04/05/2018 01:30 PM Senate FINANCE

HOUSE BILL NO. 287(brf sup maj fld)                                                                                           
                                                                                                                                
     "An Act making appropriations for public education and                                                                     
     transportation of students; and providing for an                                                                           
     effective date."                                                                                                           
                                                                                                                                
2:38:02 PM                                                                                                                    
                                                                                                                                
Vice-Chair   Bishop  MOVED   to  ADOPT   proposed  committee                                                                    
substitute  for HB  287,  Work  Draft 30-LS1229\R  (Wallace,                                                                    
3/23/18).                                                                                                                       
                                                                                                                                
Co-Chair MacKinnon OBJECTED for discussion.                                                                                     
                                                                                                                                
2:38:33 PM                                                                                                                    
AT EASE                                                                                                                         
                                                                                                                                
2:40:06 PM                                                                                                                    
RECONVENED                                                                                                                      
                                                                                                                                
Co-Chair  MacKinnon  relayed  that the  House  had  proposed                                                                    
early funding  for education  and transportation  The Senate                                                                    
agreed that  instability of educators,  superintendents, and                                                                    
students that  were trying to learn.  The proposed Committee                                                                    
Substitute (CS) addressed that issue.                                                                                           
                                                                                                                                
Co-Chair  Hoffman thanked  the  House for  its  work on  the                                                                    
bill. He noted that the committee  had not taken up the bill                                                                    
until it had received the operating budget.                                                                                     
                                                                                                                                
2:41:33 PM                                                                                                                    
                                                                                                                                
PETE ECKLUND,  STAFF, SENATOR  LYMAN HOFFMAN,  discussed the                                                                    
proposed CS.                                                                                                                    
                                                                                                                                
Mr.  Ecklund  looked  at  page  2,  Section  1,  which  were                                                                    
elements  of K-12  aid that  were held  in the  other body's                                                                    
version of the bill. He stated  that it was aid to different                                                                    
school districts,  and to Mt.  Edgecumbe. He  announced that                                                                    
pages 3 and 4 were  the funding sources contained in Section                                                                    
1.  He shared  that page  5, Section  4 was  the legislative                                                                    
intent.  He  paraphrased  that  the  intent  instructed  the                                                                    
Department  of   Revenue  (DOR)   and  the   Permanent  Fund                                                                    
Corporation to  work together to utilize  the constitutional                                                                    
budget reserve  (CBR) borrowing  language. The  language was                                                                    
in the FY  18 budget, and would appear in  the FY 19 budget.                                                                    
The  language  allowed  the  CBR to  be  used  for  cashflow                                                                    
purposes  in  anticipation  of  general  fund  revenue.  The                                                                    
intent was for the permanent  fund to make cash transfers to                                                                    
the  general   fund  in  the   most  prudent   way  possible                                                                    
throughout t the fiscal year.  He looked at line 11, Section                                                                    
5, which  contained a  5.25 percent  draw from  the Earnings                                                                    
Reserve  Account   (ERA).  He  explained  that   it  was  an                                                                    
unstructured  draw, because  there  was  no current  statute                                                                    
that would  instruct the  draw. He  remarked that  there was                                                                    
another bill,  SB 26,  which had a  5.25 percent  draw. That                                                                    
bill  would have  taken effect  in  FY 18,  so the  language                                                                    
reflected the language in SB  26. He remarked that there was                                                                    
a  $726 million  dividend paid  in  the prior  year, so  the                                                                    
language took  a 5.25  percent from  the ERA,  and subtracts                                                                    
the  dividend payment.  The  remainder  was $1.792  billion,                                                                    
which went to  the general fund in FY 18.  That money became                                                                    
FY 18 revenue.                                                                                                                  
                                                                                                                                
2:45:22 PM                                                                                                                    
                                                                                                                                
Co-Chair  MacKinnon  asked  if  the budget  from  the  House                                                                    
contained a percentage draw.                                                                                                    
                                                                                                                                
Mr. Ecklund answered in the  affirmative, and specified that                                                                    
that the effective rate was a 4.21 percent effective rate.                                                                      
                                                                                                                                
Mr. Ecklund  drew attention to  Line 20 in Section  6, which                                                                    
was  fund capitalization  for K-12  Base Student  Allocation                                                                    
(BSA) funding  for FY 19.  He stated that $1.89  billion was                                                                    
fully funding  the BSA for  FY 19.  He looked at  Section B,                                                                    
which  was  $78.1  million  for  transportation  FY  19.  He                                                                    
remarked that  Section C  was fully funding  the BSA  for FY                                                                    
20.   He   shared  that   Section   D   was  fully   funding                                                                    
transportation for FY  20. He remarked that  page 6, Section                                                                    
7  was  a standard  lapse.  He  stated  that Section  8  was                                                                    
contingency, which  referred to Section  6 that held  the FY                                                                    
20   appropriations   for    K-12   education   and   people                                                                    
transportation.  Those two  sections  would  go into  effect                                                                    
upon the enactment of SB 26.  He shared that Sections 9, 10,                                                                    
and 11 were effective dates.                                                                                                    
                                                                                                                                
                                                                                                                                
Co-Chair MacKinnon  WITHDREW her  OBJECTION. There  being NO                                                                    
further  OBJECTION, the  proposed  committee substitute  was                                                                    
ADOPTED.                                                                                                                        
                                                                                                                                
Co-Chair  MacKinnon stated  that  Alaskans wanted  assurance                                                                    
that there  was protection for  the corpus of  the permanent                                                                    
fund. She asked for comments on the bill.                                                                                       
                                                                                                                                
ANGELA  RODELL, EXECUTIVE  DIRECTOR,  ALASKA PERMANENT  FUND                                                                    
CORPORATION,  stated  that  the CS  being  considered  would                                                                    
protect  the corpus  of the  fund. She  emphasized that  the                                                                    
corpus of  the fund was protected  constitutionally, and the                                                                    
bill  did not  touch  the  corpus of  the  fund. She  shared                                                                    
observations  that   generated  questions  for   the  Alaska                                                                    
Permanent Fund  Corporation (APFC). She stressed  that there                                                                    
needed to  be a statutory  framework. She remarked  that the                                                                    
fund should  not be  placed in  a political  discussion, but                                                                    
rather  provide  a  working  framework  to  plan  each  year                                                                    
accordingly. She  stated that  work would  be done  with the                                                                    
treasury  to plan  the draws  over the  course of  year. She                                                                    
encouraged the body to continue  to work. She referenced the                                                                    
contingency language.                                                                                                           
                                                                                                                                
Co-Chair  Hoffman asked  if  it  was fair  to  say that  the                                                                    
corporation  was  concerned   about  potential  unstructured                                                                    
draws that might compromise the earnings.                                                                                       
                                                                                                                                
Ms. Rodell answered in the affirmative.                                                                                         
                                                                                                                                
2:51:33 PM                                                                                                                    
                                                                                                                                
MIKE BARNHILL,  DEPUTY COMMISSIONER, DEPARTMENT  OF REVENUE,                                                                    
thought it  seemed as though  the salient provisions  of the                                                                    
bill  were  set  out  in  Section 4,  which  called  on  the                                                                    
department  to use  the CBR  as  a backstop  to the  general                                                                    
fund.  He stressed  that there  would be  assistance to  the                                                                    
permanent  fund in  maximizing  its  investment revenue.  He                                                                    
stated that,  presently, DOR  worked internally  to schedule                                                                    
transfers from  the CBR into the  GF periodically throughout                                                                    
the  year. There  was  a  model to  predict  when the  daily                                                                    
balance of the GF would go  below $400 million, and that was                                                                    
the moment  to draw from the  CBR. That model would  be used                                                                    
at the  end of FY  18 to assist  in providing a  schedule to                                                                    
the  permanent  fund  appropriately  to  hopefully  maximize                                                                    
investment revenue.                                                                                                             
                                                                                                                                
2:53:39 PM                                                                                                                    
                                                                                                                                
Co-Chair MacKinnon  informed that  she would be  setting the                                                                    
bill aside and taking it up  again the following day and the                                                                    
committee would be hearing public testimony.                                                                                    
                                                                                                                                
Co-Chair MacKinnon handed the gavel to Co-Chair Hoffman.                                                                        
                                                                                                                                
2:54:10 PM                                                                                                                    
AT EASE                                                                                                                         
                                                                                                                                
2:58:23 PM                                                                                                                    
RECONVENED                                                                                                                      
                                                                                                                                
Co-Chair MacKinnon  discussed forward-funding  of education.                                                                    
The  house   had  provided  a  separate   bill  for  funding                                                                    
education. The  bill was being considered  separately at the                                                                    
House's request.                                                                                                                
                                                                                                                                
HB  287  was  HEARD  and   HELD  in  committee  for  further                                                                    
consideration.