Legislature(1999 - 2000)
05/14/1999 06:30 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. 232
An Act making a special appropriation from the budget
reserve fund under art. IX, sec. 17c, Constitution of
the State of Alaska, to the Alaska Income Account; and
providing for an effective date.
HOUSE BILL NO. 231
An Act relating to income of the Alaska permanent fund,
to the Alaska Income Account, and to permanent fund
dividends; and providing for an effective date.
Co-Chair Mulder acknowledged that Commissioner Condon had
previously expressed his concern regarding the plan
submitted by the House Majority and how the anticipated
level of return would affect the plan. He noted that the
Commissioner had provided several "runs" on the plan.
WILSON CONDON, COMMISSIONER, DEPARTMENT OF REVENUE, advised
that previous discussion had focused on two issues. The
first created a target rate of return projection of 8.25%
including current capital market assumptions. He noted that
an 8.1% rate of return or greater would be important. An
additional concern is that the rate of return supports the
payout under the provision of HB 231. He believed that the
legislation would provide for a 5.25% payout on a five-year
"look-back" rolling average.
Commissioner Condon explained that an 8.1% rate of return,
subtracting 4% for inflation and 40 basis points for
management fees, could provide trend line projections. The
trend line projections follow the value of the fund from
four years ago. The bill would average market value over 20
quarters beginning one year ago. He commented that over
time and working through the transition period, it was
acknowledged by the staff that the actual payout rate would
be a medium case of 4.8% to 4.9% of the current value. He
believed that a 5.25% proposed payout could work.
Representative Austerman questioned if the proposed plan
could provide better "possibility" for the State in the
long-term. Commissioner Condon replied that in order to
make a payout from the permanent fund could reduce the risk
relative to current practice. He emphasized that the State
has been very lucky over the past twenty years in using the
current system.
Vice-Chair Bunde MOVED to adopt work draft CS HB 231 (FIN),
1-LS0960\H, Cook, 5/14/99, as the version before the
Committee. There being NO OBJECTION, it was adopted.
Representative Grussendorf requested discussion on Section
10 which outlines the questions being proposed to the public
and how they should appear on the ballot.
Representative Bunde noted that he supported a "yes" and
"no" option. He assumed that the ballot would increase the
likelihood that people read the plan and then make an
informed vote.
Representative G. Davis asked that the effective date be
clarified for the record. He referenced Page 5, Section 5,
and suggested that it be clarified that the dividends
received in 1999 would be for calendar year 1998. Co-Chair
Mulder suggested that people do not equate that this year's
dividend is for previous year eligibility. He thought that
would confuse the issue for the voters. Representative G.
Davis suggested adding language including the 1999
"distribution".
Representative Bunde pointed out that Section 10 indicates
that the Special Election would be held September 14th. He
questioned if the program would go into effect after the
election had been tabulated. Co-Chair Mulder explained that
Sections 3, 7 and 9 of the act take effect July 2, 1999.
Sections 1, 2, 8 and 10 take effect immediately. There
would be an advisory election, and if the voters turn it
down, the Legislature would need to take recourse to reverse
the action of adopting those sections.
Representative J. Davies believed that enacting the $1000
dollar dividend this October would cause confusion. The
Legislature would be subject to criticism if that action was
taken. In order to achieve greater clarity, he recommended
a special session be planned to address these concerns.
Co-Chair Therriault agreed that there would be a lot of
suspicion from the voters. Co-Chair Mulder explained that
it had been presented this way, following consultation with
Legislative Legal, and not having the ability to tie the
outcome of an advisory election to the enactment of the
legislation. The legislation attempts to provide a one vote
vehicle; if that should be rejected, then the Legislature
can come back into Special Session.
Representative J. Davies inquired if the Permanent Fund
Division had been consulted regarding the length of time it
would take to issue the checks. Co-Chair Mulder replied
that he personally did not know the amount of programming
and time required recalculating the checks. Representative
J. Davies suggested that the September 14th election date be
moved up considering the downside possibility. He commented
that the proposed schedule might not be workable.
Representative Williams questioned the constitutional issue
of people voting themselves more money through the permanent
fund. Representative J. Davies reiterated his concern
regarding the timing issue of the "no" vote. Representative
Williams interjected that the Legislature is not responsible
to provide voters with their check at a time they believe
reasonable.
Co-Chair Mulder noted that the September 14th date had been
chosen in consultation with the Division of Elections. He
offered to try to "marry" the two-time tables between the
Division of Elections and the Permanent Fund Division's
release of checks. Discussion followed regarding the timing
of disbursement of the permanent fund checks.
Representative Bunde stated that if the voters chose not to
accept the proposed option, this Legislative Body does not
have "time" to wait until next year to address these budget
challenges. He suggested that the Committee discuss a
"Letter of Intent" should the plan be rejected to meet in
Special Session.
Representative Austerman pointed out that everything
discussed thus far had been tied to how much money would be
distributed and then tying that concept to the dollar value
of the permanent fund in an "yes" or "no" vote.
Co-Chair Mulder assumed that voters would react to question
Grussendorf asked if question #7 would be affected by a "no"
vote on #5. He agreed that the question is simple, however,
there will be complications when explaining it to the
public.
Representative Austerman recommended that Sections 8 & 9
become effective October 1st. He believed that could tie
the vote to the dividend to the rest of the questions which
would keep the endowment active. Co-Chair Mulder noted that
there would continue to be a need for a payout
recalculation.
Representative J. Davies questioned "What the people would
be voting on" with these questions. He recommended that the
issue and focus be limited in order to make it clear what
the results become. Representative Bunde preferred that the
proposed questions continue to be submitted as a package.
Representative Grussendorf pointed out that there are
several options which are not included in proposed statute
such as spending reductions, spending limits and no new
statewide taxes.
Representative G. Davis reiterated that 99% of the decision
would be based on the question dealing with the dividend.
He agreed it is important to establish a plan which includes
that concern. He recommended that the question be put to
the public one week earlier.
Representative Williams elaborated that each question would
be essential to the entire package for creating a spending
plan. Co-Chair Mulder advised that constituents would be
more at ease knowing that there was "constraint" on State
spending. He added that his office had received negative
feedback when proposing a tax issue. The proposed
legislation would encourage the "State to put their best
foot forward in obtaining passage of the legislation". That
expectation was the spirit in which this plan was designed.
Representative Austerman asked what will happen if it is
voted down. Co-Chair Mulder replied, no one knows what will
happen if there is a "no" vote. He reiterated that there is
a lot of pressure to make large budget reductions and that
no single option can bring the State to an optimal place.
Representative J. Davies stated that he had been prepared to
move the previous version of the legislation from Committee.
That version did not include a statement that no further
taxes would be implemented. He acknowledged that he did not
support the current version.
Representative Bunde pointed out that this plan does not
suggest that new taxes be enacted, however, observed that
would not preclude taxes being introduced in other
legislation.
(Tape Change HFC 99 - 140, Side 2).
Representative Austerman recommended deleting question #2
regarding spending limit. If the Legislature should enact
new taxes, that question would not be clear.
Representative Grussendorf agreed with Representative
Austerman recommending that question #2 be dropped.
Co-Chair Mulder clarified that the proposed plan could put
in place a funding mechanism for basic level State funding.
If people want more services, options will be available with
consideration of new revenue. He projected that the issue
will not go away soon. Co-Chair Mulder noted that taxes are
not precluded from the option.
Representative Williams commented that question #7 is
misleading.
Co-Chair Therriault referenced Page 5, Line 4 and asked why
language "substantial" had been included. Co-Chair Mulder
replied that there is no formula within statute for an
advisory election and that there is no absolute compliance
with election laws.
REPRESENTATIVE SHARON CISSNA questioned if it would be
problematic in having a "yes" or "no" vote on each
individual question. Co-Chair Mulder assumed that would
make it more difficult for the Division of Elections and
offered to consult with them regarding this matter.
Representative Bunde pointed out that this plan needs to be
included in a package for it to work. Representative Cissna
advised that if the voter decides not to cap the dividend
and yet wants the rest of the plan, they would basically be
requesting a tax.
Representative Kohring advised that he would not support the
plan. He stated that the plan does not clearly make the
connection between the use of the permanent fund earnings
for government services. He urged that question #6 be
further clarified.
Representative Williams voiced frustration in that
Representative Kohring was not supporting the plan, and had
not provided the Committee with an alternative option.
Representative Kohring argued that he had submitted his
proposed plan to Co-Chair Mulder's office and that he had
also addressed these concerns in caucus.
Representative Austerman stated that the State could not
balance the budget by cuts only as proposed by
Representative Kohring. He emphasized that ten members of
the Majority body had worked long and hard on preparation of
this plan.
Co-Chair Mulder MOVED to adopt Amendment #1 and then
OBJECTED for the purpose of discussion. [Copy on File]. He
explained that voting citizens had requested that there be
greater accountability of expenditures.
Representative J. Davies noted that the details outlined in
the amendment are already included in the Permanent Fund
expenditure list. He added that he did not object to the
amendment, however, urged that it be on a short list. He
envisioned a succinct list of the basic programs for which
the money would be used. Co-Chair Mulder asked if
Representative J. Davies felt that the amendment would "add
anything" to the ballot question. Representative J. Davies
replied that it would marginally enhance the concern.
Co-Chair Mulder WITHDREW his OBJECTION to Amendment #1.
There being NO further OBJECTION, Amendment #1 was adopted.
Co-Chair Mulder MOVED a conceptual amendment to Page 5, Line
26, deleting "revenue" and inserting "annual payout". He
pointed out that revenue would reflect earnings.
Co-Chair Mulder MOVED to amend the language to insert
"amount transferred" instead. There being NO OBJECTION to
the amendment to the amendment, it was changed. There being
NO OBJECTION to Amendment #2 as amended, it was adopted.
Representative J. Davies MOVED to adopt Amendment #3. [Copy
on File]. Co-Chair Mulder OBJECTED for the purpose of
discussion. Representative J. Davies explained that the
amendment would add the language "University of Alaska" to
Page 5, Line 30. Co-Chair Mulder suggested that inserting
that language could lose the support of those voters who do
not support public school education.
Co-Chair Therriault added that the Alaska Constitution
currently addresses that concern. Discussion followed among
Committee members regarding the referenced language being
including K-12 or K-University. Representative J. Davies
WITHDREW the MOTION to adopt Amendment #3. There being NO
OBJECTION, Amendment #3 was withdrawn.
Representative Austerman MOVED conceptual Amendment #4,
deletion of subsection #2, Page 5, Lines 15 & 16. There
being NO OBJECTION, it was deleted.
Representative J. Davies MOVED a corresponding change to
Page 5, Line 10. Co-Chair Mulder noted that the plan does
call for a spending limit. Representative J. Davies MOVED
that the language on Line 10 read: "This long range plan
requires further state spending reductions and limitations
on State spending." Representative Williams suggested that
language would be redundant. Representative Grussendorf
recommended using the language "fiscal discipline". Co-
Chair Mulder thought "spending limits" would work best.
Representative Bunde questioned what would be addressed with
the addition of that proposed language. Representative J.
Davies stated that it would be clearer to indicate that:
"This long-range plan would require further reductions and
limitations on state spending". Representative J. Davies
WITHDREW the prior MOTION to adopt Amendment #5. There
being NO OBJECTION, it was withdrawn.
Representative J. Davies MOVED to adopt the new Amendment
requires further limitations and reductions on state
spending". There being NO OBJECTION, it was adopted.
Representative Austerman MOVED to adopt Amendment #6, Page
5, Line 25, inserting "for distribution" after "$1,000".
Representative J. Davies MOVED to amend Amendment #6
inserting "in each of". Co-Chair Mulder questioned if that
language would enhance the amendment. He suggested changing
the language to "Alaska residents in the amount of $1,000
for annual distribution in 1999, 2000, and 2001". Co-Chair
Mulder MOVED the amendment to Amendment #6. There being NO
OBJECTION, the language was changed. There being NO
OBJECTION to Amendment #6 as amended, it was adopted.
Representative Bunde MOVED to report CS HB 231 (FIN) out of
Committee with individual recommendations and with the
accompanying fiscal note. Co-Chair Mulder requested that
the MOTION be HELD. Co-Chair Mulder explained that the
Division of Elections had not yet prepared a fiscal note.
The fiscal note accompanying the bill had been taken from SB
76, which reflects an $839 thousand dollar note, assuming
that the cost would be the same.
Representative Bunde acknowledged that the fiscal note was
high, pointing out that public government and participation
"costs money" which is the price we need to pay.
Co-Chair Mulder explained the note and also the services
attached to it. The fiscal note would cover costs of a
special election as provided for in a similar advisory
election as in the Senate version of the legislation.
Representative J. Davies asked if there would be additional
expenditures by the Permanent Fund Corporation. Co-Chair
Mulder noted that they had not provided a fiscal note to the
Senate Finance Committee at this time.
Representative Bunde MOVED to report CS HB 231 (FIN) out of
Committee with individual recommendations and with the
accompanying fiscal note. Representative Kohring OBJECTED.
Representative Foster also objected noting that the proposed
plan would be harmful to the people living in Bush Alaska.
He emphasized that the proposed plan was a "Healthy Urban
Alaska Plan" and would be unfair to Bush Alaska.
Representative J. Davies added that this bill is not
necessarily "good" for urban Alaska either. He stated that
there needs to be constraints on government, however, the
plan does not include statewide taxes, which will ultimately
limit funding for statewide roads and the University system.
In order to be equitable, there should be a balanced
approach in who is asked to pay.
(Tape Change HFC 99 - 141, Side 1).
Representative Grussendorf noted that the process of the
plan is not yet over. He advised that when educating his
constituents, he would indicate both the "ups and downs" of
the proposed plan and then what could happen to the State
with "no" plan.
Representative Austerman stated that he supported the plan
and that to "do nothing" would doom the permanent fund
dividend. That is not an option. There is no other source
of money at this time.
Representative Bunde commented that the Alaska fiscal
situation is "sick". Without addressing the problem now,
there will be no dividend down the road. He looked forward
to educating the citizens of Alaska regarding these options
and allowing them to make the choice.
Representative G. Davis noted that the decision before the
State is difficult. The proposed plan has consistent
flexibility and does not preclude any future taxes. He
emphasized that this is a responsible plan and voiced his
support in putting the vote to the people.
Representative Moses pointed out that the State would spend
nearly $1 million dollars to implement "1/2 of a plan". He
emphasized that Legislators continue to make recommendations
that are not feasible. Representative Moses believed that
all legislators know what really needs to be done.
Co-Chair Mulder spoke in support of the proposed
legislation, as it is essential to critical services within
the State. Without this legislation to safeguard Alaska's
future, the outlook is bleak. If the public votes "no", the
Legislature will be faced with a difficult decision of
dismantling State government.
Representative Kohring observed that there exists a
philosophical disagreement among Committee members. He
noted that he personally comes from a more conservative
perspective. He recommended more privatization, merging and
focusing on resources for very basic standards. He voiced
concern about the current size of State government, while
continuing to spend $6 billion dollars a year.
Representative Kohring stressed that he does not want to see
just cuts but recommends more profound incentive measures be
taken.
Representative J. Davies agreed with Representative Moses
that what is being proposed is 1/2 of a plan. There are
pieces of the plan which he knew would be good public
policy, however, this plan will not bring enough money to
the State to continue funding major pieces of public policy.
He maintained that other revenues need to be found in order
to maintain our current expenditures. He reminded members
that the University of Alaska badly needs more money.
Representative Williams advised members that the Permanent
Fund was established in order to pay for a "rainy" day which
the State is currently experiencing.
A roll call vote was taken on the MOTION made by
Representative Bunde to move the bill from Committee.
IN FAVOR: G. Davis, Grussendorf, Williams, Austerman,
Bunde, J. Davies, Therriault, Mulder
OPPOSED: Foster, Moses, Kohring
The MOTION PASSED (8-3).
CS HB 231 (FIN) was reported out of Committee with a "do
pass" recommendation and with a new fiscal note by the House
Finance Committee.
HOUSE BILL NO. 232
"An Act making a special appropriation from the budget
reserve fund under art. IX, sec. 17c, Constitution of
the State of Alaska, to the Alaska Income Account; and
providing for an effective date."
Representative Bunde MOVED to adopt work draft for CS HB 232
(FIN), 1-LS0961\D, Cook, 5/14/99, as the version before the
Committee. There being NO OBJECTION, it was adopted.
DENNY DEWITT, STAFF, REPRESENTATIVE ELDON MULDER, explained
the differences between the previous committee substitute
and the newly adopted one. He referenced the sectional
analysis provided by Tamara Cook, Director of Legal
Services. [Copy on File].
Mr. DeWitt explained that the current permanent fund payout
would have a dividend larger than HB 231 would allow for.
The structure required to have that amount of money
available in the account would require the State to place by
statute more dollars in that account then the Permanent Fund
Dividend Division would be allowed to pay out. The balance
would be greater than allowed to be paid out to the Alaska
Income Account.
Representative J. Davies understood that explanation was
opposite of what was actually occurring. He thought that
the dividend account would be emptied after the 1999
appropriation. Mr. DeWitt replied that the reason that
there is money left in that account is because the State
would be moving toward making a deposit into the dividend
account, greater than the amount allowed by law to be paid
out. Co-Chair Mulder added that the excess funds would be
swept into the Income Account.
Representative J. Davies asked if the Income Account had
been created under current statute. Mr. DeWitt replied that
it was and would not go away because the excess funds would
need to be moved back to the Alaska Income Account.
Representative J. Davies pointed out that for the
legislation to be effective, it would require a 3/4 vote.
He asked the intent including the Capital Budget Request
(CBR) following the budget appropriation. Co-Chair Mulder
replied that it would continue to exist to address potential
settlements coming into it. If the plan were adopted and
placed into statute, there would be a corresponding
constitutional amendment to come forward to the CBR as
unnecessary in the future.
Representative J. Davies questioned how a significant
shortfall would be handled by the Healthy Alaska Plan. Co-
Chair Mulder responded that the money would either be
borrowed, reduce spending accordingly or raise taxes.
Representative Grussendorf voiced hesitation in eliminating
the CBR should something dramatic occur to State revenues.
Co-Chair Therriault asked about the repayment section of the
CBR and when that money would become available.
Representative Austerman pointed out that neither of the
proposed bills addresses the CBR. However, he saw the
Alaska Income Account as the "shock absorber".
Representative Bunde suggested that the role of the CBR
would follow the money, so then the money would roll over to
the Alaska Income Account. Representative J. Davies agreed.
He added that it is important to know how the State will
track money borrowed from that account. Co-Chair Mulder
agreed that some mechanism should be put in place,
emphasizing however, that it is important to allow future
legislatures to be able to adjust that amount.
Representative Bunde MOVED to report CS HB 232 (FIN) out of
Committee with individual recommendations and the
accompanying fiscal note. There being NO OBJECTION, it was
so ordered.
CS HB 232 (FIN) was reported out of Committee with a "do
pass" recommendation with a new fiscal note by the
Department of Revenue.
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