Legislature(2021 - 2022)ANCH LIO DENALI Rm
10/13/2021 10:00 AM House WAYS & MEANS
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| Audio | Topic |
|---|---|
| Start | |
| HB4003 | |
| HB4009 | |
| HB4010 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| *+ | HB4003 | TELECONFERENCED | |
| *+ | HB4008 | TELECONFERENCED | |
| *+ | HB4009 | TELECONFERENCED | |
| *+ | HB4010 | TELECONFERENCED | |
| + | TELECONFERENCED | ||
HB4009-PERMANENT FUND DIVIDEND; ROYALTIES
10:41:03 AM
CHAIR SPOHNHOLZ announced that the next order of business would
be HOUSE BILL NO. 4009, "An Act relating to the Alaska permanent
fund; relating to dividends for state residents; relating to the
use of certain state income; and providing for an effective
date."
10:41:59 AM
REP HOPKINS, Alaska State Legislature, prime sponsor, introduced
HB 4009. He paraphrased the sponsor statement [included in the
committee packet], which read as follows [original punctuation
provided]:
Alaskans are beneficiaries of the foresight of our
state's founders, who ensured that state-owned
resources would be managed for the maximum benefit of
all Alaskans (Article VIII Section 2). Unique among
all states, Alaska's constitution creates communal
ownership of state resources what former Governor
Wally Hickel called "the Owner State."
Following statehood and the discovery of Alaska's
North Slope oil reserves, Alaska's political leaders
and voters created the Alaska Permanent Fund to, in
the words of Governor Hammond "transform oil wells
pumping oil for a finite period into money wells
pumping money for infinity." Since 1982, Alaskans have
received dividend payments from the State of Alaska.
With a stepped four-year approach, HB 4009 crafts a
new dividend formula, where Permanent Fund earnings
AND mineral revenues from oil and gas are used to
calculate dividend payments. Starting in FY 2023, 35
percent of Oil and Gas Royalties, Rents and Bonuses
(OGRRB) would be combined with 10 percent of the total
Percent of Market Value (POMV) draw for the payment of
dividends. The amount of the state's OGRRB and POMV
contribution to the dividend fund would grow by five
percent annually until FY 2026, when the final formula
of 50 percent of OGRRB and 25% of the POMV takes
effect.
HB 4009 creates a new partnership and vision for
Alaska's dividend program. By combining the earnings
of the Permanent Fund with a percentage of Alaska's
oil and gas mineral revenues, Alaskans will benefit
from a diversified dividend revenue stream, shielding
the dividend from market downturns and commodity price
fluctuations. Additionally, Alaskans will see a direct
benefit from the continued development of resources on
state and federal land, renewing the founders' vision
of an owner state.
10:46:03 AM
JOE HARDENBROOK, Staff, Representative Grier Hopkins, Alaska
State Legislature, on behalf of Representative Hopkins, prime
sponsor, provided a brief sectional analysis of HB 4009.
Section 1 deleted the old PFD formula. Section 2 created a new
formula for the fund's earning appropriations for the dividend
program. Sections 3-5 contained conforming changes. Section 6
excluded the Alaska Mental Health Trust Authority from the
calculation of the fund's market value. Sections 7-9 contained
conforming changes. Section 10 provided the new formula for oil
and gas royalty revenue and bonus appropriations to fund the
dividend program. Section 11 was the effective date.
10:48:15 AM
MR. HARDENBROOK directed attention to a PowerPoint presentation,
titled "HB 4009; A New Vision for Alaska Dividends [hard copy
included in the committee packet]. He began on slide 2,
indicating that the proposed legislation would grow and
diversify the revenue streams for Alaska's dividends. Rather
than solely relying on market returns from the Alaska Permanent
Fund, future dividends would include a percentage of state
royalties, rents, and bonuses on the development of its oil and
gas resources. He turned to slide 3, which read as follows
[original punctuation provided]:
New Formula for Dividend Calculation:
• FY23: 10% POMV Draw + 35% of Oil & Gas
Royalties/Rents/Bonuses (OGRRB)
• FY24: 15% POMV Draw + 40% OGRRB
• FY25: 20% POMV Draw + 45% OGRRB
• FY26: 20% POMV Draw + 50% OGRRB
o 25%+50% Formula in Effect from FY26 Onward
10:50:30 AM
MR. HARDENBROOK advanced to slide 4, which read as follows
[original punctuation provided]:
What Wouldn't Change:
• Permanent Fund Corporation
• Percent of Market Value Statute
• Dividend Tied to Performance of Permanent Fund
10:50:54 AM
MR. HARDENBROOK progressed to slide 5, which read as follows
[original punctuation provided]:
What Would Change:
• Alaskans Receive Direct Share of Oil and Gas
Revenue
o Federal and State Resources
• Dividend Funds Diversified under New Formula
• Dividends Calculated on Fund Returns & Resource
Development
10:51:24 AM
MR. HARDENBROOK continued to slide 6, which highlighted the
funds available for paying dividends under HB 4009. Slide 7
outlined the projected dividend amounts under the proposed plan,
starting at $1,092 in FY 23. He concluded on slide 8, noting
that HB 4009 in its current form would result in a deficit in
future years, which could be addressed in two ways: firstly,
through maintaining the proposed blended revenue stream of oil
and gas royalties and fund returns, while tweaking the amount in
the formula; secondly, through new revenue. He invited Mr. Bell
to provide an explanation of the fiscal models on slide 8.
10:54:32 AM
MR. BELL explained that the fiscal model was showing the impact
of the proposed legislation using assumptions based on the
enacted capital budget and operating budget.
CHAIR SPOHNHOLZ directed attention to the bottom left chart on
slide 8 and asked whether the unplanned ERA draw was in addition
to the surplus or deficit.
MR. BELL said the draw was part of the surplus or deficit.
CHAIR SPOHNHOLZ sought to confirm that the CBR would be drawn
from to fund the deficit first, followed by an ERA draw to
maintain the minimum balance of $500 million in the CBR. She
estimated that in FY 22, there would be a (indisc.) of $204
million that would grow up to $552 million in FY 26 and decline
again to $234 million in FY 30.
MR. BELL confirmed that her understanding was accurate.
10:58:25 AM
REPRESENTATIVE JOSEPHSON asked whether the incremental increase
was designed to provide the legislature with a timeframe to
adopt new revenue.
REPRESENTATIVE HOPKINS answered yes.
10:59:29 AM
REPRESENTATIVE WOOL observed that the modeling on slide 8 showed
a deficit in FY 22 with a CBR draw. He asked why that was
depicted.
MR. BELL believed that Representative Wool was referring to the
ERA draw in FY 22. He explained that LFD's modeling did not
include any of the federal revenue replacement.
REPRESENTATIVE WOOL applauded the foundational formula in the
proposed legislation; nonetheless, he expressed concern about
the step-up portion of the plan and the overdraw that would
result. Further, he asked whether there was any research that
showed a benefit to paying out large dividends, as opposed to
putting that money towards the BSA, education, and other state
services.
REPRESENTATIVE HOPKINS said the bill would need to be part of a
package that included new revenue, noting that he did not
support an unplanned overdraw from the ERA. He believed that
with a full fiscal plan, a balance could be struck between
revenue, the economy, and the dividend. He expressed his hope
that the formula in HB 4009 would drive resource development
that would bring in new revenue to support the budget. He
maintained that the proposed legislation would allow for a fluid
dividend while protecting the POMV draw.
11:05:25 AM
REPRESENTATIVE WOOL agreed that this plan would require new
revenue to avoid the overdraws. He said he supported the
initial formula in the bill but was reluctant to increase it,
because he believed new revenue could be used in a better way.
REPRESENTATIVE HOPKINS credited [HB 37] from Representative Wool
for the formula proposed in HB 4009.
11:07:01 AM
REPRESENTATIVE STORY sought to clarify how the plan would allow
the state to maintain essential public services and provide for
a capital budget.
REPRESENTATIVE HOPKINS directed attention to slide 8, which
highlighted the size of the capital budget under this proposal.
He acknowledged that the dividend formula would create a
deficit, so essential services would have to be identified, as
well as new revenue and cuts to maintain a balanced budget.
MR. HARDENBROOK noted that the numbers in the model included
inflationary increases for the FY 22 state budget.
CHAIR SPOHNHOLZ added that it did not, however, include
strategic investments, such as increases to the BSA, as
referenced by Representative Story.
REPRESENTATIVE HOPKINS, in response to a question from
Representative Story, confirmed that oil prices were
unpredictable. He reasoned that the dividend formula proposed
in HB 4009 reflected the needs of Alaskans, such as high energy
costs.
11:11:50 AM
REPRESENTATIVE HOPKINS, in response to a question from
Representative Schrage, shared his belief that the bill would
shield from market downturns by balancing oil and gas revenue
and permanent fund earnings. He acknowledged that the proposal
would come with a new set of risks and discussed Alaskans
retaining ownership of state resources and sharing in both the
high and low times.
REPRESENTATIVE HOPKINS, in response to a question from
Representative Schrage, recalled times throughout recent history
when the economy was thriving while oil prices were low and vice
versa.
11:16:17 AM
REPRESENTATIVE HOPKINS, in response to a question from
Representative Josephson, confirmed that the purple line labeled
"current scenario" [slide 8, top right] represented the proposed
legislation.
REPRESENTATIVE JOSEPHSON asked whether there was a scenario in
which the royalty contribution in HB 4009 would result in a
dividend equal to the 1982 statutory formula.
REPRESENTATIVE HOPKINS answered yes, but it could also be
substantially lower depending on the price of oil.
11:17:24 AM
REPRESENTATIVE HOPKINS, in response to Representative Josephson,
confirmed that in all likelihood, the dividend would not be
$2,800 [despite projections indicating that it would reach that
by FY 30] due to the difficulty in predicting oil prices. He
noted that according to the forecast, oil was predicted to be
$65 per barrel going forward.
CHAIR SPOHNHOLZ stressed the volatility of oil as a revenue
source.
11:18:55 AM
REPRESENTATIVE EASTMAN asked whether any analysis had been
conducted on how reduced dividend years would impact
participation in state services and programs.
REPRESENTATIVE HOPKINS said no specific analysis had been
conducted on that topic.
REPRESENTATIVE EASTMAN maintained his belief that such an
analysis would be helpful.
REPRESENTATIVE HOPKINS reiterated that the goal of the bill was
to create economic incentive for resource development and job
creation to grow Alaska's economy.
CHAIR SPOHNHOLZ recalled hearing from the Institute of Taxation
and Economic Policy (ITEP) and others on the impact of dividend
cuts.
11:22:16 AM
REPRESENTATIVE PRAX didn't recall hearing about the dividend's
impact on municipalities. He requested information on how much
money was collected from unpaid fines, parking tickets, speeding
tickets, etcetera.
11:23:32 AM
REPRESENTATIVE STORY reminded the committee that an influx of
people would be accompanied by their need for services and the
necessity to pay for those services.
CHAIR SPOHNHOLZ announced that HB 4009 was held over.
| Document Name | Date/Time | Subjects |
|---|---|---|
| HB 4009 Sponsor Statement.pdf |
HW&M 10/13/2021 10:00:00 AM |
HB4009 |
| HB 4003.PDF |
HW&M 10/13/2021 10:00:00 AM |
|
| HB 4010.pdf |
HW&M 10/13/2021 10:00:00 AM |
HB4010 |
| HB 4003 Presentation.pdf |
HW&M 10/13/2021 10:00:00 AM |
HB4003 |
| HB 4009 Presentation.pdf |
HW&M 10/13/2021 10:00:00 AM |
HB4009 |
| HB 4009.pdf |
HW&M 10/13/2021 10:00:00 AM |
HB4009 |
| HB 4009 Fiscal Note, OMB.pdf |
HW&M 10/13/2021 10:00:00 AM |
HB4009 |
| HB 4010 Sponsor Statement.pdf |
HW&M 10/13/2021 10:00:00 AM |
HB4010 |
| HB 4010 Sectional Analysis.pdf |
HW&M 10/13/2021 10:00:00 AM |
HB4010 |
| HB 4010 Fiscal Note, OMB.pdf |
HW&M 10/13/2021 10:00:00 AM |
HB4010 |
| HB 4010 Presentation 10.13.21.pdf |
HW&M 10/13/2021 10:00:00 AM |
HB4010 |