Legislature(2015 - 2016)BUTROVICH 205
02/23/2016 09:00 AM Senate STATE AFFAIRS
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| Audio | Topic |
|---|---|
| Start | |
| SB128 | |
| SB114 | |
| SJR1 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| += | SB 128 | TELECONFERENCED | |
| += | SB 114 | TELECONFERENCED | |
| *+ | SJR 1 | TELECONFERENCED | |
| + | TELECONFERENCED |
SB 114-PERM FUND: EARNINGS, DEPOSITS, ACCOUNTS
9:31:15 AM
CHAIR STOLTZE announced the consideration of SB 114.
SENATOR LESIL MCGUIRE, sponsor of SB 114, related that the chair
wishes to have a new committee substitute (CS) and she would
talk about the points she would like to be included in that CS.
She began by revisiting the five principles she had in mind when
crafting SB 114: the solution should retain a dividend, reduce
the volatility in the state budget, clearly expose the size and
cost of government, create an enduring solution, and be simple
and easy to implement.
She noted that SB 114 is the only bill that guarantees a $1,000
dividend. It strikes a balance between the amount that goes into
the general fund versus the amount that goes into dividends and
benefits the people the most. She said SB 128 reduces volatility
and does not purport to fill the $5.3 budget gap. She concluded
that the bill is understandable.
9:36:13 AM
She showed a graph depicting Alaska's fiscal situation comparing
spending with how the state is paying for government. Most of
the $5.2 billion in government costs is being paid for by
savings. She highlighted the fiscal gap, noting that only $1.8
in revenue is being earned.
9:38:08 AM
She listed the three proposals that have been introduced to the
legislature, all of which use Permanent Fund earnings.
CHAIR STOLTZE asked about a House version of SB 114.
SENATOR MCGUIRE replied that HB 303 was introduced in the House.
She noted that another option to access the corpus of the
Permanent Fund is to offer a Constitutional Amendment, but it
requires a vote in the next general election. Other options are
to reduce spending and size and cost of government or to raise
new revenue. She cautioned that the people will be angry if it
comes to this process.
9:41:40 AM
CHAIR STOLTZE commented that a Constitutional Amendment would be
putting a legal structure on the process.
SENATOR MCGUIRE concurred with Senator Stoltze. She said the
discussion about the constitutionally-provided Permanent Fund
and the statutorily-enacted ERA has been on-going for two
decades. The legislature has declined to go into the ERA,
however, there are differences about whether the fund and the
ERA should be enshrined together in the constitution. She
emphasized that there are only a few ways to reach a government
above the size of $1.8 billion and the state cannot wait until
the CBR and ERA are depleted to decide which ways to use.
CHAIR STOLTZE said voters might be more inclined to vote for
something after budget cuts are made first.
SENATOR MCGUIRE emphasized the consequences of waiting.
9:45:12 AM
She discussed other methods of reducing spending, size, and cost
of government to match current revenues and raise new revenue,
comparing current revenues and those raised under SB 128. She
pointed out that there are limits to the amount raised and costs
in setting up new taxes. She summarized that $3 billion in cuts
would still be needed.
She shared that all three proposals have been vetted in the
Callen Report to the APFC Board, which analyzed the impact of
the proposals to the Permanent Fund. Callen does not recommend
needing major asset reallocations for the Permanent Fund for any
of the three proposals and they predict that the fund should
remain viable.
CHAIR STOLTZE noted that the information was provided at the
request of Senator McGuire.
SENATOR MCGUIRE said the information lets everyone know that the
plans do not erode the value of the fund.
9:47:51 AM
She reviewed graphs of cash flow regarding how government is
funded currently and how it would be funded under SB 114. She
emphasized the simplicity of SB 114.
CHAIR STOLTZE asked if SB 114 has had legal questions.
SENATOR MCGUIRE noted no legal concerns with SB 114. She
emphasized that every plan has pros and cons. She reiterated
that SB 114 guarantees a $1,000 dividend, contains the potential
upside of 75 percent of royalties, and is simple.
9:50:06 AM
CHAIR STOLTZE pointed out that SB 128 requires a 3/4 vote to
drain the CBR to protect it.
SENATOR MCGUIRE agreed. She added that it also purports to
create a new general fund, which is untested and has "sweep
ability" and "retrieve ability" issues. She noted the
legislature has generously inflation-proofed the corpus a total
of $16 million.
9:52:10 AM
She addressed how SB 114 guarantees the $1,000 dividend. She
showed a graph of the history of PFDs.
She highlighted what happens to the dividend if none of the
Permanent Fund bills are adopted.
She explained how the Percentage of Market Value (POMV) approach
reduces the amount of volatility in the commodity of oil. She
suggested including a spending cap of 120 percent and said she
will offer it as an amendment.
9:54:33 AM
She showed how the legislature has addressed inflation proofing
by transferring a total of $16,235.5 million. She said under SB
114 there would be an additional 1.9 percent and it is a policy
call whether or not to divide it between dividends and the cost
of government or transfer it back to the corpus. She said she
will propose an amendment such that when the total value of the
ERA exceeds the target amount of four times the current year's
transfer, the excess shall be transferred to the principle of
the fund for inflation proofing.
9:56:01 AM
She summarized the cost of doing nothing and how the PFD would
be affected and what the budget reserves would look like. In
FY19 - FY21 the legislature would have to make the decision
whether to continue to pay a dividend or fund government. She
opined that the legislature will act with a combination of
budget cuts, changes to oil tax credits, and new revenues, as
well as with a bill such as SB 114.
SENATOR MCGUIRE concluded that SB 114 will add up to $2 billion
to the general fund. It guarantees an annual $1,000 dividend,
reduces volatility in the budget, grows the Permanent Fund,
maintains buying power in the corpus of the fund, and maintains
downward pressure on state spending.
9:59:20 AM
CHAIR STOLTZE stated that the budget reduction should happen
first before any of the plans are adopted.
[SB 114 was held in committee.]