SJR 1-CONST AM: GUARANTEE PERM FUND DIVIDEND   1:34:56 PM CHAIR REINBOLD announced the consideration of SJR 1, 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. 1:35:45 PM SENATOR BILL WIELECHOWSKI, Alaska State Legislature, Juneau, Alaska, speaking as sponsor, offered a summary of SJR 1, which would place the existing permanent fund statute into the Alaska Constitution. It would also allow a mechanism to withdraw funds from the Alaska Permanent Fund but cap the total draw at 5 percent. The people will always receive the first call on the earnings of the Alaska Permanent Fund, ahead of government, he said. 1:36:36 PM CHAIR REINBOLD stated the committee would consider amendments. 1:36:52 PM SENATOR MYERS moved to adopt Amendment 1, work order 32- LS0015\A.3: 32-LS0015\A.3 Nauman 4/1/21 AMENDMENT 1 OFFERED IN THE SENATE BY SENATOR MYERS TO: SJR 1 Page 1, line 16: Delete "five" Insert "four" CHAIR REINBOLD objected for discussion purposes. 1:36:55 PM SENATOR MYERS explained Amendment 1. He stated that Callan Associates, Inc., who have served as the Alaska Permanent Fund Corporation's investment consultants, provided some information recently. He began a PowerPoint showing the Callan Associates projections for the Earnings Reserve balance over the next decade, which projected an average fund growth rate of 6.2 percent using an inflation rate of 2 percent. After adjusting for inflation, the state could only expect to draw 4.2 percent to maintain the overall value of the fund, in particular, the earnings reserve account (ERA). He reviewed handouts prepared by legislative finance. He directed attention to slide 1, "Impact of FY21-22 Overdraws on ERA Balance and POMV Draw, Constant 6.2% Returns." He said the large blue bars represent the projected balance of the ERA given the current 5 percent of market value (POMV) draw. SENATOR MYERS turned to the next slide, "Impact of FY21-22 Overdraws on ERA Balance and POMV Draw; FY00-FY08 Returns." This slide shows projections for the ERA if the market conditions were similar to ones during FY00 to FY08. This slide predicted a significant drop beginning in FY24 to FY28. 1:39:28 PM SENATOR MYERS turned to slide 3, "Impact of FY21-22 Overdraws on ERA Balance and POMV Draw; FY09-FY17 Returns." This slide provides projections for the ERA using market returns from FY09 to FY17. This slide shows the anticipated significant drop in the ERA from FY22 through FY30, which he deemed as very problematic. SENATOR MYERS explained that Amendment 1 would reduce the POMV draw to 4 percent to address these concerns. 1:40:09 PM SENATOR KIEHL asked if the charts reflect the growth in the fund's corpus or were limited to the ERA. SENATOR MYERS said the charts refer to the changes in the ERA, assuming 2 percent inflation. This does not change royalty deposits or provide statutory inflation proofing until 2024. 1:40:55 PM SENATOR KIEHL asked if the fund's corpus would achieve real dollar growth or if it would also deteriorate. SENATOR MYERS answered that these projections only reflect changes to the ERA. He was unsure about the changes to the corpus but predicted it would slowly increase. He said this is based on 25 percent royalty deposits but noted royalties are down based on North Slope production levels and statutory inflation proofing not occurring until 2024. 1:41:42 PM SENATOR KIEHL said he envisions that SJR 1 will receive more financial analysis as it goes through the process. He offered his support to maintain the 5 percent POMV draw because he finds that it is responsible and will preserve the real-dollar value of the Permanent Fund for Alaska's future. 1:42:13 PM SENATOR SHOWER echoed Senator Kiehl's comments. He offered his view that the legislature has not reduced the size of state government. He expressed concern that reducing the POMV draw would unfairly burden the Permanent Fund Dividend (PFD). Secondly, not taking enough from the draw will mean that taxes will be necessary. He expressed concern that 4 percent is too low. 1:44:00 PM SENATOR WIELECHOWSKI said Amendment 1 is not unreasonable. He acknowledged that some people support using a 4 percent POMV. However, he is comfortable with 5 percent. He pointed out that SJR 1 does away with the earnings reserve account (ERA) to avoid giving the legislature access to spending it. 1:44:42 PM SENATOR MYERS explained that he offered Amendment 1 to put his concerns on record. He withdrew Amendment 1. 1:45:24 PM CHAIR REINBOLD commented that she would like to reduce government. 1:45:51 PM SENATOR KIEHL moved to adopt Amendment 2, work order 32- LS0015\A. 2: 32-LS0015\A.2 Nauman 3/31/21 AMENDMENT 2 OFFERED IN THE SENATE BY SENATOR KIEHL TO: SJR 1 Page 1, line 14, through page 2, line 12: Delete all material and insert: "(b) At the end of each fiscal year, five percent of the average market value of the fund for the first five of the preceding six fiscal years, including the fiscal year just ended, including any unrealized gains or losses, shall be determined in accordance with generally accepted accounting principles. (c) Each fiscal year, an amount (1) equal to one and one-fourth percent of the average market value of the fund, as calculated under (b) of this section, shall be transferred from the permanent fund for use in a program of dividend payments to state residents, as provided by law; (2) not to exceed three and three-fourths percent of the average market value of the fund, as calculated under (b) of this section, may be appropriated by the legislature from the permanent fund to the general fund." CHAIR REINBOLD objected for discussion purposes. 1:45:58 PM SENATOR KIEHL explained that Amendment 2 would enshrine the dividend and set a minimum percentage of the dividend below which the legislature cannot go. It would make the remainder of the draw available for appropriation, just as it is today. It allows most of the discretion for appropriations to legislators, who are the people's representatives. He summarized that under Amendment 2, a minimum of 25 percent of the draw would be used for dividends, which leaves 75 percent for deposit to the general fund for the legislature to consider. He clarified that the 25 percent draw for the dividend is not a cap. 1:47:46 PM SENATOR MYERS offered his view that Amendment 2 would go against the intent of the constitutional framers. Their intent was to provide dividends as the first draw. Making the guaranteed portion the smaller portion will place the dividends in the position of the second draw. He offered his view that the resource owners should get the first call on the states' royalties. He expressed concern that Amendment 2 will reduce the effective rate on royalties even further. Therefore, Amendment 2 is not a good idea. 1:49:12 PM SENATOR SHOWER agreed with Senator Myers. He expressed concern that Amendment 2 would result in a smaller permanent fund dividend and the government would increase in size. He predicted that the legislature would continue to allow this to happen unless it has no choice. He emphasized the need for a PFD solution. 1:51:26 PM SENATOR WIELECHOWSKI stated that SJR 1 is designed to resolve the PFD issue. He offered his view that the people would not support this approach. He said he could not support Amendment 2. 1:52:05 PM SENATOR KIEHL highlighted differing viewpoints on how the Alaska Constitution is constructed. He said the committee could discuss what the framers intended. However, the Alaska Constitution's language requires that the permanent fund's earnings be deposited to the general fund. The courts have affirmed it, he said. A majority of the House and the Senate makes appropriation determinations. Amendment 2 would put the first call on the PFD for Alaskans. Legislators currently disagree on the size of that dividend. Early in this legislative session, there were discussions about having a zero dividend. However, that is not something he supports, he said. The federal COVID-19 funds have offset the state's revenues. He reminded members that funding for state government benefits Alaskans. State funding paves and plows roads, fuels state trooper vehicles, pays biologist salaries and natural resource managers who enable resource development to occur. He related his understanding that there was no support for Amendment 2. SENATOR KIEHL withdrew Amendment 2. 1:54:17 PM CHAIR REINBOLD remarked that the 25 percent to 75 percent split would "throw people for a loop." However, she liked the minimum floor aspect in Amendment 2. 1:54:57 PM SENATOR KIEHL moved to adopt Amendment 3, work order 32- LS0015\A.1: 32-LS0015\A.1 Nauman 3/31/21 AMENDMENT 3 OFFERED IN THE SENATE BY SENATOR KIEHL TO: SJR 1 Page 1, lines 14 - 15: Delete "in accordance with generally accepted accounting principles" Insert "as provided by law" CHAIR REINBOLD objected for discussion purposes. 1:55:02 PM SENATOR KIEHL explained Amendment 3. He said the legislature does not set generally accepted accounting principles. Amendment 3 would allow the legislature to establish the principles. CHAIR REINBOLD remarked that she likes Amendment 3. SENATOR SHOWER offered his support for Amendment 3. 1:56:47 PM SENATOR MYERS asked if the bill sponsor could comment on Amendment 3. SENATOR WIELECHOWSKI responded that this language is the current language in the permanent fund statutes. The term is used 25 times in the statutes. He offered his view that Amendment 3 makes a reasonable change. 1:57:41 PM CHAIR REINBOLD withdrew her objection. There being no further objection, Amendment 3 was adopted. SENATOR SHOWER remarked that he thought this change would help. [SJR 1 was held in committee.]