SJR 1-CONST AM: GUARANTEE PERM FUND DIVIDEND  2:37:19 PM CHAIR REINBOLD reconvened the meeting and announced the consideration of SENATE JOINT RESOLUTION NO. 1, Proposing amendments to the Constitution of the State of Alaska relating to the Alaska permanent fund and appropriations from the Alaska permanent fund. 2:37:33 PM SENATOR BILL WIELECHOWSKI, Alaska State Legislature, Juneau, Alaska, sponsor of SJR 1, stated that he introduced a similar resolution for the past eight or nine years. He said that placing the permanent fund in the constitution is the only way to protect the permanent fund dividend. The legislature attempted to do so in 2018 by passing legislation, yet the permanent fund dividends (PFDs) continue to dwindle. Many people were shocked when then-Governor Bill Walker cut the PFD by $1,000 by vetoing full permanent fund dividend funding in 2016. In the last four years, the legislature cut the PFD amount. The Alaska Supreme Court said that the legislature and the governor could ignore the plain mandatory language in multiple statutes that require a full PFD to be paid each year. Any governor can reduce the PFD by vetoing the amount to whatever level chosen. Further, any future legislature can set the PFD at whatever level it determines, including setting it to zero. SENATOR WIELECHOWSKI said corporations or special interest groups often speak to the importance of stability, predictability and consistency in Alaska's tax structures. He offered his view that Alaskans deserve the same predictability and consistency with their PFDs. 2:39:22 PM SENATOR WIELECHOWSKI pointed out that the permanent fund dividend program has been one of the most popular programs in American history. According to the Institute of Social and Economic Research (ISER) at the University of Alaska, tens of thousands of Alaskans were elevated from poverty due to the statutory PFD. Alaska has among the lowest income inequality in the United States, largely because of the PFD. According to ISER, the PFD creates thousands of jobs in Alaska. He said many people don't realize that the founders of the permanent fund in 1976 had envisioned the prospect of a dividend to the people of Alaska. Governor Hammond spoke of having a dividend flow from the permanent fund. In members' packets are several historical statements that were made about the future plan for a dividend program, he said. The 1976 constitutional amendment was specifically changed to allow for PFD payments and a letter of intent was added to clarify these payments. 2:40:43 PM SENATOR WIELECHOWSKI said that in 1982, the legislature observed that special interests and the politically connected were reaping more benefit from the permanent fund earnings through government spending than average Alaskans. He reported that the current value of the Permanent Fund is approximately $74 billion. Article IX, Section 15 of the Alaska Constitution requires that at least 25 percent of the mineral lease rentals, royalties, royalty sale proceeds and federal mineral revenue sharing payments and bonuses received by the state go into the permanent fund. 2:41:13 PM SENATOR WIELECHOWSKI cautioned that the PFD is not an entitlement since the subsurface rights of the state belong to the people collectively. Under Article IX, Section 2 of the Alaska Constitution, the state has an obligation to "provide for the utilization, development, and conservation of all natural resources belonging to the State, including land and waters, for the maximum benefit of its people." He said the authors of the 1982 PFD legislation tied the current PFD to this constitutional obligation. Every Alaskan has a right to their share of Alaska's oil wealth and the legislature found that the best, most efficient way to do this was through a dividend. SENATOR WIELECHOWSKI reported that Alaskans have only received a very small share of the state's oil wealth. For example, 100 percent of state property taxes, income taxes, and production taxes and 75 percent of royalties go to the government. The people receive 25 percent of the state's royalties. Since royalties are typically set at 12.5 percent, Alaskans only receive 3.125 percent of Alaska's oil value deposited to the permanent fund. While Alaskans received 50 percent of the earnings generated from those contributions, the rest was available for the government. The current PFD law included a letter of intent stating that "The people should have the first call on the earnings of the permanent fund." However, in recent years, the people have gotten the scraps. 2:42:59 PM SENATOR WIELECHOWSKI said that SJR 1 will honor the historical formula. Thus, the people will see the first call not the last call over the fund income. The government will still have the authority to use a portion of the permanent fund to fund government. However, the government must look to generate revenue in the same way that every other state does. He offered his view that the only way to protect the permanent fund dividend is to put it in the constitution. SJR 1 does not specifically authorize the PFD in the constitution. However, it would allow the people to vote and decide if the PFD should be protected in the Alaska Constitution. Those who oppose SJR 1 will have a full and fair opportunity to argue against it. He said an issue as critically important as this should be decided in an election. He reiterated the need to let the people decide this issue once and for all. He urged members to support SJR 1. 2:43:49 PM CHAIR REINBOLD remarked that she has never voted to cut the PFD. She related her political struggles due to supporting a full permanent fund dividend. CHAIR REINBOLD stated that it will be necessary to cut government or institute taxes to pay a full PFD. She said she favors cutting government. She asked if the sponsor is willing to cut government spending and if so, to identify where cuts should be made. SENATOR WIELECHOWSKI responded that he had proposed dozens of cuts during his time in the legislature. He said he did not wish to debate how to accomplish budgetary solutions. Everyone will have different ideas and approaches to tackle this. The state has approximately $75 billion in the permanent fund. The average generally accepted accounting value is $70 billion in the last five years. He pointed out that paying the full dividend will cost $2 billion. Some people argue that a safe draw is 4 percent; others believe 5 percent is sustainable. A 5 percent draw would make $1.5 billion available for the government. He offered his view that oil tax credits should be eliminated, that Alaska has the lowest oil tax rates in the world yet the oil industry is harvesting money from Alaska and using it to invest in other places in the world. 2:47:40 PM CHAIR REINBOLD recalled she agreed not to debate oil tax rates with the sponsor, which is better left to the Senate Resources Committee. She argued that the business environment must be competitive. She said her husband was laid off from the oil industry. SENATOR WIELECHOWSKI said the state has a legal obligation to achieve a reasonable profit. He argued that Alaska is the most profitable place in the world for oil companies. CHAIR REINBOLD suggested she could use charts to support her viewpoint. 2:48:47 PM At ease 2:49:09 PM CHAIR REINBOLD reconvened the meeting. She maintained that she could bring in economists' charts. She related that this discussion should focus on the permanent fund dividend. She remarked that she supports the PFD program. 2:49:48 PM SENATOR MYERS agreed that the people own the resources in Alaska. He said he noticed that SJR 1 does not change the percentage of royalties going to the permanent fund. He asked if the state should maintain its current rate on royalties. SENATOR WIELECHOWSKI said that SJR 1 retains the statutory formula his constituents favored. Some have advocated changing the formula by going to a percentage of market value (POMV). He acknowledged that the legislature could debate whether to use POMV. However, it is not in this resolution. 2:51:04 PM CHAIR REINBOLD offered her view that the private sector is taxed at a rate that is three times the national average. The oil and gas industry offers much more than providing revenue to the state since it provides jobs. 2:52:13 PM SENATOR KIEHL reminded members that the constitution's preamble says, "We the people do ordain and establish this Constitution." The notion that government is something other than the people is unwarranted. He said he would also argue that Alaskans received value in other ways. The people got educated, had their roads plowed and their fish counted. He said he has questions about the resolution. 2:53:07 PM CHAIR REINBOLD turned to invited testimony. 2:53:37 PM CLEM TILLION, Chair, Permanent Fund Defenders, Halibut Cove, Alaska, said he would like the existing law related to the permanent fund dividend put into the constitution so that Alaskans are protected. This law has worked for 40 years, he said. However, the Alaska Supreme Court ruled that the legislature does not need to obey that law. He said he would like a constitutional amendment that makes the legislature obey the law. He expressed concern that people working in the fishing industry in Dutch Harbor do not pay any taxes since they come to Alaska from the lower 48. He said he is not opposed to taxes, but he is against excessive government, so he would like to see severe cuts. He recommended that the legislature decide which services it will no longer provide. He reminded members that Alaska is the only land grant state in the nation, having received an endowment of 100 million acres. At the time, Alaska selected land it felt was valuable, including oil fields and wells. MR. TILLION suggested that the tax debate could be held later. He recalled a territorial legislator who said if you cut the government by 20 percent, it will cripple the territory forever. However, cutting 20 percent of the employees will balance the budget. 2:56:31 PM MR. TILLION recalled when the permanent fund was established it was necessary to call upon the Alaska State Troopers to bring in two senators to vote. He lamented that the dividend was not put into the constitution at that time. First and foremost, the money should be protected, he said. The state should not pay dividends when it has bad years. He urged members to move the resolution to the finance committee. CHAIR REINBOLD agreed that the legislature must cut government. She also agreed that Lower 48 fishermen not paying taxes should be addressed. She said legislators need to work together to determine budget cuts. 2:59:50 PM JOE GELDHOF, Attorney; Member, Board of Directors, Permanent Fund Defenders, Juneau, Alaska, stated he serves on the board with Jack Hickel, Roselynn Cacy, Rick Halford, Juanita Cassellius and Jim Sykes. The board keeps in touch with economists throughout the state. The board's primary mission is to protect the permanent fund, including protecting the permanent fund dividend. He emphasized that the permanent fund dividend ties every Alaskan to the funds in the permanent fund. He expressed concern that the permanent fund would be squandered. 3:00:56 PM MR. GELDHOF characterized the permanent fund dividend as a vexing problem that the legislature has grappled with resolving. He supported allowing the people to vote on the permanent fund dividend issue and resolve it. This will enable the legislators to focus on the critical needs of cuts and revenue enhancement. He said that if the legislature uses POMV, it will shift from a permanent fund to an annuity or endowment. He said that the POMV methodology must be prudent and conservative. Otherwise, the state risks over harvesting on a percentage basis, which will jeopardize the corpus of the fund. He suggested that members listen to Callen & Associates who testified before the Senate Finance Committee that using 5 percent POMV will put the permanent fund in jeopardy. He said that the board prefers the current statutory process in the constitution. However, the legislature should use 4 percent and a 50:50 split if it moves to a percentage of market value (POMV). [SJR 1 was held in committee.]