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 128-PERM. FUND: DEPOSITS; DIVIDEND; EARNINGS
9:02:34 AM
CHAIR STOLTZE announced the consideration of SB 128.
9:02:49 AM
CRAIG RICHARDS, Attorney General, Office of the Attorney
General, Department of Law, presented information on SB 128.
CHAIR STOLTZE asked Attorney General Richards to address the
title of bill, "The Dividend Protection Act."
9:04:14 AM
ATTORNEY GENERAL RICHARDS stated that the governor's bill, SB
128, is not the only bill that aims to protect the Permanent
Fund Dividend (PFD), but a bill like it is critical. He pointed
out that by FY24 the Department of Revenue (DOR) predicts that
there will be insufficient funds in the Constitutional Budget
Reserve (CBR) and the Earnings Reserve Account (ERA) to pay for
continued payments of dividends. It could happen as soon as FY
21 if there is no change to having to spend the state's savings
to balance the budget. The bill will protect the PFD, as well as
change the way that it is paid.
ATTORNEY GENERAL RICHARDS said that was the logic behind the
title of SB 128. He added that FY22 is when the ERA is expected
to be depleted if the state spends at the current rate through
the CBR, however, it could be even sooner. There is not exact
certainty about the date that would occur.
CHAIR STOLTZE inquired how budget cuts are figured in the
formula. He noted concerns by Alaskans regarding budget cuts.
9:07:22 AM
ATTORNEY GENERAL RICHARDS replied that he does not have DOR's
revenue calculations under different scenarios. He concluded
that the more the state closes the budget gap, through
additional revenues or through additional budget cuts, the
longer it will take to spend out the CBR and the ERA.
He stressed that the Governor is looking forward to working with
the House and the Senate on a budget package, including budget
cuts, and is available to have that discussion with the
legislature and individual legislators.
He began a presentation in direct response to a request from the
State Affairs Committee about how the PFD would look under
different scenarios. The presentation is DOR's view of what it
looks like under the status quo dividend and under SB 128, and
potentially what it looks like under SB 114. He said they did
not model Representative Hawker's bill.
9:09:20 AM
He explained how to read the box plots in the charts in his
presentation. He showed how the PFD is calculated under the
status quo and as proposed in SB 128 and SB 114. Both bills
allow calculations of dividends where, if the amount of the
dividend is increased, the amount from a fixed payment or
percent of market value (POMV) to the general fund is decreased.
The goal is to figure out the balance between what should be
paid as PFD's and what should stay in the Permanent Fund and be
paid out to government operation year to year.
9:11:48 AM
ATTORNEY GENERAL RICHARDS explained that under SB 128, this
year's PFD would be a flat $1,000 paid out of the $1.4 billion
appropriated last year. In the future, all royalties would be
deposited in the Permanent Fund and 50 percent of that amount
would pay the PFD every year.
He understood that under SB 114, 75 percent of royalties
collected by the state each year would go to the PFD, but there
would be a floor of $1,000. If the floor is not met, the
additional amounts needed would come out of the ERA.
SENATOR MCGUIRE said that was correct.
ATTORNEY GENERAL RICHARDS related that under the status quo, the
PFD is based upon 21 percent of half of the earnings over a
five-year average. It amounts to 21 percent of last year's
realized earnings. He noted the importance of understanding that
the formula uses realized earnings, not 50 percent of the
Permanent Fund every year.
9:13:53 AM
He showed a slide of projected dividend appropriations over the
next eleven years. In about FY22 - FY24 it is likely there will
not be sufficient funds under the status quo to pay dividends.
He offered several low probability scenarios where this would
happen. He added that the dividend is projected to grow on a
real basis because the fund grows under the current formulation.
It is slightly higher than actual inflation, but it will also
experience volatility.
9:16:31 AM
He showed a slide depicting projected dividends per person based
on the current status quo. There will be limited funds available
after using the ERA to cover the deficit once the CBR is
depleted.
He highlighted the projected dividend appropriation and
projected PFDs per person under SB 128. The PFD would stay at
about $1,000 for the next decade and then decrease to under $500
by 2040. He noted dividends would increase or decrease with the
success or failure of resource development. The graph does not
capture future production of oil and is conservative in nature.
9:20:57 AM
ATTORNEY GENERAL RICHARDS showed the projected dividend
appropriation and dividend per person under SB 114. This formula
results in dividends that are 50 percent higher than those in SB
128. SB 114 also has a $1,000 floor, so additional funds needed
will come out of the ERA.
SENATOR MCGUIRE said that was correct.
9:22:37 AM
ATTORNEY GENERAL RICHARDS explained more about the consequence
of the dividend floor in SB 114. He predicted that additional
funds will be needed from the ERA given the oil production
forecast. He addressed consequences with having a floor and
giving up the "upside" to guarantee the "downside."
9:24:45 AM
CHAIR STOLTZE asked if SB 114 protects the PFD too much.
ATTORNEY GENERAL RICHARDS replied it is a policy decision. The
Governor thought having a dividend cap was a decent approach and
tying it to royalties was a good approach, but combining the two
was not a way the Governor wanted to go.
He highlighted graphs that included projected dividends per
person with a gas line - under SB 128 and SB 114. If there was a
gas line there would be higher royalties under both scenarios.
9:26:54 AM
He showed an analysis of potential increases in North Slope
production in rate-comparable pools, using the 50 percent
royalty dividend, under SB 128, and the impact per person.
CHAIR STOLTZE thanked Attorney General Richards.
9:29:22 AM
SENATOR MCGUIRE agreed with Attorney General Richards'
assumptions.
[SB 128 was held in committee.]