04/17/2023 09:00 AM Senate FINANCE

SENATE BILL NO. 107                                                                                                           
                                                                                                                                
     "An  Act   relating  to  the  Alaska   permanent  fund;                                                                    
     relating  to  income  of  the  Alaska  permanent  fund;                                                                    
     relating to the amount  available for appropriation and                                                                    
     appropriations  from  the   earnings  reserve  account;                                                                    
     relating to the permanent  fund dividend; and providing                                                                    
     for an effective date."                                                                                                    
                                                                                                                                
9:29:47 AM                                                                                                                    
                                                                                                                                
Co-Chair Olson OPENED and CLOSED public testimony.                                                                              
                                                                                                                                
9:28:52 AM                                                                                                                    
AT EASE                                                                                                                         
                                                                                                                                
9:29:27 AM                                                                                                                    
RECONVENED                                                                                                                      
                                                                                                                                
9:29:38 AM                                                                                                                    
                                                                                                                                
Co-Chair  Stedman MOVED  to ADOPT  the committee  substitute                                                                    
for SB 107, Work Draft 33-LS0349\P (Nauman, 4/12/23).                                                                           
                                                                                                                                
Co-Chair Hoffman OBJECTED for discussion.                                                                                       
                                                                                                                                
9:30:05 AM                                                                                                                    
                                                                                                                                
PETE  ECKLUND, STAFF,  SENATOR BERT  STEDMAN, explained  the                                                                    
CS. He  remarked that there  was a trigger  mechanism within                                                                    
the bill  for a  50/50 dividend to  come into  effect which,                                                                    
prior to  the CS, the  new revenue to  be raised was  set at                                                                    
$900 million. He stated that  after examining some modeling,                                                                    
and considering  the governors   capital budget  was roughly                                                                    
$303  million, with  $250 for  federal and  other funds.  He                                                                    
stated that the  modeling in the $900 million  had a capital                                                                    
budget of  $400 million  going forward.  He stated  that the                                                                    
deferred, education,  and capital needs of  the state showed                                                                    
that the modeling  was based on $700  million for additional                                                                    
capital and  K-12 needs.  He remarked  that the  trigger was                                                                    
moved from $900  million to $1.3 billion of  new revenue. He                                                                    
stated that SB 107 was a  framework for a fiscal plan, which                                                                    
required  savings to  withstand the  variability of  the oil                                                                    
revenue.  He remarked  that the  recent  forecasts from  the                                                                    
Department of  Revenue (DOR) varied  revenue by  $2 billion,                                                                    
so there was a trigger proposed  of $3.5 billion for the CBR                                                                    
before a percent of market value (POMV) would take effect.                                                                      
                                                                                                                                
Co-Chair  Hoffman asked  about  the requirement  of the  CBR                                                                    
draw.                                                                                                                           
                                                                                                                                
Mr. Ecklund replied that the  requirement in the CS was $3.5                                                                    
billion adjusted  with inflation after 2026.  He stated that                                                                    
the $3.5 billion was recommended by the director of LFD.                                                                        
                                                                                                                                
Co-Chair  Olson   queried  the  process  to   determine  the                                                                    
inflation adjustment for the $3.5 billion.                                                                                      
                                                                                                                                
Mr. Ecklund replied that the  same inflation calculation was                                                                    
used as was in statute for the Permanent Fund.                                                                                  
                                                                                                                                
Co-Chair Olson asked for the specific number.                                                                                   
                                                                                                                                
Mr. Ecklund replied  that it was a change  of consumer price                                                                    
index from one calendar year to the next calendar year.                                                                         
                                                                                                                                
Co-Chair  Olson  wondered  how   the  CS  would  affect  the                                                                    
Permanent Fund Dividend (PFD).                                                                                                  
                                                                                                                                
9:35:40 AM                                                                                                                    
                                                                                                                                
KEN ALPER,  STAFF, SENATOR DONNY  OLSON, explained  that the                                                                    
previous version  of the bill  set a  low PFD for  the near-                                                                    
term  with  the  possibility  of stepping  up  to  a  larger                                                                    
dividend in  the next couple  of years depending  on certain                                                                    
fiscal  conditions. He  stated  that the  new version  would                                                                    
make  the  hurdle to  the  larger  dividend. Therefore,  the                                                                    
75/25 split would remain.                                                                                                       
                                                                                                                                
Co-Chair  Hoffman  MAINTAINED  his OBJECTION.  He  explained                                                                    
that the bill  would set the dividend at  50/50. He stressed                                                                    
that there was  not revenue to pay a 50/50  dividend, so the                                                                    
interim dividend would  be set at 75/25 or  $1300. He wanted                                                                    
to discuss  the $3.5 billion  target. He felt that  the $3.5                                                                    
billion level  would potentially cripple the  options of the                                                                    
legislature to  fund government. He felt  that the provision                                                                    
would take away  the ability to address  the dividend split.                                                                    
He felt that  the $3.5 target should be in  a separate bill,                                                                    
and should not be in the version of this bill.                                                                                  
                                                                                                                                
9:42:04 AM                                                                                                                    
AT EASE                                                                                                                         
                                                                                                                                
9:43:20 AM                                                                                                                    
RECONVENED                                                                                                                      
                                                                                                                                
9:43:41 AM                                                                                                                    
                                                                                                                                
Co-Chair   Stedman  spoke   in   favor   of  the   committee                                                                    
substitute.  He   stated  that   the  $1.3  billion   was  a                                                                    
reasonable range. He recalled that  the original bill had no                                                                    
protection  of  the  CBR,  and   would  trigger  a  dividend                                                                    
regardless of other positions.                                                                                                  
                                                                                                                                
Co-Chair Olson stated that he  did not support the committee                                                                    
substitute.                                                                                                                     
                                                                                                                                
Senator Merrick wondered how many  years were not drawn from                                                                    
the CBR.                                                                                                                        
                                                                                                                                
9:47:44 AM                                                                                                                    
                                                                                                                                
ALEXEI  PAINTER,  DIRECTOR,  LEGISLATIVE  FINANCE  DIVISION,                                                                    
replied that in  the last decade there was  a budget surplus                                                                    
in FY 22, and before that  there were deficits from FY 13 to                                                                    
FY 21.  Therefore only one  year in  the last ten  years did                                                                    
not have a draw from the CBR.                                                                                                   
                                                                                                                                
                                                                                                                                
Co-Chair Olson  queried the original  amount in the  CBR and                                                                    
the current amount.                                                                                                             
                                                                                                                                
Mr. Painter replied  that the highest amount in  the CBR was                                                                    
approximately  $13  billion,  and  the  current  amount  was                                                                    
slightly higher than $2.2 billion.                                                                                              
                                                                                                                                
Co-Chair Olson felt that it  was concerning that the CBR was                                                                    
at that low number.                                                                                                             
                                                                                                                                
Mr. Painter agreed, but stated that  it had been lower by $1                                                                    
billion previously.                                                                                                             
                                                                                                                                
Senator Bishop  wondered where the  cash was located  if the                                                                    
CBR  went to  zero,  and there  was no  balance  due to  oil                                                                    
revenue.                                                                                                                        
                                                                                                                                
Mr. Painter  replied that  revenue anticipation  notes could                                                                    
be used within a year, but could not be used between years.                                                                     
                                                                                                                                
Senator Bishop wondered  if those notes had to  be paid back                                                                    
within the current year.                                                                                                        
                                                                                                                                
Mr. Painter replied in the affirmative.                                                                                         
                                                                                                                                
A roll call vote was taken on the motion.                                                                                       
                                                                                                                                
IN FAVOR: Kiehl, Merrick, Bishop, Stedman                                                                                       
OPPOSED: Wilson, Olson, Hoffman                                                                                                 
                                                                                                                                
The MOTION  PASSED (4/3). The proposed  committee substitute                                                                    
was ADOPTED.                                                                                                                    
                                                                                                                                
9:50:56 AM                                                                                                                    
RECONVENED                                                                                                                      
                                                                                                                                
SB  107  was  HEARD  and   HELD  in  committee  for  further                                                                    
consideration.                                                                                                                  
                                                                                                                                
Senator Merrick wished Senator Kiehl a HAPPY BIRTHDAY.