Legislature(2021 - 2022)SENATE FINANCE 532
02/21/2022 09:00 AM Senate FINANCE
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| Audio | Topic |
|---|---|
| Start | |
| SB199 || SB200 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| *+ | SB 199 | TELECONFERENCED | |
| *+ | SB 200 | TELECONFERENCED | |
| + | TELECONFERENCED |
SENATE BILL NO. 199
"An Act relating to use of income of the Alaska
permanent fund; relating to the amount of the
permanent fund dividend; relating to the duties of the
commissioner of revenue; and providing for an
effective date."
SENATE BILL NO. 200
"An Act relating to use of income of the Alaska
permanent fund; relating to the amount of the
permanent fund dividend; relating to the duties of the
commissioner of revenue; and providing for an
effective date."
9:05:11 AM
ERIN SHINE, STAFF, SENATOR CLICK BISHOP, read from a
prepared statement:
SB 199 is very similar to the now dead SB 53.
For an explanation as to why SB 53 is no longer an
active bill this session, the Senate adopted the
Senate Finance Committee Substitute for SB 53 on
September 14th while in a special session.
A regular session bill that is acted upon within a
special session that does not complete the process and
become law, dies.
So, the co-chairs have decided to introduce SB 199 so
that the finance committee can reconsider the
legislation.
The broad overview of SB 199 is that it replaces the
current PFD formula with a stepped-up payment
approach.
It provides for an $1,100 PFD in FY23, $1,200 in FY24,
$1,300 in FY 25 and a PFD of $1,300 adjusted for
inflation starting in FY 26.
However, SB 199 also provides conditional language
trigger to pay a 50 of percent of market value PFD if
by December 15, 2024 the legislature enacts $700
million of new revenues.
Ms. Shine discussed the substantive changes in the bill.
Senator Hoffman wondered when the 50/50 dividend would
begin.
Ms. Shine looked at page 7, line 1, Section 13, and stated
that it would begin in FY 25 if there was revenue over
seven hundred.
Senator Hoffman queried the difference between the current
bill and SB 53.
Ms. Shine replied that the only changes between the two
bills were the removal of the $1100 Permanent Fund Dividend
(PFD) paid in the previous year, and the date of comparison
for the $700 million in new revenue from June 30, 2021 to
June 30, 2022.
Senator Hoffman wondered what would occur if the
legislature did not pass new revenue by 2025.
Ms. Shine replied that she believed the PFD would remain at
$1300, because the law as clear in the section about the
comparison between the two dates.
Co-Chair Stedman wondered whether there would be an
adjustment for inflation on the $1300.
Ms. Shine replied in the affirmative.
9:09:50 AM
Senator von Imhof stressed that the PFD totaled hundreds of
millions of dollars. She emphasized the struggle to pay the
dividend. She felt that assigning a specific amount to law
could cause strain in the future. She wondered how the PFD
could be paid with a turn in the market.
Ms. Shine stated that replaced the current PFD formula with
a 25 percent of POMV for a PFD and 75 percent for general
fund spending.
Co-Chair Stedman queried a detail about the change in
formula.
Ms. Shine replied that the current PFD formula would be
repealed, and the sections would be replaced with the 5
percent of market value (POMV), which would pay 25 percent
toward PFDs and 75 percent to appropriation.
Senator Hoffman queried a comparison of the two bills from
a cash flow standpoint.
Ms. Shine replied that the Legislative Finance Division
(LFD) would go into more detail, but stated that one bill
set in statute specifically to pay in three fiscal years
with the possibility of a 50/50 PFD; and the other bill
split the POMV at a 25/75 PFD.
Senator Wilson wondered whether the intent was to only
consider one bill to move from the Senate Finance
Committee.
Co-Chair Bishop stated that it would be a decision from the
committee.
Senator Wilson felt that the bills were conflicting, and
did not approve of each current bill. He hoped to find
consensus in the process.
Co-Chair Stedman remarked that there was interest in
rewriting the PFD statute, because of the different
structure of the Permanent Fund.
9:18:57 AM
AT EASE
9:21:59 AM
RECONVENED
9:22:15 AM
Senator Wielechowski stressed that even with a statutory
change, there was still no obligation for the legislature
to appropriate the money. He remarked that only a
constitutional amendment could guarantee a PFD
appropriation.
Co-Chair Bishop stressed that the legislature had not yet
following the constitution requirement for the capital
budget.
Co-Chair Stedman noted that there was a statutory dividend
that was difficult to attain and keep the state on stable
fiscal footing. He remarked that the state had never missed
a deadline. He stressed that the legislature had never
supported a zero PFD.
Senator von Imhof agreed with Senator Wielechowski about
the decision to appropriate funds. She felt that creating a
rational statute to pay the bills and provide funding would
fiscally and politically help the state's entire capacity.
9:26:29 AM
ALEXEI PAINTER, DIRECTOR, LEGISLATIVE FINANCE DIVISION,
introduced himself.
CONNOR BELL, FISCAL ANALYST, LEGISLATIVE FINANCE DIVISION,
introduced himself.
Mr. Painter discussed the presentation, "Fiscal Modeling:
Senate Bill 199 and Senate Bill 200" (copy on file). He
looked at slide 2, "Outline":
?Review of Senate Finance Committee modeling
assumptions
?Review of stress tests
?Summary of SB 199 and SB 200
?Fiscal models of SB 199 and SB 200
Mr. Painter pointed to slide 3, "Review of SFIN Modeling
Baseline":
Revenue Assumptions
?LFD's baseline revenue assumptions are the Department
of Revenue's Fall Revenue Forecast.
This assumes $71 oil in FY23, following futures
market thereafter.
DNR oil production forecast projects that Alaska
North Slope production will increase from 500.2
thousand barrels per day in FY23 to 586.2
thousand barrels per day in FY31.
?For the Permanent Fund, we use Callan's return
assumption of 5.86 percent total return in FY22 and
6.20 percent thereafter.
Mr. Painter discussed slide 4, "Review of SFIN Modeling
Baseline (cont.)":
Spending Assumptions
?For agency operations, these scenarios assume the
Governor's amended FY23 budget grows by 2.5 percent
per year. In addition, federal funds being used in
place of general funds in the current budget are
replaced with general funds when those federal funds
expire. Note that amendments change these scenarios
slightly from the ones presented on February 10.
?For statewide items, these scenarios assume that all
items are funded to their statutory levels beyond
FY23.
This includes School Debt Reimbursement, the
REAA Fund, Community Assistance, oil, and gas tax
credits.
?For the capital budget, these scenarios assume a $250
million capital budget growing by 2.5 percent per
year.
?For supplementals these scenarios assume $50.0
million per year. This is based on the average amount
of supplemental appropriations minus lapsing funds
each year.
Co-Chair Stedman assumed that the oil tax credit was the
accrued liability of roughly $700 million.
Mr. Painter agreed.
9:29:40 AM
Mr. Painter looked at slide 5, "Review of SFIN Modeling
Baseline (cont.)":
?LFD's modeling baseline assumes budgets grow with
inflation (2.0 percent) but the Senate Finance models
use 2.5 percent growth.
?The Governor's 10 year plan does not grow the capital
budget at all, grows agency operations other than
Medicaid by 1.5 percent, and Medicaid by 1.0 percent.
Evergreen Economics projects that the State's
Medicaid share will grow by 4.2 percent without
policy changes.
By FY30, the difference in Medicaid growth
between 1.0 percent and 4.2 percent is $200
million per year a $700 million UGF budget versus
a $900 million UGF budget.
?Several ongoing items in the Governor's budget are
funded with short term federal funds. In the Senate
Finance baseline, these are replaced with UGF when the
federal funds expire:
DOC's DNA Tracking program: $1.1 million CSLFRF
(need to be replaced in FY24)
AMHS: ~$82.0 million in place of UGF from
federal infrastructure bill (need to be replaced
in FY27)
DOTPF: $24.3 million of FHWA and FAA funds (need
to be replaced in FY24)
Co-Chair Bishop pointed out that solving the current issue
could allow for work on statutory changes in Medicaid and
other operating budget efficiencies.
9:35:08 AM
Mr. Painter looked at slide 6, "Obligations and Funding
Needs of the State of Alaska":
? This is not an exhaustive list. The total for these
items is about $10.6 billion
? PERS/TRS Unfunded Liability: $4.0 billion
Payment plan: annual payments though FY39. FY23
payment is $129.6 million
? General Obligation Bonds and State Supported Debt:
$1.2 billion
Payment plan: annual payments through FY41. FY23
Governor's Budget includes $92.4 million
? State Share of Municipal School Debt Service: $694.3
million
Payment plan: annual payments through FY39. FY23
Governor's Budget includes $63.9 million UGF
? Oil and Gas Tax Credits: $565.0 million
Payment plan: statutory deposits to Oil and Gas
Tax Credit Fund. FY23 Governor's Budget includes
$199.0 million
? Deferred Maintenance: $2.0 billion
Payment plan: annual appropriations using Alaska
Capital Income Fund. FY23 Governor's Budget
includes $25.2 million, plus additional projects
in the General Obligation Bond proposal
? State Share of School Major Maintenance and
Construction Lists: $389.4 million
Payment plan: REAA fund can be used for some
projects; no plan for remaining projects
? Rural Alaska Sanitation Funding Need (per DEC FY21
list): $1.8 billion
Payment plan: Village Safe Water capital
program. FY23 Governor's Budget includes $19.5
million of state funds, $72.3 million total funds
9:40:30 AM
Senator von Imhof wondered whether the PERS and TRS subject
referred to only the pension, or whether it also included
the health care portion.
Mr. Painter replied that the ARM board chose to put the
past health care liabilities at zero for the current year,
so the payment did not include payment into the health care
fund due to fully funding of that portion. He stated that
the unfunded liability only referred to pension.
Senator von Imhof felt that the number could change
quickly, so the unfunded liability could double.
Mr. Painter agreed, and stated that numbers could change
year by year.
Senator Wilson felt that the new infrastructure bill
addressed the rural Alaska sanitation funding would see a
large reduction in the states budget number.
Mr. Painter agreed, and stated that the infrastructure bill
would direct funds toward that need.
Mr. Painter pointed to slide 7, "Summary of SB 199":
? Amends PFD formula to pay:
$1,100 per recipient in FY23
$1,200 per recipient in FY24
$1,300 per recipient in FY25
$1,300 per recipient growing with inflation for
FY26 and beyond
? Includes a "trigger" provision: If the legislature
enacts revenue measures generating at least $700
million per year by the end of 2025, the formula
changes to 50 percent of the Percent of Market Value
draw beginning in FY26.
Senator von Imhof wondered whether there could be an
examination of the hundreds of millions of dollars that
correspond with the PFDs to understand the magnitude of the
cost to the state.
Mr. Painter replied that he would provide that information.
Senator von Imhof stressed that considering $700 million
was difficult to generate personal taxes.
9:45:16 AM
Senator Hoffman felt that legislature would not examine the
individual taxpayers, and remarked that there were other
entities to examine alternative revenue sources. He queried
the total cost of a $1300 PFD to the state.
Mr. Painter replied that there was a slide within the
presentation that would answer that question.
Mr. Painter looked at slide 8, "Summary of SB 200":
? Amends PFD formula to 25 percent of the Percent of
Market Value draw in FY23 and beyond.
? In FY23, this would pay a PFD of about $1,250 per
person.
? This PFD split matches the version of Senate Bill 26
passed by the Senate in March of 2017.
Mr. Painter looked at slide 9, "Stress Tests":
? Two types of stress tests performed:
Budget stress test: grow agency operations and
capital budget by 3.5 percent per year instead of
2.5 percent
Revenue stress test: use probabilistic modeling
to simulate a range of possible oil prices and
investment returns
? For each PFD scenario, we will show the non stressed
model output and the two stress tests
Mr. Bell looked at slide 10, "Stress Test: 25th Percentile
Example":
? Example of a single case, for which 25 percent of
total cases see greater overall deficits.
? Example case has average oil price of $58 and
average Permanent Fund return of 5.4 percent.
Mr. Bell discussed slide 11, "SB 200 (75/25 PFD); SFIN
Baseline (2.5 percent Growth)."
9:54:02 AM
Senator Hoffman felt that the most important figure was the
right hand chart of the slide, which showed the budget
reserve funds, and wondered whether there would be a $9
billion increase under the proposed scenario.
Mr. Bell replied in the affirmative. He stated that much
was due to the any surplus at the end of the year going to
the CBR at the end of the year.
Senator von Imhof remarked that discipline was required
from the legislature to not overspend in high revenue
years.
Senator Hoffman stressed that the legislature will do what
the legislature does.
Co-Chair Bishop asked for a highlight of the multipliers.
Mr. Bell highlighted slide 12, "SB 200 (75/25 PFD); Budget
Stress Test (3.5 percent Growth)." Which showed agency
operations growing at 3.5 percent. There were no expected
ERA overdraws reflected in the model.
Senator von Imhof asked about deficits in FY 30-31. She
spoke of the importance setting aside funds for leaner
years.
Co-Chair Bishop reminded the people at home that the
scenario was based on a base budget.
9:58:17 AM
Mr. Bell pointed to slide 13, "SB 200 (75/25 PFD); Revenue
Stress Test." He noted the 25th and 75th percentile
reflected in the green bars. He said that the chart on the
right showed the realized ERA balance - the blue line was
the balance of the realized ERA. He remarked that inflation
proofing began in FY 24 and the ERA balance went to zero in
FY 29. He noted that the bottom of the chart showed the
probability of the CBR balance and showed the likelihood of
the reserve falling below $2.5 billion by the end of the
period.
Mr. Bell discussed slide 14, "SB 199, Trigger Succeeds;
SFIN Baseline (2.5 percent Growth)." He explained that in
the scenario beginning FY 26 there would be new assumed
revenue.
Senator Wilson asked what would happen if the new revenue
was realized sooner that FY 30.
Mr. Bell replied that the 50/50 would still begin in FY 26
even if new revenue was instituted earlier than FY 30.
Senator Wilson queried the definition of "new revenue."
Mr. Painter interjected that statute had provisions
generating new revenue.
10:05:34 AM
Senator von Imhof liked the models. She noted that they
were fiscal and not economic models - which were quite
different. She was interested in exploring economic
impacts. She thought that contemplating the economic
impacts would be important to discuss.
Mr. Bell addressed slide 15, "SB 199, Trigger Succeeds;
Budget Stress Test (3.5 percent Growth)." He said that the
changes in the scenarios did not take place in a void. He
spoke to the chart and spoke of draws from out years and
deficits.
Senator Wilson asked about ISER comments on the increase in
PFD or taxes.
Mr. Bell could not speak to the publics opinion.
Senator Wilson thought that the comments had been positive
about how larger PFDs were good and increased taxes were
bad.
Co-Chair Bishop asked Senator Wilson to provide that
information to the committee.
10:10:01 AM
Senator von Imhof wondered whether national inflation was
around 5 percent or 6 percent.
Mr. Bell replied in the affirmative, but stated that
comparing year to year was closer to 7 percent.
Senator von Imhof thought that trying to keep cost down and
continually cutting the budget was unsustainable.
Co-Chair Stedman thought that is was difficult to predict
inflation numbers. He spoke of historical inflation numbers
and though that 3.5 was a reasonable number. He said that
it was hard to have a correct number but it was important
to consider that the inflation cycle would last for some
time.
10:14:04 AM
Co-Chair Bishop said that the 4.9 percent inflation in the
state for the prior year.
Mr. Bell looked at slide 16, "SB 199, Trigger Succeeds;
Revenue Stress Test."
Mr. Bell displayed slide 17, "SB 199, Trigger Fails; SFIN
Baseline (2.5 percent Growth)."
Mr. Bell pointed to slide 18, "SB 199, Trigger Fails;
Budget Stress Test (3.5 percent Growth)."
Mr. Bell addressed slide 19, "SB 199, Trigger Fails;
Revenue Stress Test."
10:20:47 AM
Mr. Bell looked at slide 20, "50/50 PFD FY23, $1,200 PFD
FY24, $1,300 PFD FY25, 50/50 PFD."
Co-Chair Stedman wondered how the ERA representation on the
slide would be extrapolated into the market value of the
Permanent Fund itself.
Mr. Bell replied that green bars showed only the realized
balance of the ERA, so it was the amount to freely
appropriate by the legislature.
Co-Chair Stedman remarked that for the last forty years
there was a focus on continual growth of the Permanent Fund
from nothing to $80 billion. He hoped that there was a
focus on the multigenerational effect, and wondered what
happened to the aggregate value of the fund with the impact
of inflation. He wondered whether, on average, there was an
increase in intergenerational wealth for Alaskans.
Mr. Painter explained that the green bar was only the ERA.
He stated that $1 billion of inflation proofing would be
going into the principal of the fund, and would increase
over time.
Co-Chair Stedman stressed that there needed to be a focus
and concern about ensuring the intergenerational wealth
resulting from the fund.
Mr. Painter stated that even with 2 percent inflation,
there was not room for the fund to grow faster than
inflation with the current draws on the fund.
Co-Chair Stedman remarked that there was a concern that 5
percent was too high.
10:30:40 AM
Mr. Bell pointed to slide 21, "50/50 PFD FY23, $1,200 PFD
FY24, $1,300 PFD FY25, 50/50 PFD FY26+, Governor's 10 Year
Plan Budget Assumptions."
Mr. Bell discussed 22, "50/50 PFD FY23, $1,200 PFD FY24,
$1,300 PFD FY25, 50/50 PFD."
Mr. Bell displayed slide 23, "50/50 PFD FY23, $1,200 PFD
FY24, $1,300 PFD FY25, 50/50 PFD FY26+."
10:35:17 AM
Co-Chair Stedman asked for a restatement of the driving to
the negative.
Mr. Bell replied that there was an assumption that paying a
50/50 PFD would lead to a $500 million deficit, which
stemmed from the federal revenue replacement with the money
used toward added projects and not existing budget
obligations.
Co-Chair Stedman wondered whether there was an accounting
for the governors catchup dividend in the proposed
budget.
Mr. Bell replied that it did not include a supplemental
PFD.
Senator Hoffman remarked that the governors proposal could
be considered in the chart for FY 23.
Co-Chair Stedman remarked that the question was related to
whether the 50/50 PFD was in FY 22. He stressed that
savings were used to reach the current PFD proposal.
Mr. Bell discussed slide 24, "50/50 PFD FY23, $1,200 PFD
FY24, $1,300 PFD FY25, 50/50 PFD FY26+, SFIN Baseline (2.5
percent Growth).
Co-Chair Stedman remarked that the $500 million minimum
balance in the CBR was used to make payroll.
Mr. Bell showed slide 26, "Statutory PFD; SFIN Baseline
(2.5 percent Growth)."
Mr. Bell looked at slide 27, "Statutory PFD; Budget Stress
Test (3.5 percent Growth)."
10:46:57 AM
Co-Chair Stedman remarked that he had constituents who
would want a statutory PFD of $42 million.
Senator Wilson queried the balance of the CBR used for the
assumptions.
Mr. Painter replied that the $400 million was assumed to be
in the CBR.
10:50:47 AM
Mr. Bell looked at slide 29, "50/50; SFIN Baseline (2.5
percent growth)."
Mr. Bell pointed to slide 30, "50/50 PFD; Budget Stress
Test (3/5 percent Growth)."
Mr. Bell discussed slide 31, "50/50 PFD Revenue Stress
Test."
Senator von Imhof noted two different scenarios, which
modeled 75/25 and 50/50. She wondered whether the models
assumed a $75 per barrel of oil.
Mr. Bell replied that the modeling used $71 per barrel in
FY 23 and following the futures curve with adjust low into
the mid-sixties and then rising to the end of the period.
Senator von Imhof remarked that the traditional price of
oil was around the mid-sixties according to the future
markets. She stressed that there should not be a dividend
bill based on $90 per barrel.
Co-Chair Bishop discussed the afternoon's agenda.
SB 199 was HEARD and HELD in committee for further
consideration.
SB 200 was HEARD and HELD in committee for further
consideration.
| Document Name | Date/Time | Subjects |
|---|---|---|
| SB 200 SFIN LFD SB 199 and SB 200 2-21-22.pdf |
SFIN 2/21/2022 9:00:00 AM |
SB 199 SB 200 |
| SB 200 ver. B Sectional Analysis 02.21.2022.pdf |
SFIN 2/21/2022 9:00:00 AM |
SB 200 |
| SB 199 ver. A Sectional Analysis 02.21.2022.pdf |
SFIN 2/21/2022 9:00:00 AM |
SB 199 |
| SB 200 Opposition Letter Asplund.pdf |
SFIN 2/21/2022 9:00:00 AM |
SB 200 |