Legislature(2021 - 2022)DAVIS 106
09/01/2021 01:00 PM House WAYS & MEANS
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| Audio | Topic |
|---|---|
| Start | |
| HB3002 | |
| Presentation(s): Overview: Permanent Fund Formula Changes and Percent of Market Value | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| *+ | HB3002 | TELECONFERENCED | |
| + | TELECONFERENCED | ||
HB3002-PERMANENT FUND: INCOME
1:02:33 PM
CHAIR SPOHNHOLZ announced that the first order of business would
be HOUSE BILL NO. 3002, "An Act relating to the earnings of the
Alaska permanent fund and the earnings reserve account; relating
to the mental health trust fund; and providing for an effective
date."
1:03:55 PM
REPRESENTATIVE DAVID EASTMAN, Alaska State Legislature, prime
sponsor, introduced HB 3002. He stated that the purpose of the
legislation was to repeal Senate Bill 26.
1:05:25 PM
REPRESENTATIVE EASTMAN directed attention to a PowerPoint
presentation, titled "HB 3002 Repeal of SB 26 Permanent Fund:
Income" [hard copy included in the committee packet]. He began
on slide 2, which highlighted several metrics for FY 2019:
statutory net income (SNI) at 43.82 billion; percent of market
value (POMV) at $2.72 billion; and "appropriated from ERA" at
42.72 billion. The graph on the right displayed total spending
(excluding dividends) from FY 19 to FY 22.
1:07:21 PM
REPRESENTATIVE EASTMAN continued to slide 3, which highlighted
the same three metrics for FY 20: SNI at $3.77 billion; POMV at
$2.93 billion; and "Appropriated from ERA" at $6.93 billion,
which included an ad hoc appropriation of $4 billion.
CHAIR SPOHNHOLZ asked whether Representative Eastman was of the
position that the legislature should not be able to transfer
funds from the earnings reserve account (ERA) to the corpus pf
the Alaska Permanent Fund (the fund) for the purpose of
inflation proofing.
REPRESENTATIVE EASTMAN shared his understanding that that, per
statute, inflation proofing took place automatically.
CHAIR SPOHNHOLZ sought to confirm that Representative Eastman
believed that the legislature should not be able to inflation
proof the corpus.
REPRESENTATIVE EASTMAN remarked, "If we were going to be doing
that, then we didn't need SB 26, because SB 26 came in and said,
'we shouldn't be doing that.'" He maintained his position that
Senate Bill 26 should be repealed because the legislature was
violating the provisions within two years of its enactment.
1:09:46 PM
REPRESENTATIVE JOSEPHSON shared his understanding that Senate
Bill 26 limited expenditures from the total of the fund at 5.25
percent. He clarified that, contrary to Representative
Eastman's understanding, Senate Bill did not prohibit the
legislature from inflation proofing. He asked the bill sponsor
to cite a statute that suggested otherwise.
REPRESENTATIVE EASTMAN jumped forward to slide 6, which read as
follows [original punctuation provided]:
AS 37.13.140 (2018 - SB26)
Amount Available for Appropriation
(b) The corporation shall determine the amount
available for appropriation each year. The amount
available for appropriation is five percent of the
average market value of the fund for the first five of
the preceding six fiscal years, including the fiscal
year just ended, computed annually for each fiscal
year in accordance with generally accepted accounting
principles.
AS 37.13.145 (1992)
Amount to be Transferred
(b) At the end of each fiscal year, the corporation
shall transfer from the earnings reserve account to
the dividend fund established under AS 43.23.045, 50
percent of the income available for distribution under
AS 37.13.140.
REPRESENTATIVE EASTMAN interpreted AS 37.13.140(b) to mean that
more than 5 percent of the average market value of the fund
could not be appropriated from the ERA. He added, "SB 26 was
only speaking to being able to withdraw money from the earnings
reserve account."
REPRESENTATIVE JOSEPHSON disagreed, noting that he did not
interpret the statute in that way. Nonetheless, he considered a
scenario in which Representative Eastman was correct in that the
legislature could not withdraw from the corpus. He proceeded to
point out that the governor approved the transfer of $4 billion
in FY 20. He asked what the remedy would be.
REPRESENTATIVE EASTMAN recommended repealing Senate Bill 26 and
replacing it with something better because the legislature was
not following the statute as written.
1:13:22 PM
REPRESENTATIVE PRAX believed that the point Representative
Eastman was trying to make was that the law was not being
followed. He opined that it wasn't an argument of whether the
$4 billion-dollar transfer was a good idea.
1:14:11 PM
REPRESENTATIVE EASTMAN resumed the presentation on slide 4,
highlighting the graph on the right that displayed total
spending (excluding dividends) from FY 19 to FY 22. He pointed
out that total spending (excluding dividends) increased from
FY 19 to FY 20 despite the passage of Senate Bill 26 and its
limit on appropriations. He turned to slide 4, which provided
the same three metrics for FY 21: SNI at $5.02 billion; POMV at
$3.09 billion; and "Appropriated from the ERA" at $3.09 billion.
CHAIR SPOHNHOLZ sought to confirm that "total spending
(excluding dividends)" included federal receipts and designated
general funds (DGF).
REPRESENTATIVE EASTMAN confirmed that all appropriations were
included in that metric except for the permanent fund dividend
(PFD).
CHAIR SPOHNHOLZ replied, "That's an interesting definition" [of
total spending].
1:15:31 PM
REPRESENTATIVE EASTMAN turned to slide 5, which highlighted the
same three metrics in FY 22: SNI at $5.02 billion; POMV at $3.07
billion; and "Appropriated from the ERA" at $7.07 billion, which
included an ad hoc appropriation of $4 billion. He emphasized,
per the graph on the right, that total spending (excluding
dividends) had increased from FY 21 to FY 22.
1:16:13 PM
REPRESENTATIVE JOSEPHSON recalled that Representative Eastman
had stated that the POMV failed to curtail spending. He asked
whether the bill sponsor preferred that the legislature opt out
of any federal COVID-19 spending.
REPRESENTATIVE EASTMAN said his argument was that the
legislature's spending did follow statute. He urged the
legislature to either change the law or follow it; however, his
preference, he said, was to change the statute.
CHAIR SPOHNHOLZ asked whether Representative Eastman was
suggesting that the legislature should have enough revenue to
cover all the federal programs, such as road building, which is
a 90/10 match, and Medicaid.
REPRESENTATIVE EASTMAN opined that the appropriations should be
based on income received, as opposed to an arbitrary number. He
explained that total spending was highlighted in the
presentation to suggest that increased spending was impacting
the economy by setting a precedent.
CHAIR SPOHNHOLZ argued that it didn't make sense to include
federal receipts in the consideration of funding from state
sources. She likened it to comparing a banana to an artichoke,
as the sponsor was using completely different numbers with
different definitions for his rhetorical purposes.
REPRESENTATIVE EASTMAN responded that this method was
intentional to highlight the impact of Senate Bill 26 on total
spending.
1:19:23 PM
REPRESENTATIVE STORY said it would have been helpful if
undesignated state spending had been included on the slides.
She pointed out that although federal funding had increased,
undesignated spending had not increased, which was an important
point to highlight for the public.
1:19:53 PM
REPRESENTATIVE JOSEPHSON sought to confirm that Representative
Eastman believed that the POMV was not controlled spending and
that the legislature should spend more.
REPRESENTATIVE EASTMAN contended that the legislature should
follow the law.
REPRESENTATIVE JOSEPHSON argued that Representative Eastman
wanted to spend more.
REPRESENTATIVE EASTMAN acknowledged that he wanted to spend
differently.
REPRESENTATIVE JOSEPHSON asked the bill sponsor to confirm that
his amendments on the floor called for spending billions of
dollars more.
REPRESENTATIVE EASTMAN stated, "my amendments yesterday called
for spending billions of dollars to follow the law and to send a
dividend to people."
CHAIR SPOHNHOLZ pointed out that HB 3002 would create a deficit
of roughly $2 billion to $3 billion in each of the next 10 years
moving forward. She asked whether the bill sponsor had a
revenue proposal to offset the spending.
REPRESENTATIVE EASTMAN contended that HB 3002 did not call for a
specific appropriation amount, it just called for following the
statute. He claimed that SB 26 was passed in a "less than ideal
manner," as certain portions were taken out leaving less than a
full package.
1:22:06 PM
REPRESENTATIVE PRAX expressed confusion about the presentation
and sought to clarify whether HB 3002 was trying to address the
amount available for appropriation within the earnings of the
permanent fund. He added, "that will change that source of
funding for the general fund (GF), but it doesn't really control
what's available from the feds or any other source
REPRESENTATIVE EASTMAN nodded in the affirmative. He resumed
the presentation on slide 6, noting that AS 37.13.145(b), which
provided that the Alaska Permanent Fund Corporation (APFC) shall
make a transfer from the earnings reserve account to the
dividend fund at the end of each fiscal year, was not being
followed.
1:23:27 PM
REPRESENTATIVE EASTMAN continued to slide 7, which read as
follows [original punctuation provided]:
HB69 Enrolled
Section 55. ALASKA PERMANENT FUND
(f) The sum of $4,000,000,000 is appropriated from the
earnings reserve account (AS 37.13.145) to the
principal of the Alaska permanent fund.
REPRSENTATIVE EASTMAN indicated that the legislature chose to
appropriate $4 billion from the ERA despite the confirmation by
APFC that the amount available for appropriation was less than
that amount.
1:23:52 PM
REPRESENTATIVE JOSEPHSON sought to clarify why Representative
Eastman hadn't sued the state to clarify the law like Senator
Wielechowski in Wielechowski v. Alaska, 406 P.3d 1141 (Alaska
2017).
REPRESENTATIVE EASTMAN said he would prefer that the legislature
do some housekeeping to clean up its statutes.
1:25:06 PM
REPRESENTATIVE EASTMAN resumed the presentation on slide 8,
which reviewed the amount of the dividend since passage of
Senate Bill 26. He indicated that while "total state spending
(excluding dividends)" had steadily increased since FY 19, the
dividend amount had decreased.
CHAIR SPOHNHOLZ noted that given the power cost equalization
(PCE) lawsuit, Alaska Federation of Natives, et al. v. Governor
Michael Dunleavy, et al., the Legislative Finance Division (LFD)
advised that the statutory budget reserve (SBR) was not a
sweepable account and could therefore be accessible for funding
the PFD. She acknowledged that there were competing opinions
about the dividend; however, she wanted to emphasize that the
legislature was not supportive of a dividend totaling $619, as
suggested on slide 8.
1:26:20 PM
REPRESENTATIVE JOSEPHSON expressed his dislike of the "total
spending (excluding dividends)" metric, as it was not
transparent. He opined that although the slide may be factually
accurate, it was intended to excite the public. He addressed
Representative Eastman's reference to Wielechowski v. Alaska and
stated, "you're illustrating that we didn't fully appropriate a
statute, but we're in a world where we're told we don't have
to." He said the bill sponsor was essentially asking him to
comply with something that he didn't need to comply with.
Ultimately, he said he didn't understand the bill sponsor's
position.
REPRESENTATIVE EASTMAN shared his belief that compliance could
be achieved by two options: follow the law as written or change
it.
CHAIR SPOHNHOLZ noted that there were other pieces of
legislation that had been introduced during the current
legislative session that could also help to address that issue.
1:28:18 PM
REPRESENTATIVE EASTMAN resumed his presentation on slide 8,
explaining that the dividend amounts shown for FY 22 illustrated
the opposing views on the SBR.
CHAIR SPOHNHOLZ reminded the public that in the "total spending
(excluding dividends)" metric, Representative Eastman had
included federal pandemic relief, Medicaid, capital funding from
the federal government, designated funds, program receipts, as
well as fees paid to the state.
1:29:11 PM
REPRESENTATIVE EASTMAN turned to slide 9, which read as follows
[original punctuation provided]:
AS 37.13.145 (2018 - SB26)
Amount Available for Appropriation to General Fund
(3) The legislature may not appropriate from the
earnings reserve account to the general fund a total
amount that exceeds the amount available for
appropriation under AS 37.13.140(b) in a fiscal year.
REPRESENTATIVE EASTMAN remarked, "when you read this statute
from SB 26 in light of that [PCE] decision, you find that this
limit is not actually having an effect on money going to the
dividend fund. So, the appropriation limit would relate to
money going to the GF, but if it went directly to the dividend
fund, per the automatic transfer, for example, in statute, it
would be wholly escaping that limit and I don't think that was
the intent of the legislature."
CHAIR SPOHNHOLZ said she did not follow Representative Eastman's
logic.
REPRESENTATIVE EASTMAN suggested that the next slide would
clarify that. He turned to slide 10, which read as follows
[original punctuation provided]:
AFN v. Dunleavy (August 11, 2021)
Separate Funds Not Part of The General Fund
"Because the term "general fund" was not a term of
constitutional significance when the Alaska
Constitution was established, the Legislature had
authority to establish, by statute, funds outside and
separate from the general fund. This authority was
circumscribed only by the dedicated funds clause. And
the Legislature did establish "separate funds."
"In 1984, the Legislature established the Power Cost
Equalization Fund as a "separate fund" of the
authority."
REPRESENTATIVE EASTMAN continued to slide 11, which read as
follows [original punctuation provided]:
AS 43.23.045
Dividend Fund
(a) The dividend fund is established as a separate
fund in the state treasury. The dividend fund shall be
administered by the commissioner and shall be invested
by the commissioner in the same manner as provided in
AS 37.10.070.
REPRESENTATIVE EASTMAN suggested that the dividend fund was
established as a separate fund in the same way that the PCE fund
was separate from the GF. He reasoned that the limit in Senate
Bill 26 only applied to funds being transferred to the GF,
adding, It was not that is being specifically put towards funds
being transferred to the dividend fund." He believed that if
the intent was to limit funds going to the dividend fund, the
current construction of Senate Bill 26 did not establish that
goal.
1:32:29 PM
REPRESENTATIVE PRAX said he wasn't following Representative
Eastman's argument. He shared his understanding that money
could be transferred from the ERA to the permanent fund or the
dividend fund, as long as the transfer didn't go the GF.
REPRESENTATIVE EASTMAN responded, "those transfers that you're
talking about to something other than the general fund, under
the statute as written, still would have to fall under that
amount calculated as available for appropriation from the
Earnings Reserve Account? We're not necessarily following that
to a T though. So, yes, there is a limit in statute currently
on funds that can go to things other than the general fund ? in
AS 37.13.145." He asked if that answered Representative Prax's
question.
REPRESENTATIVE PRAX answered no.
1:34:41 PM
REPRESENTATIVE JOSEPHSON believed that Representative Eastman
was reading the statutes in a "technical way" and suggesting
that the legislature could appropriate beyond 5 percent as long
as it's not to the GF. He asked what was in the dividend fund
right now.
REPRESENTATIVE EASTMAN responded, "Not much."
REPRESENTATIVE JOSEPHSON sought to confirm that Representative
Eastman's view was that the amount in the dividend fund could
not be swept because it's not in the GF.
REPRESENTATIVE EASTMAN said, "if we we're going to follow the
interpretation of AFN, I think that's a compelling argument."
CHAIR SPOHNHOLZ pointed out that it wasn't likely that the
legislature would not want to appropriate funds that had been
appropriated to the dividend fund. She shared her belief that
this was a hypothetical scenario that would never occur in real
life.
REPRESENTATIVE EASTMAN agreed.
CHAIR SPOHNHOLZ suggested that the bill sponsor was trying to
fix a nonexistent problem.
REPRESENTATIVE EASTMAN remarked, "I'm not considering that
particular scenario at that the moment."
1:36:25 PM
REPRESENTATIVE EASTMAN concluded his presentation by pointing
out that there was a growing gap between the SNI calculation and
the POMV that was established in Senate Bill 26. He believed
that those appropriations were being saved for a future purpose
at the expense of the current economy.
REPRESENTATIVE JOSEPHSON pointed out that Representative Eastman
had characterized the 5 percent POMV as "arbitrary." He asked
whether the bill sponsor was aware of all the expert testimony
that had established and supported that number.
REPRESENTATIVE EASTMAN said he was aware of the expert
testimony.
REPRESENTATIVE JOSEPHSON asked whether Representative Eastman
was aware that 5 percent resembles the typical POMV number seen
nationwide.
REPRESENTATIVE EASTMAN explained that he had characterized it as
arbitrary because the average income" [SNI] received by the
state over the last 5 years is in excess of $5 billion.
REPRESENTATIVE JOSEPHSON asked why a 50/50 split of the POMV is
not arbitrary.
REPRESENTATIVE EASTMAN believed that a 50/50 approach would
account for the state's income.
1:40:49 PM
REPRESENTATIVE SCHRAGE took exception to the 5 percent POMV rate
being characterized as arbitrary. He explained that even if the
POMV were tied to income, it would still be a five-year rolling
average; consequently, he believed that such a scenario could
create issues if the market were to collapse, and the five-year
average indicated that the state was supposed to pay out more
than it actually had in the account. He said in some ways it
could be an arbitrary decision to base the formula on income
rather than on the amount in the account and the ability to pay.
Furthermore, he pointed out that during the discussion,
Representative Eastman had made reference to repealing the
statute and fixing the statute. He said in reading HB 3002, the
bill seemed to be repealing the statute. He opined that Senate
Bill 26 essentially created a spending cap and asked why the
bill sponsor wanted to repeal it instead of amending it.
1:42:15 PM
REPRESENTATIVE EASTMAN explained that he was not an advocate of
Senate Bill 26 and opined that it had been shown not to work.
He believed that the law should be written in a way that the
legislature could follow it carefully.
CHAIR SPOHNHOLZ thanked Representative Eastman and clarified for
the public that over the last seven years, the legislature had
reduced the state's contribution to spending by about $500
million while inflation had simultaneously eroded those dollars
by about 5 percent. She stressed that there had been cuts made
to the budget, pointing out that most of the budget growth had
come from federal funds.
| Document Name | Date/Time | Subjects |
|---|---|---|
| APFC Presentation 9.1.21.pdf |
HW&M 9/1/2021 1:00:00 PM |
APFC |
| Leg Finance POMV and PFD bills 9.1.21.pdf |
HW&M 9/1/2021 1:00:00 PM |
|
| POMV-PFD bills comparison table.pdf |
HW&M 9/1/2021 1:00:00 PM |
|
| HB 3002 Presentation 9.1.21.pdf |
HW&M 9/1/2021 1:00:00 PM |
HB3002 |
| Leg Finance POMV and PFD bills CORRECTED 9.1.21.pdf |
HW&M 9/1/2021 1:00:00 PM |
|
| POMV-PFD bills comparison table CORRECTED.pdf |
HW&M 9/1/2021 1:00:00 PM |