Legislature(2021 - 2022)ADAMS 519
05/18/2021 09:00 AM House FINANCE
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| Audio | Topic |
|---|---|
| Start | |
| HB104 | |
| HJR1 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| += | HB 104 | TELECONFERENCED | |
| + | SB 71 | TELECONFERENCED | |
| + | TELECONFERENCED | ||
| += | HJR 1 | TELECONFERENCED | |
HOUSE JOINT RESOLUTION NO. 1
Proposing amendments to the Constitution of the State
of Alaska relating to the Alaska permanent fund and to
appropriations from the Alaska permanent fund.
9:33:13 AM
Co-Chair Merrick OPENED public testimony.
MIKE COONS, PRESIDENT, ASSOCIATION OF MATURE AMERICAN
CITIZENS, PALMER (via teleconference), spoke of people
being frustrated with testifying, as constituents were not
being heard. He spoke in support of SJR 6 but opposed
HJR 1. He wanted to see the PFD off the table and out of
legislators' hands. He reiterated his opposition to HJR 1.
He thought the changes made to SJR 6 in the Senate
Judiciary Committee strengthened the legislation.
9:35:55 AM
BERT HOUGHTALING, SELF, BIG LAKE (via teleconference),
completely opposed HJR 1. He argued that the mineral rights
belonged to the public. He believed the issue should be
brought to a vote of the people to decide how the money
would be spent in the future and the PFD payout. The
legislation was an erosion of the security of a future PFD.
The language in the bill suggested the legislature "might"
pay a PFD, leaving the payout at the discretion of the
legislature. He was against anything outside of a statutory
PFD formula payout. He suggested looking at SJR 1 offered
by Senator Wielechowski which would protect the PFD for
future generations. He did not fully support SJR 6 but
thought it was better than HJR 1. He did not support
PFD-stealing bills. He wondered if legislators cared about
the children of Alaska. He responded to the question asked
earlier regarding HB 104 and how many miles he drove each
year. He reported driving over 130,000 miles per year. Some
years he drove over 200,000 miles. He did not believe
legislators cared about what constituents had to say.
9:38:22 AM
CHRIS EICHENLAUB, SELF, WASILLA (via teleconference), was
speaking for himself and his grandchildren. He strongly
opposed HJR 1. His grandchildren were saving their PFD's so
they could attend college. He urged members not to steal
their PFDs and encouraged legislators to spend less money.
He would be happy to see the Permanent Fund grow
significantly.
9:40:01 AM
Co-Chair Merrick CLOSED public testimony.
9:40:17 AM
IAN LAING, EXECUTIVE DIRECTOR, INSTITUTE OF THE NORTH (via
teleconference), began his PowerPoint presentation of HJR 1
by relaying that the mission of the Institute of the North
was centered on ensuring that Alaska did the most with the
resources it shared. Fiscal policy would normally be an odd
fit for the institute if there was not an eminent and real
threat to the Permanent Fund (PF) at present. He quoted
Governor Jay Hammond: "We've had dropped in our laps this
monstrous golden goose egg. How we burnish it, how we
tarnish it, or crack it right open, will leave a legacy for
years to come." He brought the quote forward because the
state had reached the moment in which it was deciding
whether to crack the PF wide open. The decision would have
long-lasting and irrevocable consequences for the state. He
summarized his presentation by saying that in the opinion
of the institute there was nothing more important to the
future of the state than putting some form of the amendment
on the ballot and before voters in 2022.
9:41:57 AM
Mr. Laing turned to slide 2: "Sustainable Use of the
Permanent Fund." He pointed out that HJR 1 was good policy
and good strategy. He also offered that prioritizing the
amendment was the single best strategy for driving
resolution of the larger fiscal challenge Alaska faced.
9:42:25 AM
Mr. Laing continued to slide 3 to discuss an old idea whose
time had come. The idea of converting the PF to a simple
endowment and limiting spending to a sustainable percent
was an idea older than the sponsor of the bill. It was
proposed by the people who created the fund immediately
after the fund was created. There was no more thoroughly
studied, consistently recommended, widely supported, but
unimplemented piece of public policy in Alaska that he was
aware of in public discourse currently. It had been the
consistent recommendation of the board of trustees for over
20 years. It had also been the fiscal conclusion of every
fiscal planning commission that the state ever had. He
noted that some form of the bill had been introduced almost
40 times over the years. The issue had always been
recognized as the cornerstone of Alaska's future. However,
the window was closing for the state to make the change
before it started to incur the damage to the PF that had
been speculated over the years.
9:43:35 AM
Mr. Laing reviewed Alaska's number one priority on slide 4.
He relayed that the fiscal problem the state had struggled
with the previous 7-8 years was still the largest nut to
crack. The state had cut spending over the last many years
by over 40 percent by eliminating the capital budget and
trimming agency spending for most agencies to the lowest
real level. Over the 7-8 years the state had spent its'
non-PF savings. He wondered about the most likely outcome.
Mr. Laing moved to slide 5 to review the high level lessons
the institute had learned. The first was that Alaska's
fiscal politics were uniquely complex. Any other state
would have a slight tension between government services and
spending. However, Alaska's politics had been complicated
by the addition of the dividend. Rather than having a
binary debate, there was a more complicated dynamic to
navigate. The approach the state had taken over the prior
7-8 years, to come to some grand bargain, had proved
elusive. Without a solution, the state had defaulted to the
path of least resistance - to spend savings. It was very
difficult to see a different result given the same
fundamental constraints. He suggested that as long as
savings were available, they would be the resolution.
9:46:06 AM
Mr. Laing turned to slide 6 and asserted that, by default,
spending down the PF was Alaska's fiscal plan. Although it
was not an outcome that anyone wanted, it was the product
of the current complicated dynamics. It was a tragedy of
the commons as the state moved toward an outcome no one
really wanted - Alaska did not have an effective vehicle
for driving compromise. However, he believed the bill could
be the vehicle for driving compromise.
9:46:45 AM
Mr. Laing reviewed slide 7: "Alaska is Now an Endowment
State." He pointed out that one of the major changes Alaska
had gone through in the past several years was that for the
first time it started using the PF to support government
spending. Alaska had effectively become an endowment state.
Oil was no longer the main source of revenue. The state had
moved from reliance on oil to 65 percent to 75 percent of
its budget being supported by the PF. From a revenue
perspective, it was a massive shift. Although Alaska was
operating as an endowment state, it did not have the
protections in place to ensure that the endowment
functioned the way it needed to in the current environment.
9:47:42 AM
Mr. Laing flipped through slide 8 which showed the problems
with the status quo.
Mr. Laing spoke about technical challenges on slide 9. He
relayed that the PF had a bifurcated structure with a
protected corpus and an earnings reserve available for
appropriation. The structure was a product of political
compromise. He asserted that the structure was outdated and
did not work well in the current environment in which the
state depended on the PF to support government spending.
There were work-arounds in place such as the 3X and 4X rule
in the Earnings Reserve Account (ERA). The provisions would
allow the state to get by but assumed it would not
overspend the PF. He thought it would be a difficult
discipline to exercise moving forward.
Mr. Laing continued that in the prior year the Alaska
Permanent Fund Corporation (APFC) conducted a study where
they looked at what the chances would be, in the new
environment where the state was depending on the PF to
support government spending, unable to make its' statutory
POMV draw at some point in the following 20 years. The
corporation looked back over the last 100 years in 20-year
increments. They suggested that if the PF performed over
the following 20 years as it had over the previous 20-year
increments and drawing down the ERA during the period would
the state be unable to get money out. The conclusion that
the study came to was that it would be a 50/50 chance.
There was a 50 percent chance the state would bottom out
the ERA in the following 20 years. The scenario also
assumed the state was properly inflation proofing even
though it was not required. The lack of inflation proofing
would radically impact the percentage of failure. The
scenario also assumed the state did not overdraw from the
fund - a distinct risk.
9:49:49 AM
Mr. Laing continued to slide 10: "Fiscal Prudence." He
suggested the more obvious issue would be that a smaller
fund would generate fewer earnings. With smaller earnings
there would be more of a fiscal gap to have to cover in the
future. He relayed that for every billion the state spent
in the present, $50 million in earnings would be lost in
perpetuity. If the state had the $17 billion it had spent
over the previous 7 to 8 years, the $17 billion would be
making $850 million in sustainable earnings every year. It
could have covered the dividend and left the state without
a problem. It was a reality the state would have to live
with. Moving forward, the state would be looking at
doubling down on the approach. Currently, there happened to
be $17 billion in the ERA. Projecting forward 5 or 6 years,
if the state was still having the same discussion but had
spent down the PF by $17 billion, the gap would be
$850,000. The problem would not be any easier to fix.
Rather, it would only become more necessary. The outcome
for Alaska's economy would only be worse by the delay of
addressing the issue.
9:51:30 AM
Mr. Laing reviewed the concept of a small fund having fewer
earnings on slide 11. He suggested that with a larger gap
the state could only make up the gap in a few ways: larger
cuts to services; greater taxes than the state would have
otherwise needed; or the elimination of dividends.
9:51:53 AM
Mr. Laing turned to slide 12: "An Asset for ALL
Generations." He reported that what brought the Institute
of the North into the discussion was the largest
unrepresented constituency - future Alaskans. Although the
state could overspend from the ERA, it was not the state's
money to spend. The Permanent Fund was always envisioned as
an asset for converting non-renewable resources into
renewable wealth. It had done that very effectively.
Alaskans, through polling, overwhelmingly supported that
the PF be used as an inheritance to be passed on to future
generations. Since the legislature created the fund, the
state had brought in approximately $150 billion in revenues
and spent about 87.5 percent of it on the needs of the day.
The money had been used to build infrastructure and created
a stable economy in many ways. However, the idea that the
state would spend down 13.5 percent for future generations
was not a legacy he wanted to leave. He skipped slide 13.
9:53:19 AM
Mr. Laing turned to slide 14 to discuss a strategy for
addressing Alaska's fiscal challenge. The gap that the
legislature was trying to address would eventually be
closed. It would happen one way or another. The sooner it
was addressed, the better off the state would be. Any deal
that was brokered presently would be better than any deal
that could be made at a later time when there was a smaller
fund and fewer earnings. He suggested that the bill was as
much a good policy as it was a good strategy.
Mr. Laing explained that when the legislature passed HJR 1
or any version of the amendment that protected the real
value of the PF moving forward, it would give the state a
deadline for the first time in the discussion. If the
legislature put it on the ballot in 2022 and went into
effect in 2023 or later, it would be the point after which
the legislature would no longer allow unstructured draws
from the PF. Until then the state could overdraw the fund
to address the state's short-term challenges. The deadline
would drive negotiations on how else the legislature would
fill the gap. He thought it was very necessary to overcome
the challenges of the debate. It would give legislators a
few more years to figure things out providing a defined
runway.
9:55:07 AM
Mr. Laing turned to slide 15 to talk about timing. The
legislature only had the chance to put something on the
ballot every two years. If the legislature missed the
window failing to put something on the ballot in 2022, it
would have to go on the ballot in 2024 and into effect in
2025. If it were the case, he would leave the committee
with the question of what the chances were that the
legislature would already start to overspend from the fund.
He asserted that for every year legislators failed to take
action, they were compromising the future in very material
ways. He urged members support and encouraged them to
continue to work on a comprehensive solution. However, no
matter what happened, legislators needed to get some form
of HJR 1 on the ballot in 2022. It was the first step to a
sustainable plan and the one piece that everybody agreed
on.
Mr. Laing addressed slide 16. He relayed that changing the
constitution required a high bar for a reason, as it meant
amending the document that spoke to what constituted
Alaskans. In the context of the PF, Alaskans had to ask
themselves what they stood for. The question was whether
Alaskans would act to protect the long-term interest of the
state or pass the problem onto future generations. He
suggested the question would be answered one way or another
- whether through action or inaction. He appreciated the
committee's consideration of the bill.
9:57:32 AM
Co-Chair Merrick invited Ms. Rodell to comment on the
presentation or contribute any closing comments.
9:57:50 AM
ANGELA RODELL, EXECUTIVE DIRECTOR, ALASKA PERMANENT FUND
CORPORATION (via teleconference), thought there was a lot
for the committee to digest. She was happy to answer any
questions.
9:58:15 AM
REPRESENTATIVE KREISS-TOMPKINS, SPONSOR, had a couple of
comments. He thought Mr. Laing's analysis was very
important for legislators to consider. He hoped there were
a couple of consensus take-aways independent of the
solution. First, all Alaskans lose the further down the
path the state traveled. Second, the status quo structure
was untenable. The 50 percent chance of a failure of the
POMV draw, given the current bifurcated structure, should
cause some budgetary existential angst. There were
irrefutable structural problems that were highlighted in
the presentation. He hope everyone could work together for
a solution.
9:59:46 AM
Representative Wool referred to slide 13: "Protecting the
Permanent Fund" He relayed the first three items on the
list: protecting against higher taxes, protecting
dividends, and protecting services. He thought that if the
state wanted to have all of the services currently in
place, a statutory dividend, and no taxes, the situation
would be irreconcilable. He supported protecting the PF and
HJR 1 in its current form. However, maintaining the three
items he mentioned would be difficult to attain
simultaneously.
Representative Kreiss-Tompkins responded that even though
he agreed with Representative Wool mathematically speaking,
the legislature would have to settle on a political
solution that reconciled that there was an additional
constituency and program that had a constituency
representing each of the items he had highlighted.
10:02:37 AM
Representative Carpenter pointed out that the one thing
missing from the briefing was any reference to economic
activity. He thought increased activity would make the
budget problem go away. He suggested that when the
legislature was looking at future options and created a
bubble or conversation that excluded economic growth, they
were doing a disservice. He thought the legislature should
be including economic growth in the conversation. It would
change the dynamics of the conversation. Taxes would not
necessarily be needed. His point was that the legislature
could not exclude a growing state economy from the debate
about taxes and spending.
Co-Chair Merrick set the bill aside and reviewed the agenda
for the afternoon meeting.
HJR 1 was HEARD and HELD in committee for further
consideration.
| Document Name | Date/Time | Subjects |
|---|---|---|
| HB 104 Public Testimony by 051721.pdf |
HFIN 5/18/2021 9:00:00 AM |
HB 104 |
| HJR 1 Public Testimony by 051921.pdf |
HFIN 5/18/2021 9:00:00 AM |
HJR 1 |