Legislature(2023 - 2024)DAVIS 106
03/01/2023 06:00 PM House WAYS & MEANS
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| Audio | Topic |
|---|---|
| Start | |
| Presentation(s): Permanent Fund Pomv Structure | |
| Presentation(s): Permanent Fund Overview | |
| HB72 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| + | TELECONFERENCED | ||
| *+ | HB 72 | TELECONFERENCED | |
| + | TELECONFERENCED |
HB 72-PERMANENT FUND DIVIDEND; 75/25 POMV SPLIT
7:01:31 PM
CHAIR CARPENTER announced that the final order of business would
be HOUSE BILL NO. 72, "An Act relating to use of income of the
Alaska permanent fund; relating to the amount of the permanent
fund dividend; relating to the duties of the commissioner of
revenue; and providing for an effective date."
7:01:48 PM
REPRESENTATIVE DANIEL ORTIZ, Alaska State Legislature, as prime
sponsor, presented HB 72. He read the sponsor statement,
[included in the committee packet] which read as follows
[original punctuation provided]:
The purpose of this bill is to settle the age-old
debate over which statutes to follow when it comes to
determining the size of a Permanent Fund Dividend
(PFD). If adopted, it will reconcile the current two
competing statutes regarding the dividend amount.
House Bill 72, the Protecting Future Dividends Act
(PFD Act), will put into statute the percent of money
from the POMV dedicated to a PFD. It establishes a
75/25 split in which 75 percent of the Percent of
Market Value (POMV) draw goes into the general fund
and 25 percent of the POMV draw goes to the dividend
fund. It's simple, and most importantly it's
sustainable.
The POMV draw is the largest single source of
Unrestricted General Funds these days. Revenue that
the state receives from natural resource development
no longer consistently makes up the majority of our
revenue. Instead, we rely on the POMV draw. As long as
we continue to rely on the POMV draw, this bill will
continue to provide a PFD into the future.
Based on current projections, this bill allows us to
balance our budget without needing to come up with new
revenue sources. Over the next ten years, if we pass
and follow HB 72, and if resource revenue remains
stable and our state budget grows as anticipated, we
won't have a budget deficit and we will have a PFD.
This bill does not make stipulations on how the money
will be spent after the POMV draw is sifted 75/25 into
the general fund and dividend fund. It simply provides
structure as to where the POMV is appropriated.
7:06:25 PM
LIZ HARPOLD, Staff, Representative Dan Ortiz, Alaska State
Legislature, on behalf of Representative Ortiz, prime sponsor,
gave the sectional analysis [included in the committee packet],
which read as follows [original punctuation provided]:
Sec. 1 Establishes a short title: The Act may be known
as the Protecting Future Dividends Act.
Sec. 2 Amends AS 37.13.140(a) to delete language that
describes a formula to determine the amount of income
of the fund that is available for distribution. Amends
AS 37.13.140(b) to clarify that the amount available
appropriation from the earnings reserve account may
not exceed the balance in the earnings reserve
account.
Sec. 3 Amends AS 37.13.145(b) to provide that of the
appropriation each year from the earnings reserve
account under AS 37.13.140(b) will go to the general
fund, and then 25% of that total amount will go to the
dividend fund.
Sec. 4 Amends AS 37.13.145(c) to authorize an
appropriation, after the appropriations to the general
fund and dividend fund in AS 37.13.145(b), to the
principal of the permanent fund for inflation
proofing.
Sec. 5 Amends AS 37.13.145(d) to clarify that the
permanent fund income earned as a result of the State
v. Amerada Hess case is not available for
appropriation to the dividend fund or general fund or
the principal and that it shall be deposited into the
Alaska capital income fund.
Sec. 6 Amends AS 37.13.300(c) to clarify that the net
income of the mental health trust fund is not included
in the computation of the amount available for
appropriation from the permanent fund earnings reserve
account under AS 37.13.140(b).
Sec. 7 Amends AS 43.23.025(a) to clarify that the
legislature appropriates money to the dividend fund
consistent with section 3.
Sec. 8 Repeals AS 37.13.145 (e) and (f) which related
to total appropriations from the earnings reserve.
Sec. 9 Establishes an immediate effective date.
MS. HARPOLD told committee members she had spoke with
Legislative Legal Services about a possible committee substitute
(CS) which would change "distribution" to "appropriation" on
page 2, line 20, to conform to a previous section of the bill,
and "add a reference to subsection (b), on page 2, line 21."
7:08:38 PM
The committee took an at-ease from 7:08 p.m. to 7:10 p.m.
7:10:04 PM
CONOR BELL, Fiscal Analyst, Legislative Finance Division,
Legislative Agencies and Offices, showed a slide, entitled
"Legislative Finance Division Fiscal Model," [hard copy included
in the committee packet]. He said the model assumes a 25
percent of market value (POMV) permanent fund dividend (PFD),
and the governor's fiscal year 2024 (FY 24) amended budget with
2.5 percent annual agency operations. He pointed to a chart in
the top-right showing savings balances, with the constitutional
budget reserve/statutory budget reserve (CBR/SBR) ending balance
and the realized earnings reserve account (ERA) balance. He
said, "Since there is no draws from the ERA or other savings
accounts, that's unaffected." He continued as follows:
The budget summary is showing our baseline budget, and
the reason there's that negative scenario change in
our budget summary of $449 million negative in FY 24,
that's because the Legislative Finance [Division]
baseline is currently using ... last year's capital
budget, growing with inflation, which would be $750
million, and so that's the biggest change there is
that the scenario's using the governor's budget versus
assuming there would be a $750 million capital budget
growing with inflation each year. And otherwise, it's
... inline with what the governor's budget is
proposing. So, based on those assumptions, there are
surpluses throughout the period. ... The surplus
before the PFD is $2 billion, and then the PFD
appropriation in FY 24 is $881.5 million, which is
$1,300 per person; and the pre-transfer surplus is
$1.1 billion in FY 24. That is basically the surplus
before there's transfers between accounts, such as the
revenue replacement from the American Rescue Plan Act.
By the end of the period, the PFD has grown to $1.1
billion, which would be approximately ... $1,700 per
person, and the ... surplus at the end of the period
would be $226 million, estimated. And I should add
that this is based on the ... fall revenue forecast,
which has declining revenues throughout the period;
that's why the surpluses are getting so much smaller
is because they're ... based on the oil futures
markets, which have slowly declining prices. You're
seeing those lower revenues throughout the period in
our baseline forecast.
7:13:35 PM
REPRESENTATIVE MCCABE asked whether the division's budget
baseline includes money for the base student allocation or
defined benefit plan, for example.
MR. BELL answered that the division does not include any policy
changes in its analysis that could lead to higher or lower
expenditures.
7:14:14 PM
MR. BELL confirmed a clarification from Chair Carpenter that the
budget assumption in this fiscal model is what the governor has
presented as his budget, "plus the amendments to his original
budget." He added that the division is adding the 2.5 percent
annual growth for inflation.
7:14:36 PM
REPRESENTATIVE MCCABE surmised that if policy changes were made,
then "the PFD would go down significantly."
CHAIR CARPENTER responded that the intent of the committee would
be to answer that question later with another model.
7:15:38 PM
REPRESENTATIVE GRAY pointed to the pre-transfer surplus deficit
line, and observed that after FY 24 there would be a $1.17
billion surplus, so theoretically a base student allocation
increase could be paid with that surplus.
MR. BELL answered that's correct.
7:16:34 PM
REPRESENTATIVE MCKAY asked whether this model includes
production from the Willow [Project] and the Pikka [oil field].
MR. BELL explained that the division uses the Department of
Revenue's revenue forecast, which uses the Department of Natural
Resources' production forecast. He mentioned the percentage
used in calculation and said presumably there is some proportion
of Willow and Pikka included in the forecast.
7:17:50 PM
REPRESENTATIVE GROH asked the bill sponsor to address who, under
HB 72, would pay for "the structural deficit."
REPRESENTATIVE ORTIZ answered that everyone who receives a PFD
of a potential larger amount pays for that potential deficit by
"giving up some of the PFD now." He said the committee could
choose to amend HB 72 to scale the split down to 50/50 when
revenue is greater. However, another option if there are
surpluses created under the 75/25 split, could be to invest in
long-deferred infrastructure projects.
7:22:11 PM
REPRESENTATIVE MCCABE directed attention to bill language on
page 2, lines 15 and 24, and asked the bill sponsor why he used
"may" instead of "shall".
REPRESENTATIVE ORTIZ deferred to his staff to answer.
7:22:50 PM
MS. HARPOLD suggested Emily Nauman, from Legislative Legal
Services, was available to give feedback about the bill
language.
7:23:11 PM
EMILY NAUMAN, Director, Legislative Legal Services, Legislative
Agencies and Offices, stated that HB 72 uses "may" rather than
"shall" because the Constitution of the State of Alaska requires
that the movement of money out of the ERA into the permanent
fund requires appropriation by the legislature under the
dedicated fund clause, and that was reaffirmed in State v.
Wielechowski. In response to a follow-up question as to whether
amending the constitution would be effective, she first
explained that whether the statute says "may" or "shall", the
legislature retains the authority to appropriate whatever amount
for dividends or out of the ERA in any given year; therefore,
using "may" is more accurate to how the laws are applied and
interpreted. Regarding the idea of a constitutional amendment,
she indicated it would depend on how it was worded.
7:25:53 PM
REPRESENTATIVE ALLARD asked Ms. Nauman for the legal difference
between "shall" and "may".
MS. NAUMAN answered that "shall" in this case, "and if it were
constitutional" means the legislature would be required to
appropriate a certain amount for a dividend; the word "may" is
permissive and means the legislature may or may not "do that
action."
7:27:02 PM
MS. HARPOLD, in response to a question from Representative
McKay, clarified that HB 72 would amend the original statute
that pertains to the income of the permanent fund. She said it
would leave the definition of income as is but "it's not what
will be used as a basis for ... an appropriation." She stated
that AS 37.13.140(b) is the POMV portion of statute, and HB 72
would add that the legislature cannot take more than what is
available in the ERA. In Section 3, the bill would amend
statute to say that the legislature may appropriate to the GF an
amount available for appropriation under AS 37.13.140(b); it
could take the 5 percent draw and put it into the GF, and then
25 percent of that would go into the permanent fund. She added,
"And so we are basically taking those previous statutes away,
and it helps simplify what's there; and that's part of the goal
of having this piece of legislation is to take ... potentially
competing or conflicting statutes out of the way."
REPRESENTATIVE MCKAY concluded that the intent was "to simplify
the conflict that we've been having for so long."
REPRESENTATIVE ORTIZ responded, "Absolutely."
7:30:01 PM
MS. HARPOLD, to a previous question, confirmed that HB 72 would
not include policy decisions; it would indicate how much of the
POMV would go toward the PFD or state services.
7:31:00 PM
REPRESENTATIVE MCCABE asked for confirmation that the state
could pay the 50/50 now and it would not become a problem until
about 2028.
7:31:57 PM
REPRESENTATIVE ORTIZ answered yes, but underlined that this
assumes the current governor's budget with no increases in the
base student allocation for the next eight years and
continuation of the capital budget at a flat level for eight
years, for example.
7:33:09 PM
REPRESENTATIVE GROH suggested that a 50/50 plan put in the
constitution may be harder to address in the future than if it
were in statute.
REPRESENTATIVE ORTIZ concurred. Notwithstanding that, he
mentioned that the [Fiscal Policy Working Group] had supported a
constitutional amendment that states that "a PFD will be paid,
as provided by law". He said the key there is that whatever is
put in the constitution needs to be sustainable, and he opined
that the 50/50 model is not sustainable in the future.
7:35:59 PM
REPRESENTATIVE ALLARD asked the bill sponsor if he is saying he
wants to take money from the PFD to pay for the base student
allocation.
REPRESENTATIVE ORTIZ answered that the bill is "agnostic to that
issue."
CHAIR CARPENTER assured the committee that there would be
opportunity to "plug this bill into a moving diagram" to see the
policy choices in relation to HB 72 and other proposed bills.
7:37:31 PM
REPRESENTATIVE GRAY asked if the legislature could use the
aforementioned surplus to "make a bigger PFD."
7:37:48 PM
MS. HARPOLD answered yes; the bill does not state how the 75/25
split must be used.
7:38:14 PM
REPRESENTATIVE ORTIZ thanked the committee for hearing HB 72.
[HB 72 was held over.]
| Document Name | Date/Time | Subjects |
|---|---|---|
| House Ways & Means Presentation - Permanent Fund Corporation.pdf |
HW&M 3/1/2023 6:00:00 PM |
|
| House Ways and Means Permanent Fund Presentation - Legislative Finance.pdf |
HW&M 3/1/2023 6:00:00 PM |
|
| HB072 02.15.2023.PDF |
HW&M 3/1/2023 6:00:00 PM |
HB 72 |
| HB072 Sponsor Statement 02.28.2023.pdf |
HW&M 3/1/2023 6:00:00 PM |
HB 72 |
| HB072 Sectional Analysis 02.27.2023.pdf |
HW&M 3/1/2023 6:00:00 PM |
HB 72 |
| HB072 Fiscal Note DOR Tax Division 02.25.2023.pdf |
HW&M 3/1/2023 6:00:00 PM |
HB 72 |
| HB072 Supporting Document - LFD Fiscal Model 02.27.2023.pdf |
HW&M 3/1/2023 6:00:00 PM |
HB 72 |