Legislature(2015 - 2016)SENATE FINANCE 532
03/23/2016 09:00 AM Senate FINANCE
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| Audio | Topic |
|---|---|
| Start | |
| SB114 || SB128 | |
| Public Testimony: Juneau | |
| Public Testimony: Bethel, Nome, Kotzebue, Unalaska | |
| Public Testimony: Barrow, Tok, Delta Junction | |
| Public Testimony: Ketchikan, Wrangell, Petersburg | |
| Public Testimony: Sitka, Cordova, Valdez | |
| Public Testimony: Statewide Teleconference - Offnet Sites | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| + | TELECONFERENCED | ||
| += | SB 114 | TELECONFERENCED | |
| += | SB 128 | TELECONFERENCED | |
| + | TELECONFERENCED |
SENATE BILL NO. 114
"An Act relating to deposits into the dividend fund;
and relating to the Alaska permanent fund."
SENATE BILL NO. 128
"An Act relating to the Alaska permanent fund;
relating to appropriations to the dividend fund;
relating to income of the Alaska permanent fund;
relating to the earnings reserve account; relating to
the Alaska permanent fund dividend; making conforming
amendments; and providing for an effective date."
9:04:47 AM
Co-Chair MacKinnon discussed the forthcoming presentation.
DAVID TEAL, DIRECTOR, LEGISLATIVE FINANCE DIVISION, stated
that SB 114 and SB 128 both pertained to re-plumbing the
state's cash flow. He thought that models were the best way
to compare the fiscal impact of the two bills. He
considered that the models provided a comparison of
projected deficits, as well as the dividend and reserve
balances under the bills and any other options being
considered. He emphasized that it was important to
understand how the plans differed in order to understand
the models.
Mr. Teal discussed the presentation "A Comparison of Plans
to Re-Plumb Alaska's Cash Flow," (copy on file). He
explained that cash flow diagrams were simplistic
representations of various options that showed where the
money flowed. The diagrams could not illustrate how much
money was moving in different areas, and could not
communicate if a plan was fiscally sound or how it would
respond to changes in revenues or interest rates. He
thought the diagrams also depicted where the decision
points were, which would elucidate which decisions were
important and what the trade-offs were for each scenario.
Co-Chair MacKinnon referred to the new spring forecast,
which had come out the previous week. She asked Mr. Teal to
frame his presentation in relation to the new spring
forecast.
Mr. Teal noted that the spring forecast did not affect the
diagrams being presented. He reiterated that the diagrams
simply showed where cash flowed, but not how much; whereas
each model would inform the amounts of funding. He
commented on the downward change in the new forecast, and
discussed the one percent decrease in anticipated long term
interest earnings recently published by the Permanent Fund
Corporation (PFC). He had not been able to evaluate the
reason for the significant change, and hoped to gain
further insight later in the day after meeting with state
officials.
9:08:44 AM
Co-Chair MacKinnon related that she had met with the
executive director of the Permanent Fund Board, who would
be reaching out to the commissioners of the Department of
Revenue and the Department of Law. She continued that she
had discussed the one percent differential.
Co-Chair MacKinnon asked if the presentation model would
reflect the lower interest rate and if it dealt with
numbers from the fall forecast.
Mr. Teal explained that the model was flexible, and the
intent was to allow the committee to demonstrate and
observe what would happen in various scenarios.
Senator Dunleavy was under the impression that the amounts
being discussed did not matter, the model was to depict
mechanics. He wanted to ensure that the plan take care of
the deficit problem if the mechanics of the permanent fund
were being considered.
Mr. Teal concurred, particularly considering the revised
earnings forecast; and did not think that any of the
sponsors of the bills considered that the plans would
completely solve the problem. He suggested that using the
earnings of the permanent fund was perhaps the biggest
lever that the legislature had, but even using the earnings
was insufficient to solve the issue. He continued that
legislature still faced decisions between reducing
expenditures and increasing revenue.
Co-Chair MacKinnon stated that she had misunderstood the
function of the models when she previously asked about
updating the presentation to reflect the new forecast.
Mr. Teal detailed that he would be showing slides to
represent current cash flow and the changes to cash flow;
first under the governor's Permanent Fund Protection Act
(PFPA) in SB 128, and then under SB 114.
9:12:22 AM
Mr. Teal addressed slide 2, "Current Cash Flow," which
depicted a flow chart of revenues and revenue locations.
He thought the first important item to notice was the
separation of the permanent fund into the principal and
Earnings Reserve Account (ERA). He pointed out that there
was no arrow on the chart between the permanent fund and
the general fund (GF), because (with minor exceptions)
permanent fund accounts were not used for government
expenditures. He continued that the earnings from the
permanent fund would accumulate in the ERA and was shown on
the chart by an arrow labelled "Statutory Net Income," and
included earnings from the ERA itself. He emphasized that
the permanent fund dividend (PFD) was the first priority
under the law, and was calculated at 50 percent of a five-
year moving average of earnings. He emphasized that the PFD
was dependent upon investment earnings alone and had no
firm connection to the fiscal health of the state, but
rather was a reflection of the fiscal health of financial
markets. There were strong rules for paying out dividends,
which were calculated using a formula put forth in law. He
pointed out a loop between the permanent fund principal and
the ERA on the chart, depicted by the statutory net income
arrow as well as an arrow entitled "Inflation proofing." He
explained that inflation proofing was simply sending a
portion of the earnings back into the corpus of the fund to
protect against inflation and retain real market value. He
indicated another connection to the permanent fund was a
portion of royalties that flowed into the fund, indicated
on the chart by an arrow.
Mr. Teal highlighted the GF on the chart, to which income
was shown coming from royalties (from gas and oil),
production tax; as well as a "Less Volatile Revenue" box,
which was the taxes, fees, corporate income tax, and other
things. He remarked that the royalties and production tax
were considered volatile revenue sources. When oil revenue
was high, there was a surplus to spend or save; and when
there was a deficit, money was pulled from reserves. He
pointed out that the diagram was simplified and did not
include surplus revenue such as the state budget reserve
(SBR).
Mr. Teal continued on slide 2, and stated that the current
model did not function well in a low-production, low-price
environment like the state was currently in. He thought the
only way for the current model to work was to cut
expenditures by about two-thirds, or increase other
revenues substantially. He discussed the eventuality of
running out of reserves, and referred to the fall forecast
prediction that the Constitutional Budget Reserve (CBR)
would be exhausted in FY 19. He added that the short time-
frame for the exhaustion of state reserves was the primary
reason for the downgrade in the state's credit rating, as
well as the primary reason for examining alternative cash
flows.
9:16:39 AM
Co-Chair Kelly pointed out that the state did not deficit
spend, and the state was not incurring debt by spending
savings.
Vice-Chair Micciche referred to the committee's discomfort
with unrealistic optimism with the fall and spring
forecasts. He thought the recent forecast was a healthier
way to conservatively analyze what revenues could be
expected. He did not have a pessimistic view of the
forecast, and thought it was a more realistic viewpoint.
Co-Chair MacKinnon concurred, and commented that the issue
was changing. She was interested in seeing the probability
of failure of plans that were implemented. She hoped for
steady interest income if the state was receiving a low
price per barrel of oil. She thought the two bill proposals
were not going to fare as well since the two variables in
question were not performing as well.
9:20:12 AM
Mr. Teal thought it was important for people to realize
when he used the word "deficit" he was referring to a cash
flow deficit rather than deficit spending. He reiterated
Co-Chair Kelly's comments that the state was spending
reserves rather than incurring a deficit. He thought cash
flow was an important concept, and reminded the committee
that the forecast was a projection rather than a
prediction. He continued that in modelling, there had been
a smooth path predicted for oil prices, and a constant
interest rate; even though both were volatile. He
acknowledged that the model could not reflect the ever-
changing rates, and therefore it was good to use
conservative assumptions.
Mr. Teal discussed slide 3, "1. Change Royalty Percentage
(PFPA)," and indicated that the next five slides would show
how the Permanent Fund Protection Act (PFPA) would change
the plumbing of state finances. He stated that the first
change would be from savings mode to harvest mode. He
thought some would ask why the state would contribute more
than the constitutional minimum of royalties to the
permanent fund principal. By reducing from 30 percent to 25
percent of royalties to the principal (where they could not
be spent), there would be 5 percent available to be spent.
9:23:14 AM
Mr. Teal continued on slide 3, stating that both royalties
and production tax had been reallocated by the governor
from the GF to the ERA, which equated to a shift of about
$1 billion. He explained that as the funds were diverted
from the GF, it was replaced with a sustainable draw. The
draw was planned for approximately $3.3 billion, and could
be adjusted downward by the commissioner of the Department
of Revenue if conditions were less favorable than
predicted. Conversely, the draw could be adjusted upward
with inflation. He noted that inflation would change from
an annual, mechanical, statutory rule to retain the market
value of the permanent fund to an overflow concept. He
thought that it was arguable that there was no inflation-
proofing unless money was in the corpus and protected from
spending. He posited that the aforementioned 25 percent
savings did not count as inflation-proofing, but was in
fact additional savings that should be inflation proofed.
The other extreme was arguable in that it did not matter
which account the money was in. The value of the permanent
fund was the sum of the two accounts, and inflation-
proofing (by putting money in the corpus) increased the
risk of running down the ERA, which supported the
sustainable draw. He thought it was important to realize
that the sustainable draw came from the ERA, and anything
in the permanent fund principal could not be spent.
9:26:10 AM
Vice-Chair Micciche asked to clarify that Mr. Teal was
reviewing the governor's plan, and wondered about a $3
billion deposit from the CBR to the permanent fund corpus
to increase the draw.
Mr. Teal answered in the affirmative, and elucidated that
the diagram was meant to illustrate a long-term flow, and
did not reflect the one-time deposit. He referred to long
arguments on the subject made in the Senate State Affairs
Committee, and stated that he would touch on some of the
legal arguments and solutions later in the presentation.
Mr. Teal discussed inflation-proofing, and thought the
consideration of how it should be done was more of a
personal preference than right or wrong. He suggested that
the committee refrain from debating the topic for the
present.
Co-Chair MacKinnon asked if it was fair to say that under
both models inflation-proofing and capping in the permanent
fund was the source of all the funds being considered. Mr.
Teal answered in the affirmative.
Co-Chair MacKinnon discussed the permanent fund. She
thought there were to two choices; not to inflation-proof,
or to reduce the PFD to create additional revenue for state
government.
Mr. Teal concurred.
Vice-Chair Micciche considered the proposed $3 billion
deposit, and thought that in order to get to a $3.3 billion
draw, there would need to be a 6 percent draw in the
current year.
Mr. Teal stated that the draw was higher in early years
(about 6 percent). He pointed out that there was a new
forecast out and new interest rates. He stated he had
examined the numbers earlier in the morning and had
observed that under the new forecast, including a full
percent lowering of long-term interest rates, the
sustainable draw dropped from $3.3 billion to approximately
$2.5 billion. He confirmed that a sustainable draw needed
to be carefully examined.
Co-Chair MacKinnon commented that there had been a model
examined by the legislature for a couple of months, but
with new market numbers there was a more conservative view
and the draw substantially dropped. She acknowledged that
the Commissioner and the Deputy Commissioner of the
Department of Revenue (DOR) were in the audience.
She asked for DOR Commissioner Randall Hoffbeck to get a
new report from Callan Associates to reflect the spring
forecast. She thought the report would aid the committee in
making a decision. She clarified that she was not
criticizing the model being used, but rather that the
current outcomes looked different than at the start of the
year.
9:30:58 AM
Mr. Teal highlighted slide 7, "5. Change Dividend Source
and Calculation (PFPA)" which illustrated changing the
amount and source of the permanent fund dividend, based on
50 percent of the previous year's royalties. He highlighted
the practical consideration of paying a dividend in October
with royalties that would be coming in up to nine months
later. He clarified that dividends would be based on
royalties from the prior year. He drew attention to arrows
on the slide that showed 74.5 percent of royalties going to
the ERA, and 50 percent of royalties going to dividends.
Mr. Teal thought the cash flow diagram was no more
complicated than the current cash flow, and the whole plan
was to reduce revenue volatility. He explained that by
moving the two volatile revenue sources (royalties and
production tax), to point to the ERA rather than the GF, it
would provide a more stable draw from the ERA. He thought
that conceptually the governor's plan [SB 128] worked to
stabilize GF earnings. He echoed Co-Chair MacKinnon's
comments that there was no new money included in any of the
plans being presented, and essentially the plans were re-
plumbing only. He commented that if one were to look at the
governor's plan as a whole, there was also expenditure
reductions and revenue enhancements. He pointed out that
the committee was currently only looking at the re-plumbing
portion of the bill.
9:33:22 AM
Mr. Teal thought the plan explicated in SB 128 raised some
concerns, and specified that redirecting royalties and
production taxes to the ERA raised some legal issues.
Additionally, the governor's plan put a portion of the CBR
in to the ERA, which problematically changed the character
of the account. Currently the ERA only held permanent fund
earnings, was considered part of the permanent fund, and
could not be swept into the CBR at the end of each year. He
pondered the idea of three different fund sources and
categories going into the ERA, and spending from the
account without knowing from whence the funds came. He
recognized that the ERA was able to be spent at any time
for any purpose. He did not consider the scenario to be a
real problem, and thought the motivation for putting the
taxes in was very clear - it gave the governor the
sustainable draw that he had prioritized. He discussed the
motivation for drawing from the CBR, and the differences in
interest between the CBR (2 percent) and the ERA (close to
7 percent). In addition to 5 percent greater interest,
earnings of the CBR remained in the CBR, while earnings of
the ERA could be spent with a simple majority vote. He
thought the easy way to do what the governor wanted was to
create another account that held royalties and production
tax, and iterate that the sustainable draw was based on the
sum of the two with the corpus, the ERA, and the CBR. He
informed that it was not necessary to physically combine
the balances to combine them on a spreadsheet and determine
the draw. He emphasized that he did not want to spend any
more time discussing the legal issues, unless the committee
wanted to delve further.
9:36:53 AM
AT EASE
9:41:10 AM
RECONVENED
Mr. Teal referenced slide 8, "Current Cash Flow" and
discussed another concern with SB 128. He pointed out that
under the PFPA, any potential extra funds from production
tax (with higher oil prices) would go in to the ERA;
therefore the sustainable draw would not increase and the
windfall could not be spent as it currently could with the
funds flowing in to the GF. He referred to testimony by DOR
earlier in the week that pertained to allowing an upper
adjustment; however the current bill did not allow an upper
adjustment of the spending limit except for inflation. He
was concerned that if the amount was adjusted with windfall
revenue, the state could spend approximately one twentieth
of the revenue in each year. If the revenue was unable to
be spent, the bill would provide incentive to break the
rules in order to access the funds.
Vice-Chair Micciche wondered where the CBR could be
deposited without a three-quarter vote. Mr. Teal stated
that removing any money from the CBR currently required a
supermajority vote.
Vice-Chair Micciche disagreed that the funds could not be
deposited in the corpus.
Mr. Teal stated that it was possible to deposit from the
ERA into the corpus at any time, but an appropriation from
the CBR required a supermajority vote, except under certain
conditions outlined in Article IX, Section 17 (b) of the
constitution.
Co-Chair MacKinnon asked if the entire ERA was put in to
the corpus of the permanent fund, it would be possible to
access the CBR under the current scenario.
Mr. Teal answered in the affirmative, and stated that the
reason for not being able to access the CBR was a provision
that stated the money available to spend must exceed to the
amount appropriated in the prior year. If the state was to
drain the ERA by putting it in the corpus of the PF, the
legislature could avoid a supermajority vote on the CBR. It
was also possible to deposit the ERA funds into the CBR,
and it would be possible to have simple majority access to
the CBR. He thought it did not make sense to take ERA funds
to run through the CBR, when it was possible to go directly
from the ERA to the GF with a simple majority vote.
9:46:07 AM
Senator Hoffman thought the simplest way to access the CBR
through a simple majority vote was to change the
constitution.
Mr. Teal concurred.
Mr. Teal addressed the third issue with the PFPA, stating
that the act relied heavily on long-term projections and
was sensitive to changes in interest rates and oil revenue.
He reiterated that there was a substantial effect on the
sustainable draw, due to the lower interest rate and
relying very heavily in the long-term on the high interest
rate.
Senator Bishop theorized that for the governor's plan to be
more complete and less volatile (by protecting the
permanent fund and the sustainable draw, etc.), more
revenue was needed that was less volatile. Mr. Teal
responded in the affirmative, and clarified that less
volatile revenue would include many of the governor's tax
proposal plans including the motor fuels tax and the income
tax.
Mr. Teal outlined that the fourth issue with the governor's
plan was a semantic issue or technicality, and asked the
committee to keep in mind that a sustainable draw was not
synonymous with a sustainable budget. He furthered that
even if it was possible to project the draw accurately, it
would not necessarily fill the deficit. He posited that the
re-plumbing alone did not fill the anticipated deficits. He
furthered that the governor was aware of the fact, and
therefore had included expenditure reductions and revenue
measures in his plan to fill the deficits after the re-
plumbing was accomplished.
Senator Hoffman wondered if the deficit increased from $3.8
billion to $4.1 billion as a result of the spring forecast.
Mr. Teal recounted that there were a number of factors
affecting the deficit; the revenue itself was reduced, and
as a result tax credits went up. He reminded the committee
that when oil prices were low, profits were low; therefore
there was a better chance of having credits to turn in for
cash rather than the credits deducted from tax liability.
9:50:43 AM
AT EASE
9:50:53 AM
RECONVENED
Mr. Teal stated that LFD was not finished looking at the
full impact of the new revenue forecast.
Co-Chair MacKinnon stated that the committee was interested
to know the impact of the forecast on FY 16. She clarified
the span of fiscal years. She thought the spring forecast
was impacting the legislature during a span between FY 16
and FY 17, and considered that the legislature would have
the fiscal year reconciled the following January. She
discussed the importance of how much was drawn from savings
in FY 16, and how much was proposed to be drawn in FY 17.
She noted that there was already a provision for
withdrawing up to $500 million from the CBR in FY 16, a
portion of which was expended when the state had purchased
information from TransCanada as it exited the Alaska Liquid
Natural Gas (AKLNG) project.
Mr. Teal discussed the alternate fiscal plan as presented
in SB 114, and informed that he would be showing the same
set of diagrams, starting with the diagram "Current Cash
Flow" on slide 8.
Mr. Teal looked at slide 9, "1. Change Royalty Percentage
(SB114/HB303)" and noted that the first change was
identical to slide 3, and signified reduction of the share
of royalties going to the permanent fund.
Mr. Teal turned to slide 10, "2. Add POMV Payout (SB114 /
HB303)" and noted another facet of the bill was the Percent
of Market Value (POMV) draw. He noted that under SB 114, the
royalties and production taxes still pointed to the GF,
whereas under the governor's plan they were moved to the
ERA. He estimated that the original bill had put forth 5
percent, and if the permanent fund value was $50 billion, it
would signify a 2.5 percent payout. He thought the payout
would be somewhere in the 2.3 percent to 2.5 percent range
as time went on.
Co-Chair MacKinnon clarified that under SB 114, there would
be a combination of permanent fund principal and the ERA to
do the draw. Mr. Teal concurred.
9:54:05 AM
Mr. Teal thought that it was critical to understand that
the 5 percent draw was not an essential part of SB 114; the
draw was whatever the legislature determined it to be.
Mr. Teal discussed slide 11, "3. Remove Inflation Proofing
(SB114 / HB303)." He relayed that the original bill (SB
114) made no mention of inflation proofing, but it did not
signify that there would not be inflation proofing. He gave
an example of expected earnings at 6.9 percent, with a 5
percent payout. Under the scenario excess earnings would
accumulate in the ERA and eventually be appropriated to the
permanent fund principal and inflation-proof the fund if
they were deemed sufficient by the legislature. He
discussed considering whether the sum of the two accounts
kept pace with inflation. He summarized that the governor's
concept of "overflow" inflation-proofing could easily be
incorporated into SB 114.
9:55:29 AM
Mr. Teal showed slide 12, "4. Change Dividend Source and
Calculation (SB114/HB303)." He noted that PFDs were higher
under SB 114 than under the PFPA in SB 128. He stated that
the governor's bill took 50 percent of prior years'
royalties, whereas SB 114 similarly had 74.5 percent of
previous year's royalties going to dividends.
Senator Hoffman asked about the provision of SB 114 that
yielded a higher, fixed dividend; and wondered about
dividends under SB 128 in the long term.
Mr. Teal revealed that the governor's plan took 50 percent
of the previous years' royalties for dividends, whereas SB
114 took 74.5 percent of the previous year's royalties,
ergo SB 114 would always pay higher dividends. He clarified
that SB 114 might have a dividend floor of $1000. Under the
governor's plan, dividends would be in the $700 range under
the fall forecast and decrease to the $500 range under the
spring forecast. In SB 114, dividends would be fixed at
$1000 regardless of market conditions. He concluded that
depending on the version of SB 114, dividends would always
be higher, and perhaps substantially higher.
Co-Chair MacKinnon asked if a dividend floor was set and
attached to royalties, and what would happen if the
royalties could not pay out the sufficient amount. Mr. Teal
stated that dividends did not necessarily come from
royalties; rather it was an amount equivalent to prior
year's royalties. Royalties went to the GF, and if they
were less than the dividend payment, additional GF would be
used to pay the dividends.
Co-Chair MacKinnon wondered if the subject was something to
review. She thought the spring forecast indicated that in
five to ten years there would be oil volume in the 200 to
300 barrel range.
Mr. Teal confirmed that total royalties were expected to
decline over time, even as prices went up, therefore
dividends would decline over time.
Co-Chair MacKinnon thought that the spring forecast did not
take in to account new promising finds in the oil fields
and stayed with a conservative approach. Mr. Teal was not
aware of new finds, and stated that the fall forecast was
treated similarly.
9:59:36 AM
Mr. Teal displayed slide 13, "PFPA vs. SB114/HB303" which
was a comparison of SB 128 and SB 114. He noted that the
black arrows on the slide signified cash flow conditions
that remained the same; while the PFPA was shown in blue,
and SB 114 was shown in red. He noted that both bills
treated the dedicated portion of royalties the same, with
.5 percent going to the Public School Trust Fund, and 25
percent to the permanent fund principal. He pointed out a
difference in where royalties and production tax were
directed: to the GF under SB 114, and to the ERA under the
PFPA. He highlighted the difference in the bills comparing
a fixed draw to a POMV draw. He elucidated that at $85/bbl
oil, production taxes would be about $800 million. The
fixed draw, under the original plans, was $3.3 billion. The
POMV draw would pay about $2.5 billion, but the production
tax continued to go in to the GF. He summarized that under
SB 114; if the price of oil was less than $85/bbl, the GF
would get less money, and if oil was more than $85/bbl, the
GF would get more.
Mr. Teal continued to discuss slide 13, and thought that
the committee would need to debate the method and amount of
the draw from the ERA. He thought that the concept of
inflation proofing was not a huge consideration, as there
was no great conceptual difference between the two methods.
He did not think the difference in the bills was
substantive, nor was the dividend amount. He considered
that the bills were conceptually close, with the only
significant difference being the degree of stability. He
opined that the PFPA offered a more stable revenue stream
than did SB 114, which was governor's intent. He thought
the obvious question was if the PFPA a clearly better
approach if stability was good.
Vice-Chair Micciche pointed out that the plans only worked
as long as there was balance in the ERA to cover the draw.
He clarified for the public that even though the POMV was
based on the balance of the permanent fund, it was not
possible to draw from the corpus.
Mr. Teal concurred, and stated that none of the plans he
had seen raided the permanent fund, because it was
constitutionally protected. The plans drew only from the
earnings of the permanent fund, which was intended to be
appropriated when it was set up.
10:05:00 AM
Vice-Chair Micciche thought that the term "sustainable
draw" was being used loosely; and rather than being
sustainable, it was merely a way to conserve savings as
long as possible.
Mr. Teal agreed and reiterated that there was a big
difference between a sustainable draw and a sustainable
budget. The sustainable draw was too small to render a
sustainable budget.
Vice-Chair Micciche thought a sustainable draw would be
able to deliver the same quantity or percentage of draw in
perpetuity, but neither bill provided such.
Co-Chair MacKinnon commented that a sustainable draw in the
bill was predictable under the current financial
circumstances in the state. She referred to the concept of
a "glide path" so there was not an immediate crash in the
economy or sharp decline in state services. She discussed
spending scenarios using new data.
Vice-Chair Micciche referred to bringing down the cost of
government and thought that additional revenue sources
should be part of the discussion.
Co-Chair MacKinnon asserted that the committee had informed
the public it would examine the budget, and consider the
most impactful legislation to address the revenue
shortfall.
Senator Bishop emphasized the need for a healthy oil, gas,
and mining program.
Senator Olson discussed Mr. Teal's comment about a possible
shortfall in the ERA and the eventuality of the dividend
coming from the GF. He wondered if, considering future
predictions, the model was sustainable. Mr. Teal thought
that dividend issues would be perceptible when the state
turned to a model.
10:09:27 AM
Mr. Teal turned to slide 14, "PFPA vs. POMV: Which is
Better?":
1. A fixed draw is highly dependent on actually
attaining the projected rates of return and projected
oil revenue.
2. Those projections look forward 20 years--hence the
need for review of sustainability of the draw.
3. We are not very good at projecting rates of return,
and even worse at projecting oil revenue.
4. POMV looks backwards 5 years and the payout is
based on actual events rather than on projections.
5. Ask yourself this question: Is your hindsight
better than your foresight?
6. Lest that question appears to be one-sided, note
that POMV fails the stability test-if royalties and
production tax revenue jump $4b and fill the deficit
without the need for a payout, the payout still occurs
and there would be a tendency, or at least a
possibility, of spending the windfall.
7. Is there a hybrid that offers the comfort of
hindsight offered by POMV and the stability of PFPA?
Mr. Teal referred to economist Dr. Scott Goldsmith, of the
Institute of Social and Economic Research, University of
Alaska Anchorage; and said many people considered his model
(in which spending could be approximately $4.5 billion) as
a sustainable plan. He reported that Dr. Goldsmith had
testified in the Senate State Affairs committee that the
model had used a year-old oil forecast, and under the fall
forecast the same calculations showed a sustainable level
of spending closer to $2.7 billion.
Co-Chair MacKinnon asked about the lowest dividend that had
been paid to residents. Mr. Teal did not recall, and
referred to a graph within the governor's proposal that
showed dividends over the years and reflected the
volatility and low dividends in the early years of the
fund.
Mr. Teal continued to discuss slide 14, and stated that the
projections were critical. He compared that the PFPA looked
forward 20 years and projected rates of return; while the
POMV looked backwards 5 years, with a self-adjusting payout
based on actual events rather than projects. He commented
that he would much prefer to consider historical earnings
rather than projected earnings. He did not want his comment
to be perceived as being entirely in favor of the approach
of SB 114, and reminded the committee that the governor did
not take the POMV approach because he considered that it
failed the stability test. He stated that if the price of
oil spiked in the short term, the state would continue to
get the payout even if the oil revenues filled the deficit.
He mused that a payout on top of other revenue would
possibly be spent rather than saved. He questioned if there
was some way to combine the two approaches to take
advantage of the hindsight of POMV, and the stability of
the PFPA.
10:13:53 AM
Co-Chair MacKinnon asked about when Alaska's Clear and
Equitable Share (ACES) tax and progressivity were in effect
and wondered if during that time the state had spent more
than it saved. Mr. Teal answered in the negative, and
recounted that there had been a zero balance in the SBR,
and the state had owed over $5 billion to the CBR. The $5
billion was repaid and the fund balance had been built up,
as well as a substantial balance in the SBR. He had not
compared how much was saved with how much was spent during
the years in question.
Co-Chair MacKinnon considered that the state had saved more
than the growth in government. She believed that in times
of surplus, past legislatures had saved more and
contributed to the permanent fund corpus. She wanted to
retrospectively thank the members that had made the choice
to save while in a time of surplus.
Senator Olson stated that he had been on the Senate Finance
Committee during the time being discussed. He furthered
that 16 years previously the CBR had been down to nearly $2
billion, and the legislature had built it up to $17
billion. He agreed with Co-Chair MacKinnon regarding past
legislatures putting funds in to savings.
Co-Chair MacKinnon recognized that everyone was working
together, and thought that when blame was placed it took
energy away from solving the problem.
Mr. Teal clarified that he was not trying to blame anyone.
He made the point that the governor thought stability was
important because there was a tendency to spend money when
it was available, and therefore favored a sustainable,
fixed payout and tried to avoid volatility in the GF. He
asserted that was the reason the governor did not choose
the POMV option.
10:17:55 AM
Senator Bishop recalled that Mr. Teal had testified in
front of the committee a year previously. He mentioned
spikes in spending and catching up on deferred maintenance
with capital projects. He wanted to see the legislature and
the administration come together and implement a
sustainable plan to drive down deferred maintenance. He
thought deferred maintenance of state assets had been a
major cost driver in state budgets in times of economic
health.
Co-Chair MacKinnon associated herself with Senator Bishop's
comments and furthered that there had been a "spike and
spend" as well as a gradual increase on operating budget
items. She thought the largest volatility was when there
was more funding available.
Vice-Chair Micciche largely agreed with the two previous
speakers, and suggested that before catching up on deferred
maintenance it was important to analyze which state
services the state could afford to continue delivering.
Additionally he wondered which assets attached to the
services should no longer be owned by the state.
Senator Dunleavy commented that graphs had shown that in
times of greater income, the state had spent more and saved
more.
10:20:06 AM
Co-Chair Kelly commented on the large investment into the
unfunded liability for the Public Employees' Retirement
System (PERS) and the Teachers Retirement System (TRS),
which had accounted for a large portion of the spikes in
past spending. He thought that accounting for inflation and
population growth, the previous year's spending was the
lowest since 2003. He thought that the legislature was at
the point where it must interact with the administration
differently. He discussed unallocated reductions and
suggested that the governor had been unwilling to support
them. He considered that the legislature could be likened
to a board of directors, and it was the responsibility of
the executive to manage the administration. He thought it
was time to make further reductions in spending, including
unallocated reductions. He emphasized the need for the
administration to specify areas for cuts. He referred to
the federal government blocking access to oil production
and development in the state.
10:24:26 AM
Mr. Teal referenced slide 16, "Decision Points," which
depicted a cash flow diagram with decision points indicated
numerically on cash flow the diagram.
Mr. Teal reviewed slide 17, "Decision Points":
1. Do you direct volatile revenue to the GF or the
ERA? Trade-off: fixed draw vs. "good enough"
stability. This choice is made once you decide on #4.
2. Reduce dedication to 25%? Do you save while
harvesting? Not a critical decision-it affects 10s of
millions vs. 100s of millions under decision #3.
3. Inflation Proofing--Do you want greater protection
of the permanent fund if it increases the risk of
failing to have the cash needed for a payout? Once
money is in the PF, it can never be spent, while money
in the ERA can be spent any time.
4. The payout is your first critical decision. Trade-
off: do you favor a forward-looking, manual adjusting
fixed draw that promises greater stability, or a
backward-looking, self-adjusting draw that offers less
stability? Spending restraint under high oil prices is
a key element of PFPA. But POMV's weakness in that
area can be overcome by limiting the payout to prior
year appropriations (plus some room for growth, if
desired). The POMV payout can be turned into a
spending limit.
If you chose a variable draw, what payout rate will
you choose? Trade-off: a lower rate means less money
now, but it increases growth of the ERA and other
reserves so could mean larger payouts in the future.
4.5% of $70b is greater than 5% of $60b.
Mr. Teal noted that the Senate State Affairs Committee had
incorporated a spending limit into SB 114, and opined that
there were other limits that were considered that may have
been more effective.
Co-Chair MacKinnon referred to the spending limit that had
been discussed the previous day, and highlighted a question
by Senator Hoffman regarding the combined capital and
operating budgets. She mentioned greater spending on
deferred maintenance as discussed by Senator Bishop, as
well as investing with one-time funds for a one-time
project.
Mr. Teal stated that there were many considerations, and
many types of limits to implement by percentage or
otherwise.
Co-Chair MacKinnon considered the bills before the
committee, and wondered if they would prevent a large
project (such as the AKLNG project) from going forward.
Mr. Teal thought it was possible.
10:28:30 AM
Mr. Teal continued to discuss slide 17. He read from slide
18, which was a continuation of slide 17:
But a lower payout rate means larger deficits in the
short-term-do you want to reduce spending or increase
taxes to fill the gap, or do you have sufficient
reserves to fill deficits? The longer you wait to act,
the lower your reserves and the higher the risk of
failure.
Mr. Teal explained that the choice between types of draw
would determine inter-generational equity.
Co-Chair MacKinnon referenced a conversation related to a
challenge to the state's ability to pay out a dividend. She
discussed the method of calculating the amount of a
dividend, and referred to negative earnings. She thought
that under the current dividend formula, there had been one
month in which the PFD was not scheduled to be paid. She
recalled that the market has risen enough during the month
that it triggered the formula to be able to provide a
dividend.
Mr. Teal affirmed that in 2009, the permanent fund had
suffered large losses and had almost been unable to pay a
dividend. All of the losses had diminished the ERA, where
the earnings accumulated. He stated that under the current
formula it was possible that the state would not be able to
pay dividends. He referred to statutory net income, and
stated that it did not take market recovery to pay out the
dividend. The permanent fund could have sold stock and
earned positive gains in order to be able to pay dividends.
Co-Chair MacKinnon commented that the current
administration was relatively new, and perhaps had not
observed the long-term volatility of state finances. She
thought the fixed draw had its own set of circumstances
that could cause problems.
Mr. Teal recalled that when the state had difficulty paying
dividends it was during high oil prices with high revenue
for the state. He pointed out that conversely, the state
had been paying record high dividends when the state's
fiscal health was diminished. He emphasized that the
current method of calculating dividends did not reflect the
fiscal health of the state.
10:34:13 AM
Senator Bishop quipped that a Fortune 500 company would not
use the same method and expect to stay in business. Mr.
Teal termed the circumstance "record dividends with record
losses."
Mr. Teal continued discussing slide 18:
5. Second critical choice is the amount and source of
dividends. This applies to #5 and #6. Recall that IP
can never be spent, but it spins off spendable
earnings in the future. Once money is spent on
dividends, it can never be recovered. Trade-off:
higher dividends mean lower reserves and greater risk
of unfillable deficits (or higher taxes or reduced
spending on things other than dividends). This trade-
off exists regardless of the source of dividends.
Another trade-off: dividends and the economy.
6. The source of money for dividends may not be a
critical choice in terms of maintaining healthy
reserves, but it is a decision you will need to
debate. Dividends now reflect the health of financial
markets rather than the fiscal health of the state.
Basing dividends on royalties (PFPA and SB114) would
bring in short-term fiscal health, while basing
dividends on reserve balances (HB224) would bring in
long-term fiscal health. Why not do all three? That
would provide a stable, guaranteed dividend with a
kicker.
7. And 8. Deciding what to do with money that remains
after the deficit is filled and dividends are paid is
hardly worth talking about. You can set up rules or
leave that decision to future legislatures.
Mr. Teal displayed a model that depicted four interactive
graphs (copy not on file). [The graphs represented model
projections of PFDs, budget reserves, and the permanent
fund]. He addressed the first graph in the upper left. He
discussed how different draw scenarios would affect the
graph being examined. He showed a graph depicting the
current cash flow model, which showed an unplanned draw
from the ERA in red. He noted that the model was based on
the assumption that if revenue did not reach expenditures,
funds would be drawn from the CBR to fill the deficit. The
model showed the CBR completely expended in FY 18. He
continued that when the CBR was gone, the state would turn
to the ERA to draw funds. If the state continued to spend
in the same fashion, it would expend the ERA. He noted that
there was a large corpus in the ERA, which would still spin
off earnings available to spend after inflation-proofing
and dividends.
10:39:00 AM
Mr. Teal postulated that thought the easiest way to
evaluate a plan was to examine reserves.
Co-Chair Kelly asked about values on the models. Mr. Teal
explained that the point of the model was the ability to
change variables. He explained that if reserves were
declining, it meant the state had a structural deficit,
which would eventually lead to a broken plan. He discussed
the second graph, "Budget Reserves" and referred back to
the first graph, outlining a scenario under which the state
would have no choice but to increase revenue or reduce
expenditures. He discussed the timeline of the status quo
scenario, and stated that reserves would be gone in FY 22.
Mr. Teal clarified that the numbers represented were
gleaned from the fall forecast. He updated the interactive
graph on budget reserves to reflect the recently published
spring forecast, which showed the diminishment of the CBR
by FY 17, as well as the diminishment of the ERA by FY 20.
Co-Chair MacKinnon asked if the model projected a status
quo budget reduced by approximately $500 million.
Mr. Teal adjusted the model and stated that if the
committee passed an operating budget similar to one that
the House and Senate had adopted and cut $500 million, the
reserves did not increase for very long.
Co-Chair MacKinnon asked if the projections reflected the
one percent drop in interest rate. Mr. Teal answered in the
negative, and adjusted the graph to reflect the drop in
interest rate. The graph showed exhaustion of reserves and
expenditures substantially higher with no reserves to fill
the deficit. He reiterated that the choice was to cut to
the level of revenue, or raise revenue to the level of
expenditures.
10:44:30 AM
Vice-Chair Micciche asked if the hypothetical scenario
included a $500 million cut. Mr. Teal verified that the
current variables included the proposed $500 million in
cuts and the spring revenue forecast.
Co-Chair MacKinnon drew attention to the idea of moving
management of the CBR to the permanent fund. She stated
that there was a rate of return for the CBR required by
statutes. She wondered if co-locating management of the CBR
with the permanent fund would increase efficiencies and
garner a higher rate of return. She noted that the move
would take a structural change in statute.
Senator Hoffman asked for a demonstration of how the
state's finances would appear if $2 billion was
hypothetically cut from the budget.
Mr. Teal adjusted the interactive graph to reflect a $1
billion cut from the FY 17 governor's amended budget, which
showed budget reserves extending further.
Co-Chair MacKinnon asked Mr. Teal to adjust the graphs to
view the governor's proposal [SB 128] under the spring
forecast.
Mr. Teal stated that the governor's plan and SB 114 both
accomplished the goal of providing a "glide path" by
eliminating inflation-proofing and reducing dividends. He
stated that if the state stopped inflation-proofing,
reserves were extended but did not solve the fiscal
problem. If the state were to stop dividends, then there
would be a sustainable budget. He viewed the model with the
spring forecast. He stated that re-plumbing was not
necessary to accomplish what was demonstrated. The
legislature could eliminate inflation-proofing and
eliminate dividends, which he acknowledged was complex.
10:50:10 AM
Mr. Teal continued to examine the interactive models
reflecting the governor's plan, which included dividends
based on 50 percent of royalties and a fixed draw of $3.3
billion. He observed that revenue had declined below $2
billion. Even under the much lower spring forecast, the
$3.3 draw gave the state a glide path, much lower
dividends, continued CBR draws, and unplanned draws from
the ERA. Mr. Teal continued inserting variables such as
reduction of long-term interest rates.
Mr. Teal examined the models reflecting SB 114. He offered
to return to the committee or meet with individual members
to review the model.
Co-Chair MacKinnon stated that the committee would be happy
to invite Mr. Teal back for further testimony, and members
could meet with him individually to gain further
understanding of the models. She referred to the decision
points he had discussed earlier.
Co-Chair MacKinnon discussed the public testimony that
would happen later in the day. She handed the gavel to
Senator Micciche.
10:54:02 AM
RECESSED
1:35:21 PM
RECONVENED
Vice-Chair Micciche discussed the afternoon schedule. He
recognized former Senator John Binkley, former Lieutenant
Governor Fran Ulmer, former Representative Tom Brice, and
Senator Dennis Egan in the gallery.
^PUBLIC TESTIMONY: JUNEAU
1:36:49 PM
FRAN ULMER, SELF, JUNEAU, testified about the fiscal gap
facing the state. She was testifying as a long-time state
resident, and recounted that her first job in Alaska was
working as an attorney for the legislature. She continued
that she had worked for former Governor Jay Hammond, and
was present during the time the permanent fund was created.
She reminded the committee that when the permanent fund was
being formed there had been a great deal of discussion
concerning the eventuality of oil revenues declining, and
thought it was important for the legislature to provide a
long-term fiscal regime that would give comfort to
businesses and families in Alaska. She shared that the
previous day the Rasmuson Foundation had called a meeting
of all former governors and lieutenant governors of the
state to discuss the fiscal gap and see if the group could
make a recommendation for action during the legislative
session. She recounted that seven bi-partisan attendees
were present and able to reach consensus. She read from a
consensus statement that was a result of the meeting (copy
on file):
The current state deficit is the most significant in
state history.
1. We do not have enough revenue to pay for the
government we currently have. We have to do some
significant changing in how we do business.
2. We need a combination of cuts and new revenues.
3. The Permanent Fund was created to help pay for
essential state services when oil declined.
4. Everybody benefits from state services and everybody
should help pay for them. It is important for people
to help pay for governments so they are connected to
how government funds are spent.
5. We can protect the Permanent Fund dividend for the
long term if we commit to use a share of Permanent
Fund earnings to make a significant reduction in the
deficit.
6. Making decisions today to adopt a sustainable,
balanced budget is essential. The longer we wait,
the fewer options we have.
Ms. Ulmer relayed that the statement was signed by former
Governor Tony Knowles, former Governor Bill Sheffield,
former Governor Frank Murkowski, former Lt. Governor Mead
Treadwell, former Lt. Governor Loren Leman, former Lt.
Governor Stephen McAlpine, and herself. She relayed that
former Lieutenant Governor Mead Treadwell had intended to
join her in testifying but had been unable to attend in
person and would call in. She asserted that the consensus
statement was a bipartisan action. She thought it was
incredibly important for action to be taken in the current
session.
1:42:09 PM
FRANK BERGSTROM, SELF, JUNEAU, recounted that he had
received his PFD all the years he had lived in Alaska. He
expressed that the growth of the permanent fund was
wonderful and considered that it should be used to pay for
government.
1:43:42 PM
MARY BECKER, MAYOR, CITY AND BOROUGH OF JUNEAU, indicated
that the City of Juneau had passed a resolution (copy on
file) that supported using the permanent fund earnings to
help create a sustainable balanced budget.
Vice-Chair Micciche thanked Ms. Becker for serving as
Acting Mayor for the City of Juneau.
1:44:51 PM
ERIN WALKER TOLLES, EXECUTIVE DIRECTOR, CATHOLIC COMMUNITY
SERVICES, JUNEAU, testified in support of using permanent
fund earnings to fund state government. She discussed the
function of Catholic Community Services (CCS), and noted
that its funding was a combination of federal, tribal, and
city funds. She recounted that the agency was feeling the
effects of the recent budget cuts and preparing to receive
less money from communities. She stated that the board of
directors of CCS had passed a resolution (copy on file)
urging the committee to use earnings from the permanent
fund to fund the budget. She noted that CCS had already had
to cut days of some of its senior centers in Southeast
Alaska. She discussed the impact of the cuts on elders,
families, and children.
1:47:09 PM
BILL CORBUS, SELF, JUNEAU, testified in support of using
the ERA to help bridge the state's deficit. He relayed that
he had been following SB 114 and SB 128 through the
committee process and thought he was up to date on all the
changes to the bills. He was in support of using the
permanent fund earnings reserve to bridge the fiscal gap.
He thought the funds were the most important component that
the state had at its disposal to make up the difference
between state spending and state revenue. He was concerned
that the cash flow that came from the statutory plan for
using the ERA plus the new dividend plan were adequate so
that remaining funds (spending cuts and taxes) were
realistically able to bridge the fiscal gap. He emphasized
his support for using the ERA, and particularly that the
change be accomplished within the current year.
1:49:31 PM
TOM BRICE, SELF, JUNEAU, testified in favor of SB 114 and
SB 128. He referred to October 2, 2014; which was the last
day the price of oil was above $90/bbl. He referred to
having experienced a similar budget situation in the 1990s,
and thought the decisions the legislature were faced with
were difficult. He pointed out the substantial difference
in oil production between the two time periods. He thought
the governor's approach was a cornerstone of how to solve
state fiscal issues without massive taxes or massive
further cuts. He supported using renewable resources
(finances) to cover the cost of what oil previously funded,
and thought the bills would accomplish the task.
1:51:59 PM
JOHN BINKLEY, SELF, JUNEAU, testified in favor of utilizing
a portion of permanent fund earnings to pay for state
government. He professed that his grandparents came to
Alaska in the late 1800s, and had participated in the gold
rush. His parents had worked through the depression era,
and worked in Alaska during World War II. He discussed the
pre-oil economies and the opportunities in the 1970s, and
his families business. He asserted that his generation had
greatly benefitted from the oil development in the state.
He emphasized the importance for the state to set a course
that would benefit future generations, to include a
sustainable level of government that provided an adequate
level of services to the people of Alaska. He supported
using a portion of the permanent fund earnings. He
expressed support and praise for the way the legislature
had conducted itself while approaching the fiscal problems
facing the state recently.
1:56:36 PM
Senator Bishop asked Mr. Binkley if he still had an
airplane. Mr. Binkley answered in the negative.
1:57:22 PM
DON ETHERIDGE, ALASKA AFL-CIO, JUNEAU, testified in support
of utilizing the permanent fund earnings to pay for state
government. He recounted that the leadership of his
organization had voted to fully support using the permanent
fund earnings to fund state government.
1:58:43 PM
AT EASE
1:59:25 PM
RECONVENED
Vice-Chair Micciche informed the committee that there were
no additional testifiers signed up, and the committee would
take an at-ease.
1:59:57 PM
AT EASE
2:17:08 PM
RECONVENED
JAKE TODD, SELF, JUNEAU, discussed the possibility of
paying taxes and the possibility of a decreased permanent
fund. He relayed that he was a teacher of high school
history. He had reviewed fiscal information and thought the
problem seemed almost insurmountable. He encouraged
bipartisan work on the budget. He thought that a
combination of cuts, taxes, diminished PFDs, and fewer
infrastructure projects could help solve the budget gap.
^PUBLIC TESTIMONY: BETHEL, NOME, KOTZEBUE, UNALASKA
2:19:39 PM
BEVERLY HOFFMAN, SELF, BETHEL (via teleconference),
testified in support of capping the permanent fund at
$1000, creating an PFD opt-out option for residents, and a
state income tax. She expressed concern about the budget
situation. She discussed state employee wages and reported
that non-resident wages had increased. She supported using
a portion of the permanent fund earnings. She supported
cuts to government, with the exception of education and
health programs.
2:22:48 PM
REYNE ATHANS, SELF, BETHEL (via teleconference), testified
in support of capping the permanent fund. She relayed that
she had originally moved to Bethel as a teacher, and had
worked in the cultural center at the University. She echoed
the comments of the previous speaker and encouraged the
committee to work for compromise. She supported a cap and a
floor on the PFD. She thought funds above a certain amount
should be dedicated to education and public services. She
supported taxation in the form of a straight fee by
percentage.
2:24:59 PM
MIKE MARTZ, SELF, BETHEL (via teleconference), spoke in
favor of using permanent fund earnings. He stated that he
supported a reasonable method of using the permanent fund
earnings, and supported a PFD floor of $1000 as contained
in SB 114. He thought citizens should pay for state
programs, and supported reducing the PFD or the institution
of an income tax. He considered that repealing the income
tax had been a mistake, and thought that non-resident
workers should be taxed along with residents of the state.
2:27:34 PM
SUE STEINACHER, SELF, NOME (via teleconference), testified
in support of structuring the permanent fund in order to
provide greater dividends. She spoke in support of an
income tax. She thought that changing the PFD
disproportionately affected the poor, particularly in rural
areas of the state. She thought that lowering or abolishing
the PFD was unconscionable unless an income tax was
instituted first. She discussed taxation of non-resident
workers. She did not support a state sales tax. She
discussed the cost disparity between rural and urban
Alaska.
Vice-Chair Micciche observed that there were no additional
people signed up for public testimony at this time.
2:30:53 PM
AT EASE
3:06:44 PM
RECONVENED
^PUBLIC TESTIMONY: BARROW, TOK, DELTA JUNCTION
3:06:44 PM
Vice-Chair Micciche reconvened public testimony. Since
there were no callers online he invited a person from the
audience to testify.
3:07:00 PM
LAURA STATS, SELF, JUNEAU, indicated she had been watching
committee proceedings online. She remembered that Senator
Murkowski had advised Alaskans to be aware of what was
happening with the budget. Ms. Stats encouraged members of
the committee to be bold and brave with their choices. She
believed that permanent fund earnings should be used to pay
for government rather than the corpus. She also supported
an income tax of 1.5 percent to 2 percent. She opined that
the public looked to government to provide a strong
education system and health and welfare services for the
vulnerable. She wanted to see people remain in Alaska. She
believed people had been fortunate to receive a dividend
and discouraged bringing a vote before the public because
of the complexity of the issue. She thanked committee
members for their time.
Vice-Chair Micciche indicated that the committee would
resume public testimony at 3:30 pm.
3:11:26 PM
AT EASE
3:36:03 PM
RECONVENED
^PUBLIC TESTIMONY: KETCHIKAN, WRANGELL, PETERSBURG
3:36:24 PM
JULIE DECKER, SELF, WRANGELL (via teleconference),
testified in support of some type of restructuring of the
permanent fund earnings, for a smaller dividend payment,
and using the earnings to fund state government. She had
been a resident of Wrangell for over 20 years. Given all of
the information she had been listening to, which was
provided by the administration and the Rasmuson Foundation,
she supported four actions. She supported additional cuts
in the range of about 10 percent across the board. As a
business owner, she thought 10 percent was manageable. She
also supported something like SB 114 or SB 128. She
encouraged the implementation of an income tax and a
revision of oil tax credits. She urged legislators to take
action. She thanked the committee.
Vice-Chair Micciche complimented Ms. Decker for her
detailed testimony.
3:39:39 PM
DAVID OTNESS, SELF, CORDOVA (via teleconference), mentioned
seeing a pattern in wanting to use the permanent fund at
times where oil prices were low. He believed the permanent
fund was sacred and should be kept intact as a trust for
future Alaskans. He discouraged a cap on the dividend and
encouraged an income tax rather than subsidizing the
economy at an unsustainable level. He also encouraged the
revision of oil tax credits. He hoped the legislature would
hold off getting into the permanent fund. He thought there
was room for further discussion. He thanked the committee.
3:43:01 PM
^PUBLIC TESTIMONY: SITKA, CORDOVA, VALDEZ
3:43:01 PM
Vice-Chair Micciche indicated there were no testifiers
online. The committee would check in to see if anyone was
online at 4:00 pm and if not would remain at ease until
4:15 pm.
3:43:40 PM
AT EASE
4:19:25 PM
RECONVENED
^PUBLIC TESTIMONY: STATEWIDE TELECONFERENCE - OFFNET SITES
4:19:58 PM
LYNETTE CLARK, SELF, FAIRBANKS (via teleconference), spoke
against both pieces of education. She remarked that Senator
Coghill had declared that the current economy was in flux.
She urged the committee to table the bill until the
following session. She felt that the three previous
legislatures were the reason for the current fiscal crisis.
She remarked that the permanent fund should not be used to
pay for the spending enacted by previous legislatures.
4:22:29 PM
GLEN MARUNDE, SELF, NORTHWAY (via teleconference), shared
that he had received every PFD check. He spoke in support
of both pieces of legislation. He felt that the state was
able to pay for the state services.
4:23:23 PM
DAN APTED, SELF, ANCHORAGE (via teleconference), testified
against both pieces of legislation. He felt that that the
proposal was a regressive tax. He urged the committee to
offer an income tax. He felt that eliminating the PFD would
be detrimental to the most vulnerable residents of the
state. He offered the idea of an increased property tax. He
also stated that the out of state fishermen should be
taxed.
4:25:32 PM
JANET MCCULLOUGH, SELF, PALMER (via teleconference), spoke
against both pieces of legislation. She felt that the bills
would do harm to Alaska's economy. She shared that her
family used the PFD to pay for medical costs and increased
heating costs. She felt that the state spending should be
cut further before there was a consideration for cutting
the PFD to instituting an income tax.
4:26:57 PM
BERNIE HOFFMAN, SELF, FAIRBANKS (via teleconference),
testified against SB 114 and SB 128. She mentioned a town
hall meeting she had attended. She felt that the
legislators were not listening to Alaskans, and felt that
Alaskans wanted a state income tax. She listed her ideas to
balance the budget: institute a 5 percent state income tax;
repeal SB 21; make 20 percent cuts across the board;
institute sales tax with exemptions on food, healthcare,
prescriptions, and water; double taxes on cigarettes and
alcohol; triple taxes on gasoline; freeze the Susitna Dam
project and the Knik road project; and tap the permanent
fund earnings only for education. She suggested putting
triggers in place for reductions of the aforementioned
measures in the event that the price of oil went up again.
She reminded the committee to listen to Alaskans.
4:28:42 PM
JAMES SQUYRES, SELF, RURAL DELTANA (via teleconference),
testified against SB 114 and SB 128. He felt that the
budget should be reduced further. He felt there was already
substantial state income. He did not believe that the
earnings reserve would be depleted by 2020. He discussed
inflation proofing.
4:31:00 PM
MIKE SWAIN, SELF, ANCHORAGE (via teleconference), testified
against both pieces of legislation. He stressed that the
PFD had contributed to a significant portion of his income.
He mentioned the concept of sovereign wealth, and discussed
the configuration of the permanent fund and its earnings.
He thought there needed to be separation between the
legislature and the activities of the PFC. He thought the
legislature could utilize the POMV model, and did not think
using portions of the fund would solve the budget problem.
He did not want the PFC to appear as an arm of the state's
government.
4:33:58 PM
ED MARTIN, SELF, HAWAII (via teleconference), felt that the
government had failed to utilize revenue from natural
resources. He opined that taxation was nothing more than
the redistribution of wealth, and did not think the concept
of taxation was a value of the Republican Party. He did not
support changing the PFD. He proposed a plan to include
land vouchers for all Alaskans. He mentioned current recall
efforts. He discussed the Alaska constitution and the
original description of the PFD. He was opposed to using
the permanent fund to fund government.
4:38:22 PM
ROSS MULLINS, SELF, CORDOVA (via teleconference), felt that
the bills were a good compromise to sustain state
government. He stated that he was 80 years old, and he had
lived in Cordova since 1963. He felt that cutting a way to
fiscal balance would have significant impacts on all of the
services that Alaskans had come to rely on. He thought the
bills offered a good compromise to help support state
government. He felt that continuing the growth of the
permanent fund corpus would allow prosperity in the future.
He felt that continued cuts were imprudent. He stressed
that the people that came to Alaska to work should be
subject to an income tax. He did not support the creation
of a state sales tax. He thought a state income tax would
be more progressive than a sales tax. He thought a
compromise could be reached between the plans laid out in
the two bills.
4:43:08 PM
GEORGE PIERCE, SELF, KASILOF (via teleconference), spoke
against both pieces of legislation, but felt that SB 128
was the better of the two. He remarked that former
testifiers had spoken to some empty seats in the room. He
stressed that the PFD was the only money that he received
from the sale of the state's resources. He felt that many
of the large state projects should be cut such as the Knik
Arm Bridge and the Juneau Access Road. He felt that the oil
tax credits should be eliminated. He urged the committee to
cut credits to corporations. He felt that the state should
not fund nonprofits. He opposed the state government's use
of savings to fund state government. He felt that there
should be a reorganization of oil taxes and credits.
Vice-Chair Micciche asked Mr. Pierce to finish his
testimony. Mr. Pierce urged the committee to leave the
permanent fund alone.
4:47:02 PM
TOM LAKOSH, SELF, ANCHORAGE (via teleconference), testified
against the bills. He echoed the comments of the previous
testifier. He thought there would be a constitutional
challenge to the proposed use of the PF. He felt that there
should be a corporate income tax, a carbon tax, a personal
income tax, and a seasonal income tax. He felt that the PFD
should remain intact or be increased. He stressed that the
state should diversify its economy, and felt that the PFD
diversified the state's economy. He suggested distribution
of the PFD on a debit card.
4:50:16 PM
MEAD TREADWELL, SELF, ANCHORAGE (via teleconference),
testified in support of the bills. He shared that he had
recently attended a meeting of former governors and former
lieutenant governors with the Rasmuson Foundation, who had
developed a six-point statement (copy on file). He
highlighted that the group was bipartisan and had varying
viewpoints. He supported maintaining the PFD while
utilizing permanent fund earnings. He testified against
new taxes for the state. He stressed that there was not
enough revenue to fund the current government.
Former Lt. Governor Treadwell continued, and felt that the
permanent fund was created to pay for state services and
help to pay for government. He believed that the permanent
fund needed to be protected for the long term. He remarked
that the legislature must adopt a reasonable and balanced
budget. He highlighted that everyone benefitted from state
services, therefore everyone should help pay for them. He
thought it was important for individuals to help pay for
government so that they were connected to how government
funds were spent. He thought the approach of SB 114 was an
important step. He listed the attendees of the meeting, and
thought that there had been a general consensus. He
referred to a graph shown by former Governor Frank
Murkowski, depicting the growth of the state GF budget. He
thought new taxes could have a damaging effect on the
economy that was not fully understood. He thought that
using the permanent fund earnings for inflation proofing, a
PFD, and supporting the state budget was a fair approach to
take.
4:56:03 PM
AT EASE
5:18:02 PM
RECONVENED
Vice-Chair Micciche discussed the following day's agenda.
Senator Bishop thanked the individuals who testified. He
remarked that public comments had an effect on the state
process.
SB 114 was HEARD and HELD in committee for further
consideration.
SB 128 was HEARD and HELD in committee for further
consideration.