  as provided  in this  section of  the                                                                    
        state constitution.                                                                                                     
                                                                                                                                
1:48:29 PM                                                                                                                    
MS. COLBERT paraphrased the sectional analysis, Section 2                                                                       
which read:                                                                                                                     
                                                                                                                                
     Section  2:  Creates   new  subsections  15(b-e)  under                                                                  
     Article IX, pertaining to the  percent of market values                                                                    
     of  the Permanent  Fund, Sustainable  Dividend Account,                                                                    
     and the Power Cost Equalization Account:                                                                                   
                                                                                                                                
     b. The legislature may appropriate up to 4.5 percent of                                                                    
        the average market  value from the  Alaska Permanent                                                                    
        Fund to  the  General Fund  each  fiscal year.  This                                                                    
        subsection protects  the  Sustainable  Dividend  and                                                                    
        Power Cost Equalization  Accounts from  general fund                                                                    
        spending.                                                                                                               
     c. The legislature shall  appropriate 5 percent  of the                                                                    
        average market  value of  and  from the  Sustainable                                                                    
        Dividend Account each  fiscal year to  pay dividends                                                                    
        to eligible Alaska residents.                                                                                           
     d. The legislature shall  appropriate 5 percent  of the                                                                    
        average market  value  of and  from  the Power  Cost                                                                    
        Equalization  Account   each   fiscal   year.   This                                                                    
        appropriation shall  be  used  for  the  payment  of                                                                    
        energy subsidies,  capital  improvements  to  energy                                                                    
        infrastructure  to   rural  communities,   community                                                                    
      assistance payments, and renewable energy projects.                                                                       
     e.  Establishes  the  average   market  value   of  the                                                                    
        Permanent Fund, the  Sustainable Dividend  and Power                                                                    
        Cost Equalization Accounts. The average market value                                                                    
        of  the  whole  fund  includes  the   value  of  the                                                                    
        Sustainable Dividend  and  Power  Cost  Equalization                                                                    
        Accounts. The value is calculated  using the average                                                                    
        value for the preceding five fiscal years, excluding                                                                    
        the fiscal year  that had just  ended. The  value of                                                                    
        the  whole  fund   and  the  subaccounts   shall  be                                                                    
        calculated on the last day of the fiscal year.                                                                          
1:50:45 PM                                                                                                                    
MS. COLBERT paraphrased the sectional analysis of SJR 302,                                                                      
Section 3, which read:                                                                                                          
                                                                                                                                
     Section 3:  Adds a new  Section 18 under Article  IX of                                                                  
     the Alaska Constitution:                                                                                                   
     • Sets a minimum divided payment of $1,200 to eligible                                                                     
        Alaska residents; and                                                                                                   
     • Requires the legislature to appropriate  the amount                                                                      
        necessary  to  meet  the  $1,200   dividend  if  the                                                                    
        Sustainable Dividend Account does not have enough to                                                                    
        provide for the $1,200 dividend on its own.                                                                             
1:51:08 PM                                                                                                                    
     Section 4:  Adds a new  Section 30 under Article  XV of                                                                  
     the  Alaska  Constitution,  to  establish  transitional                                                                    
     language for  the Permanent Fund amendments  above, and                                                                    
     the  establishment  of  the  Sustainable  Dividend  and                                                                    
     Power Cost Equalization Accounts:                                                                                          
                                                                                                                                
     a. On June  30,  2023,  the  balance  of  the  Earnings                                                                    
        Reserve  Account   shall  be   deposited  into   the                                                                    
        Permanent Fund principal.  This amount shall  be the                                                                    
        unencumbered balance  of  the  account on  Sept  30,                                                                    
        2022, or June 30, 2023, whichever is greater.                                                                           
     b. On June 30, 2023, the  legislature shall appropriate                                                                    
        from the Permanent Fund principal to the Sustainable                                                                    
        Dividend Account  the amount  that  would have  been                                                                    
        paid under  the current  statutory dividend  formula                                                                    
        from fiscal  years 2017  through  2023. This  amount                                                                    
        transferred  to  the  Sustainable  Dividend  Account                                                                    
        includes the  earnings and  interest accrued  during                                                                    
        that time.                                                                                                              
     c. On June  30, 2023,  the  balance of  the Power  Cost                                                                    
        Equalization Endowment  Fund shall  be deposited  in                                                                    
        the Power Cost Equalization Account within the                                                                          
        Permanent Fund.                                                                                                         
      d. The revised and expanded Article IX Section 15 of                                                                      
        the Constitution takes effect Fiscal Year 2024.                                                                         
    e. Provides transitional flexibility for determining by                                                                     
        law the average market value of the Sustainable                                                                         
        Dividend and Power Cost Equalization Accounts.                                                                          
                                                                                                                                
     Section 5: This constitutional amendment shall appear                                                                    
      on the general election ballot following passage of                                                                       
     this legislation.                                                                                                          
                                                                                                                                
1:54:01 PM                                                                                                                    
MS. COLBERT  explained that  SJR 302  would require  a two-thirds                                                               
vote in  each body, 14  members in the  Senate and 27  members in                                                               
the House, to  pass the legislature before it would  go to a vote                                                               
of the people in the next general election.                                                                                     
                                                                                                                                
1:54:35 PM                                                                                                                    
MS.  COLBERT  explained  the $1,200  amount  genesis,  which  was                                                               
derived by  using a rounded-calculated  average not  adjusted for                                                               
inflation. It  was based on  information from the  Permanent Fund                                                               
Division's website. If one person  received all 38 permanent fund                                                               
dividends  distributed  from  1982 through  2020,  the  recipient                                                               
would have  received $45,419.41.  By dividing  that amount  by 38                                                               
distributions, the average comes to $1,195.25, she said.                                                                        
                                                                                                                                
1:55:07 PM                                                                                                                    
SENATOR MYERS asked why it was not adjusted for inflation.                                                                      
                                                                                                                                
MS. COLBERT said she was unsure.                                                                                                
                                                                                                                                
1:55:39 PM                                                                                                                    
SENATOR HUGHES  commented that without inflation  proofing, in 20                                                               
to  30 years  the value  would be  equivalent to  $600. She  said                                                               
$1,200 might  seem fine to some,  but $600 would seem  very small                                                               
to others.                                                                                                                      
                                                                                                                                
1:56:00 PM                                                                                                                    
CHAIR HOLLAND said the first permanent fund dividend was $2,700.                                                                
                                                                                                                                
1:56:14 PM                                                                                                                    
MS. COLBERT  referred to slide  4 of  the PowerPoint on  SJR 302,                                                               
titled "How does the Sustainable  Dividend Account start at $10.9                                                               
Billion? She deferred technical questions to Legislative                                                                        
Finance.                                                                                                                        
                                                                                                                                
MS. COLBERT paraphrased the following rationale used for the                                                                    
table on slide 4:                                                                                                               
                                                                                                                                
     Slide 4  shows the  assumptions used  to arrive  at the                                                                  
     initial  deposit   of  $10.9  Billion  to   create  the                                                                    
     Sustainable   Dividend   Account.   She   deferred   to                                                                    
     Legislative  Finance  to   provide  the  details.  This                                                                    
     assumes  the legislature  will appropriate  $1,000 PFDs                                                                    
     in 2021  and 2022,  per the  accompanying SB  3003. She                                                                    
     said:                                                                                                                      
                                                                                                                                
        o We wanted to use the amount of money that was not                                                                     
          paid out in PFDs since  calendar year 2016   which                                                                    
          translates to  FY2017   the first  year a dividend                                                                    
          was paid out under the statutory formula.                                                                             
        o The total return of the earnings that amount made                                                                     
          is  also  factored  in. Cumulatively,  the  amount                                                                    
          that would have been paid  out in 2016 through the                                                                    
          projections of  2022    PLUS the  projected return                                                                    
          on  those investments  with the  funds staying  in                                                                    
          the  earnings  reserve    are  pulled  out of  the                                                                    
          Earnings   Reserve  to   create  the   Sustainable                                                                    
          Dividend Fund.                                                                                                        
        o Interestingly, the amount of nearly $8.36 Billon                                                                      
          that was not paid  in dividends over time resulted                                                                    
          in $2.58 Billion in more earnings in our savings.                                                                     
                                                                                                                                
1:58:12 PM                                                                                                                    
MS. COLBERT summarized the information on slides 5 and 6 of the                                                                 
PowerPoint on SJR 302 stating the following:                                                                                    
                                                                                                                                
   • Slide 5 is a rough attempt to make sense of how the                                                                      
     mechanisms of  this drafted proposal  would work.  As a                                                                    
     preface, I  would note that  Senator Begich  would like                                                                    
     to   offer  this   discussion   assuming  new   revenue                                                                    
     generated from SB 3002    which will be heard in Senate                                                                    
     Resources  tomorrow.  This   bill  builds  on  existing                                                                    
     revenue  sources to  generate $250  million revenue  in                                                                    
     FY24, so this number is used here on this slide.                                                                           
        o The new Sustainable Dividend Account and PCE                                                                          
          Account  are subaccounts  of  the Permanent  Fund,                                                                    
          that's  why they're  overlapping. The  total value                                                                    
          of these combined   which  may add up to more than                                                                    
          $85  billion come  FY24?    are used  to calculate                                                                    
          the  4.5%  percent of  market  value  draw to  the                                                                    
          General  Fund.  This  amount is  estimated  to  be                                                                    
          approximately $3.29 Billion.                                                                                          
        o Meanwhile, the Spring 2021 Revenue forecast                                                                           
          estimates  approximately   $2.1  Billion   in  UGF                                                                    
          revenue  outside of  the POMV    add  this to  the                                                                    
          general  fund,  and   approximately  $250  million                                                                    
          estimated in FY24 from SB 3002.                                                                                       
        o Note that because the PCE and Sustainable                                                                             
          Dividend  Accounts   are  still  managed   by  the                                                                    
          Permanent  Fund Corporation,  and are  subaccounts                                                                    
          of  the  overall  fund,   the  definition  of  the                                                                    
          "permanent fund dividend" remains the same.                                                                           
                                                                                                                                
2:00:33 PM                                                                                                                    
     Slide  6  shows  how  the draws  from  the  Sustainable                                                                  
     Dividend  Account   and  the   PCE  Account   work.  In                                                                    
     practice,  The Dividend  Account  and  PCE account  are                                                                    
     separate  from the  Permanent Fund.  That is,  they can                                                                    
     only  be  used  for   the  purposes  described  in  the                                                                  
     constitutional  amendment  (remember, we  can  dedicate                                                                    
     funds in the constitution).                                                                                                
   o The 5 percent                                                                                                              
   o  POMV from the PCE Account is estimated to be about                                                                        
     $60  million  to be  used  for  the payment  of  energy                                                                    
     subsidies,     capital    improvements     to    energy                                                                    
     infrastructure   to    rural   communities,   community                                                                    
     assistance  payments,  and  renewable  energy  projects                                                                    
     (Section 2 of the bill).                                                                                                   
   o The 5 percent POMV from the Sustainable Dividend                                                                           
     Account is estimated to be  $545 million. This pays for                                                                    
     more than  half the  amount needed  to meet  the $1,200                                                                    
     PFD,  but not  all  of it.  Approximately $275  million                                                                    
     would be needed  to make up the  difference, drawn from                                                                    
     the   General   Fund.  The   Constitutional   Amendment                                                                    
     proposes  that if  the SDA  is not  enough to  generate                                                                    
     $1,200,  then  the  legislature Shall  appropriate  the                                                                    
     difference to meet that minimum    the language is most                                                                    
     easily  interpreted to  mean, "not  more than"  $1,200,                                                                    
     but could be amended.                                                                                                      
                                                                                                                                
2:02:14 PM                                                                                                                    
SENATOR MYERS noted that slide 6 indicated a five-percent POMV                                                                  
draw but SB 3003 indicates 4.5 percent. He asked why there were                                                                 
different draw rates.                                                                                                           
                                                                                                                                
MS. COLBERT answered that mathematical  modeling showed there was                                                               
too much  of a  draw on  the permanent  fund. The  effective draw                                                               
rate was closer  to 6 percent. She offered to  share the modeling                                                               
with members. She  stated that it created too much  stress on the                                                               
permanent fund so the POMV draw was reduced to 4.5 percent.                                                                     
                                                                                                                                
2:02:58 PM                                                                                                                    
SENATOR MYERS  asked why it would  not create too much  stress on                                                               
the sub-accounts.                                                                                                               
                                                                                                                                
MS. COLBERT deferred to Mr. Bell.                                                                                               
                                                                                                                                
2:03:35 PM                                                                                                                    
CONOR  BELL,   Fiscal  Analyst,  Legislative   Finance  Division,                                                               
Legislative  Agencies and  Offices,  Legislative Affairs  Agency,                                                               
Juneau,  Alaska, responded  that  the 4.5  percent  POMV draw  is                                                               
based  on a  combination  of the  permanent  fund principal,  the                                                               
Power  Cost  Equalization  Account   (PCE)  and  the  Sustainable                                                               
Dividend  Account (SDA).  However, the  draw is  coming from  the                                                               
principal  of the  permanent fund.  He related  his understanding                                                               
that this would  not put the same potential stress  on the PCE or                                                               
SDA accounts, which are subject  to the 5 percent POMV structured                                                               
draw.                                                                                                                           
                                                                                                                                
2:04:26 PM                                                                                                                    
SENATOR  HUGHES  recalled  Ms.  Colbert  mentioned  a  6  percent                                                               
effective rate draw.  She highlighted that the  current 5 percent                                                               
POMV  draw is  an  effective  rate draw  of  3.7  percent of  the                                                               
current fund  balance. Even  if the legislature  were to  draw an                                                               
additional 1.5  percent to transition  to fiscal certainty  and a                                                               
50:50 PFD,  it would result in  a 5 percent effective  rate draw.                                                               
She said  she was  somewhat confused  about how it  could be  a 6                                                               
percent effective rate draw.                                                                                                    
                                                                                                                                
MS.  COLBERT answered  that  those projections  are  out of  date                                                               
since they were based on  April models which were prepared before                                                               
the  new  Callan  projections  and prior  to  the  Fiscal  Policy                                                               
Working Group  (FPWG) recommendations.  She explained  those were                                                               
more  conservative  projections  of the  permanent  fund  returns                                                               
using a  different mechanism  than the  one in  this bill.  The 6                                                               
percent  effective rate  draw  is  out of  date.  She offered  to                                                               
provide a model based on a 5 percent draw.                                                                                      
                                                                                                                                
2:06:11 PM                                                                                                                    
CHAIR HOLLAND  imagined that a  5 percent  draw was too  high for                                                               
the permanent  fund, but this  proposes three separate  5 percent                                                               
draws: 5 percent  of 1/8 of the  fund for the SDA,  5 percent for                                                               
the  PCE, with  another 5  percent draw  from the  corpus of  the                                                               
fund. He remarked it was ironic  that under the 50:50 plan, the 5                                                               
percent POMV  is split, with 50  percent funding the PFD  and the                                                               
remainder going to  state services. He offered his  view that 4.5                                                               
percent of  7/8 would  be a  huge amount going  to the  state. He                                                               
offered  his  view  that  the  figure should  be  less  than  4.5                                                               
percent.                                                                                                                        
                                                                                                                                
2:07:20 PM                                                                                                                    
SENATOR HUGHES referred  to the red arrow on slide  6, which read                                                               
$275 million. She directed attention to  the gray oval on slide 5                                                               
that  predicts   new  revenue  from   SB  3002  would   bring  in                                                               
approximately  $250  million.  Essentially,  SJR  302  would  use                                                               
public  taxes  to fund  PFDs,  which  fundamentally was  not  the                                                               
intent of the PFD program.  She recalled Senator Hoffman recently                                                               
stated during  a floor debate  that revenues  are not to  pay for                                                               
PFDs but  to pay  for government. While  she said  she understood                                                               
the desire to structure revenue  with the PFD, thereby calling it                                                               
a PFD,  it basically  taxes people  to fund  their PFDs.  This is                                                               
problematic, she said.                                                                                                          
                                                                                                                                
SENATOR HUGHES  said she appreciated Senator  Begich's efforts to                                                               
bring  forth a  proposal.  However, the  FPWG spent  considerable                                                               
effort  to develop  a plan.  In  developing its  recommendations,                                                               
many  FPWG members  had to  compromise. For  example, her  fiscal                                                               
solution  might  have  included cutting  $1  billion  from  state                                                               
government  and  adhering  to the  statutory  PFD.  Instead,  she                                                               
supported  the FPWG's  comprehensive  proposal.  She said  moving                                                               
forward  with  SJR 302  was  similar  to  her putting  forth  her                                                               
preferred solution.                                                                                                             
                                                                                                                                
2:09:36 PM                                                                                                                    
SENATOR HUGHES  remarked that the legislature  has been rehashing                                                               
this issue for  six years. The FPWG developed a  proposal to help                                                               
coalesce the legislature in order  to solve the PFD issues. Thus,                                                               
starting  over by  proposing something  new that  does not  align                                                               
with  the FPWG  recommendations is  problematic. Further,  taxing                                                               
people to pay for  a PFD is not what a PFD  is in Alaskans minds,                                                               
she said.                                                                                                                       
                                                                                                                                
2:10:06 PM                                                                                                                    
SENATOR KIEHL  agreed that Senator  Begich's proposal was  not in                                                               
keeping with the FPWG's model.  However, the FPWG's comprehensive                                                               
solution recommended  considering raising  taxes to help  pay for                                                               
the  PFD.  Further, it  recommended  reducing  services for  some                                                               
Alaskans to provide  a PFD for all Alaskans. In  fact, the PFD is                                                               
a government check  from the public treasury to  all Alaskans. He                                                               
acknowledged that the  PFD program is an important  one, which he                                                               
supports.                                                                                                                       
                                                                                                                                
SENATOR  KIEHL highlighted  that  what interests  him in  Senator                                                               
Begich's approach  is that it directly  requires the PFD to  be a                                                               
certain size, but  it passes part of it through  the general fund                                                               
draw from the  permanent fund until a  separate account increases                                                               
to  the point  that it  will  provide for  that size  of PFD.  He                                                               
pointed  out  that  the  general   fund  consists  of  investment                                                               
earnings, taxes,  rents and  fees. He was  unsure why  this model                                                               
uses  a multistep  approach rather  than  using one  draw to  the                                                               
general fund to meet PFD obligations and other services.                                                                        
                                                                                                                                
2:12:09 PM                                                                                                                    
MS. COLBERT  responded that  Senator Begich  worked on  this bill                                                               
early on,  that his intent was  not to overstep the  FPWG's work.                                                               
She acknowledged the substantial  effort the FPWG made, including                                                               
issuing a  fantastic, comprehensive report that  helped shape the                                                               
current legislative  conversations. In fact, many  of the earlier                                                               
economic  models  were  redone   based  on  the  FPWG's  baseline                                                               
assumptions. Instead,  she stated  that SB 3001  and SJR  301 are                                                               
concepts for  the committee to  consider. Since three  members of                                                               
the committee serve on the FPWG,  there is no better committee to                                                               
review them,  she said. She  stated that  the sponsor is  open to                                                               
amendments and other concepts.                                                                                                  
                                                                                                                                
2:13:34 PM                                                                                                                    
MS. COLBERT, in  response to Senator Kiehl's question  of why SJR
302 does  not have a  75:25 or  50:50 split, characterized  it as                                                               
removing the tension of government  spending from the PFD itself.                                                               
The sponsor's  idea was  to separate  the choice  of how  to fund                                                               
appropriations for troopers, ferries  and other services from the                                                               
PFD. She  explained that creating  a separate account  within the                                                               
fund would  generate its own  earnings to pay PFDs  while another                                                               
account  would   pay  for  government  services.   The  committee                                                               
certainly can  adjust the figures,  she said. This  concept would                                                               
create a  separate account to  disperse unpaid PFD  earnings from                                                               
2016  to  the  present  instead  of splitting  out  the  POMV  by                                                               
percentage.                                                                                                                     
                                                                                                                                
2:15:32 PM                                                                                                                    
MS. COLBERT reviewed the impact to  the general fund for a $1,200                                                               
PFD as shown by the graphs on  slide 7. She explained that if the                                                               
constitutional  amendment  obtains  voter approval  and  SJR  302                                                               
becomes  law,  the graph  shows  that  under  the first  year  of                                                               
distribution in FY 2024, it  would be necessary to use additional                                                               
general funds to  pay a $1,200 dividend. The  question remains as                                                               
to  how much  and  for how  long  it would  be  necessary to  use                                                               
general  fund draws  to fill  in until  the Sustainable  Dividend                                                               
Account (SDA)  generates enough funds  for the $1,200  PFD. Slide                                                               
7, prepared by Legislative Finance  illustrates that it will take                                                               
time for the SDA to generate sufficient income.                                                                                 
                                                                                                                                
2:17:19 PM                                                                                                                    
SENATOR  HUGHES  asked  by  what  year  the  SDA  would  generate                                                               
sufficient income  to cover  the PFD. She  referred to  the chart                                                               
that projected income  from FY 2024 to FY 2040  but it fell short                                                               
of achieving the $1,200 PFD.                                                                                                    
                                                                                                                                
2:17:37 PM                                                                                                                    
MR. BELL answered  that it would become  self-sustainable at some                                                               
point but the 20-year projections  are hypothetical. He predicted                                                               
that  based on  Callan's projected  returns of  6.2 percent,  the                                                               
structured draw  would be  around 4 percent  of the  prior year's                                                               
fund balance.  Further population growth  was estimated at  .5 or                                                               
.6 percent,  which is  why it  will take  longer to  reach $1,200                                                               
PFDs.  However,  using  these assumptions,  it  would  reach  the                                                               
threshold at some point, he said.                                                                                               
                                                                                                                                
2:18:43 PM                                                                                                                    
SENATOR KIEHL related his  understanding that Legislative Finance                                                               
lacked sufficient time to perform  the analysis. He asked if this                                                               
approach was  taken, what  balance would be  needed to  provide a                                                               
$1,200 PFD from the start.                                                                                                      
                                                                                                                                
MR. BELL offered to provide those figures after the meeting.                                                                    
                                                                                                                                
CHAIR HOLLAND stated that he could  also report back later in the                                                               
meeting if he obtained the figures earlier.                                                                                     
                                                                                                                                
2:19:48 PM                                                                                                                    
MS. COLBERT  described slide 8,  which showed the  Callan Returns                                                               
for SJR 302 and SB 3002. She stated:                                                                                            
                                                                                                                                
   • Slide 8   shows   the   Callan   Returns   for   this                                                                    
     constitutional  amendment  (its  accompanying  bill  SB
     3003).  This assumes  the Fiscal  Plan working  Group's                                                                    
     basic  baseline   assumptions  for   spending,  revenue                                                                    
     forecasts,  etc.,   as  well  as   Callan's  optimistic                                                                    
     projections  for  the  Permanent  Fund's  returns.  The                                                                    
     Principal   grows  over   time,  and   the  Sustainable                                                                    
     Dividend  Fund  is  sustainable    and  sustained  over                                                                    
     time, as does the PCE Account.                                                                                             
   • We do have projections and models by Legislative                                                                           
      finance with both the Callan projections as well as                                                                       
     the FY07-17 returns (which is the "stress testing" of                                                                      
     the fund). I have those available by request.                                                                              
                                                                                                                                
2:20:52 PM                                                                                                                    
SENATOR  MYERS  asked  whether any  royalties  from  lease  sales                                                               
beyond the initial  deposit into the SDA would  be deposited into                                                               
the SDF.                                                                                                                        
                                                                                                                                
MS.  COLBERT answered  that  royalties are  not  affected by  the                                                               
resolution.                                                                                                                     
                                                                                                                                
SENATOR MYERS asked if the  legislature could transfer funds from                                                               
the permanent fund into the SDA.                                                                                                
                                                                                                                                
MS. COLBERT deferred to Ms. Nauman.                                                                                             
                                                                                                                                
2:22:39 PM                                                                                                                    
EMILY NAUMAN,  Attorney, Legislative Legal  Services, Legislative                                                               
Affairs Agency,  Juneau, Alaska, answered  that SJR 302  does not                                                               
allow any use of the permanent  fund principal other than what is                                                               
set out  in the  resolution. Thus,  the short  answer is  no. The                                                               
legislature would be free to  appropriate funds into the SDA from                                                               
other sources.  The only  income the SDA  would generate  will be                                                               
based on the initial amount deposited.                                                                                          
                                                                                                                                
2:23:23 PM                                                                                                                    
CHAIR  HOLLAND asked  if the  SDA was  inside or  outside of  the                                                               
principal of the permanent fund.                                                                                                
                                                                                                                                
MS. NAUMAN responded that the  SDA fund would technically be part                                                               
of the permanent  fund. In response to a  question, she confirmed                                                               
that the SDA  is part of the permanent fund,  but it is accounted                                                               
for separately.                                                                                                                 
                                                                                                                                
2:23:58 PM                                                                                                                    
SENATOR  HUGHES asked  for  the  specific cite  in  SJR 302  that                                                               
identifies the  ERA fund transfer  to the principal of  the fund.                                                               
She  said the  slides referred  to  "ERA/SDF". She  asked if  ERA                                                               
funds could  be moved to  the SDA if the  ERA is not  folded into                                                               
the principal of the permanent fund.                                                                                            
                                                                                                                                
MS. NAUMAN responded that the  language was in Section 4, Section                                                               
30 (a) [on  page 2, lines 30  to page 3, line 5].  The balance of                                                               
the ERA  is deposited into  the principal of the  permanent fund.                                                               
At that point, it would  no longer be available for appropriation                                                               
by the legislature, she said.                                                                                                   
                                                                                                                                
2:25:10 PM                                                                                                                    
At ease                                                                                                                         
                                                                                                                                
2:25:43 PM                                                                                                                    
CHAIR  HOLLAND reconvened  the meeting.  He offered  that by  his                                                               
calculation it  would take  $16 billion to  achieve a  $1,253 PFD                                                               
based on about 2 percent growth per year.                                                                                       
                                                                                                                                
2:26:05 PM                                                                                                                    
SENATOR HUGHES  asked Curtis Thayer  to respond to the  impact of                                                               
the 5  percent draw on the  current PCE needed for  this year and                                                               
projected into the future. She restated her question.                                                                           
                                                                                                                                
2:27:19 PM                                                                                                                    
CURTIS  THAYER,  Executive  Director,  Alaska  Energy  Authority,                                                               
Department  of   Commerce,  Community  &   Economic  Development,                                                               
Anchorage, Alaska, answered  that currently AEA uses  a 5 percent                                                               
lookback to determine future PCE  needs. He characterized it as a                                                               
cascading flow,  first to PCE  and then to  community assistance.                                                               
Further, the current  PCE program allows up to $25  million to be                                                               
used for one  of three items: the Bulk Fuel  Revolving Loan Fund,                                                               
powerhouses or  the Renewable Energy  Fund. He reported  this has                                                               
happened  only twice  in the  past few  years, including  in this                                                               
calendar year.  The short answer  is that the 5  percent [funding                                                               
from earnings of the PCE  Endowment Fund] rule is currently being                                                               
used. It  has been sufficient  to not  only sustain PCE  but also                                                               
provide  for community  assistance,  and in  good  years to  fund                                                               
renewable energy and powerhouses in rural Alaska.                                                                               
                                                                                                                                
SENATOR HUGHES  related her understanding  that he  was satisfied                                                               
with the 5 percent.                                                                                                             
                                                                                                                                
MR. THAYER answered  yes; that 5 percent [of the  earnings of the                                                               
PCE Endowment  Fund's three-year  average market value]  has been                                                               
sufficient  in the  past and  he predicted  that it  would do  so                                                               
going forward.                                                                                                                  
                                                                                                                                
2:28:43 PM                                                                                                                    
CHAIR HOLLAND  referred to  Section 2, paragraph  (e) on  page 2,                                                               
lines 17-21 of SJR 302, which read:                                                                                             
                                                                                                                                
     (e)  The average  market value  of the  fund, and  each                                                                    
     account in the  fund, is the average value  of the fund                                                                    
     or  account  for  the   preceding  five  fiscal  years,                                                                    
     excluding  the  fiscal  year just  ended.  The  average                                                                    
     market  value of  the fund  includes the  value of  the                                                                    
     sustainable  dividend   account  and  the   power  cost                                                                    
     equalization account.  The value  of the fund  and each                                                                    
     account  shall be  calculated on  the last  day of  the                                                                    
     fiscal year.                                                                                                               
                                                                                                                                
SENATOR  HOLLAND expressed  concern that  this language  could be                                                               
interpreted to mean  four of the last five years.  He asked if it                                                               
was intended to be five of the last six fiscal years.                                                                           
                                                                                                                                
2:29:14 PM                                                                                                                    
MS.  COLBERT  answered  yes.  She   deferred  to  Ms.  Nauman  to                                                               
elaborate, but agreed  that the appropriations would  be based on                                                               
the average  market value of  the fund  for the last  five fiscal                                                               
years.                                                                                                                          
                                                                                                                                
2:29:41 PM                                                                                                                    
CHAIR HOLLAND expressed concern with  the proposal in SJR 302. He                                                               
stated that his  preference was to continue to pursue  SJR 6 with                                                               
the 50:50 split.                                                                                                                
                                                                                                                                
[SJR 302 was held in committee.]                                                                                                
                                                                                                                                
2:30:09 PM                                                                                                                    
There being  no further  business to  come before  the committee,                                                               
Chair Holland  adjourned the Senate Judiciary  Standing Committee                                                               
meeting at 2:30 p.m.                                                                                                            

Document Name Date/Time Subjects
SJR 302 PowerPoint Slides for SJUD.pdf SJUD 9/8/2021 1:30:00 PM
SJR302
SJR 302 Sectional Analysis.pdf SJUD 9/8/2021 1:30:00 PM
SJR302
SJR 302 Sponsor Statement.pdf SJUD 9/8/2021 1:30:00 PM
SJR302
SJR and HJR 301 AML Input.docx SJUD 9/8/2021 1:30:00 PM
HJR301
SJR301 - APF Testimony - 08 Sept 2021.pdf SJUD 9/8/2021 1:30:00 PM
SJR301