Legislature(2011 - 2012)FAHRENKAMP 203
02/23/2012 09:00 AM Senate STATE AFFAIRS
| Audio | Topic |
|---|---|
| Start | |
| SB178 | |
| SCR22 | |
| SCR19 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| *+ | SB 178 | TELECONFERENCED | |
| *+ | SCR 22 | TELECONFERENCED | |
| *+ | SCR 19 | TELECONFERENCED | |
SB 178-ALASKA OPERATING ENDOWMENT FUND
9:03:58 AM
CHAIR WIELECHOWSKI announced that the first bill before the
committee was SB 178, which would create an Alaska Operating
Endowment Fund as a depository for the state's savings to
generate revenue for the benefit of future generations of
Alaskans.
SENATOR BERT STEDMAN, as co-chairman of the Senate Finance
Committee, sponsor of SB 178, introduced the bill. He said that
currently, Alaska has amassed excess billions of dollars in
liquidity outside of the Permanent Fund and has a unique
opportunity to create a fund source for future operations of the
state. Previous discussions, even five years ago, were about
when the legislature would withdraw funds from the Permanent
Fund for the operations of the state. He explained that the bill
would set aside $15 billion and allow a revenue stream of 4.5
percent to go into the general fund, if needed. In the future if
funds are needed, the legislature would have flexibility to meet
the needs of the state. The bill would also block future
legislators from taking billions out of savings and would force
future legislators to make tough decisions to reduce
expenditures. He summarized that the bill would permanently
protect the dividend stream of the Alaska Permanent Fund, help
guide future legislators in protecting the vast quantity of
Alaska's assets, and leave flexibility for future legislators to
appropriated funds, when needed, where they are needed.
9:08:44 AM
SENATOR STEDMAN addressed the Department of Revenue fiscal note,
which he said is large, but the legislature is already managing
those large amounts. He concluded by saying that it was time to
have this conversation in the legislature.
SENATOR GIESSEL referred to a chart in the members' packets. She
noted that point five on the chart says that future returns are
based on 2011 Callan capital market assumptions and median
expected returns. She questioned whether the Callan earnings
assumptions were high at 7.5 percent.
SENATOR STEDMAN explained that the basic allocation was 60
percent equities and 40 percent bonds. The forward expectations
from Callan in the financial markets have been lowered for the
next decade. By capping expenditures at 4.5 percent, anything
above that would be re-invested. Over time, on average, the
investment should be inflation proofed. Callan's concern is that
bond market yields have been so suppressed that when interest
rates rise, the bond market will have great losses. He said 4.5
percent payout was the starting discussion point and might be on
the low side.
SENATOR MEYER said he liked the concept of the bill and it
reminded him of the Percent of Market Value (POMV) bill in 2004.
He asked what oil price is being used in calculations for the FY
2012 and FY 2013 budgets. He did not know if tying up all
savings would be prudent if the price of oil drops. He wondered
if the state should try to reduce its debt first.
9:15:29 AM
SENATOR STEDMAN said the initial payout can be modified. There
is concern with break-even oil price and oil production. He
countered that the bill would force budget discipline. There is
more than $15 billion in cash which is open for discussion and
could be adjusted as the legislature sees fit. He maintained
that starting out with $15 billion would protect most of the
state's savings, but would provide the ability to build savings
outside of the endowment to help with the operating budget.
SENATOR STEDMAN maintained that the retirement system debt
obligations would have to be a separate discussion. There has to
be a balance. All large issues would be put on the table at the
same time and decisions made on how to deal with them.
SENATOR MEYER agreed that it does force fiscal responsibility.
He asked what oil price was used to determine the budget.
SENATOR STEDMAN said $109 per barrel was used for the projected
revenue stream. He said he would have to check on the break even
oil price, which he thought was around $80 per barrel. It would
be beneficial to the state to have a lower break even oil price.
SENATOR WIELECHOWSKI asked how secure the fund would be. He
wondered if in a year the legislature could modify the size of
the appropriation.
SENATOR STEDMAN stated that the fund would be in statute and
could be changed by future legislation. If could also become a
Constitutional Budget Amendment similar to the Permanent Fund.
He opined it would be a better policy discussion in the form of
a statute.
9:20:47 AM
SENATOR WIELECHOWSKI asked if it the bill is a dedicated fund
and if there could be a legal challenge about binding future
legislatures.
SENATOR STEDMAN replied that he had not sought a legal opinion;
however, it is not a dedicated fund because it draws from
general funds.
ANGELA RODELL, Deputy Commissioner, Department of Revenue,
addressed the fiscal note for SB 178, which has an appropriation
request for $3,150,000. She related that most of the money is
already being spent by other funds. She pointed out that the
asset allocation contemplated by the bill would require more
external management because more of the monies would be moved
into an equity position and then moved into a more active
external management position.
SENATOR MEYER summarized that the statutory reserve account
would go for a year or two with losses and then hope for gains
in the future. He asked if the debt ratio was good.
MS. RODELL said it was very good.
9:24:17 AM
SENATOR PASKVAN suggested using an "institutional prudent
investor fund" method. He commented on an article about true
risk over time where the real risk is in bonds, rather than
equities. He suggested concentrating more in equities.
SENATOR WIELECHOWSKI asked if the administration has a position
on the bill.
MS. RODELL said not at this time.
SENATOR WIELECHOWSKI understood that the money in the fiscal
note is currently being spent elsewhere.
MS. RODELL said that was correct.
SENATOR WIELECHOWSKI asked if any analysis was done to determine
whether the fund was a dedicated fund.
MS. RODELL said no.
SENATOR WIELECHOWSKI set SB 178 aside.
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