Legislature(2005 - 2006)SENATE FINANCE 532
04/15/2005 09:00 AM Senate FINANCE
| Audio | Topic |
|---|---|
| Start | |
| SB131 | |
| SB16 | |
| SB158 | |
| SB88 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| += | HB 66 | TELECONFERENCED | |
| += | HB 67 | TELECONFERENCED | |
| += | SB 130 | TELECONFERENCED | |
| + | SB 131 | TELECONFERENCED | |
| + | TELECONFERENCED | ||
| += | SB 16 | TELECONFERENCED | |
| += | SB 88 | TELECONFERENCED | |
| += | SB 112 | TELECONFERENCED | |
| += | SB 158 | TELECONFERENCED | |
| += | SB 147 | TELECONFERENCED | |
SENATE BILL NO. 88
"An Act relating to the policy of the state regarding the
source of funding used to cover a shortfall in general fund
revenue."
This was the second hearing for this bill in the Senate Finance
Committee.
Co-Chair Wilken, the bill's sponsor, stated that in the time since
the April 5, 2005 first hearing on this legislation he has been
encouraged by the comments, suggestions, and ideas that individuals
have shared with him. During those conversations, it has been
realized that "this is a very flexible plan … that can be used as
needed when needed". He acknowledged that "it is strange" to be
discussing this legislation during a time when the State's oil
revenues are increasing. However, it is encouraging that "we don't
have our head in the sand". No one should ignore the projected
future oil revenues the State could receive as reflected on what he
referred to as the "sensitivity chart", on page five of the "Senate
Bill 88 A Bridge to Development A Policy on General Fund Revenue
Shortfall" handout [copy on file] discussed during the April fifth
hearing.
Senator Stedman summarized that the plan proposed in this
legislation would, were the State to experience a revenue
shortfall, split the draw that might historically have occurred on
"the State's savings account", the Constitutional Budget Reserve
(CBR), between the CBR and the Earnings Reserve Account (ERA) of
the Permanent Fund. While the principal of the Permanent Fund is
protected, the Legislature has the Statutory authority to
appropriate money from the ERA after dividends and inflation
proofing have occurred. Over the past several years, a total of
approximately five billion dollars has been drawn from the CBR to
address the State's funding shortfall. The CBR balance today is
approximately $2.4 billion. Were the State to continue having a
funding deficit, the draw on the CBR might lower the balance to "a
threshold of approximately one billion dollars. This is of concern
to the Administration". While there is debate in regards to what
appropriate balance should be maintained in the CBR, "clearly at
some point, the State needs to have an adequate cash reserve to use
in cash managing its week-to-week business relationships". Rather
than incorporating language into regulation or Statute, this
legislation would "recommend a policy for the Legislature to follow
to extend the life of the CBR" by "jointly and equally" drawing on
both the ERA and the CBR. The intent is to extend the life of the
CBR with the hope that the State could reach the point where
revenue from a gas pipeline or oil field expansions could provide
additional revenue to the State. "On the surface" this is good
policy … some decision should be made. While he had supported the
Percent of Market Value (POMV) plan legislation that had been
discussed the previous year as a means through which to address the
State's fiscal dilemma, the Legislature had not adopted it.
Therefore another plan must be pursued through which to address the
continuing problem. Compromises along the way would occur.
Senator Stedman shared that his concern with this proposal is that
neither a maximum CBR or ERA draw amount limit is specified nor has
a "trigger point" or a specified CBR balance been identified upon
which time the draw would be split between the two accounts.
Nonetheless, he would not oppose advancing the bill because he felt
that the "debate needs to go forward". It would be in the best
interest of the State to further discuss and debate the merits of
the bill. "Clearly the numbers" and the sponsor's presentations are
very "enlightening. The impact is minimal" in comparison to that of
imposing a State income or sales tax "on the individual wealth of
the Alaskan residents".
Senator Stedman suggested that, in the "finer points of a long
range fiscal plan", consideration be given to incorporating a
trigger point of, for example, a $2.5 billion CBR balance being the
point at which any draw would be equally split between the CBR and
the ERA. Thus the ERA would not be utilized were the State to
experience "the good fortune" of such things as economic expansion,
additional resource development revenues, and budgetary controls
that negated the need for a CBR draw and its balance remained above
the specified threshold. He considered the "Permanent Fund the
source of capital of last resort for virtually everything in the
State". It is estimated that the CBR would contain funds for
approximately another ten years; therefore the State must develop a
plan that would fund State operations until at least the year 2015.
10:07:16 AM
Senator Stedman desired that the State's policy decisions relating
to this bill would include a maximum ERA draw amount. This issue
would require more work than the issue of designating a CBR trigger
balance. "The point is that" it would be very easy for Legislators
to appease constituents by presenting "more proposals for capital
spending than the State could possibly fund … and it is also easier
to let the budget grow than to hold it back". Easily accessible
funding could serve to increase the State's operating budget to a
point that would not be in the best financial interest of the
State.
Senator Stedman concluded therefore that incorporating a maximum
limit on the ERA draw in addition to establishing a CBR Trigger
mechanism balance would be worthwhile efforts in regards to this
bill. When this issue moves from this Committee to the Senate Rules
Committee, it should be accompanied by a clear message to the
people in the State "that the Legislature is serious about dealing
with this fiscal issue". The State's fiscal issue has been
discussed for years and cannot be ignored, even now when the price
of North Slope crude oil is in the range of $48 a barrel. High oil
prices would provide additional time in which the issue can be
addressed.
10:09:54 AM
Senator Dyson concurred with Senator Stedman's remarks and also
echoed Senator Stedman's compliments regarding the efforts exerted
by Senator Wilken in the development of this legislation and his
"clear" portrayal of the State financial situation going forward.
Senator Dyson stated that as the solutions to the State's fiscal
crisis are discussed, it would be his desire that in addition to
the inclusion of such things as a "trigger point" on the CBR
balance and "stringent restraints" on State spending, that prior to
utilizing ERA funds, consideration be given to incorporating a
general State tax. He would support "a consumption tax of some
sort". A paradigm shift is occurring and these discussions are
alerting the public that the State could not continue "with
business as usual". Tough decisions must be made.
Senator Dyson stated that, while he would object to a motion to
move this bill from Committee, the discussion is valuable.
In response to a question from Co-Chair Green, Senator Dyson
restated that he would object to moving the bill from Committee.
Co-Chair Green asked whether the reason for that position was to
allow the Committee to conduct further the work on it as Senator
Dyson's desire to not move the bill from Committee was in conflict
with his earlier remarks in support of developing legislation
through which to address the State's fiscal gap.
10:12:09 AM
Senator Dyson opined that a "better product" could be developed
that would meet his and Senator Stedman's concerns. While he
"guessed" that the bill would move forward, it would do so without
"his support at this time".
Co-Chair Green asked Co-Chair Wilken whether his desire is for the
legislation to move forward at this time or whether the suggestions
presented by Senator Stedman and Senator Dyson be further
considered by this Committee.
10:12:45 AM
Co-Chair Wilken responded that due to the amount of other
legislation that the Committee must address during the limited time
remaining in this Legislative session and the fact that he did not
expect this bill to be adopted by the Legislature this year or even
the following year, his desire would be to move it from the
Committee at this time. This "very flexible" policy legislation
could be revisited and adjustments could be made were the need to
arise. He noted that the bill could be returned to the Committee
for further consideration and that he is receptive to some of the
suggestions that were offered. In view of the favorable fiscal
situation that the State is currently experiencing, it is his
determination that this legislation would not be awarded much
forward momentum. Were the decision made to keep the bill in
Committee, he doubted it would receive another hearing this
Session.
Co-Chair Green commented that in 1997, 1999, and 2002, she had been
"very involved" in efforts to protect the Permanent Fund Dividend
and incorporate inflation proofing of the Fund in the State's
Constitution. This purpose was to protect the Fund from being "the
focus of the conversation" when addressing the State's fiscal
challenge. It is frustrating that those efforts did not come to
fruition. Nonetheless, language that is worthy of mentioning in Co-
Chair Wilken's aforementioned presentation is the line item on page
25 that states that this legislation "strengthens the Alaska's bond
rating and saves millions of dollars". "There's a terrible irony in
the State's" funding, bonding, and revenue scenarios because "we do
not use anything from the Permanent Fund earnings"; that money "is
not considered part of the State's revenue stream … Therefore, it's
not part of the State's fiscal plan, it doesn't reflect as well as
it should on" the State's bond rating. However, people who "survey"
the State's debt situation determine that the State has minimal
debt. Nonetheless, they point out that "the State does not have a
fiscal plan, which really means you don't have an income tax". This
is being mentioned as, today, April 15th, is the date that
individual's federal income tax is due. She declared that she does
not support a State income tax and for that reason alone, she is in
favor of this legislation. The State must determine how to improve
its ability, "in times of need", to bond for a needed project by
being able to show that the Permanent Fund is a component of the
State's portfolio. Currently, that is not the case. It is "awful"
that the State must be required to show "on paper" that the
Legislature could use Permanent Fund earnings, even though the
Legislature already has the authority to do so. "It's not
prohibited, it's allowed, it's provided and … nothing in this
should constitute a limitation on that right or charge".
10:17:12 AM
Co-Chair Green voiced appreciation for Co-Chair Wilken' development
of legislation that would remove "pressure" on both systems. This
legislation, "more than anything" protects the CBR. "It ends the
conversation of 'oh, how horrible that you have to take money from
the CBR'".
10:17:37 AM
Senator Dyson voiced appreciation for Co-Chair Green's remarks and
clarified that his comments should not be misconstrued, as he
"clearly" understands that the Permanent Fund was established to
provide funding when the day came that oil revenues were
insufficient to fund State operations. Nothing more would be
required to allow "the Legislature to access the ERA for support of
government". Accusations that he is "much too idealistic or naïve"
occur when he shares his position that the three sources of State
income: revenues, the CBR, and the ERA, should be accessed in that
order rather than being viewed as equals. The CBR should be used
for the short-term and the ERA for the long-term. He would support
utilizing "the ERA to support a level of government that the State
requires when revenues are insufficient and the CBR approaches"
some determined minimal threshold.
AT EASE 10:19:35 AM / 10:19:45 AM
Co-Chair Wilken reiterated his earlier comment that, "the beauty of
this is that it provides a great deal of flexibility for this
Legislature and all Legislatures that will follow until we can
build a bridge to development". The details would be developed over
time, as currently sufficient funds are available; however, there
would be a need to complete the task within four, six, or ten
years. That is what this legislation "is all about". He again
voiced appreciation for the support that the legislation has
received. It is a flexible plan and would provide one more tool
through which to balance the State's budget, "with minimal impact
to families and those people who choose to invest" in the State.
Co-Chair Green asked regarding the use of the word "policy" in
Section 1(b), line five, page one of the bill; specifically whether
a "policy" differs from being a mandate or a requirement or the
word "shall", in that it is a suggestion.
Co-Chair Wilken responded that, in this sense, the term "policy" is
a suggestion: it could be ignored, changed, or whatever the
Legislature seated at the time, might feel appropriate.
Co-Chair Wilken moved to report the bill from Committee with
individual recommendations and accompanying fiscal note.
Senator Dyson objected.
A roll call was taken on the motion.
IN FAVOR: Senator Olson, Senator Hoffman, Co-Chair Wilken, and Co-
Chair Green
OPPOSED: Senator Dyson and Senator Stedman
ABSENT: Senator Bunde
The motion to report the bill from Committee PASSED (4-2-1).
SB 88 was REPORTED from Committee with Department of Revenue zero
Fiscal Note #1, dated February 15, 2005.
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