Legislature(2019 - 2020)GRUENBERG 120
03/26/2019 03:00 PM House STATE AFFAIRS
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| Audio | Topic |
|---|---|
| Start | |
| HB96 | |
| HB71 | |
| HB31 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| *+ | HB 96 | TELECONFERENCED | |
| + | HB 71 | TELECONFERENCED | |
| *+ | HB 31 | TELECONFERENCED | |
| + | TELECONFERENCED |
HB 31-APPROP: EARNINGS RESERVE TO PERM FUND
4:26:06 PM
CO-CHAIR FIELDS announced that the final order of business would
be HOUSE BILL NO. 31, "An Act making a special appropriation to
the Alaska permanent fund; and providing for an effective date."
4:26:08 PM
CO-CHAIR KREISS-TOMKINS, as prime sponsor, relayed that HB 31 is
identical to an amendment to the operating budget [introduced
during the Thirtieth Alaska State Legislature, 2017-2018] with
ten co-sponsors from both caucuses and both political parties;
however, it was never put to a vote on the House floor. He
maintained that the impetus for the amendment is greater
currently than last year.
CO-CHAIR KREISS-TOMKINS relayed that he joined the Alaska State
Legislature in 2013; that year was the first in some time that
Alaska had a budget deficit. In the ensuing years, the state
had a multibillion-dollar deficit, cut spending slightly, did
not raise revenues, and spent down $14 billion in savings. He
referred to a PowerPoint presentation on HB 31, slide 1,
entitled "If the deficits continue, the CBR is most likely
gone." The chart on the slide demonstrates by bar graph the
decline in the funds over the years, 2014-2019. He expressed
that these actions have been immensely frustrating to him,
especially considering the earning potential of the $14 billion.
He maintained that regardless of one's views on permanent fund
dividends (PFD) payments and level of state services, Alaska
would be in a better position if it had invested that amount.
CO-CHAIR KREISS-TOMKINS stated that there is still a budget
deficit. There are many competing visions for Alaska regarding
PFD payments and public services. The impetus of HB 31 is to
ensure that Alaska's intergenerational financial assets and the
permanent fund itself are protected from the "tugging and
pulling" of the political priorities for spending. He expressed
his grave concern that the legislature, which has spent $14
billion in the past 4-5 years, is equally capable of spending
down some fraction of the $17 billion in the Earnings Reserve
Account (ERA) over the coming years, if the political climate
was conducive to doing so. He maintained that he is cautiously
optimistic that this would not happen during the current
legislative session; however, he is concerned about it happening
in future years. He offered that spending the account down in
an unsustainable manner, that is, spending faster than the
permanent fund is generating earnings, is the most perilous and
concerning outcome as far as bankrupting the future of the
state.
4:30:53 PM
KEVIN MCGOWAN, Staff, Representative Jonathan Kreiss-Tomkins,
Alaska State Legislature, on behalf of Representative Kreiss-
Tomkins, prime sponsor of HB 31, referred to slide 2 of the
PowerPoint presentation, entitled "Permanent Fund Account
Structure," which illustrates the two accounts of the permanent
fund - the Principal and the ERA. The Principal is a
constitutionally established and permanently protected savings
account that can never be spent. The ERA is available for
appropriation by a simple majority of the legislature.
MR. MCGOWAN moved on to slide 3, to discuss the calculation used
last year [2018] in determining the amount needed in the ERA to
maintain the percent of market value (POMV) annual draws. He
said that under Senate Bill 26 [passed during the Thirtieth
Alaska State Legislature, 2017-2018] the formula used required
the ERA to be four times the POMV draw to maintain the ERA. A
POMV draw of $2.5 billion would require an ERA of $10 billion.
This amount would need to remain in the account in order to make
PFD payments or state service appropriations.
REPRESENTATIVE KREISS-TOMKINS explained that when the operating
budget was discussed in 2018, the minimum sufficient balance of
the ERA was viewed as a "shock absorber," because the ERA is the
account from which all PFD payments are made and - with the
passage of Senate Bill 26 - from which payments for some state
services are made. The ERA is where market risk is
consolidated, and unrealized earnings are represented. If there
is a severe market downturn or a [calamitous] geopolitical
event, the ERA could contract rapidly. Even though $2.5 billion
may be all that is needed annually, having four times more
provides the buffer to absorb financial shocks.
REPRESENTATIVE LEDOUX asked what the benefit of HB 31 would be
as opposed to the constitutional amendment that has been
proposed creating a spending cap.
REPRESENTATIVE KREISS-TOMKINS replied that although the two are
interrelated, the proposal under HB 31 - moving funds from the
ERA into the Principal - does not mention how much or how little
spending is appropriate.
REPRESENTATIVE LEDOUX maintained that, in effect, it does limit
the amount which can be expended.
REPRESENTATIVE KREISS-TOMKINS agreed. He said that if there was
a constitutional spending cap in place - like what [Governor
Michael J. Dunleavy] has proposed or the Senate of the Thirtieth
Alaska State Legislature proposed, there would be certain
enhanced levels created for the permanent fund. He said that if
the spending cap were in excess of state revenues, "it would
help but it wouldn't entirely solve it depending on what the
spending cap ultimately was." He added that there is another
political consideration: the spending cap may not pass in the
legislature; passing a spending cap constitutional amendment
requires a high threshold - two-thirds of each body. He
believes that there are more permanent fixes for protecting the
state's assets, but currently, there is a great deal of money in
the ERA that could be liquidated [by the legislature]. The
proposed legislation offers a short-term ability to put some
money into savings.
4:36:47 PM
REPRESENTATIVE STORY opined that HB 31 appears to provide
inflation proofing. She asked what the state is currently doing
to inflation proof the fund and what the state's history is on
inflation proofing.
REPRESENTATIVE KREISS-TOMKINS said that currently inflation
proofing under the statutory formula is about $1 billion. He
stated that the amount of money that HB 31 would transfer - $5.5
billion - is like an inflation proofing amount. He mentioned
that under present market conditions, the transfer could be as
large as $7 billion; the ERA amount this year is larger than
last year when a transfer was considered under the operating
budget. He maintained that the amount that would be transferred
under HB 31 is very similar in principle to inflation proofing;
however, because the legislature has failed to inflation proof
in a couple previous years, because there is a bull market, and
because the ERA has rapidly grown, even inflation proofing like
has been done in the past would not move the excess money from
the ERA.
4:38:37 PM
REPRESENTATIVE VANCE relayed that Representative Kreiss-
Tomkins's presentation sounds like he supports protecting the
states funds from excessive spending by balancing the budget.
She mentioned that the legislature has rapidly spent $14
billion; however, there continues to be spending, and one way to
avoid that is to reduce spending. She expressed her concern
that the intent of HB 31 - moving funds from the ERA - is to
remove it from the conversation regarding restoring the PFD
payments of the past few years. She maintained that the 2018
elections demonstrate that Alaskans want to be part of that
conversation. She stated that her constituents support having a
conversation about restoring the PFD payments that were not
fully paid, and not moving the excess ERA money into the
[Principal]. She maintained that her constituents have not had
the opportunity to have this conversation.
REPRESENTATIVE KREISS-TOMKINS responded that he has a deep
cynicism about legislature's ability to restrain its spending.
He suggested that he and Representative Vance have different
perspectives about the solution. He mentioned that his first
two years in office were under a Republican administration and
Republican majorities in both chambers of the legislature, and
the savings were liquidated. He stated that his solution would
have been to cut spending a little and raise revenues; there was
a small cut in spending and no new revenues. He continued by
saying that in subsequent years there was mixed political
control. He opined that to some extent political control does
not matter; the state has not been able to sustainably balance
its budget. He maintained that the state is closer to balancing
its budget than ever before; however, until the state can
balance its budget, there is a lot of risk with large amounts of
money available for appropriation, especially when only a simple
majority vote of 21-11 is required.
CO-CHAIR KREISS-TOMKINS offered that regarding the backpay of
PFDs, it never occurred to him before Representative Vance asked
the question that HB 31 would be considered a way to preempt the
ability to do that. He maintained that the proposal [under HB
31] was first introduced last year before there was public
dialogue on backpay of the PFDs. He added that there were
concerns voiced during the previous administration that the
funds would be spent down to pay for the natural gas pipeline;
another time it could be another project that people supported.
He said that such proposals are concerning; for example,
building a giant bridge from Baranof Island to Admiralty Island
would be a multi-billion-dollar project and a tremendous waste
of state money. He asserted that Alaska should spend within
its means and have a balanced budget; having a great deal of
available funds presents risks.
4:43:19 PM
REPRESENTATIVE WOOL relayed that the argument last year is
different from the argument this year. In past years the state
drafted a budget, didn't have the revenue to pay for the budget,
and took the money out of the Constitutional Budget Reserve Fund
(CBRF). The CBRF represented a liquid savings account that was
easy to access. He said that currently the state has a
structured draw out of the entirety of the permanent fund;
therefore, the revenue - from the draw and the other revenues,
such as oil taxes - could pay for the budget. He suggested that
the intent of HB 31 is to protect against the draw on the ERA
outside of the structure.
REPRESENTATIVE KREISS-TOMKINS answered, "Effectively, yes." He
said that if the legislature had forever abided by the framework
of Senate Bill 26 and never drew from the Permanent Fund greater
than 5 percent of the permanent fund's market value, there would
effectively be no risk of unsustainably spending down the real
fund of the Permanent Fund. It is possible that should
political or economic conditions shift, there may be a situation
in which the legislature would want to draw greater than a
sustainable amount from the Permanent Fund as set forth in
Senate Bill 26, regardless of how the money is spent. He
maintained that HB 31 would control for that risk.
REPRESENTATIVE LEDOUX asked if HB 31 would have the effect of
avoiding a three-quarter vote [of the legislature] to draw money
from the CBR. She suggested that if the ERA were below a
certain amount, a three-quarter vote would not be needed to draw
from the CBR.
4:47:21 PM
ANGELA RODELL, Chief Executive Officer, Alaska Permanent Fund
Corporation (APFC), answered that traditionally there has been
language associated with the CBR that if the level of total
savings of the state reaches a certain threshold then the need
to repay the CBR is negated. She added that she did not know
what the threshold was but currently there is a repayment
obligation for the CBR for the current balance.
REPRESENTATIVE LEDOUX stated that her concern was not with the
necessity of repaying the CBR; her recollection is that if the
amount of money in ERA is less than a certain amount, than the
requirement for a three-quarter vote to take money out of the
CBR would be negated.
4:49:14 PM
ALEXI PAINTER, Fiscal Analyst, Legislative Finance Division,
stated that under the constitution, the CBR can be accessed by a
simple majority vote, if the amount available for appropriation
is less than the previous year's budget. He said that the
courts have interpreted that to include the ERA as the amount
available for appropriation; it also includes that current
year's revenue. For fiscal year 2020 (FY 20), the current
year's revenue is about $2.5 billion in traditional revenue and
$2.7 billion from the permanent fund. In order to access the
CBR with a simple majority vote, the balance in the ERA would
have to be under $1 billion, requiring a $17.5 billion transfer;
currently the amount is far too small for that to occur.
MS. RODELL, in answer to Representative Story, said that the
original legislation 40 years ago included inflation proofing as
a second draw after the draw for PFD payments. The [inflation
proofing] calculation is based on consumer price index (CPI).
Each year there has been an appropriation for inflation proofing
up until 2010; that year the appropriation was zero because
inflation was zero. The calculation is based on the most recent
calendar year's CPI and is calculated off the balance in the
Principal of the [permanent fund] account only; therefore, it is
not calculated on the total of the Principal plus the ERA. She
said that in FY 16, FY 17, and FY 18, the decision was made to
not appropriate for inflation in any of those three years; that
amount would have totaled $1.4 billion had those appropriations
occurred. An appropriation was included in the FY 19 budget;
that money will be moved at the conclusion of the fiscal year
once Alaska has received all the royalties into the Principal
and APFC is able to do the calculation. She added that this
usually occurs in July of every year; the amount is estimated to
be about $942 million. She continued by saying that in the FY
20 budget proposal, there is an estimated inflation proofing
calculation of about $982 million.
CO-CHAIR FIELDS asked for the amount each $1 billion earns
Alaska on average per year; that is, what earning opportunity is
lost for each $1 billion that Alaska spends down.
MS. RODELL replied that since inception 40 years ago, the
earning rate has been 8.9 percent; rounded up to 9 percent, the
amount lost would be about $90 million.
CO-CHAIR FIELDS stated that HB 31 would be held over.
| Document Name | Date/Time | Subjects |
|---|---|---|
| HB096 Bill Version A 3.25.19.PDF |
HHSS 4/9/2019 3:00:00 PM HHSS 4/23/2019 3:00:00 PM HSTA 3/26/2019 3:00:00 PM SHSS 2/12/2020 1:30:00 PM |
HB 96 |
| HB096 Sponsor Statement 3.25.19.pdf |
HHSS 4/9/2019 3:00:00 PM HHSS 4/23/2019 3:00:00 PM HSTA 3/26/2019 3:00:00 PM SFIN 3/9/2020 9:00:00 AM SHSS 2/12/2020 1:30:00 PM |
HB 96 |
| HB096 Sectional Analysis 3.25.19.pdf |
HHSS 4/9/2019 3:00:00 PM HHSS 4/23/2019 3:00:00 PM HSTA 3/26/2019 3:00:00 PM SHSS 2/12/2020 1:30:00 PM |
HB 96 |
| HB096 Fiscal Note DHSS-APHPA 3.25.19.pdf |
HHSS 4/9/2019 3:00:00 PM HHSS 4/23/2019 3:00:00 PM HSTA 3/26/2019 3:00:00 PM SHSS 2/12/2020 1:30:00 PM |
HB 96 |
| HB096 Fiscal Note DHSS-PH 3.26.19.pdf |
HHSS 4/9/2019 3:00:00 PM HHSS 4/23/2019 3:00:00 PM HSTA 3/26/2019 3:00:00 PM SHSS 2/12/2020 1:30:00 PM |
HB 96 |
| HB096 Supporting Document Alaska Pioneer Homes Advisory Board Report 2018 3.25.19.pdf |
HHSS 4/9/2019 3:00:00 PM HHSS 4/23/2019 3:00:00 PM HSTA 3/26/2019 3:00:00 PM SHSS 2/12/2020 1:30:00 PM |
HB 96 |
| HB096 Supporting Document Consumer Price Index in AK Statutes 3.25.19.pdf |
HHSS 4/9/2019 3:00:00 PM HHSS 4/23/2019 3:00:00 PM HSTA 3/26/2019 3:00:00 PM SHSS 2/12/2020 1:30:00 PM |
HB 96 |
| HB096 Supporting Document-PPT Presentation 3.5.19 HSS Finance Subcommittee, 3.25.19.pdf |
HHSS 4/9/2019 3:00:00 PM HHSS 4/23/2019 3:00:00 PM HSTA 3/26/2019 3:00:00 PM SHSS 2/12/2020 1:30:00 PM |
HB 96 |
| HB096 Supporting Document DHSS Budget Subcommittee Amendment No. 1 PASSED 3.26.19.pdf |
HHSS 4/9/2019 3:00:00 PM HHSS 4/23/2019 3:00:00 PM HSTA 3/26/2019 3:00:00 PM SHSS 2/12/2020 1:30:00 PM |
HB 96 |
| HB096 Letters of Support 3.25.19.pdf |
HHSS 4/9/2019 3:00:00 PM HHSS 4/23/2019 3:00:00 PM HSTA 3/26/2019 3:00:00 PM SHSS 2/12/2020 1:30:00 PM |
HB 96 |
| HB096 Supporting Document AK Dept of Labor Consumer Price Index 2018 3.25.19.pdf |
HHSS 4/9/2019 3:00:00 PM HHSS 4/23/2019 3:00:00 PM HSTA 3/26/2019 3:00:00 PM SHSS 2/12/2020 1:30:00 PM |
HB 96 |
| HB071 ver A 3.19.19.PDF |
HSTA 3/26/2019 3:00:00 PM |
HB 71 |
| HB071 Sponsor Statement 3.19.19.pdf |
HSTA 3/26/2019 3:00:00 PM |
HB 71 |
| HB071 Minimum Qualifications SOP04 3.19.19.pdf |
HSTA 3/26/2019 3:00:00 PM |
HB 71 |
| HB071 DOA Fiscal Note 3.19.19.pdf |
HSTA 3/26/2019 3:00:00 PM |
HB 71 |
| HB031 ver U 3.25.18.PDF |
HSTA 3/26/2019 3:00:00 PM |
HB 31 |
| HB031 Sponsor Statement 3.25.19.pdf |
HSTA 3/26/2019 3:00:00 PM |
HB 31 |
| HB031 Sectional Analysis ver U 3.25.19.pdf |
HSTA 3/26/2019 3:00:00 PM |
HB 31 |
| HB031 Presentation 3.26.19.pdf |
HSTA 3/26/2019 3:00:00 PM |
HB 31 |
| HB071 Supporting Document - Letter of Support 3.28.19.pdf |
HSTA 3/26/2019 3:00:00 PM |
HB 71 |
| HB031 Opposing Document - Letter in Opposition 4.24.19.pdf |
HSTA 3/26/2019 3:00:00 PM |
HB 31 |