SJR 19-CONST. AM: PERMANENT FUND INCOME  SENATOR GEORGIANNA LINCOLN, bill sponsor, advised that HJR 3 was the companion bill and she had aide Mark Gnadt with her to answer technical questions. She paraphrased from the sponsor statement. SJR 19 proposes a constitutional amendment that would give constitutional protection to the dividend program of the Alaska Permanent Fund. It ensures the Permanent Fund Dividend will endure. This resolution is a reiteration of the popular initiative proposed by former Governor Jay Hammond late last year. SJR 19 would require a majority vote by Alaskans before the Legislature could spend any of the Permanent Fund earnings that currently go to the dividend or to inflation proof the fund. The Resolution would also maintain the distribution formulas used to calculate the dividend that were in place on July 21, 2002. This will further guarantee the Permanent Fund Dividend Program will remain intact. It has been said that permanently protecting the dividend program might make the fund susceptible to federal taxation. Section 3 of SJR 19 will immediately repeal Sections 1 and 2 if the IRS determines the fund is taxable. The Permanent Fund dividend represents approximately one-eighth of Alaska's economy, and is the most direct link between the people of Alaska and the resources they own. With the ongoing budget deficit, it is in the interest of Alaskans to constitutionally protect our dividend on which many people depend and with which they contribute to a healthy economy. She noted the fiscal note from the Division of Elections shows an expenditure of $1,500 in 2005 to add the information to the Official Election Pamphlet. She discussed the sectional analysis prepared by Tamara Cook. [Copy in bill file.] CHAIR GARY STEVENS asked her to comment on the IRS issues. MARK GNADT, aide to Representative Eric Croft, explained that certain people are concerned that if the dividend were placed in statute thereby removing the appropriation power from the Legislature, then the dividend would become more like a corporate dividend as opposed to a dividend for the public good. The IRS has made no specific findings in that regard and although there is some history that substantiates both sides, none are closely related to the Alaska Permanent Fund. The sponsors believe the IRS is waiting for the state to make a move before they make any determination. That's why they put the provision in Section 3, which would suspend the amendments immediately if the IRS were to initially determine that any or all of the fund is taxable. If the final judgment finds that the fund is not taxable, the suspension terminates. If it finds that the fund is taxable, the suspension remains in effect. SENATOR JOHN COWDERY said the dividend was never considered an entitlement to the fund and should never be considered as such. He asked whether a tax attorney had been consulted. SENATOR LINCOLN replied they asked legislative legal to respond. SENATOR COWDERY advised this is a high-risk gamble and there are other options that would assure a dividend and not risk taxation. SENATOR LINCOLN said the point is well taken. BOB BARTHOLOMEW, Chief Operating Officer with the Alaska Permanent Fund Corporation, advised he had three comments. · Historically, the trustees have been concerned about the tax-exempt status of the fund. Enclosed in the committee packets is the 1998 opinion from the Attorney General's Office related to the tax-exempt status of the fund. With regard to the clause to repeal the amendment, he cautioned that once the process is started there is no guarantee the IRS wouldn't look at the current status of the fund and current issues unrelated to the constitutional amendment. · They appreciate that SJR 19 is a proposal that is separate from the Board of Trustee proposal that deals with modernizing distribution of the fund related to the investment management perspective. They encourage continued separation of the issues. · As the policy debate continues regarding protecting the dividend, they encourage looking at the best way to do that mechanically. This proposal is to use existing statutory language, but the corporation believes the existing statutes cause problems because they were designed for an investment fund of 20 years ago, which is completely different that the fund they guide today. Part of the board's recommendation is to update the statutes. SENATOR GRETCHEN GUESS asked for verification that changing the constitution to POMV [percent of market value] doesn't guarantee the dividend program it is simply a different management payout. MR. BARTHOLOMEW explained that the current proposal in the Senate and House would guarantee an annual distribution from the permanent fund, not what the distribution would be used for. SENATOR GUESS asked if there had been any communication with the IRS. MR. BARTHOLOMEW said it is his understanding that they have had no direct communication with the IRS. PETRIA FALKENBERG from Kenai testified via teleconference in support of SJR 19 because it protects the PFD. The PFD belongs to the people and they should have a say in how the government spends its resources. JAMES PRICE testified via teleconference in support of SJR 19. He said it's important to give the people a chance to vote on this important issue. FRED STURMAN, testified via teleconference that this would take money out of legislators hands and he was in favor of that. ROGER SHANNON testified via teleconference and said he agreed with the other speakers and urged passage of SJR 19. LORI CHURCHILL testified via teleconference to urge passage of SJR 19. She advised she was sending written testimony as well. RUBY KIME from Ninilchik testified via teleconference in support of SJR 19. She said she favored restricting the amount of money available to the Legislature. SENATOR COWDERY asked that information regarding how far back the IRS would look if they decided the fund was taxable be passed to the Judiciary Committee. SENATOR LINCOLN said she would look for that information. SENATOR GUESS made a motion to move SJR 19 and attached fiscal notes from committee with individual recommendations. There being no objection, it was so ordered.