Legislature(2009 - 2010)HOUSE FINANCE 519
02/16/2010 01:30 PM House FINANCE
| Audio | Topic |
|---|---|
| Start | |
| Alaska Mental Health Trust Authority Board of Trustees Confirmation Hearing: | |
| HB312 | |
| HB319 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| + | TELECONFERENCED | ||
| + | HB 312 | TELECONFERENCED | |
| + | HB 319 | TELECONFERENCED | |
| + | TELECONFERENCED |
HOUSE BILL NO. 312
"An Act authorizing an advisory vote on use of Alaska
permanent fund earnings for an in-state natural gas
pipeline; and providing for an effective date."
REPRESENTATIVE MIKE CHENAULT, discussed the intention of the
legislation. The bill would put up for an advisory vote from
the public the question of using the permanent fund
earnings, after dividends were paid and the fund was fully
inflation proof, to offset the cost of an in-state natural
gas pipeline. Holding an advisory vote would be informative
for the creation of a financing plan for state participation
in an in-state line. He felt that the issue was timely and
that the legislature should be exploring energy options. He
believed that using the permanent fund earnings was a viable
option. The bill was drafted to ensure that dividends would
be paid out and that the permanent fund continued to be
inflation proof, prior to using the earnings.
1:51:20 PM
Representative Chenault believed that it was important that
state be directly involved in the construction of a gas
pipeline. He asserted that the gasline would create jobs,
provide a long term source of energy, and create economic
opportunity.
Co-Chair Hawker communicated that existing statute stated
that the payout of dividends may not exceed more than half
of the earnings reserve. He expressed concern that, by using
the other half of the reserve to fund the gasline, the state
would not have enough to pay out dividends the following
year. He thought that the consequences of using the reserve
should be made clear to the public.
1:55:01 PM
Representative Chenault admitted that he was not familiar
with the methodology used to calculate the dividend amount.
He maintained that the question needed to be addressed and
that the conversation concerning using the reserve to fund
the pipeline was necessary. He thought that a well crafted
question should be put the people. Alternatively, a bond
could be an option.
1:56:11 PM
Co-Chair Hawker understood that the intent was to gage the
receptivity of the public. He thought the question should
state: In addition to permanent fund dividends and inflation
proofing; should a portion of the permanent fund earnings be
used for the development of an in-state gas pipeline.
1:57:36 PM
Representative Chenault agreed that the question should be
crafted skillfully, in order to convey to the public the
intention that the funds would be used to support a gasline.
He strongly believed that the state has been idle concerning
the issue and should be ready to be proactive in creating
energy generating projects across the state. He related that
an in-state gasline would create jobs and create an economic
future for Alaska. He hoped the committee would assist in
drafting language of the question that needed to be
presented.
1:59:33 PM
Co-Chair Hawker thought that it would be a good diagnostic
question to ask the public, and that a statewide vote would
be informational. He relayed that a similar question could
be found in his spring 2009 legislative district survey.
Representative Fairclough wondered if the state would help
to maintain gasline running into Canada, or only line
running from Alaska to the Canadian border.
2:02:19 PM
Representative Chenault replied that the plan had been to
build an in-state gas pipeline to tidewater. He considered
the state's fiduciary involvement in the construction of the
gasline an investment. If a line were to be built through
Canada, the funds could be used to lower tariffs for in-
state gas usage.
2:03:19 PM
Representative Fairclough though that the public should be
aware of the flexibility in the language of the bill that
allowed the legislature to make the decision about the
state's level of involvement. She believed that the project
would ultimately be driven by the private sector, but that
the state may need to offer incentives in order to move the
gasline forward.
Representative Salmon pondered where the money would come
from. He wondered if the formula that calculated the
permanent fund would need to change. Representative Chenault
replied that occasionally, excess earnings were available
from the earnings reserve, and those funds would be
available to fund the project. Representative Salmon
wondered if the funds taken from the earnings reserve would
be deposited immediately into an account for the sole
purpose of the funding the project. Representative Chenault
replied that that would be the next step, if the public
majority approves. He emphasized that the bill was an
option, similar to other plausible bonding options, if the
project was to move forward, and a capital need was created,
the state could chose then whether or not to invest.
2:06:55 PM
Representative Austerman thought that ambiguity as to where
the gasline was going to go in the state would be removed by
including "tidewater" in the language. He addressed the
$178,000 million the state had spent on pipeline studies. He
felt that the state should have a voice in the process to
assure a return on the investment. He questioned the use of
the earnings reserve. He thought that the permanent fund
could be used as an asset that covered a bonding issue, and
allowed the state to build the gasline independently. A
tariff could be charged, which would reimburse state
expenditures back into the permanent fund.
Co-Chair Stoltze informed the committee that during the HB
44 floor debate of 2009, a floor amendment by Representative
Doogan removed the reference to authorize the permanent fund
to make in-state energy investments. Concerns had been
discussed about the legislature directing investment policy.
2:10:05 PM
Representative Chenault believed the $178,000 was the total
amount spent over several years on all gas projects, the
majority of which went to the Canadian pipeline project.
2:10:46 PM
Representative Austerman requested documentation of the
amount spent to date on the gasline. He recalled the way
members of the committee had voted on HB 44, but thought
that public perspective could provide a different
perspective.
Representative Gara asked if a representative from the
Alaska Permanent Fund Corporation (APFC) would be available
to provide an analysis of the potential impact on the fund.
Co-Chair Stoltze replied yes. Representative Gara wondered
if the formula used to determine the dividend incorporated
the amount in the earnings reserve. Representative Chenault
responded that the dividend could be affected.
Representative Gara said that Harry Noah, In-state Gasline
Project Manager, had told the committee that the cheapest
gas would come from a big pipeline. Likewise, a smaller in-
state line would deliver more expensive gas. He thought that
the state should opt for the gasline that produced cheaper
gas.
2:13:35 PM
Representative Chenault agreed that a bigger line, pushing a
bigger volume, would be less expensive than a small line
pushing a small volume. He felt that the crux of the issue
was; was it going to take communities along the rail belt
losing the energy to heat their homes before the state
decided that the wait for in-state gas was over.
Representative Gara requested information from experts on
the gasline issue before the legislation moved out of
committee. Co-Chair Stoltze thought that gasline experts had
been informed of the meeting. Representative Gara felt that
the issue was of great cost to the state. He felt the
experts should be present when the decision was made. Co-
Chair Stoltze opined that there were no representatives from
the Department of Administration present at the meeting.
Representative Gara expressed concern that gas prices would
be higher while the state waited for the big line to be
built, and consumers may end up being locked in to high gas
prices for the next 20 years, all before determining that
gas could possibly come from a lower priced project.
2:16:47 PM
Representative Chenault replied that there were many
unknowns. He added that for years legislators had worked on
incentives for a Cook Inlet gasline. The Department of
Natural Resources study reported 1.8 trillion cubic feet of
gas left. He believed that the majority of the easy gas was
gone from Cook Inlet. An issue out of the control of the
state was the critical habitat for the Beluga Whale. Bonding
authority was being written into legislation and discussed,
tax credits had been worked on and passed, and storage
issues had been addressed to ensure that the rail belt had a
supply of gas. All energy opportunities needed to be
examined in order to decide which project would go forward.
He reiterated that the goal was economic development and
long term sustainability.
2:20:41 PM
Co-Chair Hawker reminded that the legislation called for an
advisory vote in order to gauge the public climate. He
warned that it had had become a question of more expensive
gas or no gas, and that the urgency was growing.
Representative Kelly said that the state could have 10
billion in the bank by the end of 2010. A choice that needed
to be made was where to spend the money. He asserted that
the money should not be used to expand the state operating
budget.
2:23:47 PM
Representative Kelly continued that the state had located
the gas and now the line should be built. He stated that the
funds should be used to build an in-state gasline while
simultaneously taking care of infrastructure needs
throughout the state.
Representative Fairclough supported that process of asking
the questions, but thought that ultimately, the ability to
negotiate contracts could be reduced by the competition in
the free market.
2:27:42 PM
Representative Chenault voiced his support for the free
market. He communicated his hope that a private company
would approach the state to build and pay for the gasline.
The state would be responsible in the end to pay the tariff
costs to ship the gas. The big line could be the state's
best opportunity. He did not think that examining in-state
gas needs had an effect on a big line. The big line was
already guaranteed to provide off-takes for in-state gas
usage. If the state chose to build a bigger line it runs the
risk of incurring treble damages in the AGIA process. He
did not think that it would be prudent to slow the big line
process down, but that the residents of Alaska needed to be
aware of other options for natural gas should the big line
project shut down. An advisory vote was the necessary
informative step needed to inform the legislature of the
will of the people. He emphasized that the State of Alaska
should provide the permits and the right of ways, and then
get out of the way, and let the private sector build the
gasline.
2:31:17 PM
Representative Gara thought that initially investing in a
big line could be an option.
Representative Chenault agreed that many options were
available to the state. Perhaps, if the state invested in 20
percent of the project, it would become more feasible.
2:34:09 PM
Representative Gara agreed that the state should not make a
financial commitment yet. He felt that more would be
revealed within the next few years that would aid the state
making the decision. Representative Chenault maintained that
the state needed to be ready to move on the issue when
necessary.
Vice-Chair Thomas felt that voters outside of the rail belt
would need incentive to vote "yes" on the project. He feared
a divide between urban and rural communities.
Representative Chenault agreed that that was a concern. But,
in the long term, what projects were out there that would
provide for the Alaskan economy. What could a pipeline do///
He spoke of things provided to rural Alaska. Rural Alaska
would benefit from an in-state gasline.
2:37:26 PM
Vice-Chair Thomas wondered what would happen when the gas
runs out.
Representative Kelly stated that where there's a will
there's a way. He said the Anchorage to Fairbanks line was
obvious. The determination need to be made as to which way
to go after that. TransCanada had laid out options. He hoped
that the committee could restate the question. Where does
the money come from. If the right questions are not asked
the answers are meaningless.
2:40:40 PM
Representative Chenault said he was open to options and
discussion concerning re-crafting the question. He
maintained that he was concerned for providing a future of
economic and resource security in the state.
2:42:01 PM
Representative Fairclough felt that the $10 billion thought
to be in savings was actually owed to the retirement system.
2:44:33 PM
LAURA ACHEE, DIRECTOR OF COMMUNICATIONS, ALASKA PERMANENT
FUND CORPORATION, testified that the calculation of the
dividend would not be affected. The most immediate effect
would be the 50 percent test that limited the dividend
payment to no more that 50 percent of the balance of the
earnings reserve. Paying out in one year from the earning
reserve could limit a future dividend payment. She stated
that anytime the use of earnings outside of the dividend was
discussed there would be a small impact on the dividend.
Representative Austerman wondered if using the PFD to build
the pipeline, and reimbursing the fund through the charging
of a tariff, was plausible. Ms. Achee replied that the board
of trustees was free to invest the PFD in anything that met
the requirements for risk return and diversification.
Funding the entire pipeline could compromise the statutory
requirement of maintaining a diverse portfolio.
Representative Austerman asked if an answer in reference to
investing in the pipeline could be obtained. Ms. Achee
replied that as with any project, before the board of
trustees would need to see a comprehensive project plan.
2:47:52 PM
Representative Fairclough asked about the recent asset
losses due to the weak economy. She asked how the losses
would affect individual PFDs. Ms. Achee said that FY09 was
the first time there had been more losses than gains.
Representative Fairclough asked how the proposal to invest
in a pipeline would affect the state's ability to pay out
dividends. Ms. Achee replied that if the fund experienced
statutory net losses due to legislature choosing to spend
earning from the earning reserve for the pipeline, there was
a possibility that dividends might not be paid out. She
stressed that in any year, anything could happen. In 2003
the earnings reserve was taken, by legislative action, down
to $100 million, and everything else was swept into
principal. The next year the corporation paid the dividend
and inflation proofed, and still had $800 million in the
earnings reserve. She concluded that it was difficult to
tell what would happen from year-to-year, but it could be
said with certainty that if the balance was zero there would
be no way to pay out anything at all.
2:51:17 PM
Co-Chair Stoltze asked about public corporation failures
that have been linked to legislative activity. He wondered
if the board was concerned about bringing the legislature
into investment decisions.
Ms. Achee replied that the legislature set the statue by
which the board invests and the board would do as the
legislature wished.
Co-Chair Hawker noted that in recent history the board has
let their opinion be known as to what legislation should be
passed. Ms. Achee agreed that the board had been active in
the past to that end.
Representative Gara understood only 50 percent of the
earnings reserve could be used to pay out dividends. He
asked how much would need to be in the earnings reserve to
pay out a $1500 dividend. Ms. Achee said she would need time
crunch the numbers. She said that a $1200 dividend was
anticipated in 2010.
Representative Gara believed that if a substantial amount of
money from the earnings reserve was spent for the pipeline
dividend payout would be affected.
Ms. Achee noted that in the 1980s the fund was significantly
smaller than it was now. In 1989 the fund was only at $10
billion, yielding dividend of $200-$300 per person. She did
not feel that the ending reserve balances of the 1980s were
comparable to present day balances. She reiterated that any
time money was taken out of the earnings reserve the nest
year's dividend was potentially at risk.
2:56:22 PM
Ms. Achee said that the dividend was calculated off of the
entire earnings of the corpus and the earnings reserve.
Statutory net income was used and not the rate of return.
Statutory net income consisted of; the cash received from
rent on the properties the fund owned, dividends from the
stocks owned by the fund, interest from bond, and any net
gains from the sale of assets.
Representative Gara asked if the amount of money in the
earnings reserve were reduced, would that impact the amount
of money used to calculate the 5 year average for the
dividend. Ms. Achee said yes. Earnings in the earnings
reserve contribute toward the dividend calculation, but the
earnings that go into the dividend are not the same as the
performance earnings that go into the fund.
2:59:14 PM
Representative Austerman asked to be involved in further
examination of the bill outside of committee.
~Merrick Peirce, Self, spoke in opposition of HB 312. He
expressed concern that the project proposed for funding was
nebulous. He stated that in 2002 the voters voted for the
all Alaska gasline from the North Slope to Valdez. He felt
that if the legislature had funded the law passed by the
voters the state would now have a gasline. He felt that the
voice of the voters had not been represented in the
discussion.
3:04:01 PM
Co-Chair Stoltze closed public testimony.
Co-Chair Stoltze appointed Representative Kelly,
Representative Hawker, and Representative Foster to craft
potential language for discussion by the committee.
Representative Kelly hoped that a resource would be provided
to aid in the drafting of the language. Co-Chair Stoltze
said that the needs of the drafters would be answered.
HB 312 was HEARD and HELD in Committee for further
consideration.
3:05:47 PM
Co-Chair Stoltze
| Document Name | Date/Time | Subjects |
|---|---|---|
| HB 312 ERA balance.pdf |
HFIN 2/16/2010 1:30:00 PM |
HB 312 |
| HB312-OOG-DOE-2-3-10NEW Fiscal Note.pdf |
HFIN 2/16/2010 1:30:00 PM |
HB 312 |
| HB312APF Historical Fund Value.pdf |
HFIN 2/16/2010 1:30:00 PM |
HB 312 |
| HB319 Sponsor Statement (2).pdf |
HFIN 2/16/2010 1:30:00 PM |
HB 319 |
| HB319 Summary of Changes.pdf |
HFIN 2/16/2010 1:30:00 PM |
HB 319 |
| HB319 Sectional.pdf |
HFIN 2/16/2010 1:30:00 PM |
HB 319 |
| HB319 Background.pdf |
HFIN 2/16/2010 1:30:00 PM |
HB 319 |
| Laraine Derr 2010 Confirmation Hearing.pdf |
HFIN 2/16/2010 1:30:00 PM |
|
| Mary Jane Michael 2010 Confirmation Hearing.pdf |
HFIN 2/16/2010 1:30:00 PM |
|
| Carlton Smith 2010 Confirmation Hearing.pdf |
HFIN 2/16/2010 1:30:00 PM |
|
| HB319 Hawker Amendment.pdf |
HFIN 2/16/2010 1:30:00 PM |
HB 319 |
| HB312 Sponsor Statement (2).pdf |
HFIN 2/16/2010 1:30:00 PM |
HB 312 |
| HB 319 Hawker Amendment #2.pdf |
HFIN 2/16/2010 1:30:00 PM |
HB 319 |