HB 304-PERMANENT FUND INCOME CHAIR KOTT announced that the first order of business would be HOUSE BILL NO. 304, "An Act relating to disposition of income of the permanent fund; and providing for an effective date." Number 0072 TAMARA COOK, Director, Legislative Legal and Research Services, Legislative Affairs Agency, explained that the proposed committee substitute (CS), Version 22-LS1207\T, Cook, 4/5/02, makes a change in Section 12. That change was to delete the reference to "On July 1, 2002" and insert "At the beginning of fiscal year 2003". The proposed CS deletes Sections 14 and 15, which were the effective dates. Ms. Cook related her impression that effective dates are no longer necessary due to changes [incorporated in the proposed CS]. She also related her impression that the change in Section 12 is wise if there are no effective dates. Ms. Cook pointed out that [the proposed CS] has shifted the bill over so that the transfers from the earnings reserve account would occur at the beginning of each fiscal year. Those appropriations made in the prior year should remain unaffected by this bill, which will only apply to future appropriations. Number 0230 REPRESENTATIVE BERKOWITZ said, "Just to be clear on the intent today, we are not moving this bill along ... these are just technical changes and as the process evolves, this bill will evolve here in this committee. Is that the intent?" CHAIR KOTT answered, "That's correct, in some part of this committee." These changes are being made in the event that the bill is forwarded for consideration by the House. Number 0275 REPRESENTATIVE PORTER moved that the committee adopt CSHB 304, Version 22-LS1207\T, Cook, 4/5/02, as the working document. There being no objection, Version T was before the committee. Number 0312 JIM KELLY, Director of Communications, Alaska Permanent Fund Corporation, Department of Revenue, noted that the committee should have a letter from Robert Storer, Executive Director, Alaska Permanent Fund Corporation, Department of Revenue, regarding a couple of proposed amendments. Mr. Kelly pointed out that Section 11 repeals statutory inflation-proofing. However, the corporation asks that the statutory inflation- proofing not be repealed. The [Alaska Permanent Fund] Board's position is that if the fund was moved to a percent of market value (POMV) distribution and the payout was limited to no more than 5 percent of the funds average market value for the last five fiscal years, then there will be permanent and protective inflation-proofing. Mr. Kelly highlighted the fact that HB 304 is a statutory bill rather than a constitutional amendment. [A statutory bill] creates uncertainty that there can't be additional appropriations on top of what is envisioned in the language of these statutes. For example, HB 20 would appropriate $59 million to the municipal dividend, which would be on top of this 5 percent. The two line items for the Department of Natural Resources and the Department of Law total approximately $2 million, which is a fairly good-sized loophole that would be on top of the 5 percent. Furthermore, any appropriations that are made out of the earnings reserve account would also be on top of the 5 percent. Mr. Kelly recognized that the legislature has an excellent record of supporting inflation-proofing. However, he wasn't sure that the [corporation] could rely on that past discipline to continue. Therefore, the [corporation] requests that the inflation- proofing be left in for now. Number 0542 MR. KELLY turned to the second amendment that the corporation would propose. He directed attention to page 3, line 24, and requested the deletion of the language "excluding any unrealized gains or losses". This change will allow the Alaska Mental Health Trust Authority to continue its current practice of computing the trust income in the same manner as the permanent fund. Mr. Kelly related his belief that the intent of the House Finance Committee was to continue that practice. MR. KELLY moved to the timing of the dividend appropriation. He explained that in the past the dividend appropriation, although the language says [to perform the appropriation] at the end of the fiscal year, has been made after the audit is complete. This is done per a Memorandum of Agreement. Therefore, the corporation intends to make the appropriations after the completion of the audit when the numbers are exact. In regard to the 5 percent, Mr. Kelly drew attention to the last paragraph of the letter by Mr. Storer, which relates the corporation's understanding that the appropriation for the corporation's budget is separate and above the 5 percent. Number 0686 CHAIR KOTT moved that the committee adopt the following amendment, Amendment 1: Page 3, line 24, Delete "excluding any unrealized gains or losses" There being no objection, Amendment 1 was adopted. CHAIR KOTT turned to Mr. Kelly's suggestion to not repeal Section 11, and announced that he isn't inclined to change that at this time. REPRESENTATIVE PORTER agreed. He said that although he understands the corporation's position, the legislature is faced with a billion dollar shortfall. Representative Porter related his belief that all the options should be available for use in dealing with that problem. Furthermore, Representative Porter remarked that the [corporation] has been over inflation-proofing the fund for many years and a couple of years without the redundant inflation-proofing wouldn't be harmful. REPRESENTATIVE BERKOWITZ expressed his hope that [the committee] has the opportunity to revisit this particular point and discuss it more fully when it is time to forward the bill. CHAIR KOTT, upon no one else wishing to testify, announced that the public testimony was closed. Number 0808 REPRESENTATIVE PORTER moved to report CSHB 304, Version 22- LS1207\T, Cook, 4/5/02, as amended out of committee with individual recommendations and the accompanying fiscal notes. REPRESENTATIVE BERKOWITZ objected. Representative Berkowitz pointed out that the next stop for this bill is the House floor. Representative Berkowitz viewed HB 304 as part of a long-range fiscal plan for which he needed to see the other components. He related his belief that it would be prudent for the bill to be held in committee. Representative Berkowitz announced that he wouldn't sign the bill report if required. CHAIR KOTT acknowledged that to be Representative Berkowitz's prerogative. However, he explained that all the committee is doing is "pre-positioning" the bill in the event further attention is necessary. REPRESENTATIVE KOHRING expressed concern with the bill. He related his belief in not spending any portion of the permanent fund for fear of moving in the direction of spending it in its entirety over time. Representative Kohring expressed the need to review other spending reductions and efficiencies in government before considering new revenue sources. REPRESENTATIVE PORTER clarified that the [corpus of the] fund may not be spent by the legislature without a two-thirds vote of each body and a vote of the public. A roll call vote was taken. Representatives Kohring, Porter, and Kott voted to report Version T from committee. Representatives Berkowitz and Joule voted against reporting Version T from committee. Therefore, Version T failed to be reported out of the House Rules Standing Committee by a vote of 3:2.