Legislature(2007 - 2008)BELTZ 211
04/19/2007 09:00 AM Senate STATE AFFAIRS
| Audio | Topic |
|---|---|
| Start | |
| HB171 | |
| SB134 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| *+ | SB 134 | TELECONFERENCED | |
| + | HB 8 | TELECONFERENCED | |
| + | HB 210 | TELECONFERENCED | |
| + | TELECONFERENCED | ||
| = | HB 171 | ||
SB 134-FUNDING SHORTFALL POLICY
9:57:39 AM
CHAIR MCGUIRE announced the consideration of SB 134.
SENATOR GARY WILKEN, Alaska State Legislature, presented SB 134
as sponsor. He said the last Alaska Oil and Gas Report announced
that anxiety mounts as production declines. The oil producers
told the legislature that production was declining by six
percent, and the Department of Revenue (DOR) said it was
declining by 0.9 percent. Either way, there needs to be a fiscal
bridge to the gasline, he said. The desire for a long-range
fiscal plan is a common refrain. He suggested thinking beyond
one year. Senator Dyson has a bill asking the governor to
forecast ahead 15 years.
10:00:25 AM
SENATOR WILKEN said his bill starts the discussion. SB 134 is
policy, not law. The legislature could put it in and take it out
later. He said, "We would put in the Executive Budget Act two
statements: It's the policy of the state to formulate a
responsible, sustainable budget. It is the policy that amounts
necessary to cover projected shortfalls during a fiscal year be
appropriated equally from the Constitutional Budget Reserve
(CBR) and the Earnings Reserve Account of the permanent fund. It
would be used only when needed, he added. He pointed to a graph
of expenditures and revenue. He assumes an increase in spending
of three percent, and he showed the fall revenue forecast. He
thanked staff from the permanent fund division, legislative
finance, and the Office of Management and Budget for helping
with the data and graphs.
10:04:10 AM
CHAIR MCGUIRE noted a 2006 and 2007 spike in revenues and asked
how they figure into the "little pots of money that we have set
aside for savings."
SENATOR WILKEN said, "That would be what's coming into our
checkbook." He said, "We write checks out of our check book,
which is filled up by the general fund." He said checks written
for permanent fund dividends are an expense. The legislature
saved $650 million last year and "people on the campaign were
talking about how we spent everything…we wrote a check and put
it in a saving account."
CHAIR MCGUIRE asked if that $650 million savings is absorbed
into the red input line.
10:05:35 AM
SENATOR WILKEN said yes, "we spend our savings." Alaska is not
going to be saving next year. Last year there was a $10.2
billion budget. Three components are 88 percent of the budget.
In 2004, the two numbers were essentially the same. Federal
funds are falling away, and 85 percent of what the state spends
is from oil and gas. Things can change quickly. The next graph
is titled Fy07 General Fund Budget. The budget of the governor
is balanced at $52 per barrel. Today it is $62.64. He noted that
three or four years the state was "rolling in clover" when oil
hit $30 per barrel. If the price were $30 today, [the state
would have a deficit of] $1.8 billion.
10:08:47 AM
SENATOR WILKEN showed the effect of the escalator in the PPT
[profit-based petroleum production tax of 2006].
SENATOR BUNDE said next year the chart will be out of date
because production will be down. The opportunity for change will
magnify as production declines.
SENATOR WILKEN said there are three big variables: expenses, oil
production, and oil price. "We start to fall away next year or
the year after." He said to expect gas revenue in 2016, and
Alaska needs a bridge until then.
10:11:51 AM
SENATOR WILKEN said the state has used the cushion. He showed
the CBR balance and the draws for FY94 to FY07. The CBR has been
used four times. He said he forgot that Alaska drew $884 million
out of the CBR in 2002, almost $500 million the next year, and
then about $46 million for the last four years. The average draw
has been $275 million for the 14 years. He said the CBR peters
out in 2013 or 2014, so there will be no more cushion. Cutting
government sounded easy before he arrived at the capitol. If the
state cut out public radio and television, as discussed by
Senator Bunde, and it cut out state parks, libraries, museums
and the one percent for arts, the total savings would be $17
million. It is not worth the emails that he would get. The state
needs to save up to hundreds of millions, so if it got rid of
road maintenance, the troopers, the marine highway, and the
universities, it would save $430 million, "but we wouldn't have
any troopers but we wouldn't need them because we don't have any
roads to drive on and we're not educating people so…."
10:15:14 AM
SENATOR WILKEN said his intent is to show that the state is not
going to cut its way out of the deficits. He spoke of other
options, like income tax, alcohol tax, corporate income tax and
sales tax. "Or we can start to talk about the earnings of the
permanent fund, which in January 31, 2007 had $4.7 billion
sitting in it." He suggests filling the gap with contributions
from the CBR and the earnings reserve account. Given a three per
cent growth, the bridge is built from equal draws. The earnings
reserve of the permanent fund is available, always has been, by
a vote of 21 in the House and 11 in the Senate.
10:17:43 AM
SENATOR BUNDE said the state already spends the earnings,
including $1.7 billion for the dividend, the hold harmless
provisions, and several other things. The precedent is set. The
pie chart had $1.7 billion revenue from the permanent fund.
SENATOR WILKEN said hold harmless costs about $34 million and it
costs money to make money, so "we do spend the earnings." He
warned that everyone will say that the legislature can't be
trusted and it will steal the fund. So he asked: "How much of
the corpus has the legislature been responsible for?" The
legislature should be proud that it has put in 65 percent of it.
It also inflation proofed it with $10 billion. The legislature
has certainly been a good steward. "We can manage getting at the
permanent fund," he said. He warned that opponents will accuse
them of robbing the fund, "and the bumper stickers roll out."
10:20:50 AM
SENATOR WILKEN said the principle is protected by the
constitution, and it will be generations before Alaskans go to
the ballot box and vote to spend the permanent fund; it's just
not going to happen. The earnings brought to the earnings
reserve account was $4.7 billion by the end of January. This
year, $878 million will be used for dividends, $860 million for
inflation proofing, and $2.9 billion will be left and available.
The crown jewels of a fiscal plan are the CBR and the earnings
reserve account; "I just can't say enough about that sentence."
It is the only legislature in America deciding how to manage $40
billion for 665,000 residents. He said some people won't support
the idea because there is no income tax and 43 states have one.
"But no other state has $40 billion." Every minute of every hour
of every day there are millions of decisions made on Wall Street
about people investing money, and each one is to create wealth.
Alaska is part of that game. People invest in corporate America,
real estate, bonds, and the last six months of 2006, Alaska's
investments were earning $734,000 per hour, and "we didn't lift
a finger … we're putting it in faster than we can take it out."
That's the plan. It is a whole other industry that creates
wealth for the people of Alaska. It is all about taking a one-
time resource to create wealth for the future. But the next
question will be: "What about my check?"
10:25:04 AM
SENATOR WILKEN showed ten years ahead. "Let's just say we filled
every fiscal gap…let's call it $250 million." The effect on each
PFD check would be nothing the first year, $2.00 the next year,
$20.00 in five years, and $89.00 in 10 years. "You make a good
investment; the money just keeps showing up."
SENATOR STEVENS asked if the check decrease is cumulative.
SENATOR WILKEN said that is the effect of the draw of $250
million every year for 10 years. In 10 years, each PFD check
will be $2,250 instead of $2,339. With the draw, the accumulated
ten checks would be $19,073 instead of $19,409-a difference of
$336 over the ten years. He showed a graph with the draw and
without the draw. The permanent fund stays awfully healthy, and
after 10 years it will be $4.5 billion less than $60 billion.
What does the decline in the PFD check mean to a family? The
third year the loss will be worth two cups of coffee, year-five
it will cost a hair cut, and year-ten it will cost one car tire.
10:29:52 AM
SENATOR WILKEN compared alternative revenue sources. Using an
income tax to fill the fiscal gap would cost $1,000 to a family
of four, and using a sales tax would cost $950. "I like
everybody paying a little rather than a few paying a lot." This
is our bridge to the future gas line. He summarized by saying
that the bill bridges Alaska revenue needs until the gas line is
completed and it establishes accountability by forming a
spending partnership with all Alaskans.
10:33:13 AM
SENATOR WILKEN said SB 134 provides benefits when needed--it
only happens when there is a deficit. It minimizes the financial
impact on families, doubles the life of the CBR, answers the
call from D.C. for Alaskans to help themselves, and provides
Alaska with a stable and dependable long-term fiscal plan.
SENATOR BUNDE asked about the notion of putting new money into
the economy.
SENATOR WILKEN said an income tax just moves money around. This
is new money coming from Wall Street and it is powerful. It gets
the full multiplier effect.
SB 134 was held over.
| Document Name | Date/Time | Subjects |
|---|