Legislature(2021 - 2022)GRUENBERG 120
05/06/2021 03:00 PM House STATE AFFAIRS
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| Audio | Topic |
|---|---|
| Start | |
| SB47 | |
| HJR7 | |
| HB73 | |
| HB187 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| + | SB 47 | TELECONFERENCED | |
| += | HJR 7 | TELECONFERENCED | |
| += | HB 73 | TELECONFERENCED | |
| += | HB 187 | TELECONFERENCED | |
| += | HB 66 | TELECONFERENCED | |
| *+ | HB 161 | TELECONFERENCED | |
| + | TELECONFERENCED | ||
HJR 7-CONST. AM: PERM FUND & PFDS
3:30:16 PM
CHAIR KREISS-TOMKINS announced that the next order of business
would be HOUSE JOINT RESOLUTION NO. 7, Proposing amendments to
the Constitution of the State of Alaska relating to the Alaska
permanent fund, appropriations from the permanent fund, and the
permanent fund dividend.
CHAIR KREISS-TOMKINS reminded members that HJR 7 is by the House
Rules Committee by request of the governor.
3:31:37 PM
CHAIR KREISS-TOMKINS moved to adopt Amendment 1, labeled 32-
GH1694\A.1, Nauman, 5/4/21, which read:
Page 2, line 2:
Delete "as provided by law setting forth a
percentage"
Insert "that is not more than five percent"
REPRESENTATIVE EASTMAN objected for the purpose of discussion.
3:31:43 PM
CHAIR KREISS-TOMKINS explained Amendment 1 would set within the
text of the constitutional amendment a ceiling of 5 percent for
the draw from the permanent fund. He said the goal is to make
that an unbreakable draw to preserve sustainability of the
permanent fund rather than leaving it as a number that could be
revised by the legislature. He is concerned that in times of
fiscal crunch it might be easier for the legislature to pass a
bill that increases the draw to 5.5 percent or higher because
that would allow the legislature to spend more money and
subsidize what would appear to be a balanced budget when it is
really balanced on the back of the long-term integrity of the
fund. This amendment would protect the long-term integrity of
the permanent fund by setting the draw in the constitution.
REPRESENTATIVE VANCE requested Ms. Rodell to speak to the
amendment.
3:33:24 PM
ANGELA RODELL, CEO, Alaska Permanent Fund Corporation (APFC),
stated APFC would be supportive of an amendment limiting the
percentage or including a percentage within the language of the
amendment. She stated that under the current draft with no
amendment, it could be argued that 100 percent of the fund could
be taken in any given year. Therefore, APFC is supportive of
including a percentage as an amendment.
REPRESENTATIVE VANCE requested Ms. Rodell's perspective on the
proposed language, "that is not more than five percent".
MS. RODELL responded that APFC continues to support 5 percent as
the limit and would not have any issue with the number itself.
She said this is something that the Board of Trustees has been
on record supporting for 20-plus years.
CHAIR KREISS-TOMKINS asked whether the administration has an
opinion on embodying the percentage of the draw in this
constitutional amendment.
3:35:09 PM
MIKE BARNHILL, Deputy Commissioner, Office of the Commissioner,
Department of Revenue (DOR), answered that the administration
supports the amendment. As he noted in the previous hearing,
this language is taken from the changes made to the public
school trust fund in 2018 in which the language "not more than
five percent" was inserted as sort of a signaling to
policymakers and appropriators that there may be market periods
or economic periods where it is prudent to appropriate less than
5 percent of the market value average. The point of an
endowment is to protect the real value, or the inflation
adjusted value, of the endowment over all periods of time.
There may be periods where 5 percent is too much and so the
recommendation is for something lower than 5 percent, such as
when there have been several years of high inflation that have
eroded the inflation adjusted value of the fund.
3:36:40 PM
REPRESENTATIVE TARR noted the language that would be deleted by
Amendment 1 states, "as provided by law setting forth a
percentage". She asked what the mechanism would then be for
constitutionally limiting it to not more than 5 percent if the
annual basis of "provided by law" is taken out, given that what
is not explicit in the constitutional amendment is described in
"the bill."
MR. BARNHILL replied that at this point there is no legislation
before the committee that formally creates a process for that,
but as of right now the permanent fund has a practice of
reporting to the legislative finance committees and the House
Ways & Means Committee what the effective rate of the draw is,
and that's a number that we should just continue to watch over
time to make sure that that average effective rate of draw is
not too high vis-a-vis what the real return of the fund is. If
the legislature would like to create a reporting mechanism in
statute, that is something that we could accommodate.
CHAIR KREISS-TOMKINS added that right now the constitutional
amendment basically says to create this percent of market value
(POMV) draw, but the P in the POMV will be set in law, and
effectively right now that is Senate Bill 26, which is at 5.25
percent and that would be stretched down to 5 percent. So, the
"as provided by law" is in statute and sets forth a percentage
reference, it would sort of cite that Senate Bill 26 equivalent
language. The question is whether the P in the POMV is left in
statute and therefore subject to revision [by the legislature]
at any point in time, or whether to put the P in the POMV in the
constitution where there is a much higher bar to adjusting the P
in the POMV. In further response to Representative Tarr, Chair
Kreiss-Tomkins confirmed that the current percentage is at 5
percent per Senate Bill 26.
3:40:01 PM
REPRESENTATIVE EASTMAN stated that Amendment 1 seems to be like
a pre-appropriation limit. There is an appropriation limit
elsewhere in the [Alaska] Constitution, he continued, and the
amendment would limit [the legislature's] ability to draw what
would be the combined earnings reserve and the permanent fund,
then setting forth a specific percentage. This already approved
appropriation limit in the constitution has the set aside that
no other appropriation in excess of this limit may be made,
except to meet a state of disaster declared by the governor as
prescribed by law. That was good thinking on the part of those
who made that amendment to the constitution, he opined, because
the 5 percent may effectively be an appropriation limit that
negates the existing appropriation limit. He asked whether
there should be consideration for disasters like earthquakes.
CHAIR KREISS-TOMKINS replied that he has thought at length about
what sustainable management of the permanent fund would look
like. Basically, he said, no other state has a sovereign wealth
fund of $70-plus billion and they have managed their liquidity
in times of natural disasters, which gives him comfort for if
the state of Alaska were to find itself in a natural disaster
situation. Specifically, there are many tactical means and
methods for the state to get cash if it were to need cash
quickly in such an event. In further response, Chair Kreiss-
Tomkins confirmed he is talking about taking out a loan, in
effect, to get cash for a disaster. He requested Mr. Painter to
speak further to the question.
3:43:04 PM
ALEXEI PAINTER, Legislative Fiscal Analyst, Legislative Finance
Division, Alaska State Legislature, answered that the question
is specifically about if there isn't the Earnings Reserve
Account (ERA) to turn to, how could the state get cash for a
natural disaster. He said one avenue would be to use other
savings accounts, the constitutional budget reserve or
designated funds, or to utilize federal disaster relief.
Generally, there is federal relief available for a major
disaster or insurance payments to some extent, and in the past
other states have relied on those mechanisms. Short-term
borrowing mechanisms for cash flow purposes could also be used.
He offered his belief that in the past the state has never had
to turn to the ERA at the time of disaster.
REPRESENTATIVE TARR recalled that Senate Bill 26 had 5 percent
with an effective date of July 1, 2021. So, there would be
alignment, she said.
3:44:37 PM
REPRESENTATIVE EASTMAN noted that the other exemption in the
constitution from the spending limit deals with appropriations
for capital projects. He inquired whether consideration was
given to having a mechanism for funding capital projects that
might exceed this proposal of 5 percent.
CHAIR KREISS-TOMKINS replied that his point of view is that the
permanent fund should not be overspent regardless of the reason.
It is a very bad decision to have an unsustainable spend out of
the permanent fund, he opined, whether for capital projects or
anything else. The idea is to manage the fund for long term
prosperity. The amendment as written would speak to how much
goes to dividends and then of the remainder how much goes to the
operating budget versus the capital budget or any other purpose.
3:45:58 PM
REPRESENTATIVE EASTMAN maintained his objection to Amendment 1.
3:46:28 PM
REPRESENTATIVE TARR stated she finds this challenging to do this
out of the context of a bigger overall plan, but she appreciates
what is intended here, so she is likely to support it today.
She has a small concern of constraining ourselves through the
constitution in this way because of unintended consequences or
unusual events but, she allowed, there are other opportunities.
3:47:31 PM
REPRESENTATIVE KAUFMAN suggested that language could be added
that refers to a higher threshold legislative vote to provide a
safety valve in case an emergency or something had to be
addressed. However, he continued, he is also sensitive to the
other mechanisms by which to achieve funding.
3:48:16 PM
REPRESENTATIVE CLAMAN expressed his support for Amendment 1. He
said it makes HJR 7 more like HJR 1, which is the chair's
resolution that puts the 5 percent POMV in the constitution as
well. This is the best way to get a spending cap, he opined,
and to bring discipline to the legislature's work. Regarding
the disaster question, as can be seen with the amount of federal
money being spent on the COVID-19 disaster, Alaska lacks the
capacity to respond to those kinds of major disasters even with
its large sovereign wealth fund. The best thing to protect
Alaska for the future if there is a disaster is that the state
would need to work with the federal government to respond to
that disaster. Keeping Alaska's sovereign wealth fund intact
would be wanted to provide the ability to use those funds with
the limits that are under Amendment 1 so that Alaska's economy
could be recovered successfully in the long term.
3:49:54 PM
REPRESENTATIVE STORY agreed that it's important to protect the
permanent fund because it's Alaska nest egg. She said she
appreciates today's testimony in favor of not exceeding 5
percent and she supports Amendment 1.
3:50:23 PM
REPRESENTATIVE EASTMAN said he is grateful that the amendment is
taking place at this specific portion of the bill. He said
trusting the legislature with setting the draw limit on its own
is unthinkable, so he appreciates that this is a step away from
that. However, he continued, he is hesitant about the effects
of inflation on the 5 percent cap; as proposed, there is no
exception for inflation. The first five of the last preceding
six years is still being used, which would not capture currently
occurring inflation. If the committee could come to agreement
on that, he would be more sympathetic to something like this
amendment.
3:51:16 PM
CHAIR KREISS-TOMKINS, in response to Representative Kaufman,
stated he has considered the idea of a super-super majority, but
thinks it is a bad idea. Overspending in the short term, he
continued, is a terrible idea in the long term for everybody.
Other states that have gone through immense disasters have done
okay through federal resources and other access to liquidity
when needed.
3:52:59 PM
A roll call vote was taken. Representatives Tarr, Story,
Claman, Vance, Kaufman, Kreiss-Tomkins voted in favor of
Amendment 1. Representative Eastman voted against it.
Therefore, Amendment 1 was adopted by a vote of 6-1.
3:53:44 PM
REPRESENTATIVE VANCE moved to adopt Amendment 2, labeled 32-
GH1694\A.2, Nauman, 5/5/21, which read:
Page 1, line 11:
Delete "Except as provided in (b), (c) and (d) of
this section, all [ALL]"
Insert "All"
Page 1, line 14, through page 3, line 11:
Delete all material and insert:
"* Sec. 2. Article IX, sec. 15, Constitution of the
State of Alaska, is amended by adding new subsections
to read:
(b) At the end of each fiscal year, the
following shall be determined as provided by law:
(1) 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, including any unrealized gains or losses;
(2) twenty-one percent of the net income of
the fund for the preceding five fiscal years,
including the fiscal year just ended, excluding any
unrealized gains or losses.
(c) Each year, fifty percent of the amount
determined under (b)(1) of this section, or fifty
percent of the amount determined under (b)(2) of this
section, whichever is greater, shall be transferred
for use in a program of dividend payments to State
residents as provided by law.
(d) After the transfer in (c) of this section,
the remainder of the amount calculated under (b)(1) of
this section may be appropriated to the general fund
for the costs and expenses of State government.
* Sec. 3. Article XV, Constitution of the State of
Alaska, is amended by adding a new section to read:
Section 30. Permanent Fund Amendments:
Transition. (a) On June 30, 2023, the unencumbered
balance of the earnings reserve account established by
law shall be deposited in the Alaska permanent fund
and become part of the principal of the fund.
(b) The 2022 amendments relating to the Alaska
permanent fund (art. IX, sec. 15) apply to
appropriations made for the fiscal year ending
June 30, 2024, and thereafter."
CHAIR KREISS-TOMKINS objected for the purpose of discussion.
3:53:49 PM
REPRESENTATIVE VANCE said she calls this the "Wielechowski
Amendment" because she commends Senator Wielechowski's continued
work on protecting the permanent fund and the dividend. She
said Amendment 2 aims to enshrine the program of dividends (POD)
into the constitution to affect the fair and prudent policy
rationales for which the program was intended to achieve.
Amendment 2 would protect overspending of the fund by moving the
balance of the earnings reserve account into the corpus of the
fund where all the future earnings will be retained and
safeguarded from access, like what Amendment 1 has done.
Amendment 2 would limit the permissible draw from the fund to 5
percent of the five-year average market value, just like
Amendment 1. The difference is that this one would be
apportioned either 50 percent of the draw value or the amount of
the historical calculation formula, whichever is greater. That
way the people will always receive the first call on the
earnings of the fund ahead of government, which was stated in
the note from the "1981 Finance Committee".
3:55:19 PM
REPRESENTATIVE EASTMAN requested Representative Vance to speak
to his understanding that this is close to, but not the same, as
the current statutory formula for calculating net income.
REPRESENTATIVE VANCE related her understanding that the
difference is the unrealized gains and that it would essentially
inflation proof itself and be more of the realistic view of the
earnings and provide that cushion. She deferred to Mr. Barnhill
to speak further on the technicalities.
MR. BARNHILL responded that in the statute, statutory net income
(SNI) is realized gains, so it excludes unrealized gains. He
stated that realized gains or statutory net income, includes
realized gains from liquidating investments, cash from
dividends, and from fixed income coupons, and therefore he
doesn't see a difference here. He deferred to a drafter to
answer further.
3:57:08 PM
EMILY NAUMAN, Legislative Counsel, Deputy Director, Legislative
Legal Services, Alaska State Legislature, answered by citing AS
37.13.140[a], which reads, "Net income of the fund shall be
computed annually as of the last day of the fiscal year in
accordance with generally accepted accounting principles [GAAP],
excluding any unrealized gains or losses." She drew attention
to Amendment 2, page 1, line 15, and noted that it also says,
"excluding any unrealized gains and losses."
REPRESENTATIVE EASTMAN pointed out that line 12 of the amendment
states "including".
MS. NAUMAN noted that AS 37.13.140(b) is the current statutory
POMV draw.
CHAIR KREISS-TOMKINS inquired whether it is fair to say that the
POMV calculation includes unrealized gains and losses, and the
SNI definition excludes unrealized gains and losses.
MS. NAUMAN confirmed that that is correct in this amendment.
She explained she was trying to track the current statute to be
sure that that was how it is currently calculated under statute.
MR. PAINTER explained the difference. He said this is language
based on, he believes, a Senate resolution. He explained that
the current PFD statute is essentially the amount that is listed
starting on line 14. However, he continued, this section is
written a little differently [in Amendment 2] in that it has the
"greater of" two different formulas the one starting on line
11, which is 50 percent of the percent of market value draw, or
the amount starting on line 14, which is the current amount.
So, this formula would be the greater of those two formulas.
REPRESENTATIVE EASTMAN related his understanding that this is
very much like the traditional pre-Senate Bill 26 formula and so
now [legislators] are trying to contrast it with the Senate Bill
26 POMV formula. He said that is not the contrast he is trying
to draw, rather the contrast he is trying to draw for clarity is
in what way this is the same and different than the statutory
dividend calculation that existed 10 years ago, for example.
4:01:34 PM
REPRESENTATIVE KAUFMAN sought clarification on where the
comparative language exists.
MR. PAINTER drew attention to subsection (c) of Amendment 2,
which states, "Each year, fifty percent of the amount determined
under (b)(1) of this section, or fifty percent of the amount
determined under (b)(2) of this section, whichever is greater,
shall be transferred for use in a program of dividend payments
to State residents as provided by law." He explained that
(b)(1) is the percent of market value (POMV) draw and that
(b)(2) is the current statutory PFD formula. He further pointed
out that "whichever is greater" is on line 19.
4:02:53 PM
CHAIR KREISS-TOMKINS inquired about the administration's
position on Amendment 2.
MR. BARNHILL expressed appreciation for the amendment's intent
to constitutionalize the permanent fund dividend, and said the
administration supports some constitutionalizing of the
permanent fund dividend. However, he continued, the difficulty
and concern here is that the statutory net income approach is
not well aligned with the percent of market value of the
endowment approach that is used by most modern institutional
funds. When distributing from a fund in a way that will
preserve the inflation adjusted value of that fund forever, it
must be ensured to not overdraw in one particular year. With
the statutory net income approach, net income is driven by
dividends, by coupons, and realized gains. Realized gains can
happen when the investment management staff decides to rebalance
the portfolio or liquidate an investment, and sometimes that is
related to changes in the marketplace and sometimes it is not,
so there is some volatility there. There is always going to be
the possibility that in a particular year the realization rate
is quite high, and it could go to the point where a sustainable
draw is being exceeded. That is why [the administration]
prefers an approach to calculating the dividend that is aligned
with the endowment approach, aligned with the percent of market
value approach. That way assures never going over that lagging
5 percent of average market value. Mr. Barnhill further related
that an analysis done several years ago compared what a 50:50
POMV PFD versus a statutory net income PFD would be over time,
and some years one is higher and other years lower and vice
versa; they are similar formulas in that they both are 50:50 of
some five-year average. It's just that the volatility that can
happen with the statutory net income approach is not a neat fit
with the percent of market value approach.
4:06:15 PM
CHAIR KREISS-TOMKINS maintained his objection to Amendment 2.
4:06:21 PM
REPRESENTATIVE EASTMAN opined that the current statute is not
broken and should be maintained. He said the calculation in
place for 40-plus years has never been broken or in need of
amendment; rather too much money was spent from the statutory
budget reserve, the constitutional budget reserve, and now the
earnings reserve. The problem is not that the dividend is at
fault, but spending more money than was brought in. Now it is
being found that the only way to be able to continue spending
money is to intrude on the dividend formula. He said he will
support the amendment, but with those caveats.
4:07:48 PM
REPRESENTATIVE CLAMAN said he does not support Amendment 2. He
opined that the permanent fund dividend has been great while it
could be afforded, but payment of meaningful dividends cannot be
afforded unless it is a surplus dividend. He said that
enshrining any kind of a formula or any kind of a sharing in the
constitution will force massive tax hikes that the public is not
ready for, so a choice must be made between dividends and taxes.
This amendment would force either a substantial increase in
taxes or massive budget cuts, and each is unacceptable to the
public.
4:08:58 PM
REPRESENTATIVE KAUFMAN said he relates to the comments from both
members. Their comments, he opined, point to a problem of
spending too much, which has caused the current situation.
4:09:29 PM
REPRESENTATIVE TARR stated she is "pro-50:50". She opined that
while some issues are more ideological, this issue seems to be
more influenced by district dynamics. She noted she represents
the lowest income urban district in Alaska, where the dividend
is a real boost for families and can be a game changer for their
stability. She said she is struggling with whether to support
the amendment because of the specificity of putting it into the
constitution and the subsequent inability to move quickly if a
change is needed, although she thinks it is an equitable
distribution of those funds.
4:11:08 PM
REPRESENTATIVE STORY expressed concern about the volatility and
said she does not support the amendment.
4:11:27 PM
CHAIR KREISS-TOMKINS stated he is open to constitutionalizing
the dividend but only in a way that is considered in balance
with other components of a long-term balanced budget which will
undoubtedly include revenues. He said he is open to furthering
downward pressure on the operating budget as well. However, he
opined, the SNI calculation, the volatility, is very real and
kind of arbitrary. For example, if the state sells real estate
it will jack up the dividend calculation, which doesn't make
sense, and so a POMV is a better, more stable approach. He said
he cannot support the amendment at this time, although he
understands where the sponsor is going with this directionally
and he recognizes that many of these thoughts will have to be
incorporated into some eventual compromise.
4:12:36 PM
REPRESENTATIVE VANCE provided closing comments on Amendment 2.
Things are at a place where talk about this must continue, she
opined, and her priority is to honor the will of Alaskans and to
do what is best for the long-term future of the state. The
amendment pulls together all the elements that everyone is
considering. It rolls the earnings reserve account (ERA) into
the corpus to protect that fund for the future so that the ERA
is not spent irresponsibly. It incorporates either the 50:50 of
the POMV or the traditional formula, which respects the people
because so many Alaskans have said they want the traditional
calculation, and the language also says "whichever is greater".
It gives the people the first draw while providing an ability
for the state to have its portion to cover state expenses.
Representative Vance advised that the estimate for the dividends
per person with 50 percent of the POMV versus the statutory are
relatively similar for five to seven years ahead and about five
years out they are not dramatically different. So, one argument
might be to just do the 50:50, she continued, but when proposing
a constitutional amendment there should be something the people
know and already trust and that is the traditional formula.
4:15:22 PM
A roll call vote was taken. Representatives Eastman and Vance
voted in favor of Amendment 2. Representatives Story, Claman,
Kaufman, Tarr, and Kreiss-Tomkins voted against it. Therefore,
Amendment 2 failed by a vote of 2-5.
4:16:19 PM
REPRESENTATIVE EASTMAN moved to adopt Amendment 3, labeled 32-
GH1694\A.3, Nauman, 5/5/21, which read:
Page 1, line 6, following "all":
Insert "state land lease rentals, state resource
royalties, state resource royalty sale proceeds,"
CHAIR KREISS-TOMKINS objected for the purpose of discussion.
4:16:24 PM
REPRESENTATIVE EASTMAN explained Amendment 3. He drew attention
to HJR 7, page 1, line 6, and advised that the language "at
least twenty-five percent" is known as the 25 percent royalty
annual contribution, which is in the constitution. He said
Amendment 3 would not change the 25 percent, but it would expand
to include natural resources generally; for example, 25 percent
of royalties received by the state for timber harvests would be
deposited into the permanent fund. Going forward, it recognizes
that Alaska has more resources than just oil and gas. Given the
state has no royalties on fish it would not affect the fishing
industry, but it tries to be more consistent across the state's
various natural resources so that all those resources are
contributing at least 25 percent toward the permanent fund.
CHAIR KREISS-TOMKINS recalled that when the governor was a
senator, he proposed to apply a royalty on all fish caught in
Alaska.
4:18:40 PM
CHAIR KREISS-TOMKINS asked how much money would be affected by
passage of Amendment 3.
REPRESENTATIVE EASTMAN replied that he does not have specific
figures because it is relatively small. He said the goal isn't
to make a big splash, it is to look forward and say that if
responsible [timber] harvesting is expanded, the permanent fund
would have its portion of that.
CHAIR KREISS-TOMKINS inquired whether Mr. Painter has a ballpark
figure of how much money would be captured by Amendment 3.
MR. PAINTER answered no.
4:19:30 PM
REPRESENTATIVE KAUFMAN asked whether the intent is that the
proceeds from a large mining project would be treated similarly
to the proceeds that are coming from oil extraction.
REPRESENTATIVE EASTMAN deferred to the experts to answer the
question. He noted that currently in the constitution the
language is mineral lease rentals, federal mineral revenue
sharing. The amendment is taking out the word "mineral" and
therefore talking about resources in general. Timber is not a
mineral, which is why it does not qualify currently.
REPRESENTATIVE KAUFMAN surmised that Amendment 3 would cast the
same net on what is held in commons, so it is treated in the
same way and there is a level playing field.
REPRESENTATIVE EASTMAN responded yes.
4:20:43 PM
CHAIR KREISS-TOMKINS stated that he is maintaining his objection
to Amendment 3 not because he opposes applying this in a broader
and more encompassing way, but because it is a constitutional
amendment, and he wants to know the numbers, particulars, and
specifics affected before casting an affirmative vote.
CHAIR KREISS-TOMKINS asked whether the administration has a
position on Amendment 3.
MR. BARNHILL answered that the administration does not have a
position and is neutral on Amendment 3; it is a policy call for
the legislature to make.
4:21:45 PM
REPRESENTATIVE KAUFMAN asked whether renewables had been thought
about as a resource and therefore considered for proceeds; for
example, what is generated from ultra-violet rays.
REPRESENTATIVE TARR surmised there could be some lease
possibilities for timber sales but pointed out that revenue
derived from timber receipts is split 85 percent to the Alaska
Mental Health Trust principal within the permanent fund and 15
percent income used for benefit programs and operating costs.
She asked whether Amendment 3 would impact the trust's overall
revenue stream.
4:23:36 PM
REPRESENTATIVE EASTMAN withdrew Amendment 3. He said he looks
forward to working with the chair to find a way to obviate the
chair's hesitancy about the amendment.
4:23:54 PM
REPRESENTATIVE EASTMAN moved to adopt Amendment 4, labeled 32-
GH1694\A.4, Nauman, 5/5/21, which read:
Page 2, line 29, following "Article IX":
Insert "made by this resolution"
Page 3, line 3, following "Article IX":
Insert "made by this resolution"
Page 3, line 5, following "Article IX":
Insert "made by this resolution"
Page 3, lines 8 - 9, following "Article IX":
Insert "made by this resolution"
CHAIR KREISS-TOMKINS objected for the purpose of discussion.
4:23:59 PM
REPRESENTATIVE EASTMAN explained that Amendment 4 is clarifying
language and does not change the substance of HJR 7. He noted
that various proposals to change the constitution have been
heard this year, so if one amendment passes it is likely that
multiple amendments may pass. If multiple amendments are passed
in 2022, he continued, there could be some ambiguity over the
specific effect of those amendments. Amendment 4 would remove
that ambiguity and clarify that this specific amendment, and the
transition language and so forth, will only apply to this
specific amendment.
CHAIR KREISS-TOMKINS inquired whether the administration has a
position on the technical language embodied in Amendment 4.
4:25:17 PM
BILL MILKS, Attorney General, Public Corporations and
Government, Department of Law (DOL), concurred it is technical
language, and deferred to Mr. Barnhill to provide an answer.
MR. BARNHILL responded that this is a style of drafting issue,
and the administration is neutral on Amendment 4.
CHAIR KREISS-TOMKINS asked whether Legislative Legal Services
has any legal perspective on the amendment.
MS. NAUMAN advised that she does not think this language is
necessary, and that it would just be a policy choice about
whether the legislature wanted to put it in.
CHAIR KREISS-TOMKINS requested Ms. Nauman to speak to why the
language may not be necessary.
MS. NAUMAN answered that the hypothetical situation of passing
multiple constitutional amendments that modified one section of
the constitution is extremely unlikely and would likely trigger
much larger problems than just figuring out which transition
language belongs with which. Potentially, she continued, there
are mechanisms that would resolve that. When the changes were
put into the constitution it would become clear and it would be
known which transition language goes with which amendment.
4:27:13 PM
REPRESENTATIVE CLAMAN inquired whether adding language to
constitutional amendments could have the unintended consequence
of a court later reading this language in ways that are
unexpected. Because it is not seen in other provisions of the
constitution, he continued, it would be different from other
provisions and another reason to not add this language.
MS. NAUMAN replied that she supposes that is possible. She
added that this language seems innocuous but that deep thought
must be given to any language being added to the constitution.
CHAIR KREISS-TOMKINS maintained his objection to Amendment 4.
4:28:17 PM
REPRESENTATIVE EASTMAN provided closing comments on Amendment 4.
He said two issues are at play here. One is the multiplicity of
ideas for how to change the constitution. He maintained it
would be unlikely to have just one amendment pass given that any
amendment takes a two-thirds vote; so, if any amendment is to
pass it is going to be part of a larger compromise and package
with multiple constitutional amendments to be considered and
possibly put to the people. He said the other problem is that
when Legislative Legal Services is asked to draft a
constitutional amendment, a memo will inevitably be sent to the
sponsor advising that if the amendment is too complicated - for
example, it draws on multiple portions of the constitution - it
may then not be appropriate to put forward as an amendment and
should instead be a revision which requires a constitutional
convention. So, Representative Eastman continued, if everything
from the various committee hearings dealing with multiple
portions of the constitution were to be thrown into one
amendment, Legislative Legal Services would likely recommend not
to do so because it could potentially confuse the voters and
necessitate a constitutional convention. He said Amendment 4
would reduce the ambiguity here in this unique situation.
4:30:02 PM
A roll call vote was taken. Representatives Kaufman, Eastman,
and Vance voted in favor of Amendment 4. Representatives Tarr,
Story, Claman, and Kreiss-Tomkins voted against it. Therefore,
Amendment 4 failed by a vote of 3-4.
4:31:02 PM
REPRESENTATIVE EASTMAN moved to adopt Amendment 5, labeled 32-
GH1694\A.6, Nauman, 5/5/21, which read:
Page 1, line 2:
Delete "and"
Page 1, line 3, following "dividend":
Insert ", and the appropriation limit"
Page 2, following line 19:
Insert new bill sections to read:
"* Sec. 3. Article IX, sec. 16, Constitution of the
State of Alaska, is amended to read:
Section 16. Appropriation Limit. (a) Except as
provided in (b) of this section and except for
appropriations for Alaska permanent fund dividends,
appropriations of revenue bond proceeds,
appropriations required to pay the principal and
interest on general obligation bonds, and
appropriations of money received from a non-State
source in trust for a specific purpose, including
revenues of a public enterprise or public corporation
of the State that issues revenue bonds, appropriations
from the treasury made for a fiscal year shall not
exceed $2,500,000,000 by more than the cumulative
change, derived from federal indices as prescribed by
law, in population and inflation since July 1, 1981.
Within this limit, at least one-third shall be
reserved for capital projects and loan appropriations.
The legislature may exceed this limit in bills for
appropriations to the Alaska permanent fund and in
bills for appropriations for capital projects, whether
of bond proceeds or otherwise, if each bill is
approved by the governor, or passed by affirmative
vote of three-fourths of the membership of the
legislature over a veto or item veto, or becomes law
without signature, and is also approved by the voters
as prescribed by law. Each bill for appropriations for
capital projects in excess of the limit shall be
confined to capital projects of the same type, and the
voters shall, as provided by law, be informed of the
cost of operations and maintenance of the capital
projects. No other appropriation in excess of this
limit may be made except to meet a state of disaster
declared by the governor as prescribed by law. The
governor shall cause any unexpended and unappropriated
balance to be invested so as to yield competitive
market rates to the treasury.
* Sec. 4. Article IX, sec. 16, Constitution of the
State of Alaska, is amended by adding a new subsection
to read:
(b) If the change in inflation, as inflation is
calculated under (a) of this section, exceeds 100
percent in one fiscal year, the appropriation limit
under (a) of this section is suspended for that year
and succeeding years until the change in inflation
drops to 100 percent or less in one fiscal year."
Renumber the following bill sections accordingly.
Page 2, line 22:
Delete "Permanent Fund"
Insert "2022"
Page 2, line 27, following "15)":
Insert "and to the appropriation limit (art. IX,
sec. 16)"
CHAIR KREISS-TOMKINS objected.
4:31:08 PM
REPRESENTATIVE EASTMAN stated that the operative language in
Amendment 5 appears on page 2, line 9, Sec. 4. He said the
question to discuss as a legislature and a committee is, "To
what extent the state will be relying upon draws from the
permanent fund going forward?" He stated that Amendment 4 would
not be needed if these draws are supplemental to the budget
process with no serious reliance on the part of funding
essential services. However, he continued, the expectation he
is hearing in conversations is that for the foreseeable future
the state plans to be very dependent on at least some
appropriation from the permanent fund to fund essential
services. A mechanism is needed to fund those essential
services should a hyper-inflation event occur. A simple 5
percent cap does not anticipate or allow for any deviation if
there is a hyper-inflation event. To avoid a constitutional
crisis, Amendment 5 would suspend the appropriation limit during
times when inflation is rated by the federal government at being
over 100 percent.
4:33:22 PM
CHAIR KREISS-TOMKINS asked whether the administration has a
comment or position on Amendment 5.
MR. BARNHILL answered that this imagines a situation where
inflation doubles in one year. But, he said, perhaps more
pertinent is that this measure is intended to focus on the
permanent fund and the structure of the permanent fund, and
Amendment 5 focuses on the appropriation limit. He advised that
the administration has a separate measure with respect to the
appropriation limit and that that is the place to pick up this
kind of concept.
4:34:30 PM
REPRESENTATIVE TARR surmised that the way to read Amendment 5 is
that the 100 percent is relative to inflation in the prior year.
REPRESENTATIVE EASTMAN responded that the constitution currently
has a calculation of inflation because a spending limit was set
at a nominal amount of $2.5 billion and which grows by inflation
and population as "derived from federal indices as prescribed by
law" since July 1, 1981. If it is over 100 percent inflation,
it is a hyper-inflation situation.
CHAIR KREISS-TOMKINS inquired whether, in the economic world,
100 percent is the accepted marker of inflation.
REPRESENTATIVE EASTMAN answered no, it is not trying to define
hyper-inflation, it is just saying that anything higher than 100
percent. Even 100 percent inflation would not technically
qualify to suspend the appropriation limit, he continued. It
would have to be something higher than that, which would
indicate that the current budgeting system is not going to work
unless the appropriation limit can be changed.
CHAIR KREISS-TOMKINS maintained his objection to Amendment 5.
He professed to not having expertise on the forecasting of
inflation, but said he became aware several weeks ago that there
is an active dialogue in a certain sphere of the political or
economics world that is very concerned about the possibility of
hyper-inflation. For reasons of germaneness and focusing on one
thing per piece of legislation, he said he would rather not
broach the subject of an appropriation limit in this piece of
legislation.
4:37:31 PM
REPRESENTATIVE KAUFMAN offered his belief that the state needs
to be ready for hyper-inflation because "they" don't even bother
printing money anymore, "they" just digitally hypothecate it and
say it's there. He related his concern about what is going to
be seen on a global scale with dollar destruction and said the
state needs to be ready in all its policies. He stated he will
vote no on Amendment 5 not because he doesn't care but because
he is wondering where to park this. He added that this is part
of the overall discussion that is needed about Alaska's
financial future.
REPRESENTATIVE TARR said she is aligned with the comments of
Representative Kaufman. She said she wants to look further into
this but not today with this amendment.
4:39:17 PM
REPRESENTATIVE EASTMAN provided closing comments on Amendment 5.
He noted that legislatures are not fast in changing times;
legislatures are slow for an average bill and usually even
slower for changing the constitution. This is an area where
Alaska cannot afford to be slow, he opined. The question is
whether legislators expect HJR 7 to pass and, if so, then this
should be part of it. If HJR 7 is passed and something else is
passed, then it is a situation of having two competing
constitutional amendments on the ballot and potential conflicts
with that.
4:40:36 PM
CHAIR KREISS-TOMKINS maintained his objection to Amendment 5.
4:40:44 PM
A roll call vote was taken. Representatives Vance and Eastman
voted in favor of Amendment 5. Representatives Kaufman, Tarr,
Story, Claman, and Kreiss-Tomkins voted against it. Therefore,
Amendment 5 failed by a vote of 2-5.
4:41:45 PM
REPRESENTATIVE EASTMAN moved to adopt Amendment 6, labeled 32-
GH1694\A.8, Nauman, 5/6/21, which read:
Page 1, line 2:
Delete "and"
Page 1, line 3, following "dividend":
Insert ", and the appropriation limit"
Page 1, line 11:
Delete "(b), (c) and (d) of"
Page 1, line 14, through page 2, line 19:
Delete all material and insert:
"* Sec. 2. Article IX, sec. 15, Constitution of the
State of Alaska, is amended by adding new subsections
to read:
(b) Every two years, not later than the
candidate filing deadline for the next regular
election, with the affirmative vote of each house of
the legislature, the legislature may, by law, propose
an amount to be transferred from the permanent fund
for each of the following two fiscal years. The
governor may strike or reduce the amount proposed to
be transferred under this subsection. If the amount
proposed for transfer is over zero, the lieutenant
governor shall place two questions on the next general
election ballot, approving or rejecting each proposed
amount to be transferred from the permanent fund, as
adjusted by the governor, if applicable.
(c) If the voters approve the amount proposed
under (b) of this section, fifty percent of the amount
proposed shall be transferred to the general fund and
fifty percent shall be transferred to the dividend
fund established under Section 18 of this article.
(d) If the voters reject the amount proposed
under (b) of this section, seventy-five percent of the
amount proposed under (b) of this section shall be
transferred from the permanent fund. Fifty percent of
the amount proposed under (b) of this section shall be
transferred to the dividend fund established under
Section 18 of this Article and the remainder shall be
transferred to the general fund.
(e) The transfer proposed for the first fiscal
year under this section shall take place on the first
day of the fiscal year that begins immediately
following the date of the general election
certification. The transfer proposed for the second
fiscal year under this section shall take place on the
first day of the following fiscal year.
(f) A transfer proposed under this section, when
combined with other appropriations for the fiscal
year, shall not exceed the appropriation limit set out
in Section 16 of this article.
* Sec. 3. Article IX, sec. 16, Constitution of the
State of Alaska, is amended to read:
Section 16. Appropriation Limit. Except for
appropriations [FOR ALASKA PERMANENT FUND DIVIDENDS,
APPROPRIATIONS] of revenue bond proceeds,
appropriations required to pay the principal and
interest on general obligation bonds, and
appropriations of money received from a non-State
source in trust for a specific purpose, including
revenues of a public enterprise or public corporation
of the State that issues revenue bonds, appropriations
from the treasury, including transfers from the Alaska
permanent fund, made for a fiscal year shall not
exceed $2,500,000,000 by more than the cumulative
change, derived from federal indices as prescribed by
law, in population and inflation since July 1, 1981.
Within this limit, at least one-third shall be
reserved for capital projects and loan appropriations.
The legislature may exceed this limit in bills for
appropriations to the Alaska permanent fund and in
bills for appropriations for capital projects, whether
of bond proceeds or otherwise, if each bill is
approved by the governor, or passed by affirmative
vote of three-fourths of the membership of the
legislature over a veto or item veto, or becomes law
without signature, and is also approved by the voters
as prescribed by law. Each bill for appropriations for
capital projects in excess of the limit shall be
confined to capital projects of the same type, and the
voters shall, as provided by law, be informed of the
cost of operations and maintenance of the capital
projects. No other appropriation in excess of this
limit may be made except to meet a state of disaster
declared by the governor as prescribed by law. The
governor shall cause any unexpended and unappropriated
balance to be invested so as to yield competitive
market rates to the treasury.
* Sec. 4. Article IX, Constitution of the State of
Alaska, is amended by adding a new section to read:
Section 18. Dividend Fund. Each year, as provided
in Section 15 of this article, an amount shall be
transferred to a dividend fund. The balance of the
fund shall be used for the payment of dividends to
residents of the State each year."
Renumber the following resolution sections
accordingly.
Page 2, line 22:
Delete "Permanent Fund"
Insert "2022"
Page 2, line 27:
Delete "apply to appropriations made for"
Insert "and the appropriation limit (art. IX,
sec. 16) apply to"
Page 2, line 29, through page 3, line 11:
Delete all material and insert:
"(c) Notwithstanding the requirement that voters
approve draws from the permanent fund under Article
IX, secs. 15(b), (c), and (d), Constitution of the
State of Alaska, an amount shall be transferred from
the permanent fund for fiscal years 2023 and 2024 if
the legislature puts two questions on the ballot, at
the same election in which voters will consider the
2022 amendments to Sections 15 and 16 of Article IX,
and adding Section 18 to Article IX, that set out the
amount of each transfer and asks whether the voters
approve of the amount of each transfer. The voter
approval, use, and amount of the transfers shall be
consistent with the Sections 15(c), (d), and (e) of
Article IX."
CHAIR KREISS-TOMKINS objected.
4:41:52 PM
REPRESENTATIVE EASTMAN explained that Amendment 6 envisions a
mechanism for bringing together the legislature, governor, and
people of Alaska to make decisions two years at a time on
whether, and to what extent, money should be withdrawn from the
permanent fund. He said the two-year schedule would be
initiated by the legislature with a proposal that would then be
sent to the governor using the normal process for the governor
to veto or reduce the proposed transfer from the permanent fund.
Once it passed the governor, it would go to the ballot at the
general election where Alaskans would vote on whether the
appropriation from the legislature and governor is excessive.
If the people believe it an excessive draw on the permanent
fund, then it would be reduced. If the people approve it, then
50 percent would go to the general fund and 50 percent to the
dividend fund to be distributed to all eligible Alaskans. The
process is such that there is an election after the legislature
makes its proposal, so there is consideration for legislators.
The changes legislators are trying to make won't take effect
until after the next election, so there is an accountability
relationship between the people and legislators and between the
legislature and the governor who can reduce, but not increase, a
proposed draw from the permanent fund. There is also
accountability from the people to approve or to reduce the
amount that would be drawn from the permanent fund. If the
people are not persuaded that the amount to be withdrawn is
appropriate, they would vote no, and if they vote no, then the
amount going to the dividend fund would not be impacted but the
amount going to the general fund would be reduced by half.
4:45:16 PM
CHAIR KREISS-TOMKINS asked whether the administration has
comment or a position on Amendment 6.
MR. BARNHILL answered that the administration appreciates the
direction of the proposal in terms of giving the people a
meaningful role in these discussions. The administration's
preference, he stated, is to stick with the percent of market
value, the modern approach to managing institutional funds and
endowments. This isn't in that POMV paradigm, he added, which
is a concern.
CHAIR KREISS-TOMKINS maintained his objection to Amendment 6.
4:46:34 PM
REPRESENTATIVE TARR argued that this would be far too
complicated to be workable and would be a jobs-killing and
economy-killing kind of an amendment because of the uncertainty
it would create on an annual basis as to what the budget is
going to be. She stated that, given the COVID-19 pandemic,
business owners are thinking about investments in terms of 5-20
years.
4:47:30 PM
REPRESENTATIVE VANCE stated that the amendment would put the
conversation directly into the hands of the people. She said
she likes this new idea of having the people be a part of the
budget process in a more active way than just testifying.
However, she continued, the concern about volatility remains, so
she would like to look at this further.
4:48:42 PM
REPRESENTATIVE CLAMAN said he is opposed to Amendment 6 for
several reasons, the biggest reason being that trying to do
clever things in a constitutional amendment raises the
likelihood that the amendment goes down in flames with the
voters, despite the required two-thirds in the legislature.
Additionally, he stated, the amendment has not had the
substantial review in the public that is necessary to make it a
viable option, plus he is concerned about having the public
weigh in on things that the public has elected legislators to
make decisions about. He added that he is also concerned about
the destabilizing impact on businesses that this kind of process
would bring.
4:49:38 PM
REPRESENTATIVE KAUFMAN stated he appreciates the creativity but
will vote no on the amendment because he needs more time to
assimilate the proposal into the big picture.
4:50:24 PM
REPRESENTATIVE EASTMAN provided closing comments on Amendment 6.
He remarked that new ideas rarely find support on the first
pass. He said Amendment 6 would make the appropriation process
apply to how money is being spent and eliminate from the
appropriation process the decision of whether to draw from the
permanent fund, which is a decision that has hampered progress
on various debate. Conversation on appropriating of permanent
fund draws through the ERA and appropriation of dividends has
not moved forward because [the legislature] has not been
effective at bringing the public into that conversation in a
meaningful way. How to accomplish that is the question and
there hasn't been an attempt to solve that issue. Any solution
found for the long term will have the criteria of making the
appropriation automatic as a transfer and the legislature,
governor, and public getting to have input. He withdrew
Amendment 6.
4:52:33 PM
CHAIR KREISS-TOMKINS opened final comment on HJR 7, as amended.
4:53:07 PM
REPRESENTATIVE TARR supported moving HJR 7 so it could be
considered with other measures that are being moved along.
4:53:28 PM
REPRESENTATIVE CLAMAN stated he will not oppose moving HJR 7
forward in the committee process, but he has reservations and
questions about the resolution. It adds a lot more complexity
to the proposals that might be before the legislature, he said.
4:54:08 PM
REPRESENTATIVE KAUFMAN supported moving HJR 7 forward. He said
it is an important discussion that legislators are having about
how to best manage the corpus of the permanent fund, and how it
benefits people as individuals and how it benefits people
through the state. As the corpus grows and as the state is
increasingly funded from this, he opined, it may become a trust
fund baby that is unhinged from any notion of creating a private
sector opportunity. Then, the next thing that will have to be
done is how to protect Alaska's private economy in the face of a
government that is increasingly funded by what amounts to a
trust fund for the purpose of government.
4:55:29 PM
REPRESENTATIVE EASTMAN stated his opposition to moving forward
HJR 7. Critical pieces to this discussion are not being heard,
he opined. There is talk about protecting the permanent fund
and protecting revenue sources for the state, less talk about
protecting the dividend and protecting the people's
participation in this process, which in the current language is
wholly lacking. He pointed out that on April 30, 2020, the
permanent fund had $63.6 [billion] and today it has $78.4
billion, an increase of about $15 billion. Money is available
for legislators to be having these conversations and to be
making prudent long-term decisions. There is some language in
the resolution about protecting a dividend, but it is not
meaningfully protected at all. The legislature can adjust a
law, he continued to opine and make it little to nothing prior
to enactment of this constitutional amendment, and then it
becomes very difficult to amend that. If there is a meager or
nonexistent dividend, then very little dividend will be locked
in for the duration and that is not transparent. Robust
protections are needed for the people alongside these
protections that are being discussed and proposed for the
state's revenue. He concluded by saying he will continue to
oppose withdrawing money from the permanent fund in this way.
4:57:35 PM
REPRESENTATIVE STORY offered her support for moving along HJR 7.
She said it is part of the discussion that is continuing to be
had in the legislature and around the state.
CHAIR KREISS-TOMKINS provided closing comments on HJR 7, as
amended. He said that directionally the resolution speaks to a
couple of core issues that he can be supportive of. He opined
that there is no way to solve the state's budget problem without
four discreet components: revenues, downward pressure on the
operating budget, a constitutionalized POMV, and some long-term
conclusion on the dividend. All four must happen concurrently
or near concurrently because people's support for any one of
those will only exist if there is an inter-dependent
relationship or something happening on the other three. The
resolution speaks to a couple of those, and it is important that
the legislature work towards solutions.
4:58:48 PM
REPRESENTATIVE CLAMAN moved to report HJR 7, as amended, out of
committee with individual recommendations and the accompanying
fiscal note.
REPRESENTATIVE EASTMAN objected.
4:59:07 PM
A roll call vote was taken. Representatives Claman, Kaufman,
Tarr, Story, and Kreiss-Tomkins voted in favor of HJR 7, as
amended. Representatives Vance and Eastman voted against it.
Therefore, CSHJR 7(STA) was reported out of the House State
Affairs Standing Committee by a vote of 5-2.