Legislature(2023 - 2024)DAVIS 106
04/05/2023 06:00 PM House WAYS & MEANS
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| Audio | Topic |
|---|---|
| Start | |
| Overview(s): Fiscal Policy Modeling | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| + | TELECONFERENCED | ||
| + | TELECONFERENCED |
Overview(s): Fiscal Policy Modeling
[Contains discussion of SB 114, HB 109, HJR 2, HB 38, and HB
142.]
6:18:15 PM
CHAIR CARPENTER announced that the only order of business would
be the Fiscal Policy Modeling overview.
6:19:15 PM
ALEXEI PAINTER, Director, Legislative Finance Division,
Legislative Affairs Agency, presented a PowerPoint, titled "2023
Update of Fiscal Plan Working Group Model" [hard copy included
in the committee packet]. He stated that the feedback provided
at the last meeting has been incorporated in the spreadsheet
model before the committee. Directing attention to the tabs in
the spreadsheet, he explained that the model applies to the
unrestricted general fund (UGF) revenue and expenditures only.
In order to represent the appropriation limits in the modeled
UGF budget, he pointed out that it has been assumed the non-UGF
fund sources and UGF are the same proportions in all projected
years, and the [base assumption] uses the governor's amended
budget for the fiscal year 2024 (FY 24). He stated that for
existing limits, projections are based on the Department of
Labor and Workforce Development population projections and 2.5
percent inflation, per Callan Associates. He added that
projections on HJR 2 and HB 38 in the model assume 1.5 percent
gross domestic product (GDP) growth and 2.5 percent inflation.
6:24:50 PM
MR. PAINTER, in response to Chair Carpenter, answered that the
GDP and inflation rates are "baked" into the model, but if the
committee prefers, these rates could be made changeable.
CHAIR CARPENTER said that in order to provide options with
different GDPs and inflation assumptions, a flexible model is
preferred.
6:26:03 PM
MR. PAINTER moved to the budget tab and explained that some
changeable options and adjustments were included in the model.
The adjustable options include agency operations, statewide
items relating to debt service, capital budget growth rate, and
permanent fund dividend (PFD) draw amounts.
6:31:20 PM
MR. PAINTER, in response to Representative McCabe, said the tool
for the retirement section is not dynamic and would not supply
an employer match when changing percentages. He said that it
can supply modeling for simple multiplication.
6:32:47 PM
MR. PAINTER moved to the revenue tab of the fiscal model, which
uses the spring revenue forecast as a base. He informed members
that new options were added under new revenues, including income
tax, sales tax, motor fuel tax, S corporation income tax for oil
and gas only, gaming revenues, highly digitized business tax,
carbon offsets, HB 109 corporate income tax, SB 114 oil and gas
production tax, and the increase in petroleum property tax. He
noted that SB 114 includes the S corporation income tax and the
per-barrel cap at $5, so it cannot be selected with either of
those two options.
6:37:53 PM
CHAIR CARPENTER advised members that the options in the custom
tab must be selected to be accounted for in the fiscal model.
MR. PAINTER further explained how the revenue model functions.
6:38:46 PM
REPRESENTATIVE GRAY questioned the $5 option amount used for the
cap of the per-barrel credit.
MR. PAINTER explained that the current per-barrel credit caps
out at $8, and it is a sliding-scale credit which decreases over
time. He said SB 114 would cut off the first $3. He continued
to explain that with the decrease over time, an oil producer may
hit the tax floor and no longer have an impact. He continued
that as more producers hit the floor, there would be less of an
impact by a per-barrel cap.
REPRESENTATIVE GRAY inquired about the proposed ringfencing
within SB 114 and how this may affect the fiscal model.
MR. PAINTER explained that there are several parts of SB 114, of
which ringfencing is just a part; therefore, this is more
complex than just stacking the provisions. He said there would
be an interaction, and this creates a difficulty in using the
fiscal model. He cautioned that if adjustments are made to both
the S corporation tax and the sales tax, the model would not
function well.
REPRESENTATIVE GRAY questioned whether a rough idea on how much
the state would receive from the ringfencing could be obtained
by manipulating the data.
MR. PAINTER reiterated that there is more than one fiscal
provision within SB 114.
6:43:05 PM
CHAIR CARPENTER asked whether the price of oil is adjustable in
the model.
MR. PAINTER answered that the price of oil is not changeable.
He explained that because of how the oil and gas tax works,
there are year-to-year impacts which carry over losses;
therefore, picking and choosing prices may lead to misleading
results.
6:45:34 PM
REPRESENTATIVE GROH relayed that there has been talk regarding a
PFD based on a 50 percent of market value (POMV) split. He
asked how much revenue would be needed to make a 50/50 POMV
split work.
MR. PAINTER moved to the summary tab. He explained that the
governor's amended budget is being used as the budget
assumption, and the 50/50 POMV draw formula has been used in the
model, rather than the governor's proposed statutory dividend.
6:48:24 PM
The committee took a brief at-ease.
6:48:57 PM
MR. PAINTER explained lines 22 and 23 in the summary tab. He
said the shape of the deficits are from the former forecasts,
and with declining prices, the revenue is flat. He noted that
the cover page tab reviews the model's budget assumptions and
sources.
6:50:52 PM
CHAIR CARPENTER asked whether a duplication of the summary tab
which functions with the modeling could be created.
MR. PAINTER responded that he could create alternate versions of
the spreadsheet as individual PDFs.
6:51:56 PM
REPRESENTATIVE GROH stated that there has been a discussion on a
legislative package with four elements. He listed the elements,
which are the 50/50 POMV split, a reduction of the corporate tax
rate, the implementation of HB 142 on sales tax, and spending
limit proposals. He questioned whether these four elements
would work together in the spreadsheet.
MR. PAINTER answered that if only the revenue options were
implemented of these, the state would still be above the
spending limits. If HB 38 were implemented and expenditures
were reduced by $100 million, with the revenue options applied,
the result would be a balanced budget from FY 24 to FY 26;
however, deficits would grow in the later years since the
revenue forecast points to declining oil prices. He explained
that in this scenario a plan would be difficult.
6:54:43 PM
CHAIR CARPENTER suggested that the GDP figure in the model
should be adjustable. He asked about the limitations of the
modeling in regard to behavior.
MR. PAINTER answered that the fiscal notes do not assume any
changes to company behavior; therefore, the modeling assumes the
company will be static to current assumptions. He said that it
has been found taxes do change company behavior, and there is
also behavioral sensitivity in the private sector to taxes.
6:56:43 PM
REPRESENTATIVE MCKAY highlighted Mr. Painter's comments about
the model's static assumption around taxes and changes in
taxpayer behavior.
MR. PAINTER opined about fiscal modeling. He said revenue,
budget growth, and the PFD all have economic impacts, but the
model would not show the economic impacts since its assumption
is static behavior.
REPRESENTATIVE MCKAY said there is historical evidence showing
impacts to company behavior around taxes, and he pointed to
Alaska's Clear and Equitable Share (ACES) as an example.
6:59:10 PM
CHAIR CARPENTER commented on the modeling tool and the
difficulty of making policy decisions based on it.
6:59:33 PM
REPRESENTATIVE GRAY spoke to Representative McKay's comment
about ACES, in that, there is a natural slope when oil
production peaks and declines. He said production on the North
Slope was already declining when ACES was instituted.
7:00:26 PM
REPRESENTATIVE MCKAY suggested that the decline was accelerated
by ACES. He said that, when ACES was approved, it had delayed
various resource projects.
MR. PAINTER, in response to Chair Carpenter, said the model can
be distributed with other legislators.
CHAIR CARPENTER suggested that the model could be changed in a
variety of ways, and he explained that if there are requests to
change the model, these should come to his office.
7:03:30 PM
REPRESENTATIVE TILTON thanked Mr. Painter and Chair Carpenter
for making the model.
7:04:49 PM
REPRESENTATIVE GROH asked Mr. Painter whether GDP has ever gone
down in Alaska.
MR. PAINTER answered that GDP in Alaska is tied to oil revenues;
therefore, GDP has gone down because of declines in these
revenues.
REPRESENTATIVE GROH asked if it is possible that, after a
decline in the economy and a subsequent decline in population,
the population who left could be those who were more in need of
state services.
MR. PAINTER said that this is a speculative question outside of
his knowledge.
7:06:44 PM
CHAIR CARPENTER commented that it would be hard to determine
what will happen with families as it relates to future tax
policies.
7:07:36 PM
ADJOURNMENT
There being no further business before the committee, the House
Special Committee on Ways and Means meeting was adjourned at
7:07 p.m.
| Document Name | Date/Time | Subjects |
|---|---|---|
| HW&M FPWG Worksheet - 4-23 Update.pdf |
HW&M 4/5/2023 6:00:00 PM |