Legislature(2019 - 2020)ADAMS 519
03/10/2020 01:30 PM House FINANCE
Note: the audio ![]()
and video ![]()
recordings are distinct records and are obtained from different sources. As such there may be key differences between the two. The audio recordings are captured by our records offices as the official record of the meeting and will have more accurate timestamps. Use the icons to switch between them.
| Audio | Topic |
|---|---|
| Start | |
| HB306 | |
| HB300 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| *+ | HB 300 | TELECONFERENCED | |
| *+ | HB 306 | TELECONFERENCED | |
| + | TELECONFERENCED |
HOUSE BILL NO. 306
"An Act relating to deposits into the dividend fund
and income of and appropriations from the earnings
reserve account; establishing a permanent fund
dividend task force; and providing for an effective
date."
1:33:04 PM
REPRESENTATIVE JENNIFER JOHNSTON, shared that the bill
built on the work done by the Permanent Fund Working Group
and continued a conversation seeking a sustainable
Permanent Fund for future generations. She shared that it
had been an honor to serve as co-chair of the working group
with Senator Click Bishop. The group was comprised of four
members of the House and four members of the Senate and
included House Finance Committee members Representative
Merrick and Representative Wool. She reported that while
the working group had not come to an agreement on the ideal
Permanent Fund Dividend (PFD) amount, they all agreed the
Permanent Fund needed to grow and be protected from effects
of inflation.
Co-Chair Johnston elaborated that the majority of the
working group agreed on the need to live within the
framework of SB 26 [Permanent Fund legislation passed in
2018] or the percent of market value (POMV). She referenced
slide 5 of a presentation to the committee given by
Department of Revenue Deputy Commissioner Mike Barnhill on
the afternoon of March 9 [titled "HB 259 Supplemental
Permanent Fund Dividend"(copy on file)]. She read the third
bullet point on slide 5: "Structured (i.e., statutory)
solution to the PFD is important to reducing annual fiscal
uncertainty." She relayed that HB 306 started the
conversation on how to address the structure and move away
from the uncertainty that had existed for a number of
years.
Co-Chair Johnston relayed that the Permanent Fund Working
Group had modeled many different scenarios, none of which
had completely eliminated the deficit. The scenario
proposed in HB 306 had come the closest [to eliminating the
deficit] at the time. She highlighted that the current
fiscal outlook for world markets had changed dramatically
over the past couple of days. She looked forward to the
committee's conversations that would account for the
current market and looking into the future. She stated that
like recent conversations on the House floor regarding HCR
13, common ground was most often found on the topic of
ensuring the Permanent Fund was protected for future
generations.
Co-Chair Foster handed the gavel to Co-Chair Johnston.
1:37:06 PM
REPRESENTATIVE CHUCK KOPP, introduced a PowerPoint
presentation titled "HB 306: A Path Forward" (copy on
file). He began on slide 2 and expressed gratitude to the
Permanent Fund Working Group. He detailed that the group's
work over the interim had brought them to the current point
and showed that the legislature could reach consensus on an
important topic like protecting the Permanent Fund. He
moved to shared goals for Alaska on slide 3 including
healthy and safe communities, a thriving private sector, an
efficient government that upheld the law, and a strong,
growing Permanent Fund.
Representative Kopp moved to slide 4 titled "Why Protect
the Permanent Fund." He detailed that historic investments
in the fund had allowed it to grow from the initial
$734,000 deposit to $68 billion as of several days earlier.
He noted an update was likely needed. He elaborated that
there had been recent discussion on the House floor about
the growth of the fund, a sustainable draw, fiscal
solvency, and the state's creditworthiness. He noted that
the fund could be ephemeral at times, but it could be
helpful to discuss the ways it had played into the state's
shared history, outside of paying a PFD. He believed it was
an opportunity to celebrate the fund's success, recognizing
that the Permanent Fund would continue to have a major
impact on Alaskan life.
1:39:17 PM
Representative Kopp addressed goals for Alaska and how the
Permanent Fund supported the goals on slide 5. He believed
the outcomes listed on the slide were useful whenever
concerns were vocalized about the POMV being a raid or
theft. He expounded that fund earnings had helped the state
respond to the opioid epidemic, the rise in crime, the 2018
earthquake, and the 2019 wildfire season. He continued that
earnings had allowed Alaskans' tax burden to remain low
despite the drop in oil prices. Additionally, the POMV had
acted as the most effective spending cap in decades. He
stated that the accomplishments further underscored the
need to keep the fund strong.
Representative Kopp moved to slide 6 and addressed how the
state had been funding its services. The slide began with
1912 through statehood and present day and highlighted how
the fund's earnings had become integral to running the
state over time. In 1912, funding had come from industry
taxes and an income tax. By 1977, significant oil revenue
began to flow into Alaska. The income tax had been repealed
in 1980 and in 2013 when oil prices dropped dramatically,
the state had responded by cutting billions in the
operating budget. The state's need to address the
mathematical tension in its budget with the dividend and
the POMV was continuing.
Representative Kopp moved to slide 7 and discussed that
deposits into the Permanent Fund had allowed the fund to
grow. He detailed that deposits into the fund including a
combination of mineral royalties and non-royalty
legislative appropriations plus inflation proofing, had
caused the fund to grow to roughly $66.7 billion. He
pointed out that previous legislatures had understood the
importance of growing the fund in the long-term, which had
been done at the expense of short-term benefits through
appropriations.
1:41:34 PM
Representative Kopp reviewed how the POMV worked on slide
8. He explained that the Alaska Permanent Fund Corporation
(APFC) calculated the total value of the Permanent Fund
(principal and earnings) and then calculated 5.25 percent
of the fund's value over the first five of the last 6
years. He noted the draw was set at 5.25 percent for FY 19
through FY 21 and 5 percent thereafter. The result became
the maximum amount the state could spend from the Earnings
Reserve Account (ERA). Lastly, the legislature appropriated
the specified amount to pay for dividends and state
services.
Representative Kopp turned to slide 9 and discussed how to
keep the Permanent Fund strong. He stated that in addition
to the appropriations made to the fund's principal, there
was more that could be done to support the fund's strength.
Other ways to keep the fund strong included supporting and
abiding by the POMV structure, paying out an affordable
dividend, and supporting APFC's work to recruit and retain
great investors. He acknowledged Co-Chair Johnston for her
work helping APFC with its ability to recruit and retain
some of the best investors in the country, which Alaska had
benefitted from.
1:42:52 PM
Representative Kopp turned to slide 10 titled "Why Act
Now?" He believed the legislature had kicked the can down
the road long enough. He clarified he was not laying the
blame on anyone. He continued that the state's savings were
nearly exhausted and with oil at such low prices, oil could
not be expected to bail the state out of the $1.5 billion
structural deficit. He highlighted that any new revenues
would not solve the deficit in the current year. He noted
that oil was currently around $34 per barrel and the
forecast indicated prices heading into the $20s.
Representative Kopp reviewed a slide addressing the need to
change state statutes on slide 11. He explained there was a
mathematical tension between revenues and costs. The change
in statute was needed due to the gap illustrated on the
slide. The slide showed the revenue picture paired with the
state's expense picture in the governor's FY 21 budget and
the size of the gap necessary to pay the statutory
dividend. He continued that the gap caused unnecessary
stress and uncertainty across the state. He noted that
attempts to reduce the gap with $1.5 billion in cuts and
cost shifting had not worked well. He detailed that
legislators had heard from all of their communities on the
devastating effects of absorbing the costs or having their
share of petroleum property tax or fisheries tax clawed
back to the state (actions taken to pay the whole
dividend). He pointed out that if the gap occurred again in
the following year, the state would have no savings to fill
it. He expressed gratitude to Mr. Barnhill for underscoring
the issue in his presentation the previous day.
Representative Kopp shared that according to Fitch ratings
(one of the three largest credit rating agencies in the
U.S. other than Moody's and Standard and Poor's), the
state's desire to pay a full statutorily calculated PFD
elevated the state's fixed cost burden and reduced its
ability to respond to future economic weakness, as revenue
growth was expected to be modest. He stated the Coronavirus
and downward spiral of oil were contributing to a state of
future economic weakness. He noted that Fitch had made the
statement five or six months back.
1:45:25 PM
Representative Kopp turned to a graph showing the UGF
revenue/budget status quo on slide 12. The graph
illustrated the amount left unknown if no change was made
in the current year. The top dotted line represented a
budget with a statutory PFD and the gap between the budget,
less dividends. He noted the gap was significant and
$1.5 billion would be required to balance the budget. He
highlighted that in the following year, the legislature
could spend the remaining $500 million in savings and still
have a deficit exceeding $1 billion. He reported that under
the status quo, the annual gap would exceed the state's
savings and would result in a crippling tax burden.
Representative Kopp moved to slide 13 and addressed the two
elements of the HB 306 plan, including an 80/20 split of
the POMV and the review of the plan's effectiveness by the
Permanent Fund Task Force within six years. He explained
that the timeframe had been selected because it had taken
since 2014 to present day to evaluate the situation. He
detailed that under the 80/20 split, of the $3.1 billion in
FY 21, 80 percent would go to fund state obligations
(education, public safety, transportation) and 20 percent
went to dividends.
Representative Sullivan-Leonard looked at slide 13. She was
trying to determine how the 80/20 formula had been decided
upon. She believed the task force had received many
different proposals.
Co-Chair Johnston clarified that the Permanent Fund Working
Group was different than the Permanent Fund Task Force that
would review the plan's effectiveness in six years under
the proposed legislation.
Representative Sullivan-Leonard asked if the 80/20 POMV
split was a result of the working group or had been formed
independently.
Representative Kopp answered that much of the working
group's effort was incorporated in the bill. He elaborated
that the 80/20 split was a starting point for the
conversation as laid out by Co-Chair Johnston. He shared
that the committee would be presented with different
modeling scenarios - it was possible to look at the split
in many different ways. He explained that the bill began
with the 80/20 split because it worked the best for Alaska
out of the scenarios that had been available at the time of
the bill's introduction, which the modeling would show.
Representative Sullivan-Leonard noted that the proposal
brought forward by her Mat-Su representative was very
different from the bill's proposal. She was trying to
figure out who the author of the proposal was. She asked if
Co-Chair Johnston had proposed the 80/20 split in the bill.
Co-Chair Johnston that she had been a co-chair on the
Permanent Fund Working Group, and the 80/20 split had been
one of the scenarios the group had modeled. She elaborated
that it was one of the few scenarios that provided a
glidepath of sustainability.
Representative Sullivan-Leonard asked who had brought the
proposal forward.
1:49:28 PM
Co-Chair Johnston answered that the House Rules Committee
had brought the bill forward via herself as the vice-chair
and the committee chair Representative Kopp.
Representative Sullivan-Leonard shared that she was trying
to determine who brought the proposal forward. She asked if
it had been Senator Bishop or another group. She noted
there had been people tasked to work on different modeling.
Co-Chair Johnston answered that she, Representative Kopp,
and the majority of the House Rules Committee had brought
the proposal forward. She detailed that two things had been
brought forward with the Permanent Fund Working Group: 1)
the need to maintain the structured draw and 2) agreement
on the modeling presented to the group. She added that it
was possible to use numbers from the past week in modeling,
but it may not contain all of the nuances currently
occurring in the world markets.
Representative Kopp added that the bill was informed by the
working group but authored by himself with the assistance
of Co-Chair Johnston. He added that he was proud to be the
author of the legislation. He turned to slide 15 and
detailed that under the bill, a Permanent Fund Task Force
would review and evaluate the Permanent Fund and PFD after
six years. The task force would include three House
members, three Senate members, and an appointee by the
governor. He elaborated that the task force was charged
with giving Alaskans a performance review for HB 306 and
the Permanent Fund. The task force would consider the
effectiveness of the plan and determine whether the
Permanent Fund continued to be sustainable. The goal was
for the task force to evaluate whether a change was
necessary (the same thing legislators had been evaluating
since 2014). He stated that 2026 had been chosen in order
for legislators to have a full two-year legislature to
consider the recommendations (the 35th legislature).
1:51:40 PM
Representative Kopp turned to a graph on slide 16 and
discussed the impact of the plan on UGF revenue/budget. He
noted the graph had been produced by LFD to illustrate the
plan's performance under the FY 21 budget. He relayed that
LFD would provide testimony to the committee regarding the
bill and could address impacts on a more detailed level. He
pointed to the significant difference between the budget
gap under the status quo compared to the bill. He pointed
out that while a modest draw from savings would need to
occur, the gap would be far more easily filled with
reductions or revenues than the $1.5 billion gap under the
status quo. He continued that state savings also had a much
longer life under the proposed scenario.
1:52:43 PM
Representative Kopp advanced to slide 17 and spoke to the
impacts of state savings. The slide included a bar chart
showing the ERA growth under HB 306. He highlighted that
under the bill proposal the ERA grew and the CBR provided a
glidepath of about six years to allow the legislature to
look at new revenues/spending reductions.
1:53:16 PM
Representative Kopp looked at slide 18 that illustrated the
difference between the traditional statutory PFD and the
PFD under the proposed scenario in HB 306. Under the
legislation, the PFD was roughly $900. He turned to slide
19 to show how the amount compared to historical PFDs. He
pointed to the black line reflecting the PFD (in nominal
dollars) and noted the volatility over time. The slide also
showed the average dividend over time.
Representative Kopp moved to slide 20 and highlighted that
the average past PFD amount was $1,170 and under the
legislation, the 2020 PFD would be $900. He remarked that
it was popular to use the numbers based on the statutory
PFD formula, but he believed it was more realistic to
compare the amount to PFDs previously given to Alaskans. He
noted there was a $270 difference between the number in the
bill and the historical average.
Representative Kopp turned to slide 21 titled "HB 306 Moves
Us Forward." He detailed that the bill provided a path
toward being able to plan for the state's future instead of
living in a crisis mode. He elaborated that the bill would
unlock the ability for the state to improve its credit
ratings, stabilize PFD amounts, stabilize the budget
process, and ultimately assist with gaining a true
understanding of the budget picture. He stated that the
legislature had begun every budget process in near bedlam
since the drop in oil prices. He stressed that nobody won
when every year was met with the possibility of a
government shutdown, mass layoffs, or new taxes. The bill
would provide a built-in baseline to work from.
Additionally, the bill would provide a set of shared facts
about the budget outlook. He clarified that the bill did
not take anything off the table except the overspending of
the ERA and eroding the future of the state's children.
1:55:32 PM
Representative Kopp turned to decisions to be made on slide
22 including spending priorities, sustainability of the PFD
and Permanent Fund, and other revenue options. He stated
that the options accurately reflected the current fiscal
options. He questioned whether the legislature was willing
to continue the budget debate year after year. He wondered
if the legislature was interested in raising taxes to pay
for dividends, which would become necessary as soon as 2021
due to minimal savings. Alternatively, he wondered if the
legislature was willing to make difficult decisions at
present that would allow for the preservation of the
Permanent Fund and PFD and would provide economic stability
and community security. The question was what the highest
and best use of the fund was. He asked if the fund was to
be used as an ATM when the state needed money and whether
it was considered as a legacy to be left to future
Alaskans.
1:56:28 PM
Co-Chair Johnston recognized that Representative Knopp had
joined the meeting.
Vice-Chair Ortiz thanked the sponsor for bringing the bill
forward that started a much needed conversation. He asked
if there had been any consultation with economists on how a
smaller PFD may impact the state's economy.
Representative Kopp answered that he was well aware of
reports that had been authored and given to the legislature
showing what a reduced dividend amount could mean across
Alaska. He noted that some of the reports did not include
increased state services. There were many small communities
in Alaska and the numbers of people collectively accounted
for a very small percent of the state services received;
however, in order to pay a full PFD, it would be necessary
to wipe out the services the small communities were
receiving. He confirmed that he had considered the
information that had already been put on the record in
terms of what the dividend meant to the economy.
Co-Chair Johnston noted Vice-Chair Ortiz's an ISER report.
She shared that the report had been done before the massive
growth in the Permanent Fund and PFD had occurred. She
believed it was something that was forgotten.
Representative LeBon asked if the bill intended for the
legislature to fund the PFD first with 20 percent of the
POMV and all other funding decisions would follow.
Representative Kopp answered that the formula would provide
a baseline to start from. He explained that the legislature
would know the money available for state services and what
would go to the dividend. He reasoned that the absence of a
resolution on the PFD and trying to reconcile the
plummeting energy market and oil prices seemed to be what
kept the legislature in session for five to six months of
the year. Structurally, the bill would tackle the most
difficult thing - the PFD - first, which would free up
bandwidth to address the entire budget and determine the
true deficit. He elaborated that the $1.5 billion deficit
was only related to the statutory PFD. He clarified that
the deficit was tied into state agency spending; however,
the dividend was nearly twice as large as the largest state
agency. The PFD was a significant cost factor, which was
addressed by the bill.
2:00:55 PM
Representative LeBon considered the perfect economic storm
taking place that was associated with the decline in oil
prices and production. He asked if a $900 PFD and a state
income tax was a realistic possibility given the current
economic climate.
Representative Kopp answered that the state could be in
trouble in any scenario where it was paying a dividend
without adequate funding. He elaborated that there was no
safe formula that could predict what was currently taking
place in the market. He referenced the current PFD
calculation by APFC that was based on an average of five of
the previous six years. He remarked that the current year
would likely shape up to be tough. He highlighted the
difficulty in coming up with a formula that could
accurately predict the current market. He relayed that if a
dividend was paid base on the state's ability to pay, it
would have to be done with the current legislative
appropriation approach.
2:02:16 PM
Representative LeBon could see the day coming where the
legislature may be faced with overdrawing the POMV if it
was locked into using 20 percent of the 5 percent POMV draw
[for the PFD] and/or incorporating a state income tax to
fund the PFD. He believed if the PFD was paid first, as
under the bill proposal, it would be necessary to figure
out a way to make that happen. He furthered that the PFD
would be put at the tip of the mountain if paying it first
meant the possibility of instituting a tax, overdrawing the
ERA, or cutting agency spending.
Co-Chair Johnston added that model scenarios would be
presented the following day and committee members would
have the opportunity to ask more in depth questions.
Representative Carpenter looked at slides 12 and 16 that
showed revenue versus spending projections. He pointed to a
handout in members' packets generated by the Legislative
Finance Division that included multiple charts (copy on
file). He asked what forecast had been used to generate the
revenue bars on slides 12 and 16.
Representative Kopp answered that the graphs used the
forecast that had been available when the information had
been compiled about two weeks earlier. He noted that oil
prices had been higher and in the mid-$50s.
Representative Carpenter noted that one of the slides
showed the fall forecast had been used. He asked for the
percent increase used over time in the solid black line
reflecting the budget less dividends.
Representative Kopp deferred to his staff.
GRACE IRVINE, STAFF, REPRESENTATIVE CHUCK KOPP, relayed
that LFD would present to the committee the following day.
She recognized that the slides compiled as recently as one
week earlier no longer reflected the reality of the budget
and updated forecasts. She deferred the questions until the
LFD presentation.
Representative Carpenter referenced the LFD handout in
members' packets that listed the annual increase as the
rate of inflation at 2.25 percent. He noted that he was
looking at his own chart and believed revenue for FY 21
would be about $700 million. He remarked that the change
was drastic from the current projection.
2:05:06 PM
Co-Chair Johnston agreed that there was a new day coming.
Representative Carpenter referenced discussion on the need
to pay a PFD the state could afford. He pointed out that
the same logic applied to state spending. He highlighted
the need for affordable state spending levels. He believed
the discussion about new revenue and eating up a PFD needed
to include a discussion about spending levels.
Representative Kopp thanked Representative Carpenter for
his comments. He recognized that Representative Carpenter
and Representative LeBon had both touched on an important
issue. He highlighted that the bill was only one important
piece of a sustainable fiscal plan that involved
controlling state spending and looking at new revenues.
HB 306 was HEARD and HELD in committee for further
consideration.
| Document Name | Date/Time | Subjects |
|---|---|---|
| HB 306 Bicameral Permanent Fund Working Group Report 1.20.2020.pdf |
HFIN 3/10/2020 1:30:00 PM |
HB 306 |
| HB 306 APFC Resolution 10.17.2018.pdf |
HFIN 3/10/2020 1:30:00 PM |
HB 306 |
| HB 306 LegFin Modelling 3.5.2020.pdf |
HFIN 3/10/2020 1:30:00 PM |
HB 306 |
| HB 306 Sponsor Statement 3.5.2020.pdf |
HFIN 3/10/2020 1:30:00 PM |
HB 306 |
| HB 300 Sponsor Statement 3.9.20.pdf |
HFIN 3/10/2020 1:30:00 PM |
HB 300 |
| HB 300 Presentation Wool POMV 3-9-20.pdf |
HFIN 3/10/2020 1:30:00 PM |
HB 300 |
| HB 306 Presentation 3.5.2020.pdf |
HFIN 3/10/2020 1:30:00 PM |
HB 306 |
| HB 306 Sectional Analysis 3.5.2020.pdf |
HFIN 3/10/2020 1:30:00 PM |
HB 306 |