Legislature(2021 - 2022)ADAMS 519
05/16/2022 01:30 PM House FINANCE
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| Audio | Topic |
|---|---|
| Start | |
| SB72 | |
| HJR1 | |
| HB66 | |
| SB25 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| + | SB 72 | TELECONFERENCED | |
| += | SB 25 | TELECONFERENCED | |
| + | TELECONFERENCED | ||
| += | HJR 1 | TELECONFERENCED | |
| + | HB 66 | 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.
3:00:37 PM
Co-Chair Merrick reported that the bill was last heard on
September 10, 2021. She invited Representative Kreiss-
Tompkins to begin his presentation.
3:00:56 PM
REPRESENTATIVE JONATHAN KREISS-THOMPKINS, SPONSOR, thanked
the committee and noted that he had a committee substitute
for the committee to consider.
3:01:36 PM
AT EASE
3:02:07 PM
RECONVENED
Co-Chair Foster MOVED to ADOPT proposed committee
substitute for SSHJR 1, Work Draft 32-LS0167\N (Nauman,
5/15/22)(copy on file).
There being NO OBJECTION, it was so ordered.
Representative Kreiss-Tompkins indicated the most notable
change was found in Section 2, page 2, line 1. He explained
that the CS constitutionally guaranteed a permanent fund
dividend (PFD) payment as provided by a formula set out in
law. He added that whatever the statutory formula that was
set in law would be constitutionally guaranteed. He
announced that it was the major change in the bill.
3:03:34 PM
JEFF STEPP, STAFF, REPRESENTATIVE JONATHAN
KREISS-THOMPKINS, read the CS for Speaker Stutes for HJR 1
Explanation of changes: Version G to Version N:
Section 1: Version G included references to two
subsections, (b) and (c). Because a new subsection was
added, there is now a reference in Section 1 to a
third subsection, (d). Each of these subsections
provides for the use of income from the Permanent
Fund.
Section 2: The major change to Version N is the
addition of the language in (b)(1) which says the
legislature "shall appropriate an amount from the
permanent fund for dividend payments to residents of
the State as provided by a formula set out in law."
Subsection (b)(2) is new language that says each
fiscal year the legislature "may appropriate from the
permanent fund to the general fund." Subsection (c) of
Version N, like subsection (b) of Version G, limits
appropriations from the Permanent Fund to 5% of its
average market value for the first five of the
preceding six fiscal years. Subsection (d) is new
language providing that subject to appropriation the
permanent fund may be used to pay costs associated
with investing and managing the Fund, which is
consistent with current practice.
Section 3: Language in Version G relating to "an
amount equal to the unencumbered balance on November
8, 2022," was changed to "November 30" in the new
version of the resolution. The November 8 date was
added in a previous committee to provide protection
from a withdrawal from the ERA between the date of the
election and the deposit of the ERA into the permanent
fund on June 30, 2023. In the new version of HJR 1,
the date was changed from November 8 (i.e., the day of
the 2022 general election) to November 30 because it
is not possible for the Alaska Permanent Fund
Corporation to compute an accurate balance of the ERA
other than at the month-end when bank reconciliations
are received with all of the underlying account data.
Section 4 is unchanged from the prior version and says
the constitutional amendments proposed by HJR 1 shall
be on the ballot in the next general election (i.e.,
November 2022)
3:06:42 PM
Representative Josephson indicated Representative Kreiss-
Tompkins had become an expert on the subject through
serving as Chair of the State Affairs Committee. He firmly
believed in eliminating the Earnings Reserve Account (ERA)
and having a single endowment in the corpus of the
Permanent Fund (PF). However, he planned on offering an
amendment deleting the language, "as provided by a formula
set out in law because the formula was unaffordable and
needed reform. He favored language comparable to the
states general welfare clause or the public health clause
that ambiguously provided the guarantees. He was unable
to support the CS as written.
3:08:21 PM
Representative Kreiss-Tompkins appreciated and respected
Representative Josephsons perspective. He thought version
N was a motion towards where he thought the median block
of the 27 votes would be in the house and was the
pragmatism behind the CS.
3:09:07 PM
Representative Rasmussen would not be able to support the
legislation without some reference to the statutory
payment. She deduced that the legislature would retain the
ability to change the payment statute. She asked whether
she was correct.
Representative Kreiss-Tompkins deferred the question to
Legislative Legal Services but deemed that Representative
Rasmussen was correct.
3:10:01 PM
AT EASE
3:10:39 PM
RECONVENED
Co-Chair Merrick invited Ms. Nauman to comment
3:10:51 PM
EMILY NAUMAN, DEPUTY DIRECTOR, LEGISLATIVE LEGAL SERVICES,
ALASKA STATE LEGISLATURE (via teleconference), asked
Representative Rasmussen to restate her question.
Representative Rasmussen asked whether there was any
provision in the CS prohibiting changing the current PFD
formula in statute. Ms. Nauman responded that there was
nothing that would prohibit the legislature to change the
statute or formula. The resolution required a PFD payout
based on the formula in statute but did not prohibit
changing the statute at any time with a majority vote.
Representative Rasmussen suggested that currently there
were two conflicting statues surrounding the PFD and
exemplified the current statutory formula and the Percent
of Market Value (POMV) formula. She inquired how that would
be reconciled with the resolution. She hypothesized the
adoption of a new statutory formula without repealing the
old formula. Ms. Nauman indicated the resolution did not
contemplate what would happen if there were two conflicting
formulas in law. She offered that it could potentially be a
difficult issue that would result in litigation. She stated
that even though there was math problem with the current
formula for the dividend and the formula for the ERA
account, they did not technically conflict if the
resolution was enacted.
Representative Carpenter asked if two formulas existed how
would the legislature choose one. He deduced from Ms.
Naumans answer that the courts would decide. Ms. Nauman
responded in the affirmative that the situation would
result in litigation and the court would determine which
formula was intended to be followed. She furthered that
rules of statutory construction existed that would guide a
court in its decision. She related that courts were
generally deferential to more recent statutes, but it was a
complicated situation. Representative Carpenter had hoped
for a simple answer. He referred to Section 4 which talked
about placing the issue to a vote and wondered when the
election would take place. Ms. Nauman indicated the
resolution was structured so it would be on the ballot in
the general election in November 2022.
3:15:58 PM
Representative Wool referenced the language as provided by
a formula set out in law. He stressed the difference
between a formula and the formula. He inquired whether
a formula referred to the only formula in current law.
Ms. Nauman responded that the 21 percent of net income with
the trailing 5-year average was the current dividend
formula. She interpreted the bill to mean the current
statutory formula. She pointed out that the current formula
in law created a math problem with the current 5 percent
POMV draw.
3:17:29 PM
Representative Wool asked that if the PFD formula did not
exceed 5 percent of the draw, whether it would eliminate
the conflict. He deduced that if the 5 percent draw covered
the PFD formula there would not be a conflict even if the
legislature would need to find other ways to provide
government services. He asked if he was correct. Ms. Nauman
responded in the affirmative and stated that was the reason
she referred to the issue as a math problem rather than a
conflict. Representative Wool cited the Senates version of
the operating budget and noted that the $5,500 PFD would
exceed the POMV draw. He shared some of the same concerns
as Representative Josephson that would override the
Wielechowski Decision that ruled the PFD was subject to
appropriation. He was concerned by the language mandating
a payout without changing the formula first. He guessed
that there might be a temptation, if the provision was
enshrined in the constitution, not to change the formula.
Ms. Nauman added that the bill contained the 5 percent POMV
draw limit in Subsection (c) and the amount available for
the dividend would be capped in the constitution by the 5
percent draw.
3:20:35 PM
Representative Kreiss-Tompkins thought it would be helpful
to contemplate the resolution along with a change to the
formula, specifically a POMV-based formula so that everyone
used the same numbers. The amount would always be a
percentage of the POMV and there would never be a conflict.
Politically, it was a very high bar to amend the
constitution. He guaranteed that there were not enough
votes without the formula being rewritten in a
collaborative way between the four caucuses in the two
bodies. He suggested that it was a lens to view the recent
version of the CS.
3:22:14 PM
Representative Wool understood Representative Kreiss-
Tompkins's desire to change the formula based on the POMV
percentage. He was concerned that the bill could easily be
amended to change the provision that the PFD payout would
be based on a formula set in statute. He wondered if
Representative Kreiss-Tompkins shared his concern.
Representative Kreiss-Tompkins voiced that he was not
concerned. He was aware of 14 house members that shared
Representative Wools policy beliefs. He deduced that if
such an amendment were to pass, he was confident that the
two/thirds support necessary for the underlying resolution
would evaporate. He characterized it as a safety
mechanism.
3:24:41 PM
Representative LeBon agreed with rolling the ERA into the
corpus of the fund and pointed out that traditional
endowments worked in the same way. He worried about locking
an expectation and a formula into the constitution. He
wondered whether Representative Kreiss-Tompkins had
considered separating the bill into two steps. The first
step would be to consolidate the ERA into the corpus and
then establish the POMV draw formula into the Constitution
and abandon the other provisions in the bill.
Representative Kreiss-Tompkins responded that the current
version of HJR 1 prior to the adoption of the CS was the
exact bill Representative LeBon described. However, the
two/thirds support was lacking. He believed that it was a
political question of where to find the support to resolve
the long standing issues that kept repeating session after
session. He effectively supported constitutionalizing the
POMV and that was in the prior version of HJR 1.
3:26:56 PM
Representative Josephson asked Ms. Nauman if SB 26 [-
Approp Limit & Per Fund:Dividend;Earnings/ CHAPTER 16 SLA
18/06/13/2018] mentioned the PFD and if there was any
concern that HJR 1 would stack a generous dividend on top
of another dividend.
Ms. Nauman replied that the provision created in SB 26 was
AS 37 13.140. (b), which set out the POMV cap drawn from
the PF each year. She added that SB 26 did not directly
deal with the dividend or change the dividend formula.
Another provision in the bill allowed any excess amount
after the dividend was paid from the POMV draw to be
deposited into the GF. She noted that the legacy formula
was in AS 37.13.145 that specified 50 percent of 21 percent
of the earnings. She did not believe that the bill could be
interpreted to double the dividends.
Representative Carpenter read from a portion of Section 2
of the resolution on page 2, line 2 and page 1 line 16,
may appropriate from the permanent fund to the general
fund versus shall appropriate an amount from the
permanent fund for dividend payments. He wondered if there
was a need to direct where the money was going to from a
technical point of view.
3:30:03 PM
Ms. Nauman responded that there were actually several
questions in Representative Carpenters query. She answered
whether the resolution needed to be specific regarding if
money needed to be deposited into the dividend fund. She
explained that the dividend fund was in statute and
drafters avoided referring to state statute in the
Constitution because statutes were more subject to change.
Section 2, b (1) simply required that an amount shall be
appropriated for a dividend to state residents and
purposefully not specific to a dividend fund in the event
that a dividend fund was one day eliminated. Section 2 (b)
(2) referred to the general fund because it was the
established state fund in existence. Once the money was
transferred to the general fund it could be spent any way
the legislature saw fit. The word may in Section 2 (b) (2)
indicated that the legislature was not required to
appropriate from the PF and deposit the money into the GF
whereas the shall in Section 2 (b) (1) required the money
to be appropriated in accordance with the formula.
Representative Carpenter suggested that in the current CS
if a scenario existed where the fund failed to grow enough
to meet the 5 percent draw, then the legislature could
decide to pay a dividend but not draw any more funds since
the money would be drawn from the corpus of the fund. He
noted that the SB 26 structure allowed the legislature to
withdraw funding from the corpus thus, degrading the
corpus. He deduced that the bill gave the legislature the
wiggle room to pay the dividend but not appropriate any
more funding into the GF for other purposes in order to
avoid degrading the corpus. Under the scenario, the
resolution mandating a payment of the dividend and with the
5 percent POMV draw going into the corpus, the legislature
would be degrading the corpus to pay the dividend. He
deemed that a number of bad investments earning years would
create the scenario. He believed that the POMV 5 percent
draw gave the legislature the ability to get into the
corpus but also allowed the legislature to withhold
appropriations for other purposes.
3:33:54 PM
Representative Kreiss-Tompkins agreed that the word may
was operative and did not obligate the legislature to spend
the full amount of the 5 percent POMV draw. He clarified
that the notion of degrading the real value of the fund
was going down a rabbit hole. He thought in a rule-based
framework that was in the constitution that in the long run
the funds real value would be protected. Representative
Carpenter was trying to draw a distinction. He stipulated
that any year's particular 5 percent draw could be greater
or less than that years earnings. He clarified that if the
fund experienced a decline over a number of years and the
decline was factored into the 5-year lookback, the draw
could be from the corpus of the fund. He compared the
scenario to the 21 percent of the years net earnings that
was never deposited into the corpus if it went to zero
earnings in a particular year there would be no dividend.
3:37:00 PM
Representative Josephson directed his question to Ms.
Nauman. He indicated that over the past 5 years he had
received emails from citizens that wanted the draw limit
exceeded and cited a previous statute from 1982. He
wondered if under the resolution if someone wanted a
dividend greater than 5 percent, they had a constitutional
problem. Ms. Nauman replied that Representative Josephson
was correct that the resolution constitutionalized the 5
percent draw cap, the legislature could not withdraw more
than 5 percent of the average market value of the PF, and
subject to cap the legislature would pay out the dividend
based on law. However, nothing prevented the legislature
from paying out an additional amount on top of the dividend
under the formula in law.
Co-Chair Foster indicated that some members had amendments
and discussion ensued.
3:40:22 PM
AT EASE
3:43:03 PM
RECONVENED
Co-Chair Foster asked that members submit their amendments
as soon as possible.
Representative Josephson indicated that the dividend payout
in the current year according to statute would require $2.7
billion. He wondered whether the governors signature was
necessary for a resolution and guessed that it was not
required. He declared that he could not support the
resolution as it was written without the formula being
changed. He supported reforming the formula and that the
50/50 split was too dangerous and not conservative
enough. He wondered whether the governor would veto a bill
that changed the formula, while the resolution passed.
Representative Kreiss-Tompkins confirmed that
constitutional resolutions did not require the Governors
signature and was forwarded to the voters of Alaska.
Ultimately, coordination was necessary for any formula
statute change. He suggested that if there was coordination
and alignment, the PFD formula change bill would be sent to
the governor for a signature with the caveat that only upon
signature, the resolution would be voted on. He guessed
that there might be other sequencing that could work via a
coordinated effort.
3:46:05 PM
Representative Josephson thought that a provision would
need to be included in the resolution. Representative
Kreiss-Tompkins answered in the negative. He deemed that if
there was a corresponding PFD formula change the
legislature could hold onto the resolution until after the
governor signed a formula change bill and then allow the
resolution to proceed to a final vote. He restated that the
common denominator in the scenario was that coordination
was necessary. Representative Josephson was concerned with
the issue of contract law. The governor could state that he
would sign the bill, but he could revoke his word.
Representative Kreiss-Tompkins clarified that the governor
could sign a formula change before the constitutional
amendment resolution was voted on by the legislature.
Representative Josephson asked if the process could be
completed in the following 56 hours. Representative Kreiss-
Tompkins believed it was implausible.
3:49:41 PM
Co-Chair Foster reiterated amendments were due directly.
Representative Kreiss-Tompkins relayed that he would be
offering an amendment to insert the word "eligible" on page
2, line 1 before the word residents reading payments to
eligible residents of the state.
3:50:43 PM
Co-Chair Foster indicated he would be setting the
resolution aside.
HJR 1 was HEARD and HELD in committee for further
consideration.