HOUSE BILL NO. 304 An Act relating to disposition of income of the permanent fund; and providing for an effective date. Co-Chair Mulder MOVED to ADOPT the work draft, #22-LS1207\B, Cook, 3/25/02. Representative Davies OBJECTED for discussion purposes. Representative Davies inquired the changes made to the work draft. Co-Chair Williams outlined the changes that had been made to the draft: · Delay effective date for changing to POMV until June 29, 2003. · Intend to transfer $300 million dollars from the earnings reserve to the general fund in 2002 (for the FY03 budget). · Language referring to the dividend as being $1540 this October, since the State will be leaving the current formula in effect until next year. He emphasized that nothing would change with this year's dividend. Representative Croft observed that the changes would delay it for a year and the 7% would then be in effect. He asked if it would change the percent of distribution from 45% to 55% mix-government. Co-Chair Mulder restated the MOTION to ADOPT the work draft "B" as the working document before the Committee. Co-Chair Williams OBJECTED. Representative Lancaster observed that the rate of return had been changed from 7.95% to 8.25%. He noted information listed on the spreadsheets. [Copies on File]. Discussion followed amongst Committee members regarding information contained on the spreadsheet. Co-Chair Williams stated that the payout 7.65% would be delayed starting in FY04. Representative Davies commented on the delay and how that would affect the Capital Budget Reserve (CBR). One of the tests used was determining what would be left in the CBR and what the impact would be. Representative Hudson commented that this is a work in progress. The Committee had passed the sales tax, which would generate $250 million dollars. Taking that into consideration and the $300 million proposed dollars from the legislation, the State would be about $250 million dollars short. He commented that with all the pieces of legislation passed, the State would be down to a $300 million dollar draw rather than $750 million dollar draw. Co-Chair Williams WITHDREW his OBJECTION to adopting the work draft. There being NO further OBJECTION, the work draft was adopted. Representative Hudson MOVED to report CS HB 304 (FIN) out of Committee with individual recommendations and with the accompanying fiscal note. Representative Croft OBJECTED. Representative Croft indicated his concern that there is not a spreadsheet available regarding how it would affect the CBR and reiterated his concern with how the legislation will affect poor Alaskans. Co-Chair Williams noted that the bill previously passed had a pay out of 7.65%, which was agreed to by the Permanent Fund Corporation. He claimed, with that amount, there is enough remaining in the general fund to not have to deal with taxes of any kind. He reiterated that he did not support any taxation and believed that the proposed solution would be appropriate. Co-Chair Williams stated that the manner in which the original bill was written, there was $258 million dollars in FY05 to cover the capital projects. He added that those projects would be cut back. The State should not be taxed economically when the State is depressed. He recommended keeping the original numbers. He claimed that it is not right to tax the people of the State when there exists a dividend. Co-Chair Williams emphasized that Alaska is the largest, socialist State in the world. Alaska should be able to manage it finances. He urged that the bill not be passed. Co-Chair Mulder provided the idea of the legislation and the spreadsheet. With CS HB 304 (FIN) and if HB 303 and HB 229 were to be put in place, the estimated $300 million from HB 304 and $150 million dollars additional tax revenues, the net amount would total $450 million dollars. Offsetting that is the fact that the oil revenue spring forecast for FY03, if spending is held in line, the oil market is now healthier, the State would be considering a draw estimate of about $750 million dollars absent any new revenues. The $750 million minus the $450 million dollars would be about a $300 million dollar draw from the CBR. The balance in the CBR would be in excess of $2 billion dollars. Representative Davies claimed that the only way that is a "healthy" outlook for the CBR is if people are willing to consider that the State will not be able to do anything in the future to address infrastructure concerns. TAPE HFC 02 - 65, Side A  Representative Davies stated that is not a "rosy" picture for the State of Alaska. Co-Chair Mulder stated that was only a "capsule" view of where the State would be at the conclusion of FY03. There will be a 2% growth allotment, and with the percent of market value (POMV) provisions related to permanent fund earnings, as well as the additional revenue generated from State tax dollars, those amounts would go a long way to filling that gap. Co-Chair Mulder asked if a spreadsheet would be needed to move the bill from Committee. Representative Croft replied that it was not needed as he assumed that there were enough votes to move the bill from Committee. He indicated for the record that he did not want the proposal to move forward. Representative Whitaker asked about the infrastructure development in the capital budget. Co-Chair Mulder responded that in relation to HB 304 and because it has been delayed for a year, there will be no effect on the upcoming capital budget. He claimed that in the future, there would be a $250 million dollar stream moving toward infrastructure development. He added that there would be capital to provide more than an adequate stream for school construction, maintenance and road construction. Representative Whitaker asked if for FY03, the capital budget would be somewhere in the range of $100-$150 million dollars. Co-Chair Williams noted that the capital budget would be $114 million dollars, which would be rolled to $193 million dollars. He thought that it would be a 50/50 split. Representative Whitaker asked if it were a fair conclusion, that given the adoption of HB 304, there would be a significant growth in the capital budget this year for the State of Alaska. Representative Davies asked if that growth would be general fund dollars. A roll call vote was taken on the motion. IN FAVOR: Foster, Harris, Hudson, Lancaster, Whitaker, Bunde, Mulder OPPOSED: Williams, Davies, Moses, Croft The MOTION PASSED (6-4). CS HB 304 (FIN) was reported out of Committee with a "do pass" recommendation and a new fiscal note by the Department of Revenue.