MINUTES SENATE FINANCE COMMITTEE May 18, 1999 1:21 AM TAPES SFC-99 #145, Side A and Side B CALL TO ORDER Co-Chair John Torgerson convened the meeting at approximately 1:21 A.M. PRESENT In addition to Co-Chair John Torgerson, Co-Chair Sean Parnell, Senator Dave Donley, Senator Loren Leman, Senator Gary Wilken, Senator Al Adams, Senator Pete Kelly, Senator Lyda Green and Senator Randy Phillips were present when the meeting was convened. Also Attending: Senator ROBIN TAYLOR; Representative PETE KOTT; JUANITA HENSLEY, Director, Division of Motor Vehicles, Department of Administration; ANNE CARPENETI, Assistant Attorney General, Legal Services Section, Criminal Division, Department of Law; TAM COOK, Director, Division of Legal and Research Services, Legislative Affairs Agency; PHIL OKESON, Fiscal Analyst, Division of Legislative Finance; aides to committee members and other members of the Legislature.. SUMMARY INFORMATION HB 87-UNEMPLOYMENT TRUST FUND The Committee reviewed information provided by the Department of Labor and reported the bill out. HB 151-REVOCATION OF MINOR DRIVER'S LICENSE The Committee heard from the Chair of the Senate Judiciary Committee, the bill's sponsor, the Department of Law and the Department of Administration. A committee substitute was adopted and reported out with forthcoming fiscal notes. HB 231-AK.INCOME ACCT/PERM FUND/FINANCE PLAN The Committee heard from the Division of Legal and Research Services and the Division of Legislative Finance. Two amendments were considered, with one adopted. The bill was reported from Committee. HOUSE BILL NO. 87 "An Act relating to money credited to the account of the state in the unemployment trust fund by the Secretary of the Treasury of the United States; and providing for an effective date." This was the second hearing for this bill in the Senate Finance Committee. The bill was held awaiting information to be provided by Rebecca Gamez, Director, Division of Employment Security, Department of Labor, regarding the Reed Act. That information was now before the members. (Copy on file.) Co-Chair John Torgerson briefly overviewed the answers to the Committee's earlier questions posed to Ms. Gamez. The first question asked if the Reed Act funds need to be appropriated annually to cover the three year (1999, 2000, 2001) distributions. Ms. Gomez answered, "No. The bill provides for an effective date when it is signed into law and a sunset date of September 30, 2000. The fiscal note indicates should Alaska accept the federal Reed Act distribution, it will go into capital expenditures. We expect to expend the Reed Act distributions over a three- year period on our $2.6 million CIP project (UI Tax Redesign) that was approved by both legislative bodies this session. Should the distributions not cover the entire CIP project, the remainder will be covered by our operations budget." Co-Chair John Torgerson referred to another question he had asking if other unemployment insurance program funds would be available for re-appropriation if this bill passes. To answer, he quoted from a Directive issued by the US Department of Labor entitled "Unemployment Insurance Program Letter No. 44-97", which was provided by Ms. Gamez. (Copy on file.) The directive states, "States will need to amend their laws to implement the special Reed Act transfers.." Co-Chair John Torgerson continued quoting elsewhere in the directive, "Reed Act moneys transferred with respect to these fiscal years may be used only to pay expenses incurred by the state for the administration of its UC law. Unlike previous Reed Act transfers, states are prohibited from using the amounts transferred with respect to these three years for the payment of UC or the administration of state public employment offices." There was no further discussion on the bill. Co-Chair Sean Parnell offered a motion to report HB 87 from Committee. There was no objection and the bill was REPORTED OUT with individual recommendations and accompanying zero fiscal note from the Department of Labor. SENATE COMMITTEE SUBSTITUTE FOR COMMITTEE SUBSTITUTE FOR HOUSE BILL NO. 151(JUD) "An Act relating to possession, control, or consumption of alcohol by a person under 21 years of age; relating to revocation and reinstatement of the driver's license of a person at least 14 years of age but not yet 21 years of age; and relating to offenses involving operating a motor vehicle by a person not yet 21 years of age." This was the second hearing for this bill in the Senate Finance Committee. Co-Chair John Torgerson noted that in the earlier hearing, a proposed committee substitute was submitted by the Chair of the Senate Judiciary Committee. Co-Chair John Torgerson added that previous testimony from the departments stated that with the adoption of the committee substitute, the fiscal notes would be zeroed out. Senator ROBIN TAYLOR, Chair, Senate Judiciary Committee, indicated that he was distributing information provided by GLAD, an organization working on this legislation. (Copy not provided for the record.) He qualified that the bill's prime sponsor, Representative Pete Kott does not support the committee substitute. He apologized, but argued that the Department of Law advised there was not adequate support for repealing the entire statute as the original version of the bill proposed. Senator Robin Taylor stated that the committee substitute solves the problem of individuals being prohibited from receiving a driver's license until they are in their forties or fifties. Changes in the proposed committee substitute, he explained allows the department to review those cases and issue a license if the individual's behavior has improved. Senator Robin Taylor then directed the Committee's attention to page four of his proposed committee substitute, saying that this version accomplishes a goal that couldn't be worked out in the House of Representatives. He explained the new provision as, "if a court either finds you not guilty or the case is dismissed by a court of law; that automatically dismisses the administrative action that was based upon the same facts." This eliminates the situation where cases have been dismissed, but individuals still have their driver's licenses revoked by an administrative action, according to Senator Robin Taylor. Representative PETE KOTT stressed that he still has concerns with the establishment of the punishment in relationship to the violation committed and the intended results of the statute. He said that statistics suggest this current law that revokes licenses for underage miners in possession of alcohol is not working. His intent was to establish legislation that will focus on those who posses and/or consume alcohol while driving. He referred to a Supreme Court case challenging the nexus of the existing law that resulted in a non-binding, tied vote. Senator Loren Leman asked Representative Pete Kott if he was satisfied with the revocation penalties of 30 days, 60 days, 90 days and one-year periods as stipulated in Section 3 of the proposed committee substitute. Representative Pete Kott responded that without the nexus argument in the bill, he was satisfied. However, he was hesitant to fully support the lowered penalties. For Representative Pete Kott's benefit, Senator Loren Leman repeated comments he made in the last hearing. His preference is to increase the penalties but also to provide a mechanism for juveniles to "buy back" some of that time through community service and treatment programs. He wanted to "encourage their good behavior through their positive actions." Because of the late date, he noted that he would not propose such an amendment unless there was full concurrence. He suggested the matter could be addressed during the interim. Representative Pete Kott replied that the issue had been discussed through an earlier version of the bill. However, he said that the Department of Law advised that there are "due process" problems and that court hearings would be required, resulting in a fiscal note. He would have liked to see that provision included in the final bill, he said. In the interest of producing legislation that has at least some benefit, Senator Loren Leman announced that he would not offer an amendment at this meeting. He qualified that he did want to revisit the matter later. ANNE CARPENETI, Assistant Attorney General, Legal Services Section, Criminal Division, Department of Law had reviewed the proposed committee substitute at the request of Co- Chair John Torgerson. She testified that the department was comfortable with the changes. JUANITA HENSLEY, Director, Division of Motor Vehicles, Department of Administration relayed statistics supplied by the Division of Public Health, Community Health and Emergency Medical Services. She stressed that the statistics show alcohol-related injuries involving youths between ages fourteen and twenty from 1995-1997 decreased by 9.5 percent. The alcohol-related motor vehicle injuries had dropped twelve-percent for the same age group, she stated. She also noted alcohol-related assault injuries for this age group had decreased overall by thirty-three percent. Juanita Hensley was unsure if the reductions could be tied directly to the "Use It-Lose It" law, and suggested it could be a combination of all the juvenile laws passed in the last several years. However, she believed this law has had an impact. Juanita Hensley also referred to information supplied by the Highway Safety Planning Agency showing that the number of alcohol related motor-vehicle fatalities for this age group has dropped. Co-Chair Sean Parnell moved for adoption of HB 151, Version "P" as a Workdraft. It was adopted as a Workdraft without objection. Co-Chair Sean Parnell offered a motion to report from Committee, SCS CSHB 151(FIN) with individual recommendations and forthcoming zero fiscal notes from the Department of Health and Social Services, Department of Corrections and the Department of Law. There was no objection and the bill was REPORTED OUT. COMMITTEE SUBSTITUTE FOR HOUSE BILL NO. 231(FIN) am "An Act relating to deposits to the Alaska permanent fund from mineral lease rentals, royalties, royalty sale proceeds, net profit shares under AS 38.05.180(f) and (g), federal mineral revenue sharing payments received by the state from mineral leases, and bonuses received by the state from mineral leases, and limiting deposits from those sources to the 25 percent required under art. IX, sec. 15, Constitution of the State of Alaska; relating to income of the Alaska permanent fund, to the Alaska Income Account, and to permanent fund dividends; authorizing an advisory vote on a long term financial plan for the state; and providing for an effective date." This was the first hearing for this bill in the Senate Finance Committee. Co-Chair John Torgerson advised the Committee that he had a committee substitute, 1-LS0960/M, 5/17/99, drafted to incorporate the advisory vote ballot language of SB 76 as reported from the Senate Finance Committee at an earlier meeting. He noted that the committee substitute also incorporates the provisions contained in HB 96: returning to the ratio of oil revenue deposits of 25-percent to the permanent fund and 75-percent to the general fund. TAM COOK, Director, Division of Legal and Research Services, Legislative Affairs Agency detailed the committee substitute as follows. Section 1 amends the name of the "Statutory Budget Reserve Fund" making it the "Alaska Income Account." Co-Chair John Torgerson interjected, saying this change is necessary in order for the committee substitute to conform to the title of the bill. Tam Cook affirmed and added that this change also clears up the confusion of having two funds with the same name. Tam Cook continued detailing the sections. Section 2 is a technical amendment to correct a reference to the Statutory Budget Reserve Fund in another provision and to change the name to the Alaska Income Account. Section 3 is a technical change reflecting the repeal of AS 37.13.010(a)(2) in Section 4. Section 4 relates to the provision in SB 96, limiting the amount of money that goes into the permanent fund. Section 5 is the heart of the financial plan. It rewrites the statutory provision on income that is retained in the Earnings Reserve Account. Section 6 rewrites the disposition of income and is substantially different from current law. This section establishes a formula for distributions out of the Earnings Reserve Account. Subsection (a) addresses the transfer of money from the Earnings Reserve Account to the general fund and is based on the average quarter-end market value of the last 20 fiscal year quarters before the fiscal year just ended. This applies to both the permanent fund itself and also the Constitutional Budget Reserve (CBR) fund. The proposed amount to be transferred in this committee substitute is 2.5 percent of that formula. Subsection (b) provides an additional transfer that would occur each year similar to the one above but is an amount based on 2.75 percent of the quarter- end market value of the last 20 fiscal year quarters before the fiscal year just ended. This transfer goes directly to the dividend fund. Subsection (c) is similar to the wording contained in the House version of the bill. Section 7 is a technical correction to address the concept that there is no longer money available in the permanent fund for distribution. Section 8 is similar to Section 7. Section 9 is also technical. Section 10 is the transition provision that phases-in the number of quarters that are averaged to determine the first distributions at the end of fiscal years 2001 and 2002. Section 11 is the advisory vote and is similar to the language the Senate proposed in SB 76. There is a change to subparagraph (3) on page 8, lines 5 and 6 of the committee substitute. Language has been inserted to say that the annual dividend will be based both on the market value of the permanent fund and the CBR as a combined figure. The description of Plan B is unchanged from the Senate version. Section 12 provides that the bulk of bill does not take effect until January 1, 2001. This means that the permanent fund distribution provision in existence today is applicable to the 1999 and 2000 distributions. The date in 2001 is selected because it coincides with the beginning of the dividend year, which is a calendar year. Section 13 provides and immediate effective date only for the advisory vote. Co-Chair Sean Parnell asked for further clarification of the effective date for the new calculations on the market value. Tam Cook responded this is a delayed effective date stipulating that the entire financial plan contained in the bill is delayed until the year 2001. She stressed that existing law stays in place, with respect to the functions of the Earnings Reserve Account and the calculation of the distributions, until then. She explained that dividends would be paid according to existing statute for the years 1999 and 2000. Co-Chair John Torgerson asked for further clarification of subparagraph (c) on page 5 beginning line 19. Tam Cook replied that this language states that once the financial plan goes into effect, the amount of a distribution from the Earnings Reserve Account is determined at the end of the fiscal year. However, she noted the provision also states the actual movement of funds into the general fund or the dividend fund could be made in installments. She explained that the dividend fund does not need the funds until the dividends are ready to be paid although it is necessary to know the amount of the transfer earlier. This provision, she explained, enables the permanent fund to retain the income for investment purposes for a portion of the fiscal year. Co-Chair Sean Parnell referred to the same subsection beginning on line 22 reading, "Transfers following the end of a fiscal year that are required under this section may not exceed the entire balance that is in the earnings reserve account during the fiscal year in which the installments are transferred." He assumed this is a protection mechanism and wanted to know if the language is in current law or if it is new to this committee substitute. Tam Cook answered that the language was included in the original version of the bill although it is not current law. Under current law, she explained the matter of what happens if the fund itself is too low is not addressed. Instead, current law has a tier system that stipulates what is to be done with excess funds, according to Tam Cook. She affirmed that the purpose of the new language is to ensure that only the income of the permanent fund could actually be spent. She added that the language also serves the function of enabling payment in installments by limiting any single payment to the amount of the balance of the earnings reserve account. She explained that this allows the fund to earn interest. Co-Chair Sean Parnell asked if in this committee substitute, the earnings reserve includes both unrealized and realized gains. Tam Cook directed the Member's attention to Section 5, which directs that all the income of the fund is to go to the earnings reserve account and that the balance of the account will be determined according to generally accepted accounting principles. She did not know if generally accepted accounting principles include unrealized income. Co-Chair John Torgerson referred to a rule called "GASB 31" that addresses unrealized income and said he thought this rule would be followed in determining what gains would be included. Senator Al Adams asked for further clarification of the advisory vote and the effective dates and wanted to know what happens if the people vote "no". Tam Cook responded that if the Legislature does not take action before January 1, 2000, the formula changes would still become law. Co-Chair John Torgerson stressed his understanding that a law cannot be automatically triggered by an advisory vote. Tam Cook replied that there is debate as to whether that is possible. She stated that the Attorney General is optimistic that it could be done. However she was not, saying that the legislature cannot delegate its legislative power to the people. She allowed that it had been done once before in this state, referring to a binding vote held in 1968 with no evidence the resulting statute has been challenged. Therefore, she concluded it is an "unknown territory." Co-Chair Sean Parnell asked the possibility of inserting a repealer date of March 15, 2000 on the bill. He answered his own question and said it would not work. Tam Cook suggested if a repealer is used then a shorter time-period of only one day would be necessary. At that point, she explained it would be up to the legislature to repeal either the effective date section or the section containing the repealer itself. She stated that if no action was taken, the repealer section would control the legislation. Senator Lyda Green wanted the ballot language to stipulate what kind of tax there would be if in fact there would be a tax. She used income, sales and motor fuel as examples of types of taxes. [Tape Malfunction - possibly some discussion lost] If the advisory voted failed, Co-Chair Sean Parnell wanted the opportunity to revisit to the legislation. Senator Gary Wilken asked if the CBR fund is "collapsed" in Section 1 of the committee substitute. According to Tam Cook there are actually two CBRs. She explained that the Statutory Budget Reserve funds pre- existed the Constitutional Budget Reserve and the two funds operate independently from each other. She understood that very little, if any money is currently held in the Statutory Budget Reserve fund and the fund has not been used for the past few years. Senator Gary Wilken asked if the Statutory Budget Reserve Account would now be called the Alaska Income Account. Tam Cook affirmed. Senator Gary Wilken next referred to the advisory vote language addressing the Constitutional Budget Reserve fund on page 8, line 27, and asked if this relates to the actual CBR or the new account. Tam Cook answered this refers to the CBR. Senator Gary Wilken then wanted to know the benefit of the Alaska Income Account. Tam Cook responded that it would be easier to trace the two funds. Also, the name change allows the committee substitute to fit under the title of the original bill passed out of the House of Representatives. Senator Gary Wilken asked if the new Alaska Income Account would then be used. Tam Cook was unsure if it would ever serve a useful purpose. Co-Chair John Torgerson clarified that the newly titled fund would not be used under this bill. PHIL OKESON, Fiscal Analyst, Division of Legislative Finance came to the table to detail the financial plan as contained in Section 5 of the committee substitute. Phil Okeson confirmed Co-Chair John Torgerson's earlier assumption that the GASB 31 rule would apply to this fiscal plan. He explained that the goal of this legislation is to comply with all GASB rules and thereby alleviate the concerns with the definition of income. Under this plan, he noted, the definition of income becomes less important because dividends would no longer be calculated based on income and would instead be based on a percentage of market value. Co-Chair John Torgerson asked if the language of the committee substitute should stipulate that GASB accounting rules must be followed or if the proposed language is sufficient. Phil Okeson responded that the current language is satisfactory and that the matter had been discussed and agreed upon with the Permanent Fund Corporation. Phil Okeson continued saying that the "disposition of income" is the core of how the proposed financial system works. He explained that there are two distributions from the combined accounts with the first being a 2.5 percent rolling market quarterly five-year average that is deposited into the general fund. The second distribution, he said is 2.75 percent that is deposited into the permanent fund dividend account to be paid out as dividends. Phil Okeson explained that subparagraph (c) refers to the timing of transfers. He said the intent is to allow for different amounts to be deposited into accounts at different times and thus allow the permanent fund to earn maximum interest. He envisioned that the deposit into the permanent fund dividend account would be done late in the year and the deposit into the general fund would be done in the beginning of the fiscal year. Phil Okeson addressed the transition language and said the new plan is not implemented right away using the five-year average. Instead, he explained the first year of implementation uses a 12-quarter average, the second year uses a 16-quarter average, and the amount of quarters increases until the five-year average is reached in 2003. He said the reason for this gradual phase is to allow the distribution amount in the early years of the plan to be adequate. He noted this is similar transitional language as was included in the original House version of the financial plan. Phil Okeson referred to the earlier discussion about the effective date. He stated that if the advisory vote is negative, there is sufficient time for the legislature to repeal the contingent language of the committee substitute since the effective date is January 1, 2001. The dividend would still be calculated using the existing method for the next two years, he stressed. Phil Okeson then referred to his earlier presentation on SB 76 showing the financial outcome of the balanced budget plan. Phil Okeson indicated he checked his figures against those supplied by the Department of Revenue. Senator Al Adams asked if the dividend would be the same amount under both plans for the next two years. Phil Okeson said the amount would be the same and estimated that the dividend for the following year could be in excess of $1800. Senator Lyda Green referred to Section 4 on page 4 and wanted to know if the inclusion of the 25-percent language as proposed in HB 96 is necessary for the success of this financial plan. Phil Okeson answered that in the early years of the plan, the provisions in HB 96 are not be necessary because the percent change only amounts to about $8 million. However, he stated it could become more important in later years. He noted that the original Senate Balanced Budget Plan was based on the assumption that HB 96 did not pass. Senator Lyda Green asked if the ratio changes proposed in HB 96 could be removed from this committee substitute. Co-Chair John Torgerson responded that there could be difficulties with compliance to the original bill title relating to the provisions of HB 96 and therefore this portion of the language should not be changed. Co-Chair John Torgerson then referred to Section 8 on page 5 and read, "the endowment shall be held and invested by the Alaska Permanent Fund Corporation." and noted that "endowment" in this case only reflects existing language to cover endowments the corporation is currently investing in. Phil Okeson understood that to be correct and deferred to Tam Cook. Senator Loren Leman directed the witness's attention to the description of Plan B in Section 11 page 8, line 26. He remembered Department of Revenue Commissioner Wilson Condon testifying that the second transfer of $4 billion from the earnings reserve fund to the general fund would occur in 2010 rather than 2011 as shown in the ballot language. Phil Okeson replied that the fiscal year 2011 date is garnered from the most recent spreadsheet issued by the Department of Revenue showing the Governor's budget plan. He clarified that technically, fiscal year 2011 occurs in calendar year 2010. Senator Loren Leman then referred to the description of "income tax" under Plan B on line 29. He noted the language states, "Impose a personal income tax on all wage earners." He surmised that the governor's actual proposal stipulates that the income tax would only be imposed on some wage earners. He cited testimony Commissioner Condon gave to affirm this. Senator Loren Leman stated he would like both aforementioned issues to be considered by the Committee. Co-Chair John Torgerson referred to a spreadsheet issued by the Department of Revenue dated 5/14/99 2:37 PM showing the latest figures for the Governor's plan. (Copy not distributed.) Co-Chair John Torgerson noted the spreadsheet shows the second $4 billion withdrawal from the permanent fund begins in calendar year 2010. Senator Loren Leman expressed concerns with how the two plans were compared. He noted that Plan A asks all Alaskans to participate in a reduced dividend. Tape: SFC - 99 #145, Side B Senator Loren Leman continued saying what troubled him the most is the prioritization of the spending increases proposed in Plan A as education, public safety and transportation. He wanted the order to be reversed with transportation listed first. He argued that people contribute to transportation proportionate to their use of vehicles and purchase of fuel. While he thought everyone benefits somewhat from public safety, he stressed that before all Alaskans could be asked to contribute to education, there should be a mechanism to allow parents to chose a delivery system that costs the state less money. He viewed this as an economic incentive and suggested that this matter could be addressed in separate legislation. Senator Loren Leman moved to amend the committee substitute to delete "2011" and insert "2010" and delete "all wage earners" and insert "certain wage earners". The motion was ruled out of order as the committee substitute had not been adopted as a Workdraft and was therefore not available for amending. Senator Loren Leman moved for adoption of SCS CSHB 231 Version "M" as a Workdraft. There was no objection and the committee substitute was adopted as a workdraft. [Note: amendments were considered out of order.] Amendment #2: This amendment deletes "2011" and inserts "2010" on page 8 line 26, changing the Plan B description language to read, "Permanent Fund Earnings Reserve: Immediately transfer $4,000,000,000 from the permanent fund earnings to the constitutional budget reserve fund, with an additional $4,000,000,000 in 2010, and $4,000,000,000 in 2020." This amendment also deletes "all" and inserts "certain" on line 29, changing the language to read, "Income Tax: Impose a personal income tax on certain wage earners projected to be 31 percent of a person's federal income tax, collecting $350,000,000." Senator Loren Leman moved for adoption. The amendment was adopted without objection or further discussion. Amendment #1: This amendment replaces the advisory vote ballot language in Section 11 as follows. QUESTION Preamble: The state treasury's reliance upon declining Alaska oil production and erratic world oil prices constitutes an unsustainable state budget system. The legislature and governor seek Alaskans' input in selecting a long-term balanced budget plan. Please select the plan you believe Alaska should implement for a balanced budget. Plan A Summary of Plan A: Plan A has further spending reductions. Dividends are a percentage of the value of the Alaska Permanent Fund. This plan has no personal income tax. (1) Spending Reductions Continue state general fund budget reductions of at least $70 million over the next two fiscal years. (2) Permanent Fund Guarantee the Alaska Permanent Fund is inflation-proofed to protect the value of the principle of the fund for all Alaskans, including future generations. (3) Permanent Fund Dividends Guarantee a dividend is paid to qualified Alaska residents at a minimum of $1,700 in 1999 and $1,700 in 2000. Thereafter, the annual dividend is based on a rate of 2.75 percent of the market value of the Alaska Permanent Fund, including the Alaska Permanent Fund Earnings Reserve Account. These dividends are projected to be $1,250 in 2001 to $1,430 in 2010. (4) Permanent Fund Earnings Reserve Guarantees inflation-proofing the Alaska Permanent Fund and pays Permanent Fund Dividends, then spends remaining funds in the Alaska Permanent Fund Earnings Reserve Account for state government services. (5) -Revenues No personal income tax or new broad-based taxes. Use at least $100 million in new revenues from resource development (NPRA, ANWR). Plan B Summary of Plan B: Plan B has no further state spending reductions. Dividends from the Alaska Permanent Fund are calculated under the current method. This plan includes a personal income tax. (1) Spending Reductions No further reductions to state spending. (2) Permanent Fund Guarantee the Alaska Permanent Fund is inflation-proofed to protect the value of the principle of the fund for all Alaskans, including future generations. (3) Permanent Fund Dividends Dividend will not be changed from the current formula and method of calculation. The dividend is projected to be $1,796 in 2001 and $1,784 in 2010. (4) Permanent Fund Earnings Reserve Immediately transfer $4 billion from the permanent fund earnings to the Constitutional Budget Reserve Fund, with an additional transfer of $4 billion in 2010 and $4 billion in 2020. Spend the Constitutional Budget Reserve Fund earnings for state government services. (5) Revenues Impose a personal income tax on all wage earners projected to be 31% of a person's federal income tax, beginning January 1st, 2000 collecting $350 million. Please select one: ____ Plan A ____ Plan B Senator Randy Phillips made a technical correction to the amendment to insert "and the Constitutional Budget Reserve Fund" at the end of the second sentence of the third descriptive paragraph of Plan A. Senator Randy Phillips made another technical correction to the amendment to reflect the adoption of Amendment #2 and accurately state the year the income tax goes into effect. Senator Randy Phillips moved for adoption of Amendment #1 as technically amended. Co-Chair John Torgerson objected for explanation. Senator Randy Phillips explained the amendment changes the ballot language to present to the voters, a balanced and fair representation of both plans. Plan A lists the projected dividend amount, which he felt is important for the public to know. He said the amendment also contains stylistic changes to the wording for both Plan A and Plan B. Senator Randy Phillips added that the forth descriptive paragraph of Plan A stipulates that the remaining funds in the Alaska Permanent Fund Earnings Reserve Account are spent for government services. This change addresses Senator Loren Leman's concerns about the prioritization of education, public safety and transportation, according to Senator Randy Phillips. The final difference between the ballot language in the committee substitute and the amendment, Senator Randy Phillips stated, is the committee substitute gives voters two choices and the amendment gives one choice. He explained that the amendment asks voters to chose one of the two plans where the committee substitute asks voters to decide yes or no for each plan. Senator Gary Wilken moved to amend Amendment #1 to delete the language in the forth descriptive paragraph of Plan A and insert the language contained in the committee substitute. He stated he wished the priority of education, public safety and transportation to remain part of the ballot language. Senator Dave Donley objected. Senator Gary Wilken reiterated earlier discussion on the advisory vote language noting that the Committee adopted the priority language. He felt the plan is based on priority spending that recognizes that certain parts of government will grow at a rate greater than other areas of government. He stressed that the remaining government spending is held flat. He thought this language shows that the legislature is willing to spend funds for those areas that constituents were asking for. By a roll call vote of 4-3-2, the amendment to the amendment was adopted and Amendment #1 was AMENDED. Senator Lyda Green, Senator Randy Phillips and Senator Dave Donley cast nay votes and Senator Pete Kelly and Senator Loren Leman were absent. Amendment #1 as amended read as follows. QUESTION Preamble: The state treasury's reliance upon declining Alaska oil production and erratic world oil prices constitutes an unsustainable state budget system. The legislature and governor seek Alaskans' input in selecting a long-term balanced budget plan. Please select the plan you believe Alaska should implement for a balanced budget. Plan A Summary of Plan A: Plan A has further spending reductions. Dividends are a percentage of the value of the Alaska Permanent Fund. This plan has no personal income tax. (1) Spending Reductions Continue state general fund budget reductions of at least $70 million over the next two fiscal years. (2) Permanent Fund Guarantee the Alaska Permanent Fund is inflation-proofed to protect the value of the principle of the fund for all Alaskans, including future generations. (3) Permanent Fund Dividends Guarantee a dividend is paid to qualified Alaska residents at a minimum of $1,700 in 1999 and $1,700 in 2000. Thereafter, the annual dividend is based on a rate of 2.75 percent of the market value of the Alaska Permanent Fund, including the Alaska Permanent Fund Earnings Reserve Account and the Constitutional Budget Reserve Fund. These dividends are projected to be $1,250 in 2001 to $1,430 in 2010. (4) Permanent Fund Earnings Reserve Guarantee inflation-proofing the Alaska Permanent Fund and payment of permanent fund dividends, then prioritize remaining funds in the Alaska permanent fund earnings reserve account for education, public safety and transportation. (5) -Revenues No personal income tax or new broad-based taxes. Use at least $100 million in new revenues from resource development (NPRA, ANWR). Plan B Summary of Plan B: Plan B has no further state spending reductions. Dividends from the Alaska Permanent Fund are calculated under the current method. This plan includes a personal income tax. (1) Spending Reductions No further reductions to state spending. (2) Permanent Fund Guarantee the Alaska Permanent Fund is inflation-proofed to protect the value of the principle of the fund for all Alaskans, including future generations. (3) Permanent Fund Dividends Dividend will not be changed from the current formula and method of calculation. The dividend is projected to be $1,796 in 2001 and $1,784 in 2010. (4) Permanent Fund Earnings Reserve Immediately transfer $4 billion from the permanent fund earnings to the Constitutional Budget Reserve Fund, with an additional transfer of $4 billion in 2010 and $4 billion in 2020. Spend the Constitutional Budget Reserve Fund earnings for state government services. (5) Revenues Impose a personal income tax on certain wage earners projected to be 31% of a person's federal income tax, beginning January 1st, 2001 collecting $350 million. Please select one: ____ Plan A ____ Plan B Senator Dave Donley commented that the Committee was too fatigued to be giving this bill the proper consideration that it deserves. Co-Chair Sean Parnell pointed out that the Committee had already made these decisions with SB 76. Senator Randy Phillips argued that the changes were not word-for-word and stressed that he felt the language needed to be balanced. The amended amendment FAILED to be adopted by a vote of 2- 7. Senator Lyda Green and Senator Randy Phillips voted in favor. Senator Dave Donley expressed concern with language on pages seven and eight of the committee substitute, but noted they had been addressed previously. Senator Lyda Green commented that while some voters oppose any changes, they would be willing to consider a low statewide seasonal sales tax. She felt that was more informative than simply asking if voters want their dividend cut. Co-Chair John Torgerson qualified that the ballot language was not ideal for every member, but noted that the Committee had already discussed and voted on the matter. Senator Lyda Green appreciated that no vote outcome would show an overwhelming pattern and noted that a "paragraph" style to the ballot language might be a more appropriate approach. Co-Chair Sean Parnell offered a motion to report from Committee, SCS CSHB 231(FIN) as amended with individual recommendations and $939. fiscal note from the Office of the Governor, Division of Elections. Without objection, the bill was REPORTED OUT. ADJOURNMENT Co-Chair John Torgerson recessed the Committee at 2:40 AM. SFC-99 (21) 5/18/99