Legislature(1999 - 2000)
04/12/1999 01:50 PM House FIN
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* first hearing in first committee of referral
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= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
HOUSE BILL NO. 96
"An Act relating to deposits to the Alaska permanent
fund."
REPRESENTATIVE NORMAN ROKEBERG testified that HB 96 would
return the percentage of all-mineral lease royalties and
bonuses deposited into the Permanent Fund to the
constitutionally mandated 25 percent.
He continued, the legislation would propose changes to a
statute, not the Alaska Constitution. The Constitution
states that "at least twenty-five percent of all mineral
lease rentals, royalties, royalty sale proceeds, federal
mineral revenue sharing payments and bonuses received by the
State shall be placed in a permanent fund". In 1980, the
Legislature realized excess revenues existed and wisely
decided to raise the amount of royalties and bonuses
deposited into the Permanent Fund to 50 percent.
Representative Rokeberg stated that it is time for the State
of Alaska to redirect those deposits to the general fund.
He believed that passage of the proposed legislation would
generate an extra $9.5 million dollars in FY00. He urged
passage of the legislation.
Representative Rokeberg referenced the printed handout
provided by the Department of Revenue, Deborah Vogt, dated
3/26/99. [Copy on File]. The memo was drafted in response
to the request for information on the royalties and other
mineral payments that would be affected by the proposed
legislation. The memo indicates that the bill would reduce
to 25% the contribution to the Permanent Fund of those
mineral payments that are currently being made at a 50%
rate.
Additionally, Representative Rokeberg referenced the
memorandum from the Alaska Permanent Fund Corporation
(APFC), Jim Kelly, Director of Communications. [Copy on
File]. The intent of the memo was to make a distinction
between the impact of the bill on per capita dividends over
the next five years, both compared to the status quo and
assuming passage of a one-time $4 billion dollar transfer
from the Fund's earning reserve account to the Capital
Budget Reserve Fund (CBRF) per the Governor's proposal.
Based on a financial analysis, the impact would be less than
a $10 difference over five years.
Representative Rokeberg pointed out that the funds would not
include any mineral resources or bonus money. Last year,
$53 million dollars in bonus bids was received, which added
up to an additional $12.5 million dollars for the FY2000
budget and does not include federal receipts.
Representative Grussendorf clarified that the legislation
would increase the revenue stream from oil to the general
fund and would reduce it by $12.5 million dollars. He noted
that the original 50% legislation was passed so that amount
would be placed into the corpus for investment purposes. He
reminded Committee members that any long-range fiscal plan
will need to take the Earnings Reserve Account into
consideration. He recommended that it remain consolidated
for investments within the corpus.
Co-Chair Therriault pointed out that the Alaska State
Constitution indicates that 25% should be placed into that
account and that with passage of the legislation that would
continue to occur. Representative Grussendorf understood
that the legislation would repeal the statutory 25%
recommendation.
Representative Rokeberg stated that the State Constitution
clearly illustrates that the earnings of the corpus can be
spent by the general fund. Representative Grussendorf
emphasized that a long-range fiscal plan should be based on
the Earnings Reserve Account, not an additional stream into
the general fund. Representative Rokeberg commented that it
is appropriate for the Legislature to appropriate money for
the budget. He interjected that it is now time to redirect
the 50% statutory language so it can be used as needed. The
bill does not speak to what should be done with that money.
Representative Bunde spoke in support of the proposed
legislation. He suggested that the public has dictated how
they would like the Legislature to spend money by who they
have elected to office.
Representative J. Davies argued that point. He added that
it is important to look at a long-range fiscal plan for the
State. He voiced his preference to continue depositing
money into the corpus of the fund. At this time, the fund
is not large enough to "spin off" enough money to address
the State's financial condition.
Co-Chair Therriault asked how the State should manage the
$1.2 billion dollar deficit which it is facing.
Representative J. Davies stated that the State could
"absolutely" manage that deficit. He pointed out that
Alaska has $2.4 billion dollars in the Earnings Reserve
Account, and that the State expects a similar amount to be
deposited into that account over the next fiscal year.
Representative Grussendorf recommended that the needed funds
could always be taken from the Earning Reserve Account or
from the general fund. If those funds are not desperately
required, the money should stay in the corpus generating an
annual income. He recommended that the present statute stay
in tact until a long-term plan had been devised.
Representative Grussendorf concluded that the $12 million
dollars is a small amount and that the structure should not
be changed in order to access it.
Representative Rokeberg pointed out that any money taken
from this fund would create a situation which would cause no
further public tax implementation. He proposed that a prior
legislature's law is now binding the current legislature as
to how additional deposits should be made to the corpus. He
urged passage of the bill.
Representative Williams asked how the legislation would
affect the State's ability to generate more earnings. Co-
Chair Mulder explained that if the State can utilize this
money now, it could delay a statewide tax for a period of
time. He added, the financial management of that account
would drive the overall health of the Permanent Fund. The
future of the Permanent Fund will be dependent upon a
structure being established to retain the financial health
of that fund. He believed that the revenues lost from
passage of the bill would be inconsequential to the relative
current health of the general fund.
Co-Chair Therriault noted that the Legislature has many
opportunities to make contributions to the Permanent Fund.
Representative Grussendorf referenced the original premise
of the Permanent Fund in which the Constitution is explicate
that the interest earned off of it should be used as
designated by statute. Over $3 million general fund dollars
has been placed into the corpus of that fund. Outside of
that concern, Representative Grussendorf emphasized that the
title of the proposed legislation was too broad and that in
the future, the earnings reserve could possibly be attached
into the corpus. Co-Chair Therriault acknowledged that the
title would need to be tightened.
In response to Representative Austerman, Co-Chair Therriault
explained that 25% was deposited and did not come through
the general fund. The additional 25% was a yearly
appropriation of general fund dollars into the corpus.
Representative J. Davies pointed out that this money would
be a statutory dedication. The money funds need to
technically be placed into the general fund and then
deposited. Any legislature has the authority to pass a bill
as the one proposed. He clarified that there has been no
binding of one legislature by another. He remarked that a
small stream of money continues to build the fund. Co-Chair
Therriault asked if Representative J. Davies' comfort level
was higher because a small amount of money was requested.
Representative J. Davies commented on current funds versus
state taxes. He recommended that the State would be better
off if State taxes were paid "sooner" rather than "later".
He recommended the reinstitution of an appropriate income
tax.
Co-Chair Therriault suggested that the title should be
changed in order to tighten it up and then the legislation
could be brought before the Committee for final
consideration.
HB 96 was HELD in Committee for further discussion.
(Tape Change HFC 99 - 76, Side 2).
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