04/10/2008 09:00 AM Senate FINANCE

CS FOR HOUSE JOINT RESOLUTION NO. 28(FIN)                                                                                     
                                                                                                                                
     Proposing  amendments to the  Constitution of  the State                                                                   
     of Alaska  relating to the  budget reserve fund,  and to                                                                   
     appropriations  to  and  transfers  from the  fund;  and                                                                   
     dedicating a portion of the  petroleum production tax to                                                                   
     the fund.                                                                                                                  
                                                                                                                                
Co-Chair Hoffman  MOVED to ADOPT Senate  Committee Substitute                                                                   
for  CS  HJR  28,  work  draft  25-LS1217\N  as  the  working                                                                   
document  before this  Committee. There  being NO  OBJECTION,                                                                   
work draft 25-LS1217\N was adopted.                                                                                             
                                                                                                                                
REPRESENTATIVE RALPH  SAMUELS presented the bill  history. He                                                                   
reported that the original bill  introduced the creation of a                                                                   
separate  funding  account  apart   from  any  other  current                                                                   
account.  This account  would  take the  progressivity  money                                                                   
from  the  petroleum   tax  and  for  five   years  force  it                                                                   
constitutionally  into   this  new  account  to   provide  an                                                                   
endowment  style  payout  between  4.5 and  5  percent.  This                                                                   
account would  consist of  money from  today's oil  and would                                                                   
not  allow this  or  the next  generation  of legislators  to                                                                   
spend  it.  Representative  Samuels   declared  that  as  oil                                                                   
production declines  in the future,  this account  would help                                                                   
share the wealth for future generations.                                                                                        
                                                                                                                                
9:18:07 AM                                                                                                                    
                                                                                                                                
Representative  Samuels continued  that the  bill evolved  by                                                                   
taking more  of the today's  money and incorporating  it into                                                                   
the Constitutional  Budget Reserve  to also share  the wealth                                                                   
generationally. He  stressed that as production  continues to                                                                   
decline and  the budget  continues to  rise, the easiest  way                                                                   
out is  to take the Constitutional  Budget Reserve  money and                                                                   
not make any fundamental changes.   He warned that the longer                                                                   
the state waits  to discuss fiscal responsibility  the harder                                                                   
the choices will be. He noted  that the House took the entire                                                                   
Constitutional  Budget Reserve and  put it into  an endowment                                                                   
program.  A solution  arrived at  between the  House and  the                                                                   
Senate  is reflected in  the new  Committee Substitute.  This                                                                   
would  split the  Constitutional  Budget  Reserve where  half                                                                   
would be remaining with the three-quarter  vote money and the                                                                   
other  half would  be  the endowment  money  concept of  this                                                                   
bill. The  payout of  the endowment money  would still  be at                                                                   
five percent with a five year  rolling average that would not                                                                   
start  until the  three-quarter money  was spent  down to  $1                                                                   
billion. He  reiterated that the  point was to make  sure the                                                                   
endowment keeps gaining as much  money as possible before the                                                                   
five percent is taken.                                                                                                          
                                                                                                                                
9:21:25 AM                                                                                                                    
                                                                                                                                
Representative  Samuels defended the  idea of saving  as much                                                                   
money as  possible to let the  interest accrue. The  point of                                                                   
having a trigger  at $1 billion is that the  Legislature will                                                                   
spend the money  down in the three-quarter vote  money before                                                                   
the payout starts  at the five percent of whatever  is in the                                                                   
endowment. The Legislature would  have the prerogative to add                                                                   
money  to either  account each  year. He  noted that  another                                                                   
part  of  the Committee  Substitute  changes  the  vote  from                                                                   
three-quarter  to two-thirds.  Also  there is  no longer  any                                                                   
constitutionally   forced   progressivity   money  into   the                                                                   
account; it  would be  Legislative prerogative. Every  future                                                                   
Legislature and Administration  would determine what would be                                                                   
done with the surplus funds.                                                                                                    
                                                                                                                                
9:24:48 AM                                                                                                                    
                                                                                                                                
Representative Samuels referred  to Tam Cook online to review                                                                   
the sectionals.                                                                                                                 
                                                                                                                                
9:25:32 AM                                                                                                                    
                                                                                                                                
Co-Chair Stedman reviewed the fiscal notes.                                                                                     
                                                                                                                                
AT EASE:  9:26:01 AM                                                                                                          
RECONVENED: 9:26:15 AM                                                                                                        
                                                                                                                                
Co-Chair  Stedman expressed  his  concern running  with a  $4                                                                   
billion general fund  operation which has been  growing at an                                                                   
unsustainable  rate  of  about  ten percent  which  they  are                                                                   
trying to  rein back  to three or  four percent.  He stressed                                                                   
that the  state's operating  expenses  will continue  to grow                                                                   
with  time and  it is  unrealistic to  think it  will be  cut                                                                   
back.  Co-Chair Stedman  believed that  by tying  up all  the                                                                   
savings would put the state in  the position, should there be                                                                   
a volume disruption or price decline,  of having to go to the                                                                   
earning reserves of the Permanent  Fund to make a substantial                                                                   
withdrawal for the operating side  of the state. He cautioned                                                                   
that keeping  some liquidity in  the money was  necessary for                                                                   
the Legislature to address these concerns.                                                                                      
                                                                                                                                
9:29:18 AM                                                                                                                    
                                                                                                                                
Senator Elton questioned  if Section 1 states  that all money                                                                   
received  by  the  state  after July  1,  1990,  not  already                                                                   
deposited in the Permanent Fund,  would go into the endowment                                                                   
account of the Constitutional Budget Reserve.                                                                                   
                                                                                                                                
Representative  Samuels   replied  that  this   provision  or                                                                   
litigation  money  was  put into  the  Constitutional  Budget                                                                   
Reserve.                                                                                                                        
                                                                                                                                
Co-Chair Stedman requested a breakdown  of the Constitutional                                                                   
Budget Reserve.                                                                                                                 
                                                                                                                                
9:30:54 AM                                                                                                                    
                                                                                                                                
Senator Thomas  asked for an  explanation of the  language on                                                                   
page 2, line 7 "except as invested for."                                                                                        
                                                                                                                                
9:31:32 AM                                                                                                                    
                                                                                                                                
TAM COOK,  DIRECTOR, LEGISLATIVE LEGAL SERVICES,  LEGISLATIVE                                                                   
AFFAIRS  AGENCY testified  via  teleconference and  responded                                                                   
that the  language is intended to  say that money can  not be                                                                   
transferred  from the  primary account  except to the  extent                                                                   
that money  is transferred  for investment  in that  account.                                                                   
They  would  pay money  to  buy  investments such  as  mutual                                                                   
funds.                                                                                                                          
                                                                                                                                
9:33:06 AM                                                                                                                    
                                                                                                                                
Senator Dyson  remarked that part  of his enthusiasm  for the                                                                   
bill concerned a  forced discussion of what to  do about more                                                                   
revenues. He  assumed that part  of the discussion  should or                                                                   
could  be if  they were  going to  use part  of the  earnings                                                                   
reserve account for the purpose  it was originally created to                                                                   
produce income  that could be  used to sustain some  level of                                                                   
government  after  the  oil revenues  were  gone  or  greatly                                                                   
diminished.                                                                                                                     
                                                                                                                                
9:34:16 AM                                                                                                                    
                                                                                                                                
Representative Samuels remarked  that many groups have worked                                                                   
on  this discussion  including  himself, Representative  Mike                                                                   
Doogan  and Representative  Harry  Crawford.  They all  agree                                                                   
that  the   longer  the  Legislature   waits  to   have  this                                                                   
discussion the higher the budget  and the deeper the debt. He                                                                   
believed that saving the money  now will benefit the state in                                                                   
the long run. He  noted that debates on income  tax and sales                                                                   
tax  are frequent,  but  unpopular discussions.  He  believed                                                                   
budget cuts would  affect rural community more  than a broad-                                                                   
based tax.                                                                                                                      
                                                                                                                                
9:38:15 AM                                                                                                                    
                                                                                                                                
Representative  Samuels stressed  again that  the longer  the                                                                   
Legislature  waits to make  a decision with  what to  do with                                                                   
the  oil  reserve  money,  the  worse  the  economic  reality                                                                   
becomes.                                                                                                                        
                                                                                                                                
9:38:49 AM                                                                                                                    
                                                                                                                                
Senator Dyson agreed that Alaska  needs to have a "rainy day"                                                                   
account accessible  without the politics but is  now in favor                                                                   
of the  previous version of the  bill because it  would force                                                                   
the government to have the discussions.                                                                                         
                                                                                                                                
Representative  Samuels concluded  that money  could also  be                                                                   
taken off the table by having a spending limit.                                                                                 
                                                                                                                                
9:40:52 AM                                                                                                                    
                                                                                                                                
JERRY   BURNETT,   DIRECTOR,   DIVISION   OF   ADMINISTRATIVE                                                                   
SERVICES, DEPARTMENT OF REVENUE  talked with the Commissioner                                                                   
and agrees that this Committee  Substitute takes care of most                                                                   
concerns and the lack of liquidity in managing the money.                                                                       
                                                                                                                                
Co-Chair Stedman  inquired if  the Department has  any dollar                                                                   
estimates of what they would like set aside in cash.                                                                            
                                                                                                                                
9:42:23 AM                                                                                                                    
                                                                                                                                
Mr. Burnett  remarked that  the department manages  currently                                                                   
to  have an  average  of  $1 billion  in  the  Constitutional                                                                   
Budget Reserve for cash flow purposes.  This amount will grow                                                                   
and is  reasonable. He believed  that setting the  $4 billion                                                                   
in each account would provide a lot of comfort.                                                                                 
                                                                                                                                
9:43:35 AM                                                                                                                    
                                                                                                                                
Senator  Elton wondered  what other  concerns the  department                                                                   
might have.                                                                                                                     
                                                                                                                                
Mr. Burnett remarked that they  would return to the Committee                                                                   
if they see any new concerns.                                                                                                   
                                                                                                                                
9:44:03 AM                                                                                                                    
                                                                                                                                
Mr. Burnett reported that the  new spring forecasts should be                                                                   
out soon.                                                                                                                       
                                                                                                                                
9:45:02 AM                                                                                                                    
                                                                                                                                
CS HJR 28 (FIN)  was HEARD and HELD in Committee  for further                                                                   
consideration.                                                                                                                  
                                                                                                                                
AT EASE: 9:45:35 AM                                                                                                           
RECONVENED: 9:57:32 AM