Legislature(1995 - 1996)
03/09/1995 09:40 AM Senate FIN
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* first hearing in first committee of referral
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= bill was previously heard/scheduled
SENATE BILL NO. 39
An Act relating to memorial scholarship
loans.
Co-chairman Halford directed that SB 39 be brought before
committee and referenced a draft CSSB 39 (Fin) (9-LS0442\C)
which he advised contains the contents and provisions of
both SB 36 (BRINDLE SCHOLARSHIP LOANS) and SB 39. He then
called for questions from members. None were forthcoming.
Senator Zharoff MOVED that CSSB 39 (Fin) pass from committee
with individual recommendations. No objection having been
raised, CSSB 39 (Fin) was REPORTED OUT of committee with
zero fiscal notes from the Dept. of Public Safety and Dept.
of Education (Postsecondary). All members signed the
committee report with a "do pass" recommendation.
SENATE BILL NO. 84
An Act making a special appropriation to the principal
of the permanent fund; and providing for an effective
date.
Co-chairman Halford next directed attention to SB 84 and
noted two draft Senate Finance committee substitutes. He
explained that one version creates a continuing
appropriation while the other leaves $250 million within the
earnings reserve account so there is no question about the
implication in any combination of interest rates with regard
to the permanent fund. The appropriation would also "count
against any use by a simple majority in the constitutional
budget reserve." The Co-chairman then voiced a preference
for version (9-LS0639\C, 2/23/95) instead of (9-LS0639\G,
2/28/95).
JACK FARGNOLI, Office of Management and Budget, came before
committee. He referenced earlier noted concerns regarding
the original bill and advised that the proposed CSSB 84
(Fin) changes only one item in that list of concerns. He
then voiced his understanding that the proposed Finance
committee substitute would hold the dividend harmless "by
leaving $250 million in the reserve account balance." That
does not reach other concerns such as the majority or three-
quarter vote on releases from the budget reserve, potential
adverse impact on the state bond rating, removal of reserves
without a plan or provision for a fiscal emergency, etc.
Further, by removing a large amount of money, it preempts a
good part of the mandate of the fiscal planning commission.
Use of a well articulated and reasoned reserve policy would
seem to be a key part of any fiscal plan in both the short
and long term.
(Senator Sharp arrived at this time.)
The Governor's position on both the original bill and
proposed Finance committee substitute is "somewhere between
opposition and no position, yet." Mr. Fargnoli asked that
the committee allow ongoing fiscal discussions in both the
administrative and legislative branch to continue. He
stressed that consideration of repayment of the
constitutional budget reserve, forward funding of education,
etc. are linked both in policy and magnitude. Deliberations
in the conceptual stage are not sufficiently set to make a
decision on any one item and particularly not on the
appropriation proposed within SB 84.
Senator Rieger asked if the Office of Management and Budget
had conducted analysis of the size of an earnings reserve
that would be needed to support a five-year-average payout
rule, as presently in statute. Mr. Fargnoli responded
negatively. Senator Rieger voiced his understanding that
the earnings reserve account is to provide a backup for such
a payout. Mr. Fargnoli responded by saying that if the
question is whether the earnings reserve balance should be
used in some proportion for current uses and for other
provisions, he would personally agree "that's probably
something we should aim at." That has, however, not been
articulated or developed. Senator Rieger next advised of
his understanding that the payout rule for calculation of
dividends is based on a five-year average. It would then
seem that in a down year with no moneys in reserve, the
program would be unable to pay "on a five-year average."
(The five-year average could be higher than performance for
a particular year.) Mr. Fargnoli acknowledged that in that
situation the "exceptional limit provision" would activate,
and the dividend would be limited to "what's in the balance
of the reserve account and the current earnings."
Senator Rieger asked if it makes sense to have a policy
establishing the amount which should be reserved, based on
the context of the five-year payout rule. Mr. Fargnoli
reiterated that the administration has no policy on the
issue. He voiced his personal belief that a policy should
be developed within the context of other larger questions
involving use of the fund and net income.
Senator Zharoff voiced his understanding that in order to
ensure that the legislature would not be able to "get into
the CBR with a 50% vote," a balance of $500 million is
needed in the earnings reserve account. Mr. Fargnoli
concurred in that understanding. Leaving $500 million in
the balance might effectively hold harmless the requirement
of a three-quarter vote.
Senator Randy Phillips MOVED for adoption of CSSB 84 (Fin)
version 9-LS0639\G, 2/23/95. No objection having been
raised, the "C" version of CSSB 84 (Fin) was ADOPTED.
Senator Zharoff advised of concern that a balance of $250
million in the earnings reserve would not protect the three-
quarter vote on the CBR. He then MOVED to increase the
balance to $500 million.
Co-chairman Halford referenced testimony from the director
of the Legislative Finance Division that something "in the
range of $450 million" would be needed. The Co-chairman
then advised of his belief that both that need and the
"dividend averaging argument, based on the past history of
the fund, were red herrings." However, in an attempt to
deal with both arguments, it appears reasonable to leave
$250 million in the fund. The total amount taken out for
averaging over the past fifteen years is "somewhere around
$50 million." That argument has thus not proven to be the
history of the fund or the dividend or inflation proofing.
Speaking to the constitutional budget reserve, Co-chairman
Halford said that if the remaining $250 million is added to
other reserves, it would add $300 or $400 million to
"whatever the budget was." In theory, reducing the earnings
reserve down to $250 million would make it easy to "get a
little bit out of the constitutional budget reserve, but it
wouldn't be enough to do the budget balancing that the
Governor is proposing . . . ." The question would still
have to be reach by a three-quarter vote to meet the
Governor's proposed $450 or $470 million from the
constitutional budget reserve.
Senator Zharoff reiterated that he would be more comfortable
if $500 million remains in reserve. He then voiced his
preference for maintaining the earnings reserve account in
tact until the fiscal planning commission has done its work
and made recommendations. He restated his motion to delete
$250,000,000 at page 1, line 4, and insert $500,000,000.
Co-chairman Halford called for a show of hands. The motion
FAILED on a vote of 2 to 5.
Senator Donley concurred in concern that the proposed
appropriation would severely limit ability of the fiscal
planning commission to do its job.
Senator Randy Phillips MOVED for passage of CSSB 84 (Fin)
with individual recommendations. Senator Rieger said that
while he would not oppose movement of the bill, he wished to
register concern that it would occur before inflation
proofing protection for the permanent fund has been dealt
with. Projections by the permanent fund corporation
evidence how the earnings reserve account "runs out at some
time out in the future," and the principal of the fund is
short changed because of insufficient funds to cover the
dividend and inflation proofing. He said he would be more
comfortable with the legislation if it were combined with a
measure "which reprioritized the use of the permanent fund
earnings, so that inflation proofing were first." While the
proposed appropriation places additional moneys in
principal, it could accelerate the date at which "we fail to
inflation proof." That is the reservation. No objection
having been raised, CSSB 84 (Fin) was REPORTED OUT of
committee. Co-chairmen Halford and Frank and Senators
Phillips and Sharp signed the committee report with a "do
pass" recommendation. Senator Donley signed "should be
reviewed by Financial Planning Commission before further
consideration." Senator Zharoff signed "same comments as
above" in concurrence with Senator Donley. Senator Rieger
signed, "Do not pass until inflation-proofing has first
priority on annual earnings."
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