Legislature(2017 - 2018)BELTZ 105 (TSBldg)
04/07/2018 10:00 AM Senate JUDICIARY
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| Audio | Topic |
|---|---|
| Start | |
| SJR1 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| + | SJR 1 | TELECONFERENCED | |
| *+ | SB 127 | TELECONFERENCED | |
| + | HB 214 | TELECONFERENCED | |
SJR 1-CONST AM: GUARANTEE PERM FUND DIVIDEND
10:02:09 AM
CHAIR COGHILL announced the consideration of SJR 1.
10:02:18 AM
SENATOR BILL WIELECHOWSKI, Alaska State Legislature, Juneau,
Alaska, sponsor of SJR 1, stated that this resolution would
allow the people of Alaska to vote on whether to enshrine the
current calculation and inflation-proofing of the Alaska
Permanent Fund Dividend (PFD) in the Constitution of the State
of Alaska. That is the only way to truly protect the dividend.
He related that many Alaskans were shocked when the governor cut
the permanent fund dividend by over $1,000 in 2016. Then the
legislature cut it again last year. When this was challenged,
the Alaska Supreme Court held that the governor and legislature
could adjust the dividend as they wished. This means there is
absolutely no protection for the permanent fund dividend unless
it is put in the constitution. That is what SJR 1 does.
He said it's important to remember that the PFD reflects
Alaskans ownership share in the state's oil wealth. The current
value of the Alaska Permanent Fund is roughly $60 billion and
Art. IV, Sec. 15 of the Alaska Constitution the Permanent Fund
constitutional amendment requires that at least 25 percent of
mineral lease rentals, royalties, royalty sale proceeds, federal
mining revenue-sharing payments, and bonuses received by the
state go into the permanent fund. He noted there is a statute
that says that 50 percent of royalties for certain fields after
a certain year go into the permanent fund, but it is a
relatively small amount.
SENATOR WIELECHOWSKI refuted the claim that the PFD is an
entitlement. He pointed out that the subsurface rights in Alaska
belong to the people collectively and that there is a
constitutional obligation under Art. VIII, Sec. 2 to ensure that
these resources are utilized "for the maximum benefit of the
people." He said the authors of the 1982 Permanent Fund Dividend
legislation understood this very clearly and tied the current
PFD to this constitutional obligation. They understood that
every Alaskan had a right to their share of the oil wealth and
the best, most efficient way to do that was through a dividend
program.
He posited that in the scheme of things Alaskans have gotten a
very small share of the oil wealth. He pointed out that 100
percent of state property taxes, corporate income taxes, and
production taxes go to state government, as well as 75 percent
of all royalties. The royalty rate is typically 12.5 percent and
the people get just a 25 percent share of that. This means just
3.125 percent of the value of Alaska's oil goes to the permanent
fund. Alaskans only get 50 percent of the earnings generated
from those contributions. The rest is available for government
and remains available to government under SJR 1.
He shared several points to illustrate the impact the PFD has on
individuals, businesses and the economy. The Institute of Social
and Economic Research (ISER) at UAA found that tens of thousands
of Alaskans are removed from poverty because of the PFD. Alaska
has the lowest income inequality in the nation because of the
PFD. ISER also found that the PFD creates thousands of jobs in
Alaska.
SENATOR WIELECHOWSKI said inflation proofing is responsible for
a large portion of the current value of the permanent fund and
he believes the corpus of the fund should continue to be
protected through inflation proofing. He said three essential
statutes create the permanent fund dividend program AS
37.13.145, AS 37.13.140, and AS 43.23.025. SJR 1 essentially
places these statutes in the constitution to constitutionally
require the PFD be paid at its current formula and inflation-
proofing to continue.
He offered to answered questions.
10:05:45 AM
SENATOR SHOWER joined the committee.
10:07:38 AM
CHAIR COGHILL requested a sectional analysis.
SENATOR KELLY stated that the conflation of the dividend and
subsurface rights is an interesting but incorrect opinion. He
maintained that that was never the intent of the founders of the
dividend. He reminded members that the Hammond plan that capped
the dividend at $1,250 was intended to protect the corpus of the
dividend from raids and it has been successful.
10:08:37 AM
SENATOR WIELECHOWSKI said the former statement has some
inaccuracies, based on his research of the minutes associated
with the constitutional creation of the permanent fund as well
as the bill that created the permanent fund dividend program.
In the creation of the permanent fund there was very clear
intent by the legislature when it passed CSHJR 39 to allow for
the payment of dividends to the people of Alaska. They put a
letter of intent in the record on March 24, 1976 where they
specifically said they were adding language to "give future
legislatures the maximum flexibility in using the fund's
earnings ranging from adding to the fund principal to paying
out a dividend to resident Alaskans."
In the minutes from April 8, 1982, Representative Terry Gardner
from Ketchikan stated that there was a need to distribute oil
wealth to the people of Alaska. The Permanent Fund Dividend was
directly tied to the responsibility under the constitution, Art.
VIII, Sec. II. The constitutional obligation to provide for the
maximum benefit for the people. In the letter of intent,
Chairman Al Adams said that the payment of dividends shall have
first call on 50 percent of the income of the permanent fund,
regardless of whatever other uses the income is put to. That
letter of intent still exists and is still binding. However, the
dividend program does not have first call anymore under recent
decisions by the legislature. He opined that that is a clear
violation of the legislative intent.
10:11:31 AM
SENATOR KELLY clarified that the point he was making was that
the founders of the dividend did not link it to subsurface
rights. He said he was in the legislature at the time and
Senator Wielechowski didn't have the benefit of being an Alaska
resident at that time. It was about protecting the permanent
fund from a raid because it gave people a stake in it. It had
nothing to do with subsurface rights.
SENATOR WIELECHOWSKI conceded that he did not have a
recollection of what happened at the time; he was nine-years-
old.
CHAIR COGHILL asked Senator Wielechowski to walk through the
sectional.
10:12:34 AM
SENATOR WIELECHOWSKI delivered the sectional analysis for SJR
21.
Section 1 Establishes the Earnings Reserve Account as part of
the constitution It will be a separate account in the fund and
income from the fund shall be deposited into the ERA as soon as
it is received. Money in the ERA may be appropriated only as
provided in subsection (b) of bill Section 2.
Section 2 - Adds new subsections to Art. IX, sec.15,
Constitution of the State of Alaska. Subsection (b) places the
current calculations from AS 17.13.140 into the constitution.
Subsection (c) provides that the legislature shall inflation
proof the fund. Subsection (d) places the current statute for
calculating the dividend into the constitution
Section 3 provides transition language that states that the
earnings reserve account established in the 2018 amendments
replaces the existing earnings reserve account established by
law.
Section 4 says the resolution shall be placed before the voters
of Alaska at the next general election, which would be November
2018.
CHAIR COGHILL asked him to go through the calculation in
subsection (d) of bill Section 2.
10:15:05 AM
SENATOR WIELECHOWSKI explained that the first sentence of
subsection (b) states that the net income of the fund shall be
computed annually on the last day of the fiscal year (January
th
30 each year) following generally accepted accounting
principles. Unrealized gains or losses are excluded. The second
sentence provides that the income available for distribution
equals 21 percent of the net income of the fund for the last
five fiscal years. This follows the current formula in statute.
The rationale for basing the distribution over five years is to
smooth increases and decreases based on the performance of the
stock market. The distribution may not exceed the balance in the
earnings reserve account. The third sentence also tracks the
formula in statute. The people of Alaska get 50 percent of the
income available for distribution. That is based on the formula
of 21 percent over the last five years.
CHAIR COGHILL summarized this would enshrine the methodology for
the dividend in the constitution. He asked if this would still
allow the remainder to be used for government purposes.
SENATOR WIELECHOWSKI said yes; it simply places the current
framework in the constitution. It prohibits the legislature from
cutting the dividend and prohibits the governor from vetoing the
amount of the dividend.
CHAIR COGHILL asked if he agrees that putting the dividend as
the first right diminishes the amount available for government
use.
SENATOR WIELECHOWSKI agreed that any use of the earnings reserve
does diminish future returns. That's the way it is now.
CHAIR COGHILL expressed reservations about giving the dividend
first right.
10:20:07 AM
SENATOR WIELECHOWSKI reiterated that the resolution will
guarantee a dividend, it will guarantee inflation proofing, it
will guarantee that the corpus of the permanent fund remains
viable, and it provides a significant amount that would be
available for government use.
CHAIR COGHILL said his major objection is that the dividend
would impact what's available for government.
10:23:43 AM
SENATOR SHOWER questioned whether enshrining the dividend in the
constitution might at some point lead to a discussion about
taxation.
SENATOR WIELECHOWSKI said he believes the permanent fund
question must be resolved and that will force a robust debate on
how to resolve the budget situation. Until that discussion takes
place, the legislature will take the easy way out and use the
earnings reserve to balance the budget, which will diminish the
peoples dividends.
SENATOR SHOWER asked if he would also agree that enshrining the
dividend in the constitution would limit the amount of money
available for government to spend.
10:27:14 AM
SENATOR WIELECHOWSKI replied it will bring the question to a
head and elicit a healthy debate on how to solve the budget
problem.
10:28:04 AM
CHAIR COGHILL said he had been reluctant to hear this proposal,
but the rules were used correctly to force a hearing. He said he
obviously doesn't agree with this solution, but he does think
the assessment of the problem is accurate. He asked the sponsor
if he had any concluding comments.
10:28:55 AM
SENATOR WIELECHOWSKI said this issue won't go away. An
unscientific survey of hundreds of constituents showed that 73
percent support enshrining the PFD in the constitution. He said
he is open to a better solution, but if the legislature fails to
act the voters could make this an action item when they vote in
2020 on whether to hold a constitutional convention.
He said it seems like the committee should take public
testimony.
10:30:19 AM
CHAIR COGHILL restated that he did not intend to take public
testimony today and would hold SJR 1 in committee if there were
no further comments.
SENATOR WIELECHOWSKI asked if there was a specific date and time
when public testimony would be taken.
CHAIR COGHILL replied not at this point.
10:30:35 AM
SENATOR WIEECHOWSKI moved to report SJR 1 from committee with
individual recommendations [and attached fiscal note(s)].
10:30:43 AM
CHAIR COGHILL objected and adjourned the Senate Judiciary
Standing Committee meeting at 10:30 a.m.