04/28/2005 03:30 PM Senate STATE AFFAIRS

        SB 122-AMERADA HESS INCOME; CAPITAL INCOME ACCT.                                                                    
                                                                                                                              
CHAIR THERRIAULT announced SB 122  to be up for consideration. He                                                               
said he understood  that the House version of the  bill was under                                                               
reconsideration. He  asked Ms. Frasca  if modifications  had been                                                               
made that the committee should consider.                                                                                        
                                                                                                                                
3:40:43 PM                                                                                                                    
                                                                                                                                
CHERYL FRASCA,  Director, Office of Management  & Budget, replied                                                               
the  House amended  the  companion to  SB 122  [HB  187] and  Mr.                                                               
Barnhill would provide an explanation.                                                                                          
                                                                                                                                
MIKE  BARNHILL, Assistant  Attorney  General,  Department of  Law                                                               
(DOL), explained  that both the  House bill  and SB 122  create a                                                               
fund within  the earnings reserve  of the Alaska  Permanent Fund.                                                               
The  House took  the  fund out  of the  earnings  reserve of  the                                                               
Permanent Fund  and put it in  the General Fund. It  also changed                                                               
the name from Capital Income Account to Capital Income Fund.                                                                    
                                                                                                                                
The  earnings   that  flow  from  the   segregated  Amerada  Hess                                                               
principal would go into the new  fund within the General Fund and                                                               
be available for  appropriation. The House didn't  adopt the idea                                                               
of  using those  earnings to  finance  a bond  issue as  Governor                                                               
Murkowski originally proposed.                                                                                                  
                                                                                                                                
Another change the  House made related to  inflation proofing. It                                                               
ensured that the  money that was segregated  within the principal                                                               
of  the Alaska  Permanent  Fund would  continue  to be  inflation                                                               
proofed.  He   noted  that  at   the  previous   hearing  Senator                                                               
Therriault  asked why  it was  accounted for  within the  "picket                                                               
fence." Under the House version,  all the inflation proofing will                                                               
happen outside the "picket fence."  The nominal amount would stay                                                               
the same,  but the entire  principal of the Permanent  fund would                                                               
continue to be inflation proofed.                                                                                               
                                                                                                                                
3:43:34 PM                                                                                                                    
                                                                                                                                
SENATOR KIM ELTON asked for  verification that Amerada Hess would                                                               
not be inflation proofed. The  inflation proofing that would have                                                               
covered it would be in the corpus of the Permanent Fund.                                                                        
                                                                                                                                
MR. BARNHILL responded yes.                                                                                                     
                                                                                                                                
SENATOR ELTON  said if you  assume it is being  inflation proofed                                                               
now it would be slightly more than inflation proofed then.                                                                      
                                                                                                                                
MR. BARNHILL offered the opinion that  it's a stretch to say that                                                               
any one part of the principal  of the Permanent Fund is inflation                                                               
proofed. The  Permanent Fund Corporation has  been accounting for                                                               
the  inflation   proofing  separately,   but  that's   just  book                                                               
accounting.  The  bill  the  House   passed  clarifies  that  the                                                               
inflation proofing would be accounted  for outside the segregated                                                               
principal of Amerada Hess.                                                                                                      
                                                                                                                                
SENATOR ELTON  said in  that event  the Amerada  Hess sub-account                                                               
would diminish over time due to inflationary erosion.                                                                           
                                                                                                                                
CHAIR THERRIAULT clarified that  the purchasing power would erode                                                               
but when forced to say were  it occurs, the inflation proofing is                                                               
on the outside of the "picket fence."                                                                                           
                                                                                                                                
SENATOR WAGONER  remarked that doesn't keep  the legislature from                                                               
putting money back in to inflation proof the principal.                                                                         
                                                                                                                                
MR. BARNHILL  opined the legislature  could direct  the Permanent                                                               
Fund  Corporation  to  book the  inflation  proofing  within  the                                                               
Amerada Hess "picket  fence." The earnings from  the Amerada Hess                                                               
segregated fund would  continue to flow out under  the House bill                                                               
and into the General Fund.                                                                                                      
                                                                                                                                
SENATOR WAGONER said total earnings.                                                                                            
                                                                                                                                
MR. BARNHILL responded  the total earnings on  $424 million. That                                                               
figure would stay the same throughout time.                                                                                     
                                                                                                                                
SENATOR WAGONER said he didn't agree.                                                                                           
                                                                                                                                
CHAIR THERRIAULT  remarked it's apparent  there are a  variety of                                                               
ideas. Nonetheless, the question  before the committee is whether                                                               
it wants to incorporate the House ideas  as a CS or just move the                                                               
bill with its companion piece.                                                                                                  
                                                                                                                                
SENATOR ELTON  stated his preference is  to move the bill  as is.                                                               
He and Senator Davis accede  to the finance co-chairs' request to                                                               
move the bill.                                                                                                                  
                                                                                                                                
CHAIR THERRIAULT asked if he would like to make the motion.                                                                     
                                                                                                                                
SENATOR ELTON motioned to report  SB 122 and attached zero fiscal                                                               
note from committee with individual recommendations.                                                                            
                                                                                                                                
CHAIR THERRIAULT  announced that without objection,  SB 122 would                                                               
move to the Finance Committee.