02/05/2019 03:30 PM Senate STATE AFFAIRS
| Audio | Topic |
|---|---|
| Start | |
| SB23 | |
| SB24 | |
| Adjourn |
+ teleconferenced
= bill was previously heard/scheduled
| += | SCR 1 | TELECONFERENCED | |
| *+ | SB 23 | TELECONFERENCED | |
| *+ | SB 24 | TELECONFERENCED | |
ALASKA STATE LEGISLATURE
SENATE STATE AFFAIRS STANDING COMMITTEE
February 5, 2019
3:32 p.m.
MEMBERS PRESENT
Senator Mike Shower, Chair
Senator John Coghill, Vice Chair
Senator Lora Reinbold
Senator Peter Micciche
Senator Scott Kawasaki
MEMBERS ABSENT
All members present
COMMITTEE CALENDAR
SENATE BILL NO. 23
"An Act making special appropriations from the earnings reserve
account for the payment of permanent fund dividends; and
providing for an effective date."
- HEARD & HELD
SENATE BILL NO. 24
"An Act directing the Department of Revenue to pay dividends to
certain eligible individuals; and providing for an effective
date."
- HEARD & HELD
SENATE CONCURRENT RESOLUTION NO. 1
Proposing an amendment to the Uniform Rules of the Alaska State
Legislature relating to the appearance of measures on the daily
calendar after the ninetieth day of the regular session.
- SCHEDULED BUT NOT HEARD
PREVIOUS COMMITTEE ACTION
BILL: SB 23
SHORT TITLE: APPROP:SUPP. PAYMENTS OF PRIOR YEARS' PFD
SPONSOR(s): RULES BY REQUEST OF THE GOVERNOR
01/16/19 (S) READ THE FIRST TIME - REFERRALS
01/16/19 (S) STA, FIN
02/05/19 (S) STA AT 3:30 PM BUTROVICH 205
BILL: SB 24
SHORT TITLE: PFD SUPPLEMENTAL PAYMENTS
SPONSOR(s): RULES BY REQUEST OF THE GOVERNOR
01/16/19 (S) READ THE FIRST TIME - REFERRALS
01/16/19 (S) STA, FIN
02/05/19 (S) STA AT 3:30 PM BUTROVICH 205
WITNESS REGISTER
BRUCE TANGEMAN, Commissioner Designee
Department of Revenue
Juneau, Alaska
POSITION STATEMENT: Presented SB 23 and SB 24 on behalf of the
administration.
ED KING, Chief Economist
Department of Revenue
Juneau, Alaska
POSITION STATEMENT: Delivered the sectional analyses for SB 23
and SB 24.
ACTION NARRATIVE
3:32:34 PM
CHAIR MIKE SHOWER called the Senate State Affairs Standing
Committee meeting to order at 3:32 p.m. Present at the call to
order were Senators Coghill, Reinbold, Micciche, Kawasaki, and
Chair Shower.
SB 23-APPROP:SUPP. PAYMENTS OF PRIOR YEARS' PFD
3:33:46 PM
CHAIR SHOWER announced the consideration of SENATE BILL NO. 23
"An Act making special appropriations from the earnings reserve
account for the payment of permanent fund dividends; and
providing for an effective date."
He asked the presenters to introduce themselves and noted that
Commissioner Designee Tangeman would provide opening comments.
He advised that public testimony would be taken at a future
hearing.
3:35:18 PM
BRUCE TANGEMAN, Commissioner Designee, Department of Revenue,
stated that SB 23 and the next bill on the agenda, SB 24, are
critical in the cornerstone of what Governor Dunleavy campaigned
on and is dear to his heart. They are more about restoring trust
in government than paying back the permanent fund dividends
(PFD). The governor wanted to correct the previous
administration's decision to take a different route than the
long-standing statutory calculation for the PFD. He highlighted
that the size of government was not significantly reduced over
the last three years while the dividend was reduced, and
Governor Dunleavy believes these go hand in hand. The dividend
can be restored but the size of government in Alaska must be
brought into check. He advised that considering the dividend
issue is just one part of the larger discussion that will begin
on February 13 when the budget is released.
3:38:05 PM
ED KING, Chief Economist, Department of Revenue, explained that
SB 23 is an appropriation bill that transfers money from the
earnings reserve account into the dividend fund. He delivered a
sectional analysis speaking to the following prepared document:
Section 1(a). This section makes an appropriation from
the permanent fund earnings reserve account (AS
37.13.145) to the dividend fund (AS 43.23.045(a)) of
the amount of money necessary for a payment of $1061
to eligible individuals who received a 2016 dividend
and who are eligible to receive a 2019 dividend for
fiscal year 2020.
Section 1(b). This section makes an appropriation from
the permanent fund earnings reserve account to the
dividend fund of the amount of money necessary for a
payment of $1289 to eligible individuals who received
a 2017 dividend and who are eligible to receive a 2020
dividend for fiscal year 2021.
Section 1(c). This section makes an appropriation from
the permanent fund earnings reserve account to the
dividend fund of the amount of money necessary for a
payment of $1328 to eligible individuals who received
a 2018 dividend and who are eligible to receive a 2021
dividend for fiscal year 2022. [He noted that there
may have been an error in this calculation, and it is
under review.]
Section 1(d). This section makes an appropriation from
the permanent fund earnings reserve account to the
dividend fund of the amount authorized for transfer by
the Alaska Permanent Fund Corporation pursuant to AS
37.13.145(b) for the payment of permanent fund
dividends for fiscal year 2020.
Section 1(e). This section makes an appropriation from
the permanent fund earnings reserve account to the
dividend fund of the amount authorized for transfer by
the Alaska Permanent Fund Corporation pursuant to AS
37.13.145(b) for the payment of permanent fund
dividends for fiscal year 2021.
Section 1(f). This section makes an appropriation from
the permanent fund earnings reserve account to the
dividend fund of the amount authorized for transfer by
the Alaska Permanent Fund Corporation pursuant to AS
37.13.145(b) for the payment of permanent fund
dividends for fiscal year 2022.
Section 1(g). This section makes an appropriation from
the permanent fund earnings reserve account to the
dividend fund of the amount authorized for transfer by
the Alaska Permanent Fund Corporation pursuant to AS
37.13.145(b) for the payment of permanent fund
dividends for fiscal year 2023.
Section 2. This section is a contingency provision
that makes the appropriations in section 1(a)-(c)
contingent on the legislature's passage and enactment
into law of a bill directing the commissioner of
revenue to include certain payments for the 2016,
2017, and 2018 dividends to eligible individuals with
the dividend payments for 2019, 2020, and 2021.
Section 3. This section makes the appropriations in
section 1(b) and (e) which relate to dividend payments
in 2020 effective July 1, 2020.
Section 4. This section makes the appropriations in
section 1(c) and (f) which relate to dividend payments
in 2021 effective July 1, 2021.
Section 5. This section makes the appropriation in
section 1(g) which relates to dividend payments in
2022 effective July 1, 2022.
Section 6. This section provides that except for
sections 3-5, the Act takes effect immediately under
AS 01.10.070(c).
3:41:42 PM
ED KING, Chief Economist, Department of Revenue, characterized
SB 23 and SB 24 as "basically married" and said he would move on
to the sectional analysis for SB 24 unless there were questions.
SENATOR MICCICHE asked if the bill received legal vetting to
look at constitutionality and the potential for challenges by
those who received a dividend during the three previous years
but are no longer a resident and thus ineligible.
MR. KING deferred to the commissioner to speak to policy and
advised that a legal team would be available to answer questions
at a subsequent hearing.
3:43:07 PM
COMMISSIONER DESIGNEE TANGEMAN related that the Department of
Law (DOL) vetted the bill thoroughly and the administration
believes it will stand up in a court.
[SB 23 was held in committee.]
SB 24-PFD SUPPLEMENTAL PAYMENTS
3:43:35 PM
CHAIR SHOWER announced the consideration of SENATE BILL NO. 24
"An Act directing the Department of Revenue to pay dividends to
certain eligible individuals; and providing for an effective
date."
MR. KING explained that SB 24 directs the commissioner of the
Department of Revenue (DOR) to disburse the funds that are
appropriated from the earnings reserve to the dividend fund. The
entire bill amends uncodified law directing the commissioner to
disburse the funds that are transferred into the dividend fund
in addition to the calculated dividend for the year.
MR. KING delivered a sectional analysis for SB 24 speaking to
the following prepared document:
Section 1(a). This section would amend the uncodified
law to provide that notwithstanding AS 43.23.005, the
commissioner of revenue shall include with permanent
fund dividends in 2019, 2020, and 2021 payments to
eligible individuals of $1,061 in 2019, $1,289 in
2020, and $1,328 in 2021.
Section 1(b). This section would provide that an
individual eligible in 2019 for a payment of $1,061 in
addition to the permanent fund dividend is an
individual who received a 2016 permanent fund dividend
and is eligible to receive a 2019 permanent fund
dividend.
Section 1(c). This section would provide that an
individual eligible in 2020 for a payment of $1,289 in
addition to the permanent fund dividend is an
individual who received a 2017 permanent fund dividend
and is eligible to receive a 2020 permanent fund
dividend.
Section 1(d). This section would provide that an
individual eligible in 2021 for a payment of $1,328 in
addition to the permanent fund dividend is an
individual who received a 2018 permanent fund dividend
and is eligible to receive a 2021 permanent fund
dividend.
Section 1(e). This section would provide than the
amount appropriated from the permanent fund earnings
reserve account (AS 37.13.145) to the dividend fund
(AS 43.23.045(a)) for the payments in section 1(a) to
eligible individuals during 2019-2021 may not
contribute to the calculation for the 2019- 2021
dividends under AS 43.23.025.
Section 2. This provides for an immediate effective
date.
3:45:41 PM
SENATOR COGHILL asked if the Permanent Fund Corporation has
talked about how the disbursements would be managed.
MR. KING clarified the question and explained that should SB 24
pass, the appropriation would be booked as a liability and the
corporation would manage those assets to ensure adequate
liquidity to make the transfer to the Permanent Fund Division.
The division would manage the transfer to the dividend fund and
the disbursements. That date would align with the date the
disbursements generally are made, usually in September.
SENATOR COGHILL suggested the committee ask the corporation how
this would affect liquidity. He also asked for confirmation that
this would not impose any lingering tax liability on recipients.
MR. KING confirmed that the payments would be booked as income
for federal tax purposes in the year in which the payment is
received.
SENATOR COGHILL summarized his understanding of the answer and
Mr. King agreed.
3:48:22 PM
SENATOR MICCICHE countered that the payment may push some
individuals into the next tax bracket.
MR. KING agreed an individual in that circumstance would have a
higher tax liability, but it would not be an amendment to a
previous year's tax return.
SENATOR REINBOLD asked how the repayments will impact the
dividend over the long term.
MR. KING replied that removing money from the earnings reserve
leaves a smaller balance in the fund to spin off returns. He
directed attention to the bar graphs on slide 4 that show the
expected impact on the earning reserve account (ERA) with and
without the backpay and the size of the dividend with and
without the backpay. The projected dividend payments in FY20,
FY21, and FY22 reflect larger payments with the backpay. That
changes in subsequent years showing that the status quo payments
would be slightly smaller. The reason for that is that a smaller
fund balance results in smaller returns, and the PFD is
calculated on those returns. "There is no denying it, that
impact does exist," he said.
CHAIR SHOWER asked for the source of the data and how the
numbers were validated.
MR. KING replied he personally produced the graphics on the
slide as the chief economist and head of the Economic Research
Group at the Department of Revenue.
3:50:57 PM
SENATOR REINBOLD asked for an explanation of the fiscal notes.
MR. KING replied the fiscal note for SB 24 is $24,000 and is
intended to pay for programing costs so the Permanent Fund
Division can determine who is eligible and disburse the funds.
SENATOR REINBOLD clarified that she was asking about the draw on
the earnings reserve account.
MR. KING said as currently structured, the draw on the earnings
reserve would be just less than $2 billion.
3:52:57 PM
SENATOR REINBOLD clarified for the public that the proposed $2
billion draw is in addition to the approximately 2.9 billion
POMV [percent of market value] draw. She asked if he agreed.
MR. KING replied that was his understanding.
SENATOR REINBOLD calculated that the total draw would be about
$5 billion, should the bill pass.
MR. KING pointed out that the bill appropriates the money over
three years, not all at once. The impact for FY20 would be $2.9
billion plus the estimated $565 million dividend payment
[described in slide 2 of the presentation] for a total of about
$3.5 billion. The estimated dividend payment in FY21 of $683
million would be in addition to the POMV, which would be about
$3 billion. He noted that making the payments over three years
allows time for the fund to make money so the fund balance is
not injured as much as it would be with lump sum payments.
SENATOR COGHILL suggested it would be helpful for the committee
to know the potential payout for those in Alaska.
MR. KING said he could read the number into the record.
CHAIR SHOWER asked that he also update the slide for the
committee.
3:54:50 PM
MR. KING agreed and stated the following:
The number that is estimated for the FY20 is
$566,756,995. With a maximum appropriation (that is if
every eligible person in 2016 remained eligible in
2019) the maximum appropriation would be $682,839,753.
Responding to a question from Senator Coghill, he clarified that
would be the back payment. He further clarified that the
anticipated payment for the FY20 dividend is $1.9 billion. If SB
24 were to pass, it would add another $565 million for a total
of $2.5 billion.
SENATOR COGHILL said his point was to highlight the total
because, "when we get the budget, we're going to have to think
of it in that term."
3:56:45 PM
CHAIR SHOWER clarified that the discussion is about what the
total bill would be each year if SB 24 were to pass.
SENATOR COGHILL said it looks like the draw would be about $0.5
billion plus the usual payment of about $1 billion. He
calculated that it would be $1.5 billion plus per year going
forward.
MR. KING provided the following clarification:
For FY20, we're expecting there to be a draw on the
fund of $2.9 billion from the earnings reserve to the
general fund for the purposes of percent of market
value. In addition to that, this bill would
appropriate an additional $565 million. We're
expecting that that fund will earn about $4.1 billion
that year so the total fund balance won't decrease. It
will actually increase slightly. There will be a
transfer to the principal if you do inflation-proofing
but the fund itself won't decrease. That's $3.5
billion of total draws from the ERA to the general
fund and the dividend fund.
In FY21, the POMV will be about $3 billion plus the
[$683] so $3.7 billion total moving. In FY 22, it
would be a little bit more, about $3.8 billion in
total.
Once you get past that, [in FY23] the additional
appropriations go away. We've paid those off, so the
total draw goes down to close to that $3 billion draw.
Of that, ...the permanent fund dividend also begins to
shrink and that's just a product of the really good
year that we had last year in FY18. That number will
drop off of the five-year rolling average in 2024 so
the permanent fund dividend will be smaller just as a
natural consequence. That has nothing to do with the
bill.
MR. KING summarized that the money coming out of the fund isn't
any more than about $3.5 billion in the next three years and
about $3 billion every year thereafter.
3:59:33 PM
SENATOR COGHILL said it's still a cash draw on the state and he
wanted to know what that gross draw would be.
MR. KING said he would follow up with the numbers in a table.
4:00:28 PM
CHAIR SHOWER asked him to explain where the money that should
have been allocated the first two years is sitting. His
understanding is that the money was allocated the third year.
4:00:51 PM
MR. KING explained that for all intents and purposes, the money
that was not distributed in each of the three years is still in
the earnings reserve.
CHAIR SHOWER asked for clarification about what happened to the
money that was not distributed last year.
MR. KING explained that last year the returns were far greater
than the distributions from the fund, so the effect is that the
money is sitting in the earnings reserve.
4:01:28 PM
SENATOR MICCICHE pointed out that money was allocated out of the
earnings reserve last year to the POMV and it went to the
general fund.
CHAIR SHOWER said that was his question.
SENATOR MICCICHE responded that, "Whether it's those exact
dollars that were transferred out or not is one's individual
judgment. But last year the monies were actually used to pay a
proportion of the bills for the state."
CHAIR SHOWER said that is the point. "Was the money allocated
used or was it essentially left sitting in the fund?"
MR. KING responded that there was enough money appropriated from
the earnings reserve to the general fund to pay a full dividend,
although it was not transferred for that purpose. He agreed that
it's a matter of perspective and either description is accurate.
CHAIR SHOWER said this is the opportunity to put it on the
public record and into the light. We want to make sure that
we're arguing with good facts, he said.
4:02:57 PM
SENATOR MICCICHE said it's important for the public to
understand that the money that was withheld from dividends the
first two years was not used to pay any state operating costs,
but a proportion was used the third year. He said that's
important because for the first time in state history, money
from the earnings reserve was used to supplement state services.
He referred to slide 2 and asked for an explanation of the
assumptions that were used for outmigration to determine the
numbers of people who would be eligible for a backpay dividend.
4:04:18 PM
MR. KING explained that DOR's historical analysis found that
about 17 percent of people who received a dividend in one year
do not receive a dividend three years later. In 2016, 643,581
people received the dividend and DOR anticipates that 534,172 of
those will receive the additional payment. For 2017, 640,248
people received a dividend and 83 percent of that number is
531,406 people. In FY18, 639,247 people received a dividend and
the expectation is that 530,575 people will receive the
additional payment.
SENATOR REINBOLD calculated that a $3 billion POMV draw plus
about $1 billion per year for dividends plus the back payments
proposed in SB 24 roughly totals $14 billion. She said she
struggles with that number if one wants to save the permanent
fund. She asked if her public math was close to accurate.
MR. KING pointed out the PFD payment comes out of the POMV, not
in addition to it so the total would be $11 billion. However,
the fund is anticipated to earn over $12 billion so the fund
should not be injured.
CHAIR SHOWER asked him to break the dividend out of the POMV
draw.
4:08:35 PM
MR. KING explained that for FY20 the POMV is $2.9 billion and
the dividend payment is estimated to be about $1.9 billion,
leaving $1 billion for the general fund. The situation is
similar in FY21; about $3 billion is transferred and about $2
billion goes to the dividend, leaving about $1 billion for the
general fund.
CHAIR SHOWER summarized that the statutory calculation for the
permanent fund over three years is roughly $6 billion. Adding $2
billion for the payback brings the rough total over three years
to $8 billion.
MR. KING clarified that the transfer over three years would be
$9 billion plus the $2 billion dividend payback for a total of
$11 billion.
SENATOR REINBOLD commented that it's important to understand
that the POMV draw includes the PFD.
CHAIR SHOWER pointed out that the money is not transferred from
the earnings reserve in one lump sum, which leaves a larger
balance in the earnings reserve that continues to generate
returns.
He said it's also important to note the impact on the budget
this year. The $2.9 billion draw under the POMV model less $1.9
billion for the dividend leaves about $1 billion for the general
fund. Add that to the $2.2 billion from oil and gas this year
yields a revenue model of about $3.2 billion. If things don't
change, it should be similar over the next few years.
SENATOR MICCICHE commented that he keeps hearing a little lawyer
voice warning that past returns are not an indicator of future
performance.
He asked if DOR stress tested the assumptions to account for the
potential to deliver a three-fourths vote on the CBR and the
potential for other legislators to support an unstructured draw
from the ERA. These factors could lead to a significantly lower
earnings reserve balance which could stress the ability for
future dividend payments as well.
MR. KING directed attention to the graph on slide 5 that
represents the Callan estimates of the risk of depleting the
ERA, given the assumption that draws from the ERA are limited to
the proposed appropriations in addition to the POMV and
inflation proofing calculations. He said the likelihood of the
ERA being depleted due to random fluctuations in the marketplace
is about 1 percent. The risk increases to about 3 percent with
the $2 billion transfer over the next three years, because the
balance on which to base earnings is smaller. He said he agrees
with Senator Micciche about past performance and future returns,
but the past performance has been phenomenal, averaging over 9.5
percent per year for the last 40 years. In the last 9 years the
average has been 9.64 percent.
For planning purposes the corporation projects an historically
low 6.55 percent return on the fund. When DOR ran the analysis
reflected on slide 5, the Callan estimate of 6.55 percent was
used. He noted that applying a distribution of past performance
and select randomly from the previous 40 years brings the risk
of the draw depleting the fund to virtually zero.
CHAIR SHOWER asked for an explanation of the Callan and Monte
Carlo models.
MR. KING explained that a Monte Carlo simulation is a risk
analysis technique that uses a distribution of probable numbers
from which a computer randomly selects. DOR ran 100,000
simulations and there was no problem in 99,000 of the
simulations. He advised that Callan Associates Inc, is the
consultant for the Permanent Fund Corporation that provides risk
analyses and advice on expected returns.
SENATOR MICCICHE advised that in the finance committee he would
request DOR run a model with some level of unstructured draw so
he could understand what that depletion looks like in that
circumstance. "I personally find it difficult to believe that
we're going to deliver a three-quarter vote with the current
makeup of the legislature, particularly observing the issues
across the hall," he said.
MR. KING said if the unstructured draw is limited to the request
in the bill and the POMV, the risk of depletion is negligible.
But increasing the draw by $0.5 billion to $1.0 billion into
perpetuity is not sustainable.
CHAIR SHOWER asked Mr. Tangeman if he had anything to add.
4:17:54 PM
COMMISSIONER DESIGNEE TANGEMAN cautioned that this was also
contingent on the budget. As far as unstructured draws and
testing the model, he said it's clear we are living beyond our
means. Continuing draws of $1 billion or more just to meet the
existing operating budget is a problem. SB 24 is about making
whole on the back payments which have been sitting in the fund
earning a healthy rate of return. The discussion in the coming
days on the budget will be about how to put a stable budget in
place for the State of Alaska that does not rely on giant
unstructured draws from whatever revenue source it is - UGF,
CBR, ERA. He related the Governor's view is that sufficient
revenue cannot be extracted from the citizens of Alaska to
support the budget.
He suggested that once the Governor's budget is on the table,
the entire plan can be stress-tested, including these three
years of catchup, what the revenue sources look like, and what a
significantly reduced budget looks like in that model. He
posited that "reducing the budget to the level that we see as
appropriate, you can absorb things like this and allow the
earnings reserve and the permanent fund itself to grow into the
future."
CHAIR SHOWER asked how much tax revenue it would take to make
this achievable over the next 5-6 years.
COMMISSIONER DESIGNEE TANGEMAN advised that the administration
is not proposing new revenues initially, because the focus needs
to be on the budget. In step one the discussion will be that the
available revenue is $3.2 billion. Step two will be about the
level of spending that revenue will support, including what is
constitutionally required. The "goal is to focus the discussion
on what is sustainable with the current revenue stream we have,"
he said.
CHAIR SHOWER asked for clarification that the administration
believes that this is achievable without starting the discussion
of taxes.
4:24:22 PM
COMMISSIONER DESIGNEE TANGEMAN replied that's correct. He added
that it's about $2 billion over the next three years to correct
this issue, but because the ERA will continue to grow over the
coming years, DOR believes there will be a net increase to the
ERA.
SENATOR REINBOLD said she continues to have concerns about a
natural disaster like the earthquake as well as international
threats. Thus her belief in the necessity of having reserves.
Turning to policy, she said she hasn't been a big believer in
the POMV because it's a $3 billion draw, less the dividends, for
government. She described slide five as unfair because it shows
almost no risk of depletion but $11 billion is removed from the
account over three years, which draws it down. She asked if that
was a fair statement.
MR. KING referred to the graphics on slide 4 of the fund balance
with backpay and the status quo. It shows that the $17 billion
balance in the fund remains flat under the status quo. The blue
bar reflects the balance with backpay is basically $2 billion
lower. This reflects the $2 billion draw which by itself would
not deplete the ERA. Additional draws on the fund or earnings
that are significantly lower than expected would impact the fund
negatively.
SENATOR REINBOLD noted that he was only focusing on the balance
in the context of SB 23 and SB 24 and she was also including the
impact of Senate Bill 26. She suggested the slide be updated to
clarify it was only considering the impact SB 23 and SB 24 would
have on the ERA balance.
SENATOR MICCICHE pointed out that the numbers on slide 4 include
the POMV, which is the result of Senate Bill 26. He also
clarified that SB 23 and SB 24 are about returning the
traditional statutory calculation and he would not necessarily
call that an unstructured draw. He said he brings it up as a
warning to the legislature that any unstructured draws from the
ERA will put the Alaska Permanent Fund and the Permanent Fund
Dividend at extreme risk. He reiterated the warning that
unstructured draws from the earnings reserve cannot become
normal practice.
He restated that he would like DOR to run a risk analysis of
additional unstructured draws above SB 23, SB 24, and Senate
Bill 26 so the legislature more clearly understands the risk
this presents to the Alaska Permanent Fund.
4:30:30 PM
MR. KING said the account is stable with the current POMV law
and given the assumptions the permanent fund has about its
earnings. However, any additional draws put that stability at
risk. As long as the structured draw remains in place, the risk
highlighted on slide 5 is correct. It demonstrates there is some
additional risk by taking $2 billion out of the account but the
Governor believes the risk is appropriate. Removing anything
additional presents a severe risk that the account could not
sustain that draw. He offered to run several scenarios at
different budget levels to show what that risk does.
4:31:50 PM
CHAIR SHOWER commented that we need to deal with the model we
have, and the general warning is that past performance does not
guarantee similar results in the future. Because the past
performance of legislators spending money is not too good, he
suggested that, "We need to be the ones putting handcuffs on
ourselves."
SENATOR COGHILL noted that the POMV is roughly 5 percent of the
total valuation of the fund, which now is about $650 million. He
asked Mr. King to discuss what the dividend payout would be and
what would be left for government.
MR. KING explained that $1.9 million is approximately two-thirds
of the $2.9 million that's being transferred from the earnings
reserve for the dividend under the statutory formula. He said
he'd follow up with the calculation with the additional payment
added on.
SENATOR COGHILL said he wanted the general public to know that
the percent of market value (POMV) is an endowment that allows 5
percent of the total value of the fund to be withdrawn. At this
point, the distribution would be two-thirds to the dividend and
one-third to government. He said he appreciates that Governor
Dunleavy's priority is to put downward pressure on the
government instead of expecting the people to pay more. He said
this is a good exercise, but he needs to look at the budget
before he can support this approach.
4:35:14 PM
CHAIR SHOWER read the assumptions on slide 4 which say, "Assumes
draws from the ERA are limited to the proposed appropriations in
addition to the POMV and inflation proofing calculations." He
asked for confirmation that the charts on slide 4 do reflect
those assumptions.
MR. KING said yes; the graphics represent the structured draw
under the POMV with no additional draw.
CHAIR SHOWER said his point is that while the chart includes
inflation-proofing, it does include any other payback such as to
the constitutional budget reserve (CBR).
MR. KING said that's correct; the numbers only reflect a
transfer of about $1 billion from the earnings reserve to the
principal account every year to account for inflation.
CHAIR SHOWER noted the talk about potential legislation that
would join the earnings reserve account with the corpus and
continue to have the one POMV draw. He asked how that would
affect this legislation should that happen.
MR. KING deferred any discussion about potential legislation to
the commissioner. As to aggregating the funds, he said it would
in no way change how the numbers work.
CHAIR SHOWER asked Mr. Tangeman where the additional funds would
come from if the budget is larger than $3.2 billion.
COMMISSIONER DESIGNEE TANGEMAN said the conversation needs to
start with what the budget looks like on February 13, what
services it provides, and what programs Alaskans want added back
into that $3.2 billion. People generally understand that a $4.8
billion budget is not sustainable, but they need to have
confidence that the budget has been reduced sufficiently that
they would be willing to start entertaining discussions about an
income tax. "We currently don't have anything in the hopper
right now as far as new revenue building," he said.
CHAIR SHOWER said the point is that the numbers are likely to
change and the money has to come from somewhere, and that place
is likely to be the earnings reserve.
He asked if he had considered the legal implications of
requiring an individual to be eligible for the dividend this
year to receive the back payment.
4:41:05 PM
COMMISSIONER DESIGNEE TANGEMAN explained that the PFD
application requires the applicant to confirm that they are
currently in Alaska and intend to stay in Alaska. The dividend
was reduced for three years and the remedy to make recipients
whole extends over three years. There is no intention to try to
locate the people who are no longer in Alaska. "We can only do
what's feasible with the system we have." He noted that a
different bill proposes to make past recipients whole in this
coming year and DOR would not object to that, but individuals
who qualified in 2016 and immediately left the state could get
the entire three-year backpay. SB 24 provides a glide path that
allows the earnings reserve to grow a little bit due to a larger
balance in the earnings reserve. He summarized that the bill
targets people who were eligible in 2016 and are still in Alaska
and eligible for a dividend today.
MR. KING added that if the eligibility were removed there are
technical aspects, such as unclaimed property and probate, that
should be addressed with DOR or the administration.
SENATOR REINBOLD highlighted that while she has been in the
legislature the entire budget has been somewhere between $10.5
billion and $16 billion. It is much larger than $3.2 billion.
4:44:55 PM
CHAIR SHOWER asked Mr. Tangeman if DOR modeled a one-year and
two-year option and to speak to why the three-year model was
selected.
COMMISSIONER DESIGNEE TANGEMAN replied they did not model those
shorter terms, but it would be an easy exercise to do so. Three
years was selected to provide a gentler glide path and to ensure
that the Alaskans who qualified and intend to stay hear receive
the maximum benefit.
4:46:27 PM
CHAIR SHOWER held SB 24 in committee.
4:47:20 PM
There being no further business to come before the committee,
Chair Shower adjourned the Senate State Affairs Standing
Committee meeting at 4:47 pm.
| Document Name | Date/Time | Subjects |
|---|---|---|
| SB 23 TL - Senate President.pdf |
SSTA 2/5/2019 3:30:00 PM SSTA 2/28/2019 3:30:00 PM SSTA 3/5/2019 3:30:00 PM SSTA 3/7/2019 3:30:00 PM SSTA 3/12/2019 3:30:00 PM |
SB 23 |
| SB0023A.PDF |
SSTA 2/5/2019 3:30:00 PM SSTA 2/26/2019 3:30:00 PM SSTA 2/28/2019 3:30:00 PM SSTA 3/5/2019 3:30:00 PM SSTA 3/7/2019 3:30:00 PM SSTA 3/12/2019 3:30:00 PM |
SB 23 |
| SB23 Sectional.pdf |
SSTA 2/5/2019 3:30:00 PM SSTA 2/26/2019 3:30:00 PM SSTA 2/28/2019 3:30:00 PM SSTA 3/5/2019 3:30:00 PM SSTA 3/7/2019 3:30:00 PM SSTA 3/12/2019 3:30:00 PM |
SB 23 |
| SB 24 TL - Senate President.pdf |
SSTA 2/5/2019 3:30:00 PM SSTA 2/26/2019 3:30:00 PM SSTA 2/28/2019 3:30:00 PM SSTA 3/5/2019 3:30:00 PM |
SB 24 |
| SB0024A.PDF |
SSTA 2/5/2019 3:30:00 PM SSTA 2/26/2019 3:30:00 PM SSTA 2/28/2019 3:30:00 PM SSTA 3/5/2019 3:30:00 PM |
SB 24 |
| SB24 Sectional.pdf |
SSTA 2/5/2019 3:30:00 PM SSTA 2/26/2019 3:30:00 PM SSTA 2/28/2019 3:30:00 PM SSTA 3/5/2019 3:30:00 PM SSTA 3/7/2019 3:30:00 PM SSTA 3/12/2019 3:30:00 PM |
SB 24 |
| SB 23 and 24 presentation.pptx |
SSTA 2/5/2019 3:30:00 PM SSTA 2/26/2019 3:30:00 PM SSTA 2/28/2019 3:30:00 PM SSTA 3/5/2019 3:30:00 PM SSTA 3/7/2019 3:30:00 PM SSTA 3/12/2019 3:30:00 PM |
SB 23 SB 24 |
| [gov-pressreleases] ICYMI_ Governor Dunleavy Unveils PFD Back Pay_Legislation.pdf |
SSTA 2/5/2019 3:30:00 PM |
Governors PFD Press Release |
| SB 24 Fiscal Note.PDF |
SSTA 2/5/2019 3:30:00 PM SSTA 2/26/2019 3:30:00 PM SSTA 2/28/2019 3:30:00 PM SSTA 3/5/2019 3:30:00 PM SSTA 3/7/2019 3:30:00 PM SSTA 3/12/2019 3:30:00 PM |
SB 24 |
| SSTA Agenda Week of 2.04.19.pdf |
SSTA 2/5/2019 3:30:00 PM |
Agenda |