SJR 1-CONST AM: GUARANTEE PERM FUND DIVIDEND  4:33:26 PM CHAIR SHOWER 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. He noted that the committee previously heard the bill and today would hear a summary followed by invited and public testimony. 4:33:51 PM SENATOR BILL WIELECHOWSKI, Alaska State Legislature, Juneau, Alaska, sponsor of SJR 1, reminded the committee that that SJR 1 enshrines the original permanent fund dividend (PFD) in the Alaska Constitution and limits the draw from the fund corpus to five percent of a five-year averaged market value (POMV). The bill prioritizes the POMV draw to first pay a dividend to the people and government may use the remainder to pay government expenses. He explained that this is similar to an endowment program used by institutions worldwide. SENATOR WIELECHOWSKI highlighted that SJR 1 eliminates the Earnings Reserve Account (ERA) because legislatures have access to that account. If earnings from the permanent fund continue to flow into the ERA, he said legislatures could repeatedly withdraw funds to the point that there would not be enough to pay a dividend. He referenced the chair's earlier question about historic funding of PFDs through automatic transfers and directed attention to the brief in the bill packets. It recounts numerous occasions of fund transfers from the permanent fund to the dividend fund without appropriation. He explained that the basis of the argument in his lawsuit [Wielechowski v. Alaska] was that there does not need to be an appropriation for a dividend; therefore, the governor cannot veto the dividend. 4:36:25 PM SENATOR HOLLAND asked if this legislation affected the Constitutional Budget Reserve (CBR). SENATOR WIELECHOWSKI answered no. 4:37:10 PM JOE GELDHOF, Board Member, Alaska Permanent Fund Defenders ("Defenders"), Juneau, Alaska, stated that Clem Tillion, chair of Defenders asked him to make a couple of macro points about the permanent fund and the PFD, the first of which is that the permanent fund was never intended to be a rainy day account for government spending. The second point is that the permanent fund is arguably the best idea that Alaska has had since statehood; it saves a portion of nonrenewable resources for future generations. Third, the PFD is not an entitlement; it is a form of ownership designed to meet the constitutional requirement that the resources of the state, which are held in common, are developed for the maximum use and benefit of Alaskans. He related that Defenders believe that there is a critical need to quickly address the permanent fund and the PFD because too much has already been spent and too little has been saved. The state's savings accounts are dwindling and the options to address the state's fiscal problems are quickly disappearing. He said Defenders strongly believe that the legislature needs to enact legislation this session so the measure can be on the ballot in 2022. He recounted the basic principles that Defenders adopted for looking at any proposal such as SJR 1. The corpus of the fund must be protected from inflation; the permanent fund needs to continue to grow; spending funds that go into the ERA needs to stop; the annual brawl over the PFD must stop; and the legislation needs straightforward language that pays an equal PFD to all Alaskans and is easy for the public to understand. 4:41:30 PM MR. GELDHOF said Chair Tillion likes what SJR 1 does in terms of allocation of the fund. The problem is that 5 percent arguably will jeopardize the corpus of the account. He reported that economists that Defenders worked with, the Permanent Fund Corporation and the people who run stress tests all agree that 5 percent may fail. He pointed out that the Rockefeller Foundation used 4 percent when it moved to a POMV structure. He emphasized that when shifting from a trust fund structure to an annuity structure, it is very important to set the percentage low enough for the fund to continue to grow and provide sufficient returns to provide for the PFD and general fund spending into perpetuity. 4:45:52 PM RICK HALFORD, representing self, Chugiak, Alaska, stated that he was involved in the initial management structure of the PFD and it received broad support and was viewed as clearly constitutional. He agreed with the previous testimony and added that what was lost most in the court case was the connection between the performance of the fund and the management structure that created such a successful fund. He said the dividend grew as a defense of the fund and the element of that defense was the realized gain averaged over five years. MR. HALFORD pointed out that the POMV structure bases the draw on the gross value of the fund, not the performance of the fund and does not affect trustee decisions and the investment system. Transitioning to the POMV offers security and constitutional protection but the connection between the fund performance and the dividend is lost. He said that loss may be worthwhile if the number is low enough that the fund increases in value. MR. HALFORD described a 4 percent POMV with language that retains the old calculation versus 50 percent of the new calculation as a big step in the right direction. CHAIR SHOWER commented on the value of his historical perspective. SENATOR REINBOLD asked if he would broaden the permanent fund to include taxes on all resources to promote development and better management of state resources. MR. HALFORD replied he has many friends who believe severance tax should have been included initially, but the permanent fund is not based on taxes; it is based on ownership. The hope is that the renewable resources ownership will maintain value into the future. The concern is that this generation is spending in one generation the nonrenewable resources ownership that is the property of all generations of Alaskans. "We have not saved enough. We are spending the endowment as a trust land state of all future Alaskans in one generation," he said. 4:54:01 PM CHAIR SHOWER asked him to comment on the prevalent attitude among some current and former legislators that the dividend is free money and they do not want an income tax to pay for it, which is very much at odds with the view that it belongs to the people. MR. HALFORD related that Wally Hickel was famous for saying Alaska is an owner state and Jay Hammond individualized that by giving the people a stake in all of it. He said it is interesting that people who were close to being in diapers are telling people what we meant when we created the permanent fund. He highlighted that Elmer Rasmusson and members of the permanent fund working group spent two years trying to get an answer to what the reason for the permanent fund was and they never reached a conclusion. The only agreement was that it was a savings account and the money should not be wasted. 4:57:34 PM CHAIR SHOWER found no further questions and opened public testimony on SJR 1. 4:58:15 PM CRIS EICHENLAUB, representing self, Wasilla, Alaska, stated that he supported SJR 1 generally but he did not support the POMV or the elimination of the ERA. He suggested that if the legislature repealed the POMV legislation [Senate Bill 26] the ERA could be left intact. Do it the way it's been done for the last 40 years, he said. 5:00:06 PM SHERRY EICHENLAUB, representing self, Wasilla, Alaska, stated support for SJR 1 and enshrining the PFD in the constitution. She suggested that people who do not want their dividend can donate it through Pick Click Give of not apply. She wants the dividend to continue so her children and grandchildren can have a future in Alaska as college graduates and good citizens. 5:01:07 PM EDWARD MARTIN, representing self, Cooper Landing, Alaska, stated that SJR 1 is an important aspect of the future of Alaska and its children. He reported that he has supported the dividend his entire life and his dad gathered signatures on the peninsula to get the advisory vote. Nothing has changed and there is no need for another advisory vote. He said the decision about what is done with the dividend should be an individual decision. The future of Alaska is the people as owners benefiting from the resources of the state. 5:03:30 PM BERT HOUGHTALING, representing self, Big Lake, Alaska, began his testimony on SJR 1 by Governor Jay Hammond: Alaska's dividend program is, of course, anything but socialistic. Socialism is taking from the wealthy to provide what government thinks is best for all. Permanent Fund Dividends do just the opposite. They take the money, which by constitutional mandate, belongs to all and allows all individuals to determine how to spend some of his or her share. What could be more capitalistic? MR. HOUGHTALING stated full support for enshrining the PFD in the constitution but not having Senate Bill 26 involvement with the POMV or the elimination of the ERA and combining it with the corpus. They need to be separate so the corpus cannot be spent, he said. He advocated for continued meaningful cuts to state government. CHAIR SHOWER advised that written comments could be sent to ssta@akleg.gov. 5:06:01 PM CHAIR SHOWER closed public testimony on SJR 1. 5:06:15 PM At ease 5:06:47 PM CHAIR SHOWER reconvened the meeting and solicited a motion. 5:06:58 PM SENATOR REINBOLD moved to report SJR 1, work order 32-LS0015\A, from committee [with individual recommendations and attached fiscal note(s)]. CHAIR SHOWER found no objection and SJR 1 was reported from the Senate State Affairs Standing Committee.