Legislature(2017 - 2018)BUTROVICH 205

01/24/2017 03:30 PM STATE AFFAIRS

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Audio Topic
03:30:38 PM Start
03:31:41 PM Presentation Alaska's Economy by Dr. Ralph Townsend, Institute of Social & Economic Research
04:56:19 PM SB1
04:56:20 PM SB2
05:04:35 PM Adjourn
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
3:30 pm - 4:30 pm
Dr. Ralph Townsend, Institute of Social and
Economic Research (ISER)
+ Presentation on Alaska's Economy TELECONFERENCED
4:30 pm
*+ SB 1 APPROP: 2016 PFD SUPPLEMENTAL PAYMENT TELECONFERENCED
Heard & Held
-- No Public Testimony <Introduction Only> --
*+ SB 2 2016 PFD SUPPLEMENTAL PAYMENT TELECONFERENCED
Heard & Held
-- No Public Testimony <Introduction Only> --
                    ALASKA STATE LEGISLATURE                                                                                  
            SENATE STATE AFFAIRS STANDING COMMITTEE                                                                           
                        January 24, 2017                                                                                        
                           3:30 p.m.                                                                                            
                                                                                                                                
                                                                                                                                
MEMBERS PRESENT                                                                                                               
                                                                                                                                
Senator Mike Dunleavy, Chair                                                                                                    
Senator David Wilson                                                                                                            
Senator Cathy Giessel                                                                                                           
Senator Dennis Egan                                                                                                             
                                                                                                                                
MEMBERS ABSENT                                                                                                                
                                                                                                                                
Senator John Coghill                                                                                                            
                                                                                                                                
COMMITTEE CALENDAR                                                                                                            
                                                                                                                                
PRESENTATION: Alaska's Economy by Dr. Ralph Townsend, Institute                                                                 
of Social & Economic Research                                                                                                   
                                                                                                                                
     - Heard                                                                                                                    
                                                                                                                                
SENATE BILL NO. 1                                                                                                               
"An Act making a special appropriation from the earnings reserve                                                                
account for the payment of permanent fund dividends; and                                                                        
providing for an effective date."                                                                                               
                                                                                                                                
     - Heard and Held                                                                                                           
                                                                                                                                
SENATE BILL NO. 2                                                                                                               
"An  Act  increasing  the  amount  of  the  2016  permanent  fund                                                               
dividend  and  directing  the  Department of  Revenue  to  pay  a                                                               
supplemental dividend to eligible  individuals; and providing for                                                               
an effective date."                                                                                                             
                                                                                                                                
     - Heard and Held                                                                                                           
                                                                                                                                
PREVIOUS COMMITTEE ACTION                                                                                                     
                                                                                                                                
BILL: SB 1                                                                                                                    
SHORT TITLE: APPROP: 2016 PFD SUPPLEMENTAL PAYMENT                                                                              
SPONSOR(s): SENATOR(s) DUNLEAVY                                                                                                 
                                                                                                                                
01/09/17       (S)       PREFILE RELEASED 1/9/17                                                                                
01/18/17       (S)       READ THE FIRST TIME - REFERRALS                                                                        
01/18/17       (S)       STA, FIN                                                                                               
                                                                                                                                
BILL: SB 2                                                                                                                    
SHORT TITLE: 2016 PFD SUPPLEMENTAL PAYMENT                                                                                      
SPONSOR(s): SENATOR(s) DUNLEAVY                                                                                                 
                                                                                                                                
01/09/17       (S)       PREFILE RELEASED 1/9/17                                                                                
01/18/17       (S)       READ THE FIRST TIME - REFERRALS                                                                        
01/18/17       (S)       STA, FIN                                                                                               
                                                                                                                                
WITNESS REGISTER                                                                                                              
                                                                                                                                
DR. RALPH TOWNSEND, Director and Professor of Economics                                                                         
Institute of Social and Economic Research (ISER)                                                                                
University of Alaska-Anchorage                                                                                                  
Anchorage, Alaska                                                                                                               
POSITION STATEMENT: Presented an overview of Alaska's economy.                                                                
                                                                                                                                
GINA RITACCO, Staff                                                                                                             
Senator Mike Dunleavy                                                                                                           
Alaska State Legislature                                                                                                        
Juneau, Alaska                                                                                                                  
POSITION STATEMENT: Provided an overview of SB 1 and SB 2.                                                                    
                                                                                                                                
                                                                                                                                
ACTION NARRATIVE                                                                                                              
                                                                                                                                
3:30:38 PM                                                                                                                    
CHAIR  MIKE DUNLEAVY  called the  Senate  State Affairs  Standing                                                             
Committee meeting  to order at 3:30  p.m. Present at the  call to                                                               
order were Senators Wilson, Giessel, Egan, and Chair Dunleavy.                                                                  
                                                                                                                                
                                                                                                                                
^PRESENTATION ALASKA'S  ECONOMY BY DR. RALPH  TOWNSEND, INSTITUTE                                                               
OF SOCIAL & ECONOMIC RESEARCH                                                                                                   
PRESENTATION: ALASKA'S ECONOMY BY DR. RALPH TOWNSEND, INSTITUTE                                                             
                 OF SOCIAL & ECONOMIC RESEARCH                                                                              
                                                                                                                              
3:31:41 PM                                                                                                                    
CHAIR DUNLEAVY announced the presentation  on Alaska's economy by                                                               
Dr. Townsend.                                                                                                                   
                                                                                                                                
3:32:25 PM                                                                                                                    
DR.  RALPH   TOWNSEND,  Director  and  Professor   of  Economics,                                                               
Institute of  Social and Economic Research  (ISER), University of                                                               
Alaska-Anchorage, Anchorage,  Alaska, revealed  that he  has been                                                               
in public  education for 30  years. He  asserted that one  of the                                                               
great features of public higher  education's mission is providing                                                               
research  and  public  outreach  that  also  serves  the  broader                                                               
community.  He  set   forth  that  ISER  performs   its  role  in                                                               
conducting and getting research out  for the benefit of Alaskans.                                                               
He  thanked  President Johnson  and  Chancellor  Chace for  their                                                               
roles in supporting ISER's work on Alaska's economy and budget.                                                                 
                                                                                                                                
DR. TOWNSEND  addressed an exclaimer  that his  presentation does                                                               
not represent the  university's policy or any  institution at the                                                               
university. He  added that he  has only  been in Alaska  for five                                                               
months and admitted that he does  not have the breadth of Alaskan                                                               
experience that  his predecessor, Gunnar  Knapp, had with  his 20                                                               
years at  ISER. He asserted  that he does  have a long  record of                                                               
participating in public  policy originally in the  state of Maine                                                               
where  he  served for  25  years  as well  as  3  years with  the                                                               
government of New Zealand.                                                                                                      
                                                                                                                                
3:35:15 PM                                                                                                                    
He explained that the intent of  his presentation is to provide a                                                               
very high  level context on  taxation issues due to  budget cuts.                                                               
He added that he would touch  quickly on a variety of issues that                                                               
arise, particularly with taxation as  well as decisions on public                                                               
spending  levels.  He explained  that  his  intent  is to  set  a                                                               
context of understanding that  addresses the business community's                                                               
and civic organizations' requests for  a long-term plan about the                                                               
state's budget.                                                                                                                 
                                                                                                                                
He reviewed  page 2  of his  ISER presentation,  "Alaska's Budget                                                               
Context" as follows:                                                                                                            
                                                                                                                                
        · FY2017 budget gap: $3.0 billion.                                                                                      
        · Approximate   maximum    sustainable   flow   from                                                                    
          permanent  fund  (including the  earnings  reserve                                                                    
          (ER)   and  the   constitutional  budget   reserve                                                                    
          (CBR)): (4.5 percent x $60  billion = $2.7 billion                                                                    
          generated/$300 million gap.)                                                                                          
                                                                                                                                
     Long-run gap:                                                                                                              
        · $1000 permanent fund dividend (PFD): $300 million                                                                     
          + $700 million = $1 billion gap.                                                                                      
        · $2000 PFD: $300 million + $1.4 billion + $1.7                                                                         
          billion gap.                                                                                                          
                                                                                                                                
He pointed  out that  even though the  state's FY2017  budget gap                                                               
that was  covered by  the CBR  was nearly  $3 billion,  Alaska is                                                               
fortunate in  having a large savings  account in the form  of the                                                               
permanent fund  plus associated funds  including the ER  and CBR;                                                               
that total  is nearly  $60 billion.  He said  if the  question is                                                               
asked as to how much money could  be used from the $60 billion on                                                               
a  sustainable  basis, money  managers  have  indicated that  the                                                               
state could  afford to take out  4 to 5 percent  that would leave                                                               
the principle  in real terms  untouched. He specified the  he has                                                               
chosen  4.5  percent that  equates  to  generating $2.7  billion,                                                               
leaving a  gap of  $300 million  not covered.  He noted  that the                                                               
permanent fund and ER are also used  to pay the PFD; that is also                                                               
a demand on the state's budget.  A $1,000 PFD costs $700 million,                                                               
bringing the  total gap  to $1  billion; a  $2,000 PFD  would add                                                               
another $700 million, bringing the gap to $1.7 billion.                                                                         
                                                                                                                                
3:38:50 PM                                                                                                                    
DR. TOWNSEND  addressed page 3,  "Alaska's Budget  Context, Plus"                                                               
as follows:                                                                                                                     
                                                                                                                                
        · Oil and gas tax credits.                                                                                              
        · Capital plan.                                                                                                         
        · Health care cost uncertainty.                                                                                         
        · Unfunded liabilities.                                                                                                 
                                                                                                                                
He  detailed that  there are  demands in  the budget  beyond                                                                    
what  is represented  in the  2017  budget: the  outstanding                                                                    
liabilities in  future oil and  gas tax credits; a  long run                                                                    
capital budget  of $100 million  is probably  not sufficient                                                                    
to sustain  the state's infrastructure;  strong inflationary                                                                    
pressures  in health  care costs;  and unfunded  liabilities                                                                    
with respect to pensions. He  summarized that the numbers he                                                                    
shared on page 2 were a little on the optimistic side.                                                                          
                                                                                                                                
He addressed page 4, "The  economic context: wage and salary                                                                    
employment."  He noted  that the  2016 and  2017 projections                                                                    
are based  on analysis from three  economists: Dan Robinson,                                                                    
Chief of  Research and Analysis, Alaska  Department of Labor                                                                    
and  Workforce Development;  Jonathan  King, Vice  President                                                                    
and  Senior  Economist,  Northern  Economics;  and  Mouhcine                                                                    
Guettabi,  Assistant   Professor  of  Economics,   ISER.  He                                                                    
detailed as follows:                                                                                                            
                                                                                                                                
   · 2016: Alaska lost 7500 jobs.                                                                                               
   · 2017 ISER forecast: lose another 7500 jobs.                                                                                
   · 2018: With no further changes to state budget, further                                                                     
     2500 jobs lost.                                                                                                            
   · 2019 and after: return to 2010 job levels and stay                                                                         
     flat with no economic drivers to recover lost jobs.                                                                        
                                                                                                                                
DR.  TOWNSEND  explained  that the  three  economists  where                                                                    
unanimous that Alaska will be  down approximately 7,500 jobs                                                                    
in  2016; the  job losses  are wage  and salary  employment,                                                                    
adding  self-employment  increases  the forecast.  He  added                                                                    
that  all three  economists forecasted  that the  state will                                                                    
lose another 7,500 in 2017.                                                                                                     
                                                                                                                                
He detailed that ISER forecasted  2,500 jobs lost in FY2018.                                                                    
He summarized  that 2019  and after  will stay  flat because                                                                    
there is nothing outside that  is going to drive the economy                                                                    
to recover the lost jobs for  the peak the state had in 2010                                                                    
and 2011.  He said  the national  economy is  recovering and                                                                    
the  state   is  benefiting,  most  notably   from  tourism;                                                                    
however, the  exterior drivers  from the  recovering economy                                                                    
are  not  enough  to  help   Alaska  lift  itself  back.  He                                                                    
summarized  that  there is  no  clear  path in  the  state's                                                                    
future for a strong recovery.                                                                                                   
                                                                                                                                
3:42:28 PM                                                                                                                    
He addressed  page 5,  "ISER estimates  of effects  per $100                                                                    
million change" on three types of changes as follows:                                                                           
                                                                                                                                
   · Taxes: 450 to 800 jobs lost.                                                                                               
   · Dividend cut: 550 to 900 jobs lost.                                                                                        
   · Budget cut: 1000 to 1250 jobs lost.                                                                                        
                                                                                                                                
He detailed that  a $100 million tax increase  would cause a                                                                    
loss to the state's economy of  450 to 800 jobs because $100                                                                    
million in spending would be  removed from the economy, less                                                                    
would be spent and fewer  jobs would be generated across the                                                                    
economy. A  dividend cut would  result in slightly  more job                                                                    
losses because  tax increases would impact  wealthier people                                                                    
who  do not  spend all  of their  income; however,  dividend                                                                    
cuts come directly from spending.  He asserted that a budget                                                                    
cut  is   largely  to  reduce  jobs   directly  through  the                                                                    
reduction in state employment.                                                                                                  
                                                                                                                                
3:45:06 PM                                                                                                                    
CHAIR  DUNLEAVY  asked  Dr. Townsend  to  elaborate  on  the                                                                    
projected  job cuts  from a  $100 million  change associated                                                                    
with taxes, dividend cut and budget cut.                                                                                        
                                                                                                                                
DR. TOWNSEND  specified that  if the state  is to  close the                                                                    
budget  gap on  the order  of  $1 billion,  the result  will                                                                    
cause  job  losses in  the  order  of  5,000 to  12,500.  He                                                                    
summarized  that the  forecasted job  losses means  that the                                                                    
downturn would continue for at  least two more years. He set                                                                    
forth  that the  risk is  a prolonged  downturn could  cause                                                                    
other  negative  consequences  such  as the  impact  on  the                                                                    
housing markets.                                                                                                                
                                                                                                                                
3:47:09 PM                                                                                                                    
SENATOR  EGAN   asked  Dr.  Townsend  to   verify  that  his                                                                    
forecasts combine  both public  and private sector  jobs. He                                                                    
inquired how Dr. Townsend calculated salaries.                                                                                  
                                                                                                                                
DR. TOWNSEND explained that the  forecasts were expressed in                                                                    
the terms of job losses and not income losses.                                                                                  
                                                                                                                                
SENATOR  EGAN  asked  that Dr.  Townsend  address  projected                                                                    
income loss.                                                                                                                    
                                                                                                                                
DR. TOWNSEND  explained that  state-level data  is different                                                                    
from  national data.  He specified  that economists  tend to                                                                    
focus on  the Department of  Labor's jobs data.  He conceded                                                                    
that a job  in the construction industry is not  the same as                                                                    
a job in the retail  sector. He explained that the reduction                                                                    
in  Alaska's  jobs  is  tied  to  demographic  trends  where                                                                    
migration out of  the state occurs with job  losses. He said                                                                    
projections indicate that  the state will see  some net out-                                                                    
migration if job losses continue.                                                                                               
                                                                                                                                
CHAIR  DUNLEAVY  noted  that   Dr.  Townsend  expressed  his                                                                    
concern that losing  1,000 to 1,250 jobs over  the next year                                                                    
or two  could be problematic.  He asked what would  occur if                                                                    
the job losses were spread out over the next five years.                                                                        
                                                                                                                                
3:49:35 PM                                                                                                                    
DR. TOWNSEND replied that Alaska  does have some choices and                                                                    
noted  page 6,  "Why a  multi-year  plan? 1.  Both risk  and                                                                    
opportunity." as follows:                                                                                                       
                                                                                                                                
   · Being forced into a large one or two-year adjustment                                                                       
     will   seriously  harm   the   economy.  The   business                                                                    
     community  has talked  about a  multi-year plan  rather                                                                    
     than  a  one or  two-year  plan  that could  exasperate                                                                    
     Alaska's current recession.                                                                                                
   · Change is inevitable, but Alaska's savings allow a                                                                         
     multi-year adjustment.  Alaska is fortunate due  to its                                                                    
     large savings accounts that  provide choices that other                                                                    
     states in the  Lower 48 did not have in  2007 and 2008.                                                                    
     Some  states had  "rainy day"  funds at  10 percent  of                                                                    
     their budgets,  Alaska's "rainy day"  fund is  3 years.                                                                    
     Alaska's CBR  has one  year left  for the  2016 budget,                                                                    
     but the  savings do allow  a multi-year  adjustment and                                                                    
     that is why the business  community is saying the state                                                                    
     needs to have  a plan that sees a  multi-year path with                                                                    
     respect for spending and revenues.                                                                                         
                                                                                                                                
CHAIR DUNLEAVY asked that Dr. Townsend address the short                                                                        
term, mid-term and long-term effects of the three types of                                                                      
possible changes: taxes, dividend cut, and budget cut.                                                                          
                                                                                                                                
3:51:45 PM                                                                                                                    
DR. TOWNSEND replied by addressing page 7, "Why a multi-                                                                        
year plan? 2. Business impacts are inevitable and will not                                                                      
be uniform." as follows:                                                                                                        
                                                                                                                                
   · Both  further  spending  cuts and  additional  revenues                                                                    
     seem  unavoidable, the  numbers  are just  too high  to                                                                    
     close with any one strategy.                                                                                               
   · Different  cuts   and  taxes  will   affect  businesses                                                                    
     differently.                                                                                                               
                                                                                                                                
He addressed page 8, "Examples of business effects." as                                                                         
follows:                                                                                                                        
                                                                                                                                
   · Sales tax impact  from internet competition. Businesses                                                                    
     that   face  severe   internet   competition  will   be                                                                    
     disproportionally concerned about a sales tax.                                                                             
   · PFD cut and impact on the rural cash economy.                                                                              
   · Businesses that  rely on PFD  spending are going  to be                                                                    
     concerned.                                                                                                                 
   · Higher  property taxes  from  education  cost shift  to                                                                    
     local  government:  capital   investments  face  higher                                                                    
     taxes/lower   returns.  Businesses   considering  large                                                                    
     infrastructure  investment   in  a  community   may  be                                                                    
     concerned  about return  on  investment  due to  higher                                                                    
     property taxes.                                                                                                            
   · No  capital budget:  professional services.  Businesses                                                                    
     with  a  whole  range  of services  that  may  have  to                                                                    
     downsize  due to  no capital  budget,  such as:  design                                                                    
     services, and environmental assessment.                                                                                    
   · Health care  cuts: substantial cuts to  the health-care                                                                    
     sector would have  a strong impact on the  only part of                                                                    
     the economy that has really  been growing over the past                                                                    
     several years.                                                                                                             
                                                                                                                                
He asserted that he is not arguing for any of the possible                                                                      
changes; however, whatever changes the Legislature makes                                                                        
are  likely  to  have   disproportionally  impacts  on  some                                                                    
business  sectors. He  said businesses  want  to figure  out                                                                    
what the  impacts are, particularly  when people  are making                                                                    
10 or 20-year  investments. He said businesses  may hold off                                                                    
on investing until the impact from the effects are known.                                                                       
                                                                                                                                
3:54:27 PM                                                                                                                    
CHAIR  DUNLEAVY remarked  that  the  analysis addresses  the                                                                    
evaporation  of billions  of dollars  of  wealth. Alaska  in                                                                    
trying to adjust  to the new reality can  either downsize to                                                                    
whatever degree or bring in new revenue.                                                                                        
                                                                                                                                
SENATOR  GIESSEL questioned  the  sales tax  impact on  non-                                                                    
internet businesses  by noting that  she has been  charged a                                                                    
sales tax  when shopping  online. She  pointed out  that job                                                                    
losses will  result in families  moving, ergo  less students                                                                    
should  decrease the  cost of  education. She  remarked that                                                                    
Dr.  Townsend's premise  is based  on  government being  the                                                                    
sole factor that affects the  economy. She noted that as oil                                                                    
prices  have  fallen,  so have  support  services  for  that                                                                    
industry,  making it  more economic  in some  cases to  make                                                                    
developments go forward.                                                                                                        
                                                                                                                                
DR. TOWNSEND  replied that  his analysis  does not  say that                                                                    
the public  sector is  the only  determinant. He  noted that                                                                    
there have  been very large shifts  in both the oil  and gas                                                                    
industry, but  also in state  government; that has  caused a                                                                    
moderate recession that is not  as serious as what the Lower                                                                    
48  faced.  He asserted  that  government  is not  the  only                                                                    
driver,  but  government  is an  important  driver  in  some                                                                    
sectors,  particularly in  health  care. He  set forth  that                                                                    
business planning decisions depend  on knowing what is going                                                                    
on in  the broader environment  for firms that  are directly                                                                    
and   less  directly   dependent  on   the  government.   He                                                                    
reiterated  that the  business  community has  called for  a                                                                    
multi-year plan due to its planning decision process.                                                                           
                                                                                                                                
3:56:57 PM                                                                                                                    
He addressed  page 9,  "Tax policy 101,  Broad and  low." He                                                                    
noted that Chair Dunleavy requested  a broad overview on the                                                                    
impact  of  various  taxes that  results  from:  changes  of                                                                    
taxes, introduction of  new taxes, changes in  how taxes are                                                                    
levied, and changes in spending.  He set forth that ideally,                                                                    
one  uses broad-based  taxes at  low rates;  for example,  a                                                                    
broad-based  sales   tax  at  2   percent  will   have  less                                                                    
distortion on  the economy  than a 4-percent  tax on  a much                                                                    
narrower base that raises the same amount of money.                                                                             
                                                                                                                                
DR. TOWNSEND  pointed out that  an unfortunate example  of a                                                                    
non-broad-based tax is the federal  income tax. He explained                                                                    
that the marginal federal income  tax is 33 percent, but the                                                                    
high tax level  is needed due to a large  percentage of both                                                                    
the capital  earnings and salary earnings  being exempt from                                                                    
taxation  because of  various  ways the  tax  code has  been                                                                    
structured.  He   noted  that  there  have   been  calls  to                                                                    
substantially broaden the federal  income tax and reduce the                                                                    
tax rate at the same  time. He reiterated that broad-and-low                                                                    
is a strongly preferable tax policy.                                                                                            
                                                                                                                                
3:58:39 PM                                                                                                                    
He addressed  page 10, "Economic consequences  of taxes" and                                                                    
explained that  taxes effect the  economy in other  ways. He                                                                    
set forth that the cost of a  tax to an economy is more than                                                                    
the amount  of money that  goes to the government.  He noted                                                                    
three issues  and added that  issue-two and  issue-three are                                                                    
the most significant:                                                                                                           
                                                                                                                                
   · 1. Administrative and compliance costs; for example,                                                                       
     cost  of  running  a  tax  agency,  business  cost  for                                                                    
     collecting taxes, and compliance cost.                                                                                     
   · 2. People will spend money to avoid taxes.                                                                                 
   · 3. People shift their economic activities based on                                                                         
     taxes; for  example, the  preferable treatment  of real                                                                    
     estate  both  on   favorable  depreciation  rules  with                                                                    
     respect to rental properties,  and the deductibility of                                                                    
     home  interest  and  property  taxes.  If  somebody  is                                                                    
     investing in  real estate because  it is  profitable to                                                                    
     accept a  3 percent  return when  6 percent  could have                                                                    
     been earned  someplace else, that  3 percent is  a loss                                                                    
     to the  economy. People  shift their  economic activity                                                                    
     by shifting more productive to less productive uses.                                                                       
                                                                                                                                
CHAIR DUNLEAVY asked  if Alaska's geographic isolation  acts as a                                                               
modifier to the  three tax issues previously  noted; for example,                                                               
Alaska  does not  have neighboring  states  that impact  crossing                                                               
state lines for employment or shopping.                                                                                         
                                                                                                                                
4:02:30 PM                                                                                                                    
DR. TOWNSEND  replied that some  of the distortions in  the Lower                                                               
48  differ  in Alaska.  He  pointed  out  that residents  of  New                                                               
Hampshire cross  the state line  to buy cheaper alcohol.  He said                                                               
there  are advantages  to being  a single  entity. He  noted that                                                               
Alaska can  take steps  that encourages people  to invest  in one                                                               
type of investment versus another; for example, an income tax.                                                                  
                                                                                                                                
CHAIR  DUNLEAVY  asked  to address  how  Alaska's  situation  may                                                               
modify behaviors related to cutting and the PFD.                                                                                
                                                                                                                                
DR. TOWNSEND agreed  and said consideration must be  given to the                                                               
details of  individual taxes, spending,  and where the  state was                                                               
at.                                                                                                                             
                                                                                                                                
4:04:22 PM                                                                                                                    
He addressed page 11, "Tax  Policy 102: Equity and efficiency are                                                               
often  in conflict  in tax  policy." He  said there  are inherent                                                               
conflicts  between the  goal of  having an  equitable tax  system                                                               
that  has  people  pay  who  can  most  afford  to  pay  and  the                                                               
efficiency  consequences. He  reiterated that  broader tax  bases                                                               
are  desirable  with  respect  to  avoiding  distortions  on  the                                                               
economy;  however, broader  tax bases  often mean  there is  less                                                               
ability to effect who it is that actually pays the tax.                                                                         
                                                                                                                                
He  addressed page  12,  "Regressive  vs. Progressive"  regarding                                                               
equity as follows:                                                                                                              
                                                                                                                                
   · Regressive: percent of income paid in tax falls as income                                                                  
     increases.  Note,  total  tax paid  may  still  increase  as                                                               
     income  increases. A  lower-income person  may pay  a higher                                                               
     percentage  of their  income on  a sales  tax than  a person                                                               
     that earns more  money due to the ability to  save money and                                                               
     buy things that  are not subject to the sales  tax. A higher                                                               
     income person  pays more sales tax,  but regressive taxation                                                               
     is measured by percentage.                                                                                                 
   · Progressive: percent of income paid in tax increases as                                                                    
     income increases.                                                                                                          
                                                                                                                                
4:06:22 PM                                                                                                                    
CHAIR DUNLEAVY  asked Dr. Townsend  to address how  behavior will                                                               
differ in  Alaska regarding income  tax, sales tax,  and property                                                               
tax.                                                                                                                            
                                                                                                                                
DR.  TOWNSEND  addressed  page  13,  "Alaska's  current  taxes-I"                                                               
versus other states as follows:                                                                                                 
                                                                                                                                
   · Corporate income tax: 9.4 percent maximum; among the 4                                                                     
     highest in the country, but 10  states are at 8.5 percent to                                                               
     10 percent.                                                                                                                
   · Local property taxes: 10-12 average "mill rate;" slightly                                                                  
     above middle of the pack.                                                                                                  
   · No vehicle property tax; like 25 other states.                                                                             
   · Fuel tax $0.1225/gallon; lowest in the country.                                                                            
   · No personal income tax; like six other states, two tax                                                                     
     dividends and interest, not wages and salaries.                                                                            
                                                                                                                                
4:08:07 PM                                                                                                                    
CHAIR DUNLEAVY asked if Alaska's  land ownership impacts property                                                               
tax mill rates;  for example, lands held in trust,  lands held by                                                               
the federal government, etc.                                                                                                    
                                                                                                                                
DR. TOWNSEND  answered that Alaska's  land ownership  impacts how                                                               
much money is collected by  the local property tax. He summarized                                                               
that  Alaska   is  slightly  above   average  in  terms   of  its                                                               
collections.                                                                                                                    
                                                                                                                                
He addressed page 14,  "Alaska's current taxes-II," sales-and-use                                                               
taxes as follows:                                                                                                               
                                                                                                                                
   · No state sales tax; like four other states, all four states                                                                
     collect lodging tax and most a meals tax. All states do                                                                    
     impose a broad sales-and-use tax.                                                                                          
   · Local sales taxes to 7.5 percent. Local rooms tax to 12                                                                    
     percent; 38 states have local sales taxes.                                                                                 
   · Alaska imposes a 10-percent car rental tax; second highest                                                                 
     with 5 other states.                                                                                                       
                                                                                                                                
CHAIR  DUNLEAVY asked  to clarify  that  Alaska is  in the  upper                                                               
quarter of corporate taxes.                                                                                                     
                                                                                                                                
DR. TOWNSEND replied that Alaska is in the upper 20 percent.                                                                    
                                                                                                                                
CHAIR DUNLEAVY asked  to confirm that Alaska is on  the upper end                                                               
for car-rental tax.                                                                                                             
                                                                                                                                
DR. TOWNSEND answered yes.                                                                                                      
                                                                                                                                
CHAIR DUNLEAVY  asked to verify that  Alaska is in the  upper end                                                               
of property tax.                                                                                                                
                                                                                                                                
DR. TOWNSEND  answered no. He  specified that Alaska is  a little                                                               
above average, between the 50  to 65-percent range. He noted that                                                               
New Hampshire is on the high range at 20 to 40 mills.                                                                           
                                                                                                                                
4:11:56 PM                                                                                                                    
He addressed page 15, "Sales Tax Effects" as follows:                                                                           
                                                                                                                                
   · Competition from internet sales. People are able to go                                                                     
     online and buy from out-of-state and not pay a sales tax.                                                                  
   · Moderately regressive.                                                                                                     
   · Exemptions, especially food, reduce "regressivity" at the                                                                  
     cost of collecting less revenue.                                                                                           
   · Federal income deductibility for itemizers; however, most                                                                  
     people paying a sales tax do not itemize.                                                                                  
                                                                                                                                
DR. TOWNSEND  summarized that  Alaska's sales  taxes are  paid in                                                               
part by visitors. He added that  Alaska has the unique problem of                                                               
introducing a  sales tax when  the state already has  local sales                                                               
taxes in place.                                                                                                                 
                                                                                                                                
CHAIR  DUNLEAVY noted  that  other states  have  local and  state                                                               
sales taxes.                                                                                                                    
                                                                                                                                
DR.  TOWNSEND  answered  correct,  but pointed  out  that  states                                                               
typically introduce statewide-sales taxes prior to local taxes.                                                                 
                                                                                                                                
4:14:01 PM                                                                                                                    
SENATOR  EGAN  pointed out  that  since  Alaska's statehood,  the                                                               
prerogative  has  always  been  that  sales  taxes  are  left  to                                                               
municipalities and that is why there is no state-sales tax.                                                                     
                                                                                                                                
DR.   TOWNSEND  agreed   with  Senator   Egan   and  noted   that                                                               
municipalities that do  not have a local sales  tax will probably                                                               
have higher property taxes.                                                                                                     
                                                                                                                                
He addressed page 16, "Income Tax effects" as follows:                                                                          
                                                                                                                                
   · Rates can be progressive.                                                                                                  
   · Differential treatment of different income can be quite                                                                    
     distortionary; example, capital gains.                                                                                     
   · Deductions and credits can be quite distortionary; example,                                                                
     home interest. Cumulative of the substantial effects can                                                                   
     destroy the economy and affect the long-run performance of                                                                 
     the economy.                                                                                                               
   · Can influence retirement decisions on the state level.                                                                     
   · Federal tax deduction for itemizers. Most people who pay a                                                                 
     federal income tax itemize.                                                                                                
   · States do tax the in-state earnings of nonresidents.                                                                       
                                                                                                                                
4:16:15 PM                                                                                                                    
He  addressed page  17, "Coordinating  with Federal  Tax" to  pay                                                               
state income  tax. He said  there is  no question that  using the                                                               
federal tax  definitions reduces a state's  administrative costs.                                                               
He detailed as follows:                                                                                                         
                                                                                                                                
   · Only one state uses Federal taxes paid as base.                                                                            
   · Different income/tax bases from Federal income:                                                                            
     - Total income, line 22 of Form 1040.                                                                                      
     - Adjusted gross income, line 37.                                                                                          
     - Adjusted gross income with further adjustments.                                                                          
     - Taxable income, line 43.                                                                                                 
     - Tax/alternative minimum tax, lines 44/45.                                                                                
     - Tax after credits, line 56.                                                                                              
                                                                                                                                
DR.  TOWNSEND  noted  that frequent  proposals  in  Alaska  would                                                               
express the  taxes paid in the  state as a percentage  of federal                                                               
taxes. He remarked  that using a percentage of  federal taxes was                                                               
great in  the past, but most  states have come up  with their own                                                               
processes for adjustments, deductions, and the tax rates.                                                                       
                                                                                                                                
He detailed  that there  are several  different figures  that the                                                               
state could take from the Form  1040 as the basis for calculating                                                               
the state tax. He specified that line  22 of Form 1040 is the sum                                                               
of one's  income and line 37  is adjusted gross income.  He noted                                                               
that  most   states  use  adjusted  gross   income,  but  further                                                               
adjustments are  made. He informed  that income  after deductions                                                               
is indicated on  line 43 in the  Form 1040, lines 44  and 45 show                                                               
the alternate rate  calculation, and line 56 shows  the tax after                                                               
credits.   He  pointed   out  that   credits  have   become  very                                                               
significant  for  the average  taxpayer  with  child credits  and                                                               
tuition credits.                                                                                                                
                                                                                                                                
4:19:11 PM                                                                                                                    
He set  forth that if the  goal of the  state is to start  from a                                                               
system at some  percentage of the federal tax  base, writing that                                                               
into  statute would  not be  difficult. He  pointed out  that the                                                               
reason why  states have moved  to using their own  definitions of                                                               
deduction adjustments  and the  rates are  twofold: complications                                                               
with part-year  residents and changes  to the federal  policy. He                                                               
noted an  example of a change  to the federal policy  occurred 20                                                               
years ago where the federal  government declared a 10-percent tax                                                               
credit, a state  using the federal definition of  taxes would see                                                               
its revenues go  down by 10 percent and a  state that simply used                                                               
the federal  definition of  taxable income  would have  been left                                                               
intact.   Sudden  changes   in  the   federal-tax  code   have  a                                                               
destabilizing effect  on state budgets  and that has led  to only                                                               
one state using the federal taxes paid as the place to start.                                                                   
                                                                                                                                
DR.  TOWNSEND  addressed  page  18,  "Property  Tax  effects"  as                                                               
follows:                                                                                                                        
                                                                                                                                
   · Arguments over progressive/regressive because half of the                                                                  
     property taxes are paid by industrial and business                                                                         
     customers; who actually pays those taxes matters.                                                                          
   · Differentially affects those on fixed income.                                                                              
   · "Circuit breaker" provision reduces regressivity on income                                                                 
     or age-based residents.                                                                                                    
   · Can create "tax competition" for industry.                                                                                 
   · Federal tax deductibility for itemizers.                                                                                   
                                                                                                                                
4:21:56 PM                                                                                                                    
He detailed  that property  taxes historically  in the  U.S. have                                                               
been the  primary funding  source for  local education;  that has                                                               
changed so  that most states contribute  substantial equalization                                                               
amounts to  fund local  K-12 education  because the  variation in                                                               
property-tax bases to support education vary widely.                                                                            
                                                                                                                                
He addressed page 19, "Permanent Fund Dividend cuts" as follows:                                                                
                                                                                                                                
   · PFD is a very progressive program where lower-income                                                                       
     families receive a higher-income percentage from the                                                                       
     subsidy.                                                                                                                   
   · Cutting the PFD has a strongly regressive effect.                                                                          
                                                                                                                                
4:23:54 PM                                                                                                                    
CHAIR DUNLEAVY  remarked that some  Alaskans do not  consider the                                                               
PFD a subsidy.                                                                                                                  
                                                                                                                                
DR. TOWNSEND recanted "subsidy"  for "payment." He exclaimed that                                                               
he  did  not intentionally  use  "subsidy"  to describe  the  PFD                                                               
payment.                                                                                                                        
                                                                                                                                
CHAIR DUNLEAVY specified that individuals receive a "dividend."                                                                 
                                                                                                                                
DR. TOWNSEND  continued that the  PFD is taxable so  the dividend                                                               
results  in the  federal  government paying  part  of it  through                                                               
itemizers.  He  noted that  there  is  a complicated  issue  that                                                               
because  state taxes  are only  deductible by  itemizers, whether                                                               
the income  tax and the  dividend is  linked through a  credit in                                                               
some way would make a difference for non-itemizers.                                                                             
                                                                                                                                
He addressed page 20, "Spending cut effects" as follows:                                                                        
                                                                                                                                
   · Impacts depend upon what you cut.                                                                                          
   · Details matter, such as impact on programs such as                                                                         
     Medicaid, what the  state spends and the  amount the federal                                                               
     government is  providing. Details  can be  complicated where                                                               
     in the short run there is  a small effect, but in the longer                                                               
     run there is a cumulative effect.                                                                                          
  · Education cuts will almost certainly increase local taxes.                                                                  
   · Other cuts will shift costs; example, universities.                                                                        
   · Long run goal is to fund services whose value to Alaskans                                                                  
     exceeds their cost, e.g., court system, criminal justice                                                                   
     system, child protection services, etc.                                                                                    
                                                                                                                                
DR.  TOWNSEND summarized  that  Alaskans  ultimately must  decide                                                               
what  values  they get  from  their  services and  what  services                                                               
should be  funded. He  specified that in  the long  run, services                                                               
provide  things that  make  Alaska  a better  place  to live.  He                                                               
asserted that the short run  matters and noted that Alaskans need                                                               
to be  worried about the effects  spending cuts will have  on the                                                               
state's  economy  because  no  one  wants  a  serious  recession;                                                               
however,  in the  long  run  the goal  is  to  make decisions  on                                                               
services from state  and local government when  spending cuts are                                                               
considered.                                                                                                                     
                                                                                                                                
4:25:45 PM                                                                                                                    
CHAIR DUNLEAVY asked why Dr.  Townsend said education cuts "will"                                                               
raise property taxes rather than "could" raise property taxes.                                                                  
                                                                                                                                
DR. TOWNSEND  specified that he  said "almost  certainly" because                                                               
of  what  happened  in  the  Lower  48  during  the  most  recent                                                               
recession. He noted  that a number of  legislatures cut education                                                               
support and  the result  shifted costs  onto local  taxpayers and                                                               
students.                                                                                                                       
                                                                                                                                
CHAIR  DUNLEAVY  pointed out  that  Alaska  has the  "Unorganized                                                               
Borough" that  does not have a  tax base where there  is no local                                                               
contribution that  results in 100  percent contribution  from the                                                               
state, resulting in no ability to impose or increase a tax.                                                                     
                                                                                                                                
DR.  TOWNSEND  answered correct  and  noted  that a  problem  for                                                               
communities in  the Unorganized  Borough versus  communities that                                                               
can raise taxes and the  change will have differential impacts on                                                               
the student educational system.                                                                                                 
                                                                                                                                
4:29:15 PM                                                                                                                    
He  addressed  page  21,  "ISER estimates  of  effects  per  $100                                                               
million change  in state budget" and  impact in the short  run as                                                               
follows:                                                                                                                        
                                                                                                                                
   · Taxes: 450 to 800 jobs.                                                                                                    
   · Dividend cut: 550 to 900 jobs.                                                                                             
   · Budget cut: 1000 to 1250 jobs.                                                                                             
                                                                                                                                
DR. TOWNSEND said  there are going to be  different budget models                                                               
and looking at the same numbers going ahead is important.                                                                       
                                                                                                                                
He remarked that  there is increasing recognition  that the state                                                               
is not  going to get out  of its situation  in a year or  two and                                                               
consideration for inflation must be taken into account:                                                                         
                                                                                                                                
   · Inflation needs to be treated identically in revenues,                                                                     
     expenditures, and in earnings from the permanent fund for a                                                                
     realistic picture.                                                                                                         
   · All can be in "nominal" terms, using the same measures and                                                                 
     expectations about inflation.                                                                                              
   · All can be in "real" terms, which is the same as "today's                                                                  
     dollars." Economists typically use "real" calculations. The                                                                
     same answer results either by using "today's dollars" or by                                                                
     inflating everything by the same numbers.                                                                                  
                                                                                                                                
He summarized that  important questions to ask  when dealing with                                                               
a budget  is how inflation  is being dealt  with and is  it being                                                               
done consistently.                                                                                                              
                                                                                                                                
4:33:25 PM                                                                                                                    
He referenced a  question from a previous committee  where he was                                                               
asked  if  Alaska's current  recession  could  be considered  the                                                               
"Great  Recession." He  said the  answer  that was  given by  the                                                               
economists  was, "No,  at least  not yet."  He detailed  that the                                                               
housing market has been surprisingly  stable in Alaska. He opined                                                               
that  without upsetting  people, some  might be  saying that  the                                                               
state  could be  heading into  the beginning  of Alaska's  "Great                                                               
Recession" if  the wrong things  are done; for example,  a sudden                                                               
decline in the economy causes  the housing market to collapse due                                                               
to out-migration; that  might lead to a  cumulative effect that's                                                               
greater than spreading the effects out.                                                                                         
                                                                                                                                
He  opined   that  the  U.S.   economy  averted   another  "Great                                                               
Depression"  in   2007-2009  due   to  aggressive   monetary  and                                                               
budgetary response  by the federal  government. He  remarked that                                                               
the "Great Recession," [2007-2009],  dragged on because agreement                                                               
could  not be  reached about  which of  the various  solutions to                                                               
continue  the  recovery  was  acceptable;  to  some  extent,  the                                                               
economy ended up being held  hostage due to different ideologies.                                                               
He said  he urges Alaskans  to look  for solutions that  will get                                                               
the  state through  the challenging  times without  the kinds  of                                                               
severe  impacts that  accompanied  the "Great  Recession" in  the                                                               
Lower 48.                                                                                                                       
                                                                                                                                
4:35:49 PM                                                                                                                    
CHAIR  DUNLEAVY pointed  out that  Dr. Townsend  spoke about  the                                                               
"Great Recession" in the Lower  48, asserting that $5 trillion to                                                               
$10  trillion was  put  on the  backs of  future  Americans as  a                                                               
result of the stimulus actions  taken. He remarked that Alaska is                                                               
currently  trying  to grapple  with  how  to  deal with  a  state                                                               
economy that has lost billions of  dollars. He said the state has                                                               
historically hoped  for an oil  price rebound because  Alaska had                                                               
the production; however, most people now  feel that hope is not a                                                               
very good strategy while the state goes through its savings.                                                                    
                                                                                                                                
He asked  that Dr. Townsend specifically  address the short-term,                                                               
mid-term and long-term  impacts of the available  tools the state                                                               
has:  reductions, various  revenue  enhancements, permanent  fund                                                               
restructuring, and  taxes. He noted  that there is a  belief that                                                               
going down  the road  of taxes  would result  in taxes  not being                                                               
repealed  again.  He inquired  if  Dr.  Townsend's definition  of                                                               
"short  term" is  one year  or five  years. He  pointed out  that                                                               
economic modeling for  the impact from a 1200-job  cut would vary                                                               
if done in one year versus spread over five years.                                                                              
                                                                                                                                
4:39:02 PM                                                                                                                    
DR.  TOWNSEND replied  that Alaska  needs to  grapple with  Chair                                                               
Dunleavy's  question  as it  decides  a  plan. He  conceded  that                                                               
economic  models are  much better  at predicting  the short  term                                                               
than the  long term. He remarked  that asking the models  to make                                                               
exact predictions  ten years out will  provide guidance; however,                                                               
none of them are going to give  an answer that says, "This is the                                                               
right  answer." He  remarked that  there is  an element  of using                                                               
judgement to  address what kinds  of uncertainty to deal  with or                                                               
to learn with.                                                                                                                  
                                                                                                                                
He set  forth that  the short  term is  where economists  can see                                                               
that 2017  is going to look  like 2016, 2018 will  still see some                                                               
job  losses from  the previous  changes; the  economy after  that                                                               
will likely  stop losing jobs,  unfortunately the model  does not                                                               
see anything on  the outside that's going to pull  the state out.                                                               
He specified  that tourism  will not pull  the state  out because                                                               
it's not  big enough to  replace the  impact oil had  on Alaska's                                                               
economy. He  expressed that there  will be  a lot of  things that                                                               
change in  the future, perhaps  in the  next few months  with the                                                               
current  administration.  He  added  that   there  is  a  lot  of                                                               
uncertainty  with what  might happen  with health  care. He  said                                                               
people  in   Alaska  are  saying  that   a  favorable  regulatory                                                               
environment  will  provide  opportunities  for  expanded  natural                                                               
resource exploitation  that could potentially provide  a force to                                                               
increase the  economy. He pointed  out that the state  budget has                                                               
some  built-in  concerns  that  tend  to  pull  in  the  opposite                                                               
direction;  again,  the state  is  spending  nothing on  capital,                                                               
roads and infrastructure will have  to be replaced at some point.                                                               
He added  that the  state has  unfunded liabilities  and uniquely                                                               
Alaskan dynamics with health care.                                                                                              
                                                                                                                                
4:42:16 PM                                                                                                                    
DR. TOWNSEND asserted that thinking  about a five-year plan would                                                               
be wise as  to how the state wants to  distribute the changes. He                                                               
conceded  that  when he  talks  about  a  five-year plan,  he  is                                                               
realistically saying  that the  state needs  to be  adjusting for                                                               
the  next  decade  because   cuts  may  require  reconsideration;                                                               
example, many states  in the Lower 48 reduced  support for higher                                                               
education  that resulted  in higher  student  debt. He  explained                                                               
that  states in  the Lower  48 have  admitted that  they did  not                                                               
understand why a  particular service was important.  He set forth                                                               
that addressing a need for a  service also requires finding a way                                                               
to raise  or cut revenues  elsewhere. He summarized that  a five-                                                               
year  plan  is a  realistic  planning  scenario for  the  state's                                                               
overall blueprint with respect to  managing: new revenue sources,                                                               
the permanent  fund and  the funds it  is capable  of generating,                                                               
PFD, and spending.                                                                                                              
                                                                                                                                
4:44:26 PM                                                                                                                    
SENATOR GIESSEL  questioned an earlier statement  by Dr. Townsend                                                               
regarding  the  approximate  maximum sustainable  flow  from  the                                                               
permanent fund. She  pointed out that the  Legislature can access                                                               
the ER and CBR, but not the permanent fund.                                                                                     
                                                                                                                                
DR. TOWNSEND replied that his  statement addresses what the state                                                               
can do  under the current  constitution versus  Alaska's economic                                                               
realities.  He  asserted  that  a  university  would  manage  its                                                               
endowment  differently.  He asked  if  the  state is  willing  to                                                               
accept greater  budgetary variability and planning  difficulty by                                                               
continuing  with  the  current   mechanism.  He  set  forth  that                                                               
Alaska's large and  valuable savings account can be  used to help                                                               
the state through the difficult  times; however, putting boxes on                                                               
how the state can use its savings account will make it harder.                                                                  
                                                                                                                                
4:47:06 PM                                                                                                                    
CHAIR  DUNLEAVY  pointed  out  that  Dr.  Townsend  continues  to                                                               
emphasize five years.                                                                                                           
                                                                                                                                
DR. TOWNSEND  set forth that  the elements of  long-term planning                                                               
necessitates Alaska  to figure out  what it  is going to  do with                                                               
the permanent  fund, the  associated funds,  and the  PFD; that's                                                               
going to put  a definition on the  scope and size of  the rest of                                                               
the  problem.  He  voiced  that Alaska  faces  a  very  different                                                               
environment than  it got used to  for the last 30  years and hard                                                               
choices need  to be made on  where to draw the  line. He asserted                                                               
that  saying certain  choices  cannot be  included  will make  it                                                               
harder  to  find  solutions  that  minimize  the  real  cost  for                                                               
Alaskans. He remarked:                                                                                                          
                                                                                                                                
     We don't  want Alaskans being  unemployed unnecessarily                                                                    
     if there's a  way for us to manage this.  We don't want                                                                    
     people  feeling  that  they have  to  leave  the  state                                                                    
     because of short-run economic  downturns, we would like                                                                    
     to have it be successful in the long run.                                                                                  
                                                                                                                                
He specified that  his calculations simply specify  the amount of                                                               
money that the state  has and how it can use  it in a sustainable                                                               
way. He asserted that looking  at the variable ER year-to-year is                                                               
going to  make it harder  to plan.  He asked that  Alaska compare                                                               
itself to  the typical  state of  2007-2008 where  typical budget                                                               
reserves were  10 to  40 percent of  annual spending.  He pointed                                                               
out  that  Alaska's  budget  percentage  to  annual  spending  is                                                               
several hundred percent with reserves  that provide several years                                                               
for a "soft landing."                                                                                                           
                                                                                                                                
4:49:33 PM                                                                                                                    
SENATOR  GIESSEL  addressed  Dr. Townsend's  "quantitative"  data                                                               
regarding  projected  job losses  from  taxes,  dividend cuts  or                                                               
budget  cuts.   She  remarked  that  she   takes  Dr.  Townsend's                                                               
quantitative  data  with  a grain-of-salt  due  to  "qualitative"                                                               
social issues that exist. She  asserted that the PFD draws people                                                               
to  Alaska  who utilize  a  high  amount  of state  services  and                                                               
government-dependent  individuals would  not  move  to Alaska  if                                                               
there was  no PFD;  that would affect  budget demands  for health                                                               
and social services.                                                                                                            
                                                                                                                                
DR. TOWNSEND  replied that he  has not  seen any research  on the                                                               
impact of the  PFD. He noted that  a person must be  in the state                                                               
for  a year  to qualify.  He revealed  that migration  data shows                                                               
that the number  of people moving out of  Alaska is approximately                                                               
equal to the  net increase, births over deaths.  He conceded that                                                               
a good  bit of the  migration out  is highly skilled  and higher-                                                               
income individuals who are more mobile.                                                                                         
                                                                                                                                
4:52:33 PM                                                                                                                    
CHAIR  DUNLEAVY pointed  out that  Dr. Townsend  will be  invited                                                               
back to specifically address "behavioral  impact." He opined that                                                               
Dr.  Townsend has  written possible  newspaper headlines  for the                                                               
next two days:                                                                                                                  
                                                                                                                                
   1. Townsend says, "Great Recession unavoidable."                                                                             
   2. Townsend says, "Reducing the size of the budget will cause                                                                
     catastrophic job loss."                                                                                                    
                                                                                                                                
He  remarked   that  having  Dr.   Townsend  return   will,  most                                                               
importantly, allow the  committee to talk about  the behaviors in                                                               
more detail. He  pointed out that Dr.  Townsend highlighted where                                                               
the  state  is  at,  but   explained  that  the  committee  needs                                                               
additional engagement;  for example, what  happens if the  PFD is                                                               
eliminated.  He  noted that  Senator  Giessel  addressed the  PFD                                                               
attracting people  to move to  the state  and pointed out  that a                                                               
person must  reside in  the state  for a minimum  of one  year to                                                               
qualify  for the  PFD, but  one day  to qualify  for welfare.  He                                                               
detailed that a person can be in  Alaska for one day and say that                                                               
they  intend to  stay and  start  to apply  for welfare  programs                                                               
that, many  say, are  much more  expensive to  the state  in many                                                               
respects. He set forth that his  previous example shows why it is                                                               
difficult to  get everyone  on the same  page, but  the committee                                                               
needs to dig a little deeper on behaviors.                                                                                      
                                                                                                                                
DR. TOWNSEND  jocosely asked if  he could disavow his  comment on                                                               
Alaska's "Great Recession."                                                                                                     
                                                                                                                                
CHAIR DUNLEAVY  facetiously pointed out that  some newspaper will                                                               
pick up on  Dr. Townsends' statement that a  five-year plan might                                                               
lessen the impacts.                                                                                                             
                                                                                                                                
4:55:06 PM                                                                                                                    
At ease.                                                                                                                        
                                                                                                                                
4:56:19 PM                                                                                                                  
          SB   1-APPROP: 2016 PFD SUPPLEMENTAL PAYMENT                                                                      
              SB   2-2016 PFD SUPPLEMENTAL PAYMENT                                                                          
                                                                                                                                
4:56:20 PM                                                                                                                    
CHAIR DUNLEAVY called  the committee back to  order. He announced                                                               
the consideration of SB  1 and SB 2. He explained that  SB 1 is a                                                               
bill that he introduced in the  fall of 2016. He detailed that SB                                                               
2 is the enabling portion to SB 1.                                                                                              
                                                                                                                                
He noted that  the 2016 Legislature passed  an appropriation bill                                                               
that was to  fully fund the entire PFD. He  detailed that half of                                                               
the PFD was  vetoed by the governor,  approximately $700 million.                                                               
He specified  that the governor  said his  veto was an  effort to                                                               
help  with the  state's fiscal  situation. He  revealed that  the                                                               
approximate $700  million from the  veto resides in  the earnings                                                               
reserve and not in the general fund.                                                                                            
                                                                                                                                
CHAIR  DUNLEAVY contended  that  the dividend  is  a very  unique                                                               
issue that  is not seen in  other states or countries.  He opined                                                               
that Alaskans  believe the PFD  is a  way of receiving  a royalty                                                               
from  the  state  of  Alaska  due to  the  Statehood  Act  and  a                                                               
subsequent constitution  that has the state  owning the resources                                                               
in a socialized manner. He explained  that the method of paying a                                                               
dividend from the  permanent fund allows all  Alaskans to partake                                                               
in the state's mineral rights.  He specified that the bill simply                                                               
restores  the second  half  of the  PFD that  was  vetoed by  the                                                               
governor. He  asserted that the belief  is the PFD is  a decades-                                                               
old tradition or right.                                                                                                         
                                                                                                                                
He stated that  he believes restoring the second half  of the PFD                                                               
is the right  thing to do due to the  current economy's condition                                                               
as well  as comments from  his constituents who noted  that their                                                               
dividend was  planned to be  used for fuel oil,  college, medical                                                               
bills, vehicles, etc. He opined  that there are different ways to                                                               
deal with the ongoing fiscal issue  and the bill addresses a need                                                               
to  fix the  2016 PFD  and allow  the Legislature  to move  on to                                                               
bigger and  more important issues  in terms of fixing  the fiscal                                                               
issues.                                                                                                                         
                                                                                                                                
4:59:13 PM                                                                                                                    
GINA RITACCO, Staff, Senator  Dunleavy, Alaska State Legislature,                                                               
Juneau,  Alaska,  provided an  overview  of  SB  1  and SB  2  as                                                               
follows:                                                                                                                        
                                                                                                                                
     There  are two  bills because  one is  an appropriation                                                                    
     bill, which  is SB 1,  SB 2  is the directive  bill and                                                                    
     both are  required in order to  issue check immediately                                                                    
     before  the next  payout  in October.  SB  1 gives  the                                                                    
     appropriation  amount   and  then  SB  2   directs  the                                                                    
     Department  of Revenue  to actually  go ahead  and make                                                                    
     those checks available.                                                                                                    
                                                                                                                                
5:00:02 PM                                                                                                                    
At ease.                                                                                                                        
                                                                                                                                
5:00:12 PM                                                                                                                    
CHAIR DUNLEAVY called the committee back to order. He announced                                                                 
that there is a committee substitute (CS) for SB 1.                                                                             
                                                                                                                                
5:00:21 PM                                                                                                                    
SENATOR GIESSEL moved that the committee adopt the CS for SB 1,                                                                 
version: 30-LS0042\D.                                                                                                           
                                                                                                                                
5:00:36 PM                                                                                                                    
CHAIR DUNLEAVY objected for discussion purposes.                                                                                
                                                                                                                                
MS. RITACO provided an overview of the CS as follows:                                                                           
                                                                                                                                
     The sectional change with Section  1 changes the amount                                                                    
     appropriated  from  $660,350,000,  which  was  just  an                                                                    
     estimate at the  time that we had the  bill drafted, to                                                                    
     reflect the  statutory calculated amount vetoed  by the                                                                    
     governor which is $683,234,813.                                                                                            
                                                                                                                                
CHAIR DUNLEAVY asked to verify that there were no other changes.                                                                
                                                                                                                                
MS. RITACCO replied that there were no other changes.                                                                           
                                                                                                                                
5:01:19 PM                                                                                                                    
At ease.                                                                                                                        
                                                                                                                                
5:01:31 PM                                                                                                                    
CHAIR DUNLEAVY called  the committee back to  order. He announced                                                               
that he  removed his objection  to the CS  for SB 1.  He declared                                                               
that  the CS  for  SB 1  is  adopted. He  asked  that Ms.  Ritaco                                                               
provide a sectional analysis.                                                                                                   
                                                                                                                                
5:01:48 PM                                                                                                                    
MS. RITACO provided a sectional analysis as follows:                                                                            
                                                                                                                                
     SB  1,  Section  1: restores  approximately  $1,032  to                                                                    
     every Alaskan.                                                                                                             
                                                                                                                                
     SB 1,  Section 2: makes  SB 1  contingent on SB  2; the                                                                    
     reason  for  this  is  that  if  you  don't  make  that                                                                    
     contingent   on  each   other,  you   could  have   the                                                                    
     appropriation  pass and  it will  just sit  there until                                                                    
     the  next   payout  goes,  which  would   be  in  2017,                                                                    
     therefore it  actually would be  in addition  to 2017's                                                                    
     payment  rather   than  a  supplemental  to   the  2016                                                                    
     payment.                                                                                                                   
                                                                                                                                
     SB 2 is the directive, Section 1: the commissioner of                                                                      
       the Department of Revenue is directed to make the                                                                        
     payment immediately.                                                                                                       
                                                                                                                                
     SB 2, Section 2: contingent on SB 1 passing, so if SB                                                                      
     1 does not pass, SB 2 does not go into effect.                                                                             
                                                                                                                                
     We put  an effective date of  May 1, 2017 to  give time                                                                    
     for  the Department  of Revenue  to  actually make  the                                                                    
     checks  and send  them out  with FY2017's  funds rather                                                                    
     than FY2018.                                                                                                               
                                                                                                                                
MS. RITACO summarized that SB 1 and SB 2 are interconnected and                                                                 
are contingent on one another.                                                                                                  
                                                                                                                                
5:03:11 PM                                                                                                                    
CHAIR  DUNLEAVY announced  that  [SB  1 and  SB  2]  are held  in                                                               
committee. He  reminded the committee that  public testimony will                                                               
be held  at an upcoming  committee meeting  and the intent  is to                                                               
move the two bills the following week.                                                                                          
                                                                                                                                
5:04:35 PM                                                                                                                    
There being no further business to come before the committee,                                                                   
Chair Dunleavy adjourned the Senate State Affairs Committee at                                                                  
5:04 p.m.                                                                                                                       

Document Name Date/Time Subjects
SB 2.PDF SSTA 1/24/2017 3:30:00 PM
SB 2
SB 2 Sectional Analysis.pdf SSTA 1/24/2017 3:30:00 PM
SB 2
SB 2 Fiscal Note.pdf SSTA 1/24/2017 3:30:00 PM
SB 2
SB 1.PDF SSTA 1/24/2017 3:30:00 PM
SB 1
SB 1 Sectional Analysis.pdf SSTA 1/24/2017 3:30:00 PM
SB 1
SB 1 & 2 Sponsor Statement.pdf SSTA 1/24/2017 3:30:00 PM
SB 1
SB 2
SB 1 & 2 Legal Memo.pdf SSTA 1/24/2017 3:30:00 PM
SB 1
SB 1 & 2 ISER Poverty Study PowerPoint.pdf SSTA 1/24/2017 3:30:00 PM
SB 1
SB 2
SB 1 & 2 ISER How PFDs Reduce Poverty Overview.pdf SSTA 1/24/2017 3:30:00 PM
SB 1
SB 2
SB 1 & 2 ISER How PFDs Reduce Poverty Full Report.pdf SSTA 1/24/2017 3:30:00 PM
SB 1
SB 2
Dr. Ralph Townsend Senate State Affairs 1-24-17.pdf SSTA 1/24/2017 3:30:00 PM
SB 1 Version D Summary of Changes.pdf SSTA 1/24/2017 3:30:00 PM
SB 1
SB 1 CS for STA version D.pdf SSTA 1/24/2017 3:30:00 PM
SB 1