Legislature(2019 - 2020)ADAMS 519
03/11/2020 01:30 PM House FINANCE
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| Audio | Topic |
|---|---|
| Start | |
| HB306 | |
| 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. 300
"An Act relating to deposits into the dividend fund
and income of and appropriations from the earnings
reserve account; relating to the community assistance
program; and providing for an effective date."
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."
1:38:01 PM
PAT PITNEY, DIRECTOR, LEGISLATIVE FINANCE DIVISION, made
opening remarks and introduced a PowerPoint presentation
titled "HB 300 and HB 306 Modeling Overview: House Finance
Committee," dated March 11, 2020 (copy on file). She shared
that the presentation used static modeling projections
because it was much easier to explain, especially for
individuals looking at the materials on the website. The
projections were built on updated oil and percent of market
value (POMV) forecasts. She noted the updates had been made
due to the dramatic change in the market and drop in oil
price in the past couple of weeks. She detailed that oil
futures were trading at $40 per barrel, which was as good a
price predictor as anything. The Department of Revenue
(DOR) typically came out with an updated forecast towards
the end of March; however, because the drop in price had
been so dramatic, the Legislative Finance Division (LFD)
felt it would be irresponsible to assume the forecast from
the previous fall would come to fruition.
Co-Chair Johnston shared that she was happy with the method
LFD had selected. She detailed that a recent revenue report
provided by DOR specified that the fall [2019] forecast had
placed significant emphasis on the futures market. She
asked what assumption LFD used regarding the draw from the
Permanent Fund.
Ms. Pitney answered that the question would be addressed in
the presentation.
ALEXEI PAINTER, ANALYST, LEGISLATIVE FINANCE DIVISION,
began on slide 2 titled "Assumption: Oil Price." He shared
that DOR's spring forecast would be coming out soon. The
fall forecast had assumed an oil price of $59 per barrel in
FY 21, which had been based on the futures market at the
time. He noted there was no direct futures market for
Alaska North Slope (ANS) crude; therefore, the forecast
typically used the futures market for Brent, a global,
waterborne crude for all of the various crude oils moved on
tankers. Generally, ANS crude tracked closely to Brent,
which made it a good stand-in for the ANS price. As of the
previous day, ANS crude was about $37 per barrel. The
models in the presentation used a base price of $40 per
barrel for FY 21. He elaborated that the future's market
for Brent showed prices climbing to $40 per barrel sometime
during FY 21. He noted that if he were to prepare the
models on the current day, he would likely have used $41
per barrel.
Mr. Painter continued to address slide 2. The presentation
assumed the average would be $40 per barrel for the
remainder of FY 20, which may be overoptimistic, but it was
a nice round number. He reported that $40 per barrel would
result in a revenue reduction from the fall forecast of
about $300 million in FY 20. He explained it would mean the
price for the fiscal year of about $55 versus the $63
projected in the fall.
1:42:34 PM
Mr. Painter stated that combined with the governor's
supplementals it would result in a deficit of about $800
million in FY 20. For FY 21, the impact of the lower price
assumption was about $550 million. He clarified that the
data only pertained to the oil market and did not factor in
any tax changes due to the Coronavirus or any other factors
that could impact tax revenue. He highlighted other
potential impacts to revenue. He detailed that the revenue
forecast had called for about $50 million of unrestricted
investment revenue (interest earned on the state's savings
accounts). However, in the low interest rate environment,
$50 million may be high. He relayed that in 2019, the state
had received approximately $16 million of corporate income
taxes from the tourism industry, but with the hit to cruise
ships in the current year, the number may be high. He
reasoned that a reduction of $550 million was likely a
little on the conservative side if oil prices held. He
reiterated that LFD had used round numbers that could
easily be accessed until the spring forecast was published.
Co-Chair Johnston asked about any impact to the fishing
industry.
Mr. Painter answered that there would likely be a price
impact on fish in the coming summer, but he did not know
what the scale would be. He noted that a reduction of $600
million may be more realistic when including the secondary,
non-petroleum impacts of the Coronavirus.
1:44:45 PM
Mr. Painter turned to slide 3 titled "Assumption: Oil
Production." The first bullet specified that LFD was still
using the fall production forecast. To date, production had
been slightly below the forecast, but not significantly
compared to the price difference. The fall forecast showed
production of just under 500,000 per day for the next
decade - the number declined a bit and was expected to
rebound as new fields were presumed to come online. The
fiscal model also included the low and high production
forecasts prepared by the Department of Natural Resources
(DNR). He detailed that the low forecast assumed that very
few or no new developments would succeed, which showed
production steadily declining to about 320,000 barrels by
FY 29. The high forecast reflected the optimistic case
assuming that most or all of the potential new developments
succeeding and showed production of nearly 700,000 barrels
per day in FY 29. He reminded committee members that the
data was based on the fall forecast and it was possible
that with a different oil price assumption, DNR may revise
its production forecast in the spring.
1:46:00 PM
Mr. Painter turned to slide 4 titled "Assumption: Permanent
Fund Earnings." He highlighted that market performance had
not been great during the current year. The LFD modeling
used the Alaska Permanent Fund Corporation's (APFC) low
return scenario for FY 20 of -0.52 percent, which would put
the total Permanent Fund balance at about $63.5 billion at
the end of FY 20. He noted the current balance was close to
the $63.5 billion. He shared that LFD believed it was a
reasonable return to assume given the stock market
performance for FY 20. The modeling also used the APFC
forecast of a 7 percent total return beginning in FY 21. He
pointed out that the low return scenario still assumed
there was a positive statutory net income in FY 20 despite
the negative total return, which was reasonable based on
the amount already realized. He noted that the reductions
in the stock market essentially brought the market back to
2018 levels. He elaborated that while it looked like a
substantial decline, APFC may have purchased the stock
prior to 2018 and gains may still be realized when the
assets were sold when APFC rebalanced its portfolio. The
market performance in the past two years had been very
positive and the current declines were unwinding some of
those increases. He clarified that the situation was not
like the one in 2008 when assets had been sold at a loss.
Representative Carpenter asked if Mr. Painter had stated
the projected Permanent Fund balance was $63.5 billion by
the end of the calendar year.
Mr. Painter clarified that the number pertained to the end
of the current fiscal year.
Vice-Chair Ortiz asked if the current projected fund value
was $63.5 billion despite the recent total of about $67
billion.
Mr. Painter replied that as of earlier in the day, the
previous day's Permanent Fund balance had been about $63.5
billion (approximately the level of the low return scenario
for the end of the fiscal year).
Representative Josephson asked what may have been realized
that was protected from a bear market or recession.
Mr. Painter responded that APFC had about $1 billion to
$1.5 billion in dividends, interest, and real estate rent
that came into statutory net income regardless of the
market. Additionally, gains were already realized
throughout the year prior to the stock market decline,
which would not be erased. He added that even as APFC may
shed some old stocks, if they were purchased prior to 2017,
a gain would be realized even though the stocks were
significantly below their peak. He explained that the peak
may have been several months back, but there would still be
a gain from when the stocks were purchased.
1:49:44 PM
Mr. Painter moved to slide 5 titled "Other Assumptions."
The default budget assumption used by LFD was that spending
would be the governor's amended operating, capital, and
supplemental budgets growing with inflation. He noted there
were some scenarios in the presentation that used different
assumptions. The modeling assumed that supplemental budgets
in future years would be $50 million as opposed to the $300
million supplemental in the current year because it assumed
most of the spending was being corrected in the operating
budget for FY 21. The LFD modeling assumed CBR earnings
were from the fall Revenue Sources Book. The CBR deposit
assumption was modified from DOR's assumption due to higher
deposits received so far in FY 20. He added that the number
was a bit higher than the fall forecast, but LFD believed
it would be corrected in the spring forecast.
Mr. Painter relayed that the modeling scenarios assumed no
inflation-proofing for four years due to intent language
included with the $4 billion transfer in FY 20. He
elaborated that the intent language had specified it would
serve as inflation proofing for eight years, but it had
been attached to a $9.4 billion transfer, which the
governor had vetoed down to $4 billion. The $4 billion
counted for roughly four years of inflation proofing. The
House budget adopted by the House had included inflation
proofing; however, the LFD modeling default assumptions
ignored what had taken place and was based on the
governor's budget.
Representative Carpenter asked about the $4 billion
transfer. He queried the balance of the ERA at the
beginning and end of FY 20.
Mr. Painter responded that he did not have the numbers
immediately available. He noted the question would be
easier to address during the modeling.
Co-Chair Johnston asked what inflation assumption was used
in the presentation.
Mr. Painter replied that LFD used the rate 2.25 percent
forecast by the state's investment advisor Callan. He noted
the figure may be a bit high in the near-term and a bit low
in the long-term. He added that LFD had used the assumption
for a number of years.
1:52:20 PM
Mr. Painter turned to an LFD model for the governor's
amended budget on slide 6. He began with the upper left
chart showing UGF revenue/budget from FY 19 to FY 29. The
blue bars reflected traditional petroleum and non-petroleum
revenue, green bars represented draws from the ERA
according to some sort of statutory formula, the orange
bars reflected draws from savings accounts like the CBR and
Statutory Budget Reserve (SBR), the dotted line was the
total budget, and the solid black line was the budget
without PFDs. He explained that the governor's initial
budget had been balanced out of the CBR at an oil price
assumption of $40. He highlighted that the orange bar did
not quite meet the dotted total budget line, indicating the
CBR would run out and there would need to be another
deficit filler in the governor's FY 21 budget. The white
space on the chart between the bars from FY 22 to FY 29 and
the dotted total budget line reflected there was currently
no planned way to meet the budget gap. The gap could be
filled with the ERA or some other method, but LFD would not
necessarily tell the legislature what the method needed to
be.
Mr. Painter moved to the middle left chart showing the
state's budget reserves on slide 6. The tiny yellow sliver
in the FY 19 bar reflected the remainder of the SBR. The
orange portion of the bars for FY 19 and FY 20 reflected
the CBR, which ran out sometime in FY 21. The green bars
showed the ERA. He noted that the ERA was not truly a
budget reserve because there was a planned way the draw
would be spent. For the purpose of the modeling, the ERA
had been counted under budget reserves.
Mr. Painter addressed the table at the bottom left of slide
6 showing the underlying numbers used in some of the charts
including the ERA balance, the surplus or deficit, the CBR
and SBR balances, and the percentage of the budget coming
from savings.
1:54:49 PM
Mr. Painter moved to the graph on the top right reflecting
the PFD check going to Alaskans. The governor's budget
included a PFD of about $3,000 in FY 21.
Co-Chair Johnston asked for more detail. She referenced a
five-year lookback and drawing from the ERA. She pointed to
the charts on the top and middle left of slide 6. She was
surprised the dividend continued to climb.
Mr. Painter answered that the scenario on slide 6 did not
necessarily assume the ERA would be used to fill the
deficit. The projection merely indicated what the dividend
would be under current statute if extra funds were not
drawn from the ERA. He noted that the funds would have to
be drawn from somewhere to meet the $2.5 billion deficit,
presumably the funds would come from the ERA and could cost
the dividend. He reiterated that the scenario on slide 6
did not assume any use of the ERA beyond the current
statute.
Mr. Painter continued to review slide 6. He pointed to a
chart showing the impact of ERA draws on POMV. He noted
that the chart removed the five-year average. He explained
that one of the challenges with the model was because there
was a lagging five-year average for the POMV draw, a one-
year draw from the ERA would not show up for several years,
making it difficult to see the impact. Therefore, the chart
removed the five-year average and showed the entire impact.
For example, if $1 billion was drawn from the ERA, it would
reduce the POMV by 5 percent or $50 million. If the deficit
were filled by the ERA it would result in a decrease in the
POMV to about $2.7 billion instead of an increase to
$3.8 billion by FY 29. He concluded there would be a
significant decline in the POMV draw if the deficit were
filled with the ERA.
1:57:47 PM
Co-Chair Johnston surmised that the line representing the
dividend check was not part of the model. She did not know
how the dividends would be obtained.
Mr. Painter clarified that the model did not assume how the
deficit would be filled. He explained that LFD did not want
to assume the legislature would cut the dividend, draw from
the ERA, or cut from education or any item in particular.
Co-Chair Johnston surmised that it was called "fairy dust."
Mr. Painter explained the scenario showed the system was
broken.
Co-Chair Johnston could see a large disconnect and believed
the chart showing the dividend check was built on fairy
dust. She thought they should be looking at the lower two
models on the right.
Representative Sullivan-Leonard asked about the FY 20 ERA
numbers. She asked how LFD had arrived at the
$12.698 billion for the ERA.
Mr. Painter responded it was the total under the low
scenario provided by APFC. The corporation's old projection
for statutory net income for FY 20 would be the ending
balance in the forecast.
Representative Sullivan-Leonard believed they had started
with an ERA balance of $18 billion and had subtracted
approximately $3 billion for POMV and another $4.6 billion
or $5 billion for the corpus. She estimated the remaining
balance at closer to $10 billion. She would like to see the
real numbers that would be used.
Mr. Painter answered that the difference was the incoming
earnings for FY 21. He elaborated that even with a zero
total return there would still be statutory net income
entering the ERA. The ERA would still get income in FY 21
and already had, despite the negative total return in the
scenario.
Representative Sullivan-Leonard asked Mr. Painter to follow
up with the information. She believed the balance would be
$10 billion.
Mr. Painter answered that he would follow up.
2:01:25 PM
Co-Chair Johnston thought Mr. Painter had made an earlier
statement that earnings were $1.8 billion.
Mr. Painter clarified that he had not specified the
earnings amount, which were 5.27 percent of the total fund
value. There was a stable $1 billion to $1.5 billion, but
"they've already exceeded that for the fiscal year." He
believed the total would be about $3 billion, but he would
have to switch to the dynamic model to determine the
amount.
Ms. Pitney added there were four components including
current value, draws, statutory net income (achieved when
stock was sold), and unrealized loss that changed year to
year.
Representative Sullivan-Leonard answered that she
understood that.
Mr. Painter moved to a dynamic model that he clarified was
not part of the presentation (copy not on file). He looked
at FY 20 and noted that part of the difficulty was the
difference between the cash balance and the total ERA
balance. He pointed out that the ending FY 19 balance had
been about $18.5 billion. He elaborated that $3.2 billion
in statutory net income had come in and $4.6 billion had
been removed for inflation proofing and the POMV draw,
resulting in a balance of $12.7 billion after the
allocation of unrealized gains. He had not planned to talk
about the allocation of unrealized gains. He clarified that
the cash balance of the ERA at the end of FY 18 had been
$16 billion, not $18 billion. The other $2.5 billion was
comprised of unrealized gains that had to be allocated
between the ERA and the principal (split up proportioned to
the value). The ending FY 18 balance was $18.5 billion. The
cash balance was $11.7 billion at the end of FY 20 and some
of the unrealized gains were allocated to the ERA, which
resulted in a balance of $12.7 billion.
Mr. Painter explained that if they were sticking only to
cash balances and ignoring the unrealized gains, which he
believed was a much better way to look at it (but
unfortunately it was not how the financial statements
looked), the balance went from $16 billion to $11.7
billion. He clarified that total balances would be $18.5
billion down to $12.7 billion. He thought the difference
between the cash versus the amount including the unrealized
gains may be the source of confusion.
2:04:30 PM
Mr. Painter returned to slide 6 and reviewed a bar chart
showing the Permanent Fund balance (second chart down on
the right side of the slide). The chart compared the FY 20
total balance grown with inflation [to the scenario
principal and scenario ERA]. He highlighted the drop from
FY 19 to FY 20 and growth with inflation reflected by the
red bars. The chart also included bars showing the fund
principal and ERA. He noted that without any unplanned
draws the Permanent Fund would nearly keep up with
inflation - it was slightly below inflation due to poor
earnings in FY 20.
Mr. Painter explained that the information in the middle of
slide 6 included the data and assumptions driving the
graphs. The variables would change with the different
modeling scenarios presented. He noted that the
highlighting should help to show anything that was changing
between modeling. Anything that was not highlighted was
reflective of the governor's budget, the default assumption
used in the scenarios. The data showed a $40 price of oil,
the low FY 20 investment return in the Permanent Fund, and
7 percent going forward. The modeling used the POMV draw as
specified in SB 26 and the statutory dividend calculation
of 50 percent of statutory net income.
2:06:14 PM
Representative Wool looked at the graph showing the impact
of ERA draws on POMV. He reasoned that it was an isolated
graph because if it were implemented, the entire slide
would change, including the graphs showing the Permanent
Fund balance and UGF revenue/budget. He noted that all of
the green bars reflecting POMV draws in the UGF
revenue/budget chart would be significantly less because
the ERA would be much smaller. He asked for verification
that the graph showing the impact of ERA draws on the POMV
was an isolated study.
Mr. Painter replied affirmatively. He elaborated that
previously there had been an assumption the legislature
would go into the ERA. He explained that LFD did not want
to use an assumption that the legislature would break the
law it passed the previous year. The chart was a way to
show what the impact would be if the deficit were filled
via funds from the ERA. He clarified it was not to suggest
it was the only option or the option the legislature would
select.
Representative Wool looked at the top right chart showing
the dividend check at the statutory level and the top left
showing the budget and revenue. He thought the two charts
were inconsistent without more revenue.
Mr. Painter believed the point of any scenario showing the
white space was to indicate that the scenario was not
workable. The white space indicated there was a gap between
revenue and the budget. He did not know that it would be
the governor's plan, but it was the governor's budget with
no other changes. The chart showed a gap beginning in the
next fiscal year.
Mr. Painter highlighted that at $40 oil, the budget less
dividends line was above available revenue. He noted that
even with no dividend there would still be a deficit with
an oil price of $40 through FY 29.
2:08:46 PM
Representative Carpenter looked at the top left chart on
slide 6 and pointed to the black spending line. He asked
what an annual 2.5 percent growth [in inflation] equaled in
a dollar figure.
Mr. Painter answered that he did not recall the number off
the top of his head. He noted that the 2.25 percent only
applied to the agency operations and capital budget, not
the statewide items including retirement payments. He
explained it was roughly the $4 billion in agency
operations and capital budget combined that were moving at
2.25 percent (about $50 million per year).
Mr. Painter moved to a modeling scenario on slide 7
reflecting HB 306 where 20 percent of the POMV draw went to
the PFD and 80 percent went to the General Fund. While the
deficit would be reduced under the scenario, a deficit of
$800 million remained in FY 21 after supplementals, which
would grow to about $1 billion after the POMV draw dropped
down to 5 percent in the coming year. The CBR would extend
through FY 22 (instead of FY 21), but it would be
insufficient to get through FY 23 without other changes.
The dividend started at just under $1,000 and gradually
increased to $1,000 over the period shown.
Co-Chair Johnston remarked that the scenario looked much
different than modeling the committee had seen at the
beginning of session. She observed that it highlighted the
volatility in revenue. Previously, the information had
provided a glidepath for the CBR, albeit not a substantial
one. She noted how quickly things had changed.
2:11:40 PM
Mr. Painter moved to slide 8 showing the same charts for
HB 300 that included 15 percent of the POMV draw going to
the dividend. The slide showed a $300 million increase over
the governor's budget reflecting a community dividend where
10 percent of the POMV would go to communities as well as a
small increase to the University. The slide also showed
10 percent of the POMV draw going to the capital budget
(about $300 million versus the $140 million in the
governor's budget). He detailed that although the scenario
had a lower dividend, due to spending increases the bill
would result in a deficit in FY 21 of about $1.1 billion
rising to about $1.3 billion and larger in future years.
The scenario assumed that none of the community dividend
was used to offset state expenditures. He intended to
provide some examples that would work a little differently.
He pointed to the dividend check chart on the upper right
of the slide that matched information heard the previous
day.
2:12:54 PM
Mr. Painter moved to slide 9 and provided a different model
for HB 300. He detailed that the community dividend would
be 5 percent of the POMV draw instead of 10 percent and the
capital budget would be 5 percent of the draw instead of
10 percent. The scenario resulted in a budget change of
$150 million instead of $300 million and a lower capital
budget assumption as well. The scenario looked very similar
to the other bill in terms of deficits of about
$800 million in FY 21 growing to about $1 billion in FY 22
as the POMV draw reduced from 5.25 percent to 5 percent. He
noted that the dividend number was essentially identical.
Representative Wool asked if there was a scenario that
would address school bond debt reimbursement.
Mr. Painter turned to scenario 5 on slide 10 that assumed
all of the budget increases were paid for by cost shifts
and not assuming where they would be (the assumption was no
cost increase due to the bill). The scenario assumed the
increased community amount would be used to reduce expenses
elsewhere. The scenario showed a smaller deficit of about
$650 million in FY 21 and $800 million in other years.
2:14:58 PM
Mr. Painter turned to slide 11 and addressed "Governor
Scenario 5 (Balanced)." He detailed that the governor's 10-
year plan published in December had included five
scenarios. The balanced scenario included a mix of reduced
spending, reduced spending growth, and some sort of tax
that would raise $500 million. He noted that he had used a
sales tax in the model on slide 11, but it could be any tax
(the type had not been specified in the governor's plan).
The scenario also switched the PFD formula from being
50 percent of statutory net income to 50 percent of the
POMV draw. He relayed that under the fall forecast
assumptions the plan roughly balanced the budget. With
reduced assumptions, the scenario would leave a deficit of
about $1.2 billion, which would decline over time due to
the reduced spending growth rate based on the governor's
spending cap included in the plan. The scenario assumed the
growth would be about half inflation. He believed the
governor's spending cap allowed for that amount of growth
going forward.
2:16:26 PM
Ms. Pitney pointed to the bottom left of the slide and
highlighted the red boxes indicating the depletion of the
CBR and SBR. She relayed that under all of the model
scenarios the longest the savings would last was through
FY 22. She elaborated that the state's dependence on
traditional savings in the SBR and CBR was over under the
scenarios. When oil prices had crashed in 2014 there had
been over $15 billion in the two accounts. She relayed that
at the time, they had been looking at plans that would run
from 5 to 15 years. Whereas, currently they were looking at
plans that were one to two years.
Co-Chair Johnston added that even under a scenario with a
projected fund balance of $65 million in the CBR in FY 22
and $1 million in FY 23, there had been an understanding
that cash management needed a minimum of $500 million at
any given time. She stated that the CBR would no longer be
available as a cash management fund. She thought they would
need a legal opinion on whether the legislature could use
the Permanent Fund in place of the CBR (even though in the
Comprehensive Annual Financial Report (CAFR) the Permanent
Fund was a fund balance).
Representative Sullivan-Leonard looked at "Governor
Scenario 5 (Balanced)" on slide 11. She referenced the
budget reductions of about $500 million highlighted in
yellow [in the middle of the slide] and the potential for a
3 percent sales tax also highlighted in yellow. She asked
about the projected income for a sales tax.
Mr. Painter answered that LFD's assumption was $500 million
for a 3 percent sales tax, which was based on the fiscal
note to a bill introduced by former Governor Bill Walker
about four years back. He noted that Governor Dunleavy's
plan did not specify what tax would be used, it had merely
listed new revenue at $500 million. He explained that
because the sales tax happened to be the right amount, he
had used it in the model. He noted that it could be an
income tax, an industry tax, or some other source.
Representative Sullivan-Leonard asked for verification that
with the additional revenue there would still be a
$1.2 billion deficit.
Mr. Painter replied in the affirmative. He elaborated that
it was partly due to the delay in implementation and a tax.
The model optimistically assumed that new revenue could be
in place by January 1, which would result in half a year's
revenue. He explained that the deficit in FY 22 would be
reduced because of the full year of revenue.
2:20:03 PM
Vice-Chair Ortiz looked at the 3 percent sales tax
generating $500 million in the middle section of slide 11.
He asked if LFD knew what time of year most of the revenue
would be collected. He provided a hypothetical scenario
where there was contemplation of a seasonal sales tax
targeting the tourist season. He asked whether LFD had
information indicating how much revenue would be generated
based on more revenue coming in during the summer compared
to winter.
Mr. Painter answered that he would have to work on some
modeling. He shared that he had looked at studies of
seasonal sales tax in the past and one of the big issues
was whether local purchases could be timed around it or
not. For example, sometimes in places with extreme seasonal
sales taxes, people did not purchase cars in the summer and
waited until fall. He noted there may still be an increase
because in a normal year there were many tourists making
purchases in Alaska. He believed the modeling would be
complex and LFD would have to work with DOR to get an idea
of the true impact.
Co-Chair Johnston thought modeling of a seasonal sales tax
would have to show the kind of sales tax, the number of
exemptions, and any cap.
2:22:04 PM
Representative Josephson referenced scenario 6 "Governor
Scenario 5 (Balanced) on slide 11. He remarked that the
growing deficit reflected oil price slumps, which would be
more impactful in FY 21. He asked for verification that the
drop off reflected half a year's sales tax receipts in
FY 22.
Mr. Painter answered that the primary reason for the
deficit increase from FY 20 to FY 21 was the dividend going
from the $1,600 paid in FY 20 to 50 percent of the POMV
draw under the scenario on slide 11. There was also a
revenue difference. The decrease from FY 21 to FY 22 was a
result of the full implementation of the sales tax. The
continued reduction was due to spending growing slower than
inflation in the scenario. He detailed that because revenue
roughly increased with inflation, it would cause the
deficit to shrink over time.
Representative Wool looked at the black line representing
the budget [less dividends] in the chart on the upper left
side of slide 11. He referenced Mr. Painter's statement
that the number would not increase with inflation. He asked
what it would look like if there was an increase at half
the rate of inflation. He remarked that the budget would
increase slowly over time, but healthcare and Medicaid were
increasing faster than some items. He asked for
verification the increase would have to be offset by cuts
to education, transportation, public safety, and more. He
asked if cuts would be necessary to keep the low growth.
Ms. Pitney agreed. She detailed that for items growing
faster than inflation, choices would have to be made to
reduce or eliminate to keep the budget down.
Representative Wool surmised that based on what had
occurred with the attempted budget cuts in the previous
year, a slow growth budget scenario was easier said than
done. He believed there would have to be some political
will to have a low growth budget.
2:24:58 PM
Ms. Pitney answered that over the last five years there had
been a 10 percent reduction. As the pressure to keep
spending down had been significant over the past several
years, there were things like the recent 7 percent salary
increase for troopers that would take over any of the cost
pressure push down. She elaborated that other things would
pop up and in order to accommodate those things some
services needed to be eliminated.
Representative Wool referenced the Alaska Marine Highway
System (AMHS) and reasoned that if someone wanted to
increase its functionality it would be an upward cost
pressure that would need to be compensated for by a
decrease in another area.
Ms. Pitney agreed.
Mr. Painter moved to slide 12 and highlighted a scenario
titled "7. 50/50 of Statutory Net Income After Inflation-
Proofing." He relayed that the current dividend statute
calculated the 50 percent of statutory net income before
inflation proofing, meaning inflation proofing came out of
the government's share. The scenario would result in a
similar dividend to the scenario on slide 11. He
highlighted that the dividend tracked closely to current
statute; it was slightly lower as the inflation proofing
was borne by the dividend as well as by the General Fund.
The scenario would result in deficits of about $1.6 billion
in FY 21 and rising in future years based on no changes to
spending or anything else.
2:27:04 PM
Mr. Painter turned to slide 13 and reviewed a scenario
showing a $1,600 dividend with a progressive payment in
lieu of taxes (PILT) where the dividend was reduced based
on a recipient's income. He elaborated that based on the
amounts given to him, the reduction projection was about
$400 million of the cost of a $1,600 dividend. He explained
that if there was a structure where a portion of the PFD
would be held back for higher income recipients and a lower
income person would receive most or all of their PFD, the
cost of the dividend would be reduced by about 40 percent
or $400 million. Specifically, an individual would see a 20
percent reduction in their PFD starting at income between
$25,000 and $50,000 and a person making up to $100,000 or
more would see an 80 percent reduction. The scenario showed
a $1,600 PFD, although many people would receive less. The
scenario would result in a deficit of about $850 million in
FY 21, leveling out at about $1 billion going forward.
Representative Merrick asked if children would receive the
full $1,600 PFD, assuming they were not working.
Mr. Painter confirmed that the scenario assumed children
would receive the entire PFD unless they were a minor with
a significant income.
Representative Josephson asked for verification that the
dividend was income-based under the scenario [on slide 13].
Mr. Painter replied affirmatively. He elaborated that under
the scenario people with low income and children would
receive a higher dividend than people with higher incomes.
2:29:27 PM
Vice-Chair Ortiz asked what kind of administrative costs
would be added to distributing the PFD if the change was
made to the PFD program.
Mr. Painter replied that he did not know.
Vice-Chair Ortiz reasoned that added calculations would be
necessary, meaning there would be some added costs at least
in the short-term.
Mr. Painter responded that there would be some cost because
presumably there would have to be some sort of document
submitted that employees would check.
Co-Chair Johnston assumed the process would be similar to
having a tax audit.
Representative Carpenter asked for verification that the
modeling used a $40 price of oil going forward. He asked if
the projections assumed that $40 oil would be the new norm.
Mr. Painter agreed.
Representative Wool referenced Mr. Painter's statement that
a person earning over $100,000 would get 20 percent of
their PFD. He estimated the amount at $320. He asked for
verification that a person would still get $320 if they
earned $100,000, $200,000, or more.
Mr. Painter answered it was the assumption based on the
scenarios LFD had been asked to prepare. He elaborated on
Representative Carpenter's previous question. He explained
that DOR had changed its methodology so that in the past
fall it had taken the future's market value for the next
fiscal year and increased it with inflation going forward.
He explained that it did not necessarily have to be DOR's
assumption, but the methodology had been used in its
forecast. In order to replicate the data, LFD had used the
same process in its models. He noted that the futures
market grew a little faster than inflation and was
projected to hit $50 around the fall of FY 23. He
highlighted that over the long-term, the assumption used in
the modeling may be a more conservative than what the
futures market would indicate. He reiterated that the
modeling used the methodology in the fall forecast, which
was LFD's best guess in the absence of a spring forecast.
2:32:22 PM
Ms. Pitney added that if oil prices went to $50 per barrel
in three years' time, the numbers would change only
moderately by $200 million to $300 million.
Mr. Painter moved to scenario 9 on slide 14, which assumed
all royalties except those dedicated to the Public School
Trust Fund would go into the Permanent Fund rather than the
current constitutional dedication of 25 percent plus 25
percent from newer oil fields. The scenario assumed the
growth rate would be limited to half a percent and a budget
reduction of about $500 million phased in over two years.
The scenario kept a minimum CBR balance of $1 billion and
filled the deficit from the ERA. He noted it was the first
scenario that filled the deficit from some method. The
dividend formula would be 50 percent of royalties even
though they were going to the General Fund - it would be an
amount equal to 50 percent of royalties plus 10 percent of
the earnings of the Permanent Fund. He noted that the slide
showed 10 percent of statutory net income, but it was
really 10 percent of the most recent year's earnings. It
was functionally very similar to the average, but slightly
different in the first year. The scenario resulted in a
deficit of about $1 billion that would decrease over time
due to the lower spending growth rate.
2:34:36 PM
Co-Chair Johnston stated that the model reflected that
currently a good majority of the state's royalties came
from oil income. She surmised that the state's overall
revenue picture would decline.
Mr. Painter answered in the affirmative. He detailed that
UGF revenue would be reduced under the $40 oil scenario,
though slightly less than under the fall forecast.
Co-Chair Johnston asked if the difference was an additional
draw from the ERA apart from the structured draw.
Mr. Painter agreed it was the assumption in the scenario
[on slide 14]. He noted that the budget change would be a
reduction of $500 million phased in over two years ($250
million in each year).
2:35:59 PM
Representative LeBon noted that at one time there had been
consideration of a state income tax. He detailed that there
had been a cost associated with setting up DOR to collect
the tax. He asked how many DOR employees would need to be
added and what the annual cost of collecting the tax would
be.
Ms. Pitney answered that the latest figures were between $8
million to $12 million for the collection of a sales or
income tax. She did not have a breakdown of the number of
employees needed, but 50 to 60 percent of the cost would be
people costs. The remainder of the cost would be for
contractual services and other support.
Representative LeBon considered the administrative costs of
a PILT. He asked how much it would cost to administer a PFD
where individuals making income above a certain level would
receive no PFD. He questioned how the state would test
individuals' income. He wondered if Alaskans would be asked
to share income information or if it would be on the honor
system subject to audit. He reasoned that with the goal of
increasing income, a sales or income tax would cost the
state more to administer than a PILT. He asked if the
statement was fair.
Ms. Pitney replied that she did not have enough information
to say that it would be significantly less expensive.
2:38:17 PM
Mr. Painter added that it would depend on the structure. He
reasoned that a significant number of individuals would not
file for the PFD if individuals above a certain income
would not be eligible versus if they were eligible for at
least some amount. He continued that it would also depend
on how large the dividend was because it would determine
how much incentive there would be for a person to prove
their income was low enough.
Representative Josephson assumed a flat tax that did not
require people to itemize and avoided complicated state
schedules would be cheaper and easier to implement rather
than an income tax with variable rates.
Mr. Painter responded that his recollection of hearings on
HB 115 [2017 proposed income tax legislation] several years
back confirmed the assumption made by Representative
Josephson. He reasoned that using the federal tax as a
basis made it simpler to administer - the state could
piggyback on the Internal Revenue Service's work by basing
the tax off of federal returns.
Representative Merrick asked if there was any data showing
how much Alaskan Permanent Fund money went to the federal
government in taxes.
Mr. Painter responded that the last real study he had seen
was from the 1980s. He had been asked to provide an
estimation for the Permanent Fund Working Group and his
best guess at the time had been about 15 percent based on
current federal tax rates.
2:40:32 PM
Co-Chair Johnston looked at scenario 9 (slide 14) compared
to scenario 2 (slide 7). She observed that the growth in
the fund and the impact on the ERA draw were quite similar.
She asked for verification that the significant difference
between the two scenarios was the CBR.
Mr. Painter answered that essentially the difference was
holding the $1 billion in the CBR instead of the ERA. The
requestor had asked to show how the deficit would be filled
in one of the scenarios but not the other. The effect in
the end was fairly similar based on the forecast - because
the dividend would be based on oil revenue in part - it was
a bit more sensitive to oil forecast.
Representative Josephson asked about the money being held
in the ERA instead of the CBR in the former scenario. He
asked if Mr. Painter was referring to the ERA overdraw.
Mr. Painter answered that the difference he had been
referencing was whether $1 billion was kept in the CBR or
not. The difference was which account the $1 billion would
be in; the assumption did not assume there would be another
$1 billion in the system.
2:42:39 PM
Mr. Painter moved to scenario 10 on slide 15. The scenario
allocated one-third of the POMV draw to the dividend. He
believed the House version of SB 26 had called for the same
dividend level used in scenario 10 and HB 115 had called
for a tax. The scenario resulted in a PFD of about $1,500
per year and left a deficit in FY 21 of about $1.2 billion,
rising to $1.4 billion and $1.5 billion in subsequent
years. He relayed that the CBR would run out at the end of
FY 22. He noted the small amount showing on the slide was
an error.
Co-Chair Johnston asked to return to scenario 1 showing the
governor's amended budget (slide 6). She took the
information they had started with in terms of revenue
sources for the current and next year. She noted that the
working group had used scenarios with a net dividend. She
asked what the net dividend would be in the current year.
Mr. Painter responded that the dividend would be zero if
the surplus was going to the dividend because in FY 21
going forward at $40 oil, the size of the budget was
greater than revenue even before paying a dividend.
2:44:44 PM
Representative Carpenter referred to scenario 9 (slide 14)
and asked why the revenue in the upper left was much less
than all of the other projections.
Mr. Painter answered that it was due to the portion of
royalties being redirected from the General Fund to the
Permanent Fund.
Representative Carpenter asked what happened to the
Permanent Fund value in the long-term when $1 billion was
added.
Mr. Painter answered that he had a 20-year model of the
Permanent Fund that was not part of the presentation. He
reported that scenario 9 spent extra to meet the budget
deficit, but in the absence of that extra spending it would
result in inflation adjusted growth to the Permanent Fund.
He elaborated that SB 26 did not lead to inflation adjusted
growth in the Permanent Fund because the 5 percent POMV was
essentially all of the real earnings projected. While the
Permanent Fund seemed to grow in nominal terms, in real
terms it was pretty level. He explained that adding the
additional royalties would be a way to cause the Permanent
Fund value to increase.
Representative Carpenter asked if any of the projections or
models in the presentation counted for the $1 billion in
annual inflation proofing that would be needed.
Mr. Painter replied that the scenarios assumed no further
inflation proofing for four years. For the projections
beyond four years it was the reason the ERA balance was
declining. He returned to scenario 2 (slide 7) and pointed
out that the ERA increased and flattened out because the
inflation proofing amount plus the POMV draw accounted for
the entire annual earnings of the Permanent Fund.
2:47:20 PM
Co-Chair Johnston asked Mr. Painter to describe the
difference between nominal and real.
Mr. Painter replied that nominal reflected dollars "as you
see them" and real numbers were adjusted for inflation. He
used $1 billion as an example and detailed that when
looking out 10 to 20 years when 2.25 percent growth was
included it was a significantly larger amount for the same
buying power. He explained that in real dollars, $1 billion
today was $1 billion in FY 29, but in nominal dollars there
would be a larger amount. He expounded that the budget line
on slide 7 reflected nominal dollars and increased over
time. He explained that in real terms, when accounting for
inflation, the budget was flat because it grew with the
rate of inflation.
Representative Josephson referenced the presentation from
the previous day ["HB 306: A Path Forward" (copy on file)]
and recalled that slide 16 had shown a balanced budget with
an 80/20 [POMV split between government services and the
PFD respectively] reform based on the fall forecast. He
surmised that the primary difference was due to the effect
of "the Russia and Saudi shenanigans" [that lead to a
precipitous decline in oil price], the Coronavirus, and the
downturn in stocks. He asked if that was the primary reason
it was not possible to "have yesterday's presentation
back."
Mr. Painter replied that one week earlier he had testified
before the Senate Finance Committee that revenue would be
down $100 million to $200 million. He explained that even
at that time, revenue had been below the forecast, but not
nearly as much as was projected in the current week. He
agreed that the presentation from the previous day was
based on the fall forecast, which had been made obsolete by
activities in the past week.
Co-Chair Johnston asked for verification that the
governor's budget was in deficit spending even with a net
dividend.
Mr. Painter replied in the affirmative.
Co-Chair Johnston remarked that the state would still be
drawing from the CBR. She asked Mr. Painter to include it
in a model for the committee.
2:50:10 PM
Mr. Painter turned to the dynamic model and shared that he
had initially referred to the scenario as the balanced
budget dividend. He noted the scenario did not eliminate
the Permanent Fund Dividend Division and maintained its
budget. He noted "we do that out of our budget, not out of
theirs." The scenario showed that with a zero dividend
there was a continued deficit due to the supplemental. The
scenario would show a balanced budget if there were no
supplementals. He elaborated that the CBR value would
increase over time because there would be earnings and
deposits but no draws.
Co-Chair Johnston asked if there had ever been a year with
no supplemental.
Mr. Painter answered that there had not been a year with no
supplemental, but supplemental budgets had been very small
in some years. He noted there had been a massive oil price
crash in FY 15 and he believed the budget had ended up
negative overall. He noted he would have to double check.
Co-Chair Johnston asked for the deficit shown on the
dynamic model.
Mr. Painter replied that the dynamic model showed a zero
deficit in FY 21.
Co-Chair Johnston asked for the FY 20 deficit under the
scenario.
Mr. Painter responded that the FY 20 deficit was $638
million based on the dividend paid the previous fall.
Co-Chair Johnston asked what the deficit would be if the
supplemental was $50 million.
Mr. Painter answered that the scenario would show a $50
million deficit due to the supplemental because the
information would not be known when calculating the
dividend each year.
2:52:08 PM
Representative Josephson predicted there would be a
significant CBR draw to pay a modest dividend. He asked if
the danger in delaying serious revenue discussions to
January was principally because of the need to stand up the
new revenue generation systems. Alternatively, he wondered
if there was something about a further draw on the CBR from
$2 billion to $1.3 billion or $1.4 billion that would be
damaging. He noted his question assumed the legislature
moved quickly to a revenue discussion in January.
Mr. Painter responded that the danger in delaying was there
would be some time to set up, but it would mean only a half
a year's revenue in the first year. He elaborated that if
session ended with the expectation of a $1 billion balance
in the CBR and there was a tax proposed in the next year
that would entirely fill the deficit, the deficit would
only be half filled in the coming year. He explained that
it would be necessary to leave a bit of a runway if the
proposal was for a tax to fill the deficit.
Representative Wool returned to scenario 8 on slide 13 of
the presentation. He looked at the budget curve (in the
chart on the upper left of the slide) that dipped and went
forward at the rate of inflation. He noted a $400 million
budget change and did not understand where it came from. He
believed the scenario included a PFD that would differ
based on a person's income. He thought it would mean a
change in the PFD curve and not the budget curve. He
reasoned there would still be spending on government
services, but there would be a decrease in the PFD. He
noted the budget line did not include dividends.
Mr. Painter agreed. He noted that for the sake of
simplicity, the modeling assumed it would be a general
budget change. He confirmed that the true impact would be a
reduction to the dividend cost, not to the budget.
2:55:06 PM
Co-Chair Johnston requested an additional model.
Mr. Painter asked for clarification.
Co-Chair Johnston replied she was interested in the net
dividend.
Mr. Painter answered that a more accurate way to show the
modeling would be to stop paying the Permanent Fund
Dividend Division and show a zero dividend. There would
still be a deficit in that period. He would send the
information to the committee.
Ms. Pitney added that with oil prices of $40 per barrel
there was no scenario without a deficit with any dividend
or the current spending level. At an oil price of $50 per
barrel, the scenario was nearly the same. The deficit would
be less, but it would still exist. She detailed that at the
current spending level and with no dividend, the budget
would not be balanced until oil prices reached the mid-
$50s.
Co-Chair Foster asked for the surplus amount in the
governor's budget at current spending levels. He thought
the surplus was around $435 million, not including the PFD.
Mr. Painter answered that that Co-Chair Foster's statement
was correct when using the fall forecast.
Co-Chair Foster believed that with the projection of oil at
$40 per barrel for FY 20 and FY 21, the state was looking
at a shortfall. He noted that Ms. Pitney had shown one
scenario where the shortfall could be as low as -$300
million for FY 20 and -$515 million for FY 21 for a total
shortfall of $815 million. He reasoned that factoring in a
surplus of $435 million combined with a revenue shortfall
of $815 million was another way of looking at the deficit.
Ms. Pitney added that under the governor's amended budget,
the CBR would be completely depleted and funding would not
be sufficient to get through the FY 21 period.
2:58:01 PM
Representative Josephson remarked that depressed oil prices
would impact exploration development unless the companies'
own expertise suggested a brighter future. He elaborated
that the initiative would arguably solve some of the
problems but could seriously depress exploration and
production.
Ms. Pitney agreed that the two in combination did not bode
well. She added that at oil prices of $40 per barrel, an
increase to the minimum tax did not add a significant
amount of money. She stated, "they're at the very bottom."
Representative Wool reasoned that the forecasts were a big
part of the discussion. He remarked on the volatility - oil
prices had been $60 per barrel fairly recently and had
declined to $40. He recognized that low oil prices impacted
production. He noted there could be a geopolitical event
that increased the price again; it was his understanding
that some of the decrease was a result of a political event
and not only a result of the Coronavirus. He highlighted
the complexity of the issue. He asked if the state was
trying to be less responsive to the price of oil in making
the budgetary projections or decisions. He wondered if it
was advisable to look at the 10-year projections based on
an unknown price. He remarked that experts were saying not
to expect a big rise. He found it sobering to know that
even without paying a dividend there was a deficit. He
considered how to deal with the problem. He elaborated that
the legislature had already stated it did not want to go
into the ERA and he had not heard many people say they
wanted a zero dividend. He stated the issue was a
conundrum. He observed that the scenarios in the
presentation were grim. He considered reducing the budget
lower than inflation and could not imagine what that would
do to the state's economy.
3:01:24 PM
Co-Chair Johnston noted it had been almost standard for
geopolitical situations to increase the price of oil in the
past. She highlighted a recent event in the Middle East
that had increased the price of oil for two days only to
result in a drop. She thought they needed to begin thinking
of a new era and could not continue to think as they had in
the past.
Representative Wool added that numerous investment banks
were saying they did not want to invest in certain kinds of
carbon extraction for political or environmental reasons.
He believed it was also playing into the situation.
Co-Chair Johnston referenced one [oil] company heavily
involved in Alaska had a breakeven point of $40 per barrel.
Representative Josephson stated that traditionally the
number bandied about in the 1980s and 1990s was that the
state was 90 percent dependent on oil. He highlighted that
the number had been reduced to 40 percent, but it was still
far too high.
3:03:22 PM
Ms. Pitney answered that under the old forecast the state
had been 40 percent dependent on oil; the state was
currently 30 percent dependent on oil. She detailed there
were two main sources, each with their own volatility (oil
was more volatile). She explained that price reductions
were less problematic than they used to be. For example, in
2015 when prices had dropped, the forecast had gone from
$3.9 billion to $1.6 billion in actual revenue. She noted
there was not even $1.6 billion in the actual forecast and
revenue was dropping significantly below the number. She
highlighted the volatility of oil and volatility of the
markets. She detailed that the volatility was somewhat
delayed, but the market was still volatile.
Ms. Pitney reported that oil had increased in 2008 when the
market had crashed, whereas, the market had increased in
2014 when oil crashed. Currently, oil prices and the market
were declining. Additionally, Coronavirus pressure was
resulting in less demand and less transportation. She noted
the supply and demand difference that was coming into play.
She explained that both of the state's primary revenue
streams were on the negative end at present, which the
state had no control over. The state currently had very
little of its revenue in its own control, which was another
destabilizer to the state's budget. She considered how to
have something in the state's revenue stream that followed
the success in Alaska.
3:05:39 PM
Representative Wool considered that the state's revenue
dependency on oil that had decreased from 90 to 30 percent.
He remarked that if the decline continued it would not be
good. He provided a scenario where Alaska became a state
that received most of its revenue from a sovereign wealth
fund. He highlighted a scenario with a zero dividend. He
assumed the Permanent Fund would grow and therefore the
POMV draw would grow as well. He considered that if oil
waned, the state could live off savings and earnings,
assuming the stock market did not do anything "hyper crazy"
over the course of time maintain a budget of a certain
size.
Mr. Painter answered that it was growing with the rate of
inflation; therefore, if the budget also grew at the rate
of inflation, it was not possible to shift toward reliance
on the POMV draw, unless the budget grew slower than the
draw. Either the state would draw less than 5 percent or
the budget was growing slower than inflation. The state
could not grow increasingly dependent on POMV, it would
essentially have to be the same percentage of the budget
every year.
Representative Wool considered a scenario where the
Permanent Fund grew at 6 or 7 percent and the POMV draw was
5 percent. He noted the remaining would account for
inflation. He surmised that the 5 percent draw plus
inflation was about the current growth, which is how the 5
percent had been selected.
Mr. Painter nodded affirmatively.
Representative Sullivan-Leonard asked which of the models
presented offered the most security to reduce the deficit
and offer revenue and CBR security.
Ms. Pitney replied that each of the models were major
policy calls. She pointed to the dynamic model currently on
the screen and noted it did not have a dividend and the CBR
was not depleted for seven years. She explained it was a
policy call versus a scenario where additional revenue was
added or service cost reductions were made. She believed
that following the governor's significant supplemental that
had come in after reductions from the previous year, people
were realizing that reductions were harder than what seemed
to be the case. She noted there could be revenue or a
change to the dividend. The security of the CBR left the
state in a good position to ensure that the POMV continued
to take the same proportion of the budget going forward as
it did at present.
Ms. Pitney continued that protecting the value of the
Permanent Fund so that it grew in real terms and could
cover the same proportion of the budget in the future as it
did at present was likely the biggest security question.
Additionally, she considered what was prudent to expect in
oil revenue. She asked if the state wanted to plan for $50
or $40. If the state planned conservatively on oil, she
suggested taking advantage of the good years in oil price
to make other policy calls develop other forms of revenue.
Currently, the largest proportion of the budget was the
POMV and protecting that revenue stream going forward was
likely the most important consideration, followed by the
associated policy calls.
3:11:21 PM
Representative Carpenter considered a previous statement
about inflation and spending. He noted that in many of the
scenarios, current revenue was not sufficient to meet the
budget, meaning a tax or some additional revenue was needed
to meet the spending level. He pointed out that the same
would have to take place the following year and spending
was growing at the rate of inflation. He considered what
the increase in tax would have to be each year if the
revenue problem were addressed by a new income or sales
tax. For example, they could agree to a $500 million tax in
the current year, but it would be more than $500 million
each year going forward in order to keep up with the growth
of government. He asked what that looked like on a graph.
Mr. Painter replied that LFD's assumptions assumed the tax
rates grew with the rate of the economy (roughly the rate
of inflation). He stated it may not be a reasonable
assumption if the past few years saw a decrease in
population. He noted it may not be a correct assumption,
but it was the assumption that was used.
Representative Carpenter remarked that based on data he had
seen he believed the economy had grown at about 1 percent
from 2006 to 2016. He asked if it were fair to assume there
would be a tax of any sort grow at 2.25 percent or greater
if the economy was only growing at an average of 1 percent.
Mr. Painter believed it was a reasonable concern. He
elaborated that LFD had used inflation as the growth rate
for mostly everything. He recognized that it may be an
overestimate of how quickly tax revenue may grow.
3:13:29 PM
Representative Carpenter asked what effect adding a $500
million income or sales tax would have on the ability to
produce within the economy. He stated that the private
sector would take some sort of hit. He knew Institute of
Social and Economic Research (ISER) had published the
numbers months back. He continued that the situation would
start a spiral where taxes were increased to keep up with
spending, yet the increase in taxes had a negative impact
on the ability to produce wealth within the state through
its economic engine. He highlighted that all of the
scenarios projected that the spending level would continue
to increase because government continued to increase. He
stressed that the state had a population of 700,000 and
only had an economy of a certain size. He emphasized that
if the problem were solved through a tax, it would mean
increasing the tax to keep up with the growth of
government.
Representative Josephson imagined that if any governor of
Alaska were to go the National Governor's Conference and
tell the other governor's that Alaska had a real problem -
that it had $65 billion and it was trying to remain the
only state that did not tax its people. He believed the
other governors would walk away. He stressed that the state
had the solutions.
Co-Chair Johnston noted that the discussions would be held.
She did not want to drag LFD into policy discussions. She
acknowledged that Representative Carpenter's point was a
good one. She highlighted was necessary to keep in mind
real cost versus nominal cost. The modeling had to account
for something and had to include some inflation. She noted
that the president had spent time trying to drive up
inflation. There had been flat inflation after 2008 - she
suggested there had been deflation since that time, which
was not desirable. She remarked that the state did not want
an economy of deflation because the economy would not grow.
Currently, they were only modeling what they had. She
suggested going ISER to look at the impact of different
taxes. She stated that the easy days were gone.
HB 300 was HEARD and HELD in committee for further
consideration.
HB 306 was HEARD and HELD in committee for further
consideration.
Co-Chair Johnston reviewed the agenda for the following
day. She provided amendment deadlines for multiple bills.
| Document Name | Date/Time | Subjects |
|---|---|---|
| HB 306 HB 300 HFC Presentation 3-11-20.pdf |
HFIN 3/11/2020 1:30:00 PM |
HB 300 HB 306 |
| HB 300 Public Testimony Rec'd by 031120 (2).pdf |
HFIN 3/11/2020 1:30:00 PM |
HB 300 |
| HB 306 Public Testimony Rec'd by 031120.pdf |
HFIN 3/11/2020 1:30:00 PM |
HB 306 |
| HB 306 HB 300 Additional Scenario -No dividend, $40 oil 031120.pdf |
HFIN 3/11/2020 1:30:00 PM |
HB 300 HB 306 |
| HB 306 HB 300 Additional Scenario -No dividend, $50 oil 031120.pdf |
HFIN 3/11/2020 1:30:00 PM |
HB 300 HB 306 |