02/14/1995 03:40 PM Senate STA

 SSTA - 2/14/95                                                                
                                                                               
         SB  51 DISPOSITION OF PERMANENT FUND INCOME                         
                                                                               
 SENATOR SHARP brings up SB 51 as the next order of business before            
 the Senate State Affairs Committee and calls the first witness.               
                                                                               
 Number 560                                                                    
                                                                               
 SENATOR RIEGER, prime sponsor of SB 51 reads his sponsor statement.           
                                                                               
 Number 515                                                                    
                                                                               
 SENATOR RIEGER states the Legislative Budget & Audit Committee                
 (LB&A) hired Ibbotsen & Associates to look at the asset allocation            
 of the Alaska Permanent Fund Corporation.  Their report prescribed            
 a change in asset allocation.  Senator Rieger has noticed that the            
 corporation is moving in the direction the Ibbotsen report                    
 recommended.  He thinks this will improve the longer term                     
 investment performance of the permanent fund, and in turn, improve            
 the real earnings of the fund.                                                
                                                                               
 SENATOR RIEGER says he will answer questions and urges the                    
 committee's favorable consideration.                                          
                                                                               
 Number 505                                                                    
                                                                               
 SENATOR LEMAN asks Senator Rieger if he thinks the consumer price             
 index (cpi) should continue to be used to value the permanent fund            
 earnings, or if there is a better index that could be used.                   
                                                                               
 SENATOR RIEGER replies since the actual use of permanent fund                 
 earnings is not spelled out anywhere, there is no right answer as             
 to which index should be used.  Since the only prescribed use of              
 earnings right now are for dividends, which go to consumers, he               
 supposes that the consumer price index is as good an index to use             
 as any.                                                                       
                                                                               
 Number 470                                                                    
                                                                               
 SENATOR RIEGER points out that the concept contained in SB 51 was             
 recommended in the Governor's Transition Report.                              
                                                                               
 Number 465                                                                    
                                                                               
 CHAIRMAN SHARP wants a clarification on whether SB 51 would set in            
 statute that inflation-proofing of the fund would continue to be              
 appropriated by the legislature.                                              
                                                                               
 SENATOR RIEGER responds that the wording in the constitutional                
 amendment basically says: the returns on the permanent fund shall             
 be deposited in the general fund, unless otherwise provided by law.           
 It has been argued that language would allow a way to inflation-              
 proof the fund automatically, and bypass the legislative                      
 appropriation process.  He does not think the constitutional                  
 language is clear.  The legislature might put it in the front                 
 section anyway.  But the idea is to not create a mistaken                     
 impression that there is more money available in any given fiscal             
 year than there really should be.  Senator Rieger thinks as money             
 continues to get tight, there will be proposals to not inflation-             
 proof the fund.                                                               
                                                                               
 Number 443                                                                    
                                                                               
 JIM KELLY, Research & Liaison Officer, Alaska Permanent Fund                  
 Corporation, states the board has not yet discussed SB 51, but                
 plans to meet on February 24, at which time they will review the              
 bill.  Historically, the board is in favor of any proposal which              
 would protect the principal of the permanent fund.  Mr. Kelly                 
 thinks the board would certainly support the portion of SB 51 which           
 specifies inflation proofing the fund.  However, he does not think            
 the board would take any position one way or the other on the other           
 portion of the bill.  Mr. Kelly discusses the financial projections           
 he submitted to the committee and says that the only way the amount           
 of money the fund earns will be larger is if one, the fund earns              
 more money, or two, the permanent fund gets larger.  The only way             
 the permanent fund will get larger is if an appropriation is made             
 to the permanent fund.                                                        
                                                                               
 Number 410                                                                    
                                                                               
 MR. KELLY states inflation proofing used to be automatic, but that            
 changed during the Cowper administration.  Also, the corporation              
 likes to use the cpi because it is a number people can understand.            
 As for using an average balance on which to measure earnings, Mr.             
 Kelly would just as soon use an average balance of the fiscal year,           
 rather than the calendar year.                                                
                                                                               
 Number 395                                                                    
                                                                               
 CHAIRMAN SHARP asks Mr. Kelly if he is referring to the cost or the           
 market value of measuring the average balance.                                
                                                                               
 MR. KELLY responds that at this time, it is done in cost.                     
                                                                               
 Number 390                                                                    
                                                                               
 SENATOR RANDY PHILLIPS asks Mr. Kelly if the board is going to look           
 at SB 51 and make a recommendation.                                           
                                                                               
 MR. KELLY says he expects the board to make a recommendation.                 
                                                                               
 SENATOR RANDY PHILLIPS asks Mr. Kelly if the board will make a                
 formal endorsement.                                                           
                                                                               
 MR. KELLY responds that they will.                                            
                                                                               
 CHAIRMAN SHARP says the committee will hold the bill until next               
 week to wait for information from the Alaska Permanent Fund                   
 Corporation's board and to get input from all members of the                  
 committee.                                                                    
                                                                               
 Number 343                                                                    
                                                                               
 SENATOR RIEGER comments it would probably be good to switch to                
 fiscal year from calendar year for measuring earnings.  That is               
 something no one has ever thought of before.                                  
                                                                               
 CHAIRMAN SHARP states his gut feeling is to deposit as large an               
 amount as is possible into the corpus of the fund.                            
                                                                               
 Number 310                                                                    
                                                                               
 CHAIRMAN SHARP adjourns the Senate State Affairs Committee meeting            
 at 4:56 p.m.