03/15/2012 09:00 AM Senate STATE AFFAIRS

             SB 178-ALASKA OPERATING ENDOWMENT FUND                                                                         
                                                                                                                                
9:05:30 AM                                                                                                                    
CHAIR  WIELECHOWSKI   announced  that  SB  178   was  before  the                                                               
committee. He  related that SB  178 creates the  Alaska Operating                                                               
Endowment Fund and  is sponsored by the  Senate Finance Committee                                                               
and presented by  Senator Bert Stedman. He said that  the goal of                                                               
the legislation is laudable. It  recognizes the strong commitment                                                               
to savings the legislature has  demonstrated in recent years. The                                                               
state  has  set aside  roughly  $15  billion in  savings,  giving                                                               
Alaska the  largest savings account  of any state in  the nation.                                                               
Every Alaskan should  be proud of that accomplishment,  and we in                                                               
the legislature should  be vigilant in ensuring  that our savings                                                               
are safeguarded well into the  future. He thanked Senator Stedman                                                               
for  introducing the  bill  and for  his  commitment to  ensuring                                                               
Alaska's financial health for generations to come.                                                                              
                                                                                                                                
CHAIR WIELECHOWSKI said  he had several concerns  about the bill.                                                               
The sponsor  statement indicates  that "it is  the intent  of the                                                               
Senate Finance  Committee that approximately $15  billion will be                                                               
used  to capitalize  the  fund." This  number  was calculated  by                                                               
combining  the  current  balance  of  the  Constitutional  Budget                                                               
Reserve (CBR),  the Statutory Budget  Reserve, and  the estimated                                                               
FY 12 revenue surplus. The CBR  was created by the voters in 1990                                                               
to  deal  with the  problem  of  short-term fluctuations  in  oil                                                               
revenue.   The  constitutional   amendment  passed   by  Alaskans                                                               
required the  state to deposit  all settlements from oil  and gas                                                               
tax  and royalty  disputes into  the fund.  More importantly,  it                                                               
specified that  withdrawals from  the fund  be authorized  with a                                                               
three-quarter vote of  each house of the legislature  and must be                                                               
repaid.  The  voters  clearly  wanted Alaska's  nest  egg  to  be                                                               
protected and protected well.                                                                                                   
                                                                                                                                
CHAIR  WIELECHOWSKI   voiced  concern  that  SB   178  would  not                                                               
accomplish  that important  public  goal. It  would allow  future                                                               
legislatures  to  withdraw money  from  the  fund with  a  simple                                                               
majority vote and  would not require that those  funds be repaid.                                                               
He  said he  did  not think  that was  the  sponsor's intent.  He                                                               
suggested the  sponsor would be open  to the idea of  creating an                                                               
endowment  with  the  level  of   protection  afforded  to  funds                                                               
currently in the CBR.                                                                                                           
                                                                                                                                
CHAIR WIELECHOWSKI continued to say  that SB 178 does not require                                                               
the balance  of the CBR  be transferred into the  proposed Alaska                                                               
Operating  Endowment Fund.  The bill  simply creates  a structure                                                               
and  proposes  a  concept.  It   begins  a  discussion  that  the                                                               
legislature should  have about how  to protect  Alaska's savings,                                                               
yet use them to fund  essential government operations when annual                                                               
revenues are insufficient  for that purpose. For  that reason, he                                                               
said  he has  proposed two  small  changes in  the new  committee                                                               
substitute.                                                                                                                     
                                                                                                                                
SENATOR  MEYER moved  to adopt  the CS  for SB  178, labeled  27-                                                               
LS1255\M, as the working document.                                                                                              
                                                                                                                                
CHAIR WIELECHOWSKI objected for discussion purposes.                                                                            
                                                                                                                                
CHAIR WIELECHOWSKI addressed the changes  in the bill. On page 2,                                                               
line  8, "four  and one-half  percent" was  replaced with  "four"                                                               
percent.  This   was  done   after  reviewing   literature  about                                                               
endowments and the recent performance  of several state accounts.                                                               
Also, on  page 2, line 12,  ", or any other  amount," was deleted                                                               
when  describing   the  amount   the  legislature   may  annually                                                               
appropriate from the fund.                                                                                                      
                                                                                                                                
CHAIR WIELECHOWSKI  noted that nationally inflation  has averaged                                                               
3.43  percent   since  the  federal  government   began  tracking                                                               
consumer  prices  in  1913.  He  said  he  wanted  to  begin  the                                                               
discussion  today with  a reduced  annual allowable  pay-out from                                                               
the proposed  fund. He  stated that he  also wanted  to eliminate                                                               
the  legislature's opportunity  to  exceed  a responsible  annual                                                               
payout  by  removing the  loophole  in  the original  bill  which                                                               
allowed the  legislature to  withdraw as much  as it  wanted from                                                               
the fund  in any given year.  He said he understood  the language                                                               
was included  in the bill  to protect against any  assertion that                                                               
the legislature  was binding the  hands of a  future legislature.                                                               
He noted he had been  advised by legislative attorneys that there                                                               
may be other ways to guard against that potential.                                                                              
                                                                                                                                
At ease from 9:10 to 9:14.                                                                                                      
                                                                                                                                
9:14:28 AM                                                                                                                    
CHAIR WIELECHOWSKI requested comments  from the sponsor regarding                                                               
the changes in the bill.                                                                                                        
                                                                                                                                
9:14:59 AM                                                                                                                    
DARWIN  PETERSON, staff,  Senator Bert  Stedman, Co-Chair  of the                                                               
Senate Finance  Committee, sponsor  of SB  178, commented  on the                                                               
changes  to the  bill.  He  stated that  Senator  Stedman has  no                                                               
problems  with version  M of  the bill.  He related  that Senator                                                               
Stedman  respects the  protections that  are in  the constitution                                                               
for  the  CBR and  would  agree  to  similar protections  in  the                                                               
endowment fund. He  concluded that version M is  a starting point                                                               
to  continue the  discussion of  the fund  in the  Senate Finance                                                               
Committee.                                                                                                                      
                                                                                                                                
CHAIR WIELECHOWSKI  appreciated the sponsor's leadership  in this                                                               
area.                                                                                                                           
                                                                                                                                
MR. PETERSON thanked the chair.                                                                                                 
                                                                                                                                
CHAIR WIELECHOWSKI noted  the bill has an  additional referral to                                                               
the  Senate  Finance Committee.  He  said  he  hopes that  if  an                                                               
Operating Endowment Fund comes into  existence and includes funds                                                               
from  the  CBR,   it  will  be  done   through  a  constitutional                                                               
amendment. That way  the fund would be protected and  it would go                                                               
to a vote of all Alaskans.                                                                                                      
                                                                                                                                
CHAIR WIELECHOWSKI  pointed out that  the bill has a  fiscal note                                                               
of $3.1 million,  based on the assumption that  $15 billion would                                                               
be moved into the fund.                                                                                                         
                                                                                                                                
9:17:21 AM                                                                                                                    
SENATOR MEYER moved to report the  CS for SB 178, version M, from                                                               
committee  with  individual   recommendations  and  the  attached                                                               
fiscal  note.  There  being  no   objection,  CSSB  178(STA)  was                                                               
reported from the Senate State Affairs Standing Committee.