Legislature(2017 - 2018)BUTROVICH 205
04/13/2018 03:30 PM Senate STATE AFFAIRS
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| Audio | Topic |
|---|---|
| Start | |
| HB136 | |
| SJR9 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| + | HB 136 | TELECONFERENCED | |
| *+ | SJR 9 | TELECONFERENCED | |
| + | TELECONFERENCED |
SJR 9-CONST. AM.: PERMANENT FUND APPROP; DIVIDEND
4:52:51 PM
CHAIR MEYER announced the consideration of Senate Joint
Resolution 9 (SJR 9).
4:53:24 PM
SENATOR BERT STEDMAN, Alaska State Legislature, Juneau, Alaska,
sponsor of SJR 9, emphasized that his presentation addresses the
Alaska Permanent Fund (Fund) management and does not address a
fiscal system solution for the state; although, SJR 9 is a major
portion of a fiscal solution. He referenced his investment
background 30 years in the past where he worked with the City
and Borough of Sitka regarding changing their permanent fund to
a percentage of market value, something that was not too
dissimilar from the intent of SJR 9. He conceded that it takes
time to get people comfortable with the change and noted that
the process had taken 4 years where the Sitka's permanent fund
was changes from an all-bond portfolio to a balanced portfolio
with 60-percent equity and stocks to give more growth, and 40-
percent bonds to provide more income and stability with a 5-year
lookback to provide "smoothing" to stabilize cash flows.
He referenced slide 2 from his visual presentation of SJR 9,
"Permanent Fund Protection" as follows:
• The Permanent Fund can be a budget stabilization
fund with a limited payout method that allows the
fund to continue to save and grow:
o Budget Stabilization:
square4 Alaska Has two "rainy day" accounts:
• Constitutional Budget Reserve
(CBR),
• Statutory Budget Reserve (SBR).
o Permanent Fund:
square4 The Permanent Fund has two purposes:
• Save,
• Grow.
• The Permanent Fund consists of the Principal and
the Earnings Reserve Account (ERA). If the ERA is
used to balance the budget on an ad hoc basis,
the Permanent Fund's value will decrease, which
conflicts with its purpose.
SENATOR STEDMAN summarized slide 2 as follows:
The Permanent Fund is really a composition of two
major accounts, the Constitutional Budget Reserve
(CBR), the protected principle of the constitution,
and the Earning Reserve (ERA) that is not
constitutionally protected, but from the state's
perspective, the Constitutional Budget Reserve (CBR)
is a "rainy day" account along with a Statutory Budget
Reserve (SBR) and it's been "raining" financially
speaking for several years now and those are
diminished relative to their historic peaks. We are in
a position now where we want to restructure, look at
seriously restructuring the Permanent Fund (Fund). The
Permanent Fund (Fund) is something that is set in
place for future generations and we are supposed to
save and grow the assets.
4:56:53 PM
He referenced slide 3: "The Permanent Fund Established" as
follows:
• The Permanent Fund was established in 1976 by a
vote of the people to save a portion of Alaska's
oil wealth for future generations and limit
overspending by the Legislature.
SENATOR STEDMAN commented on slide 3 and noted that the Fund was
created by a vote of the people for a storage mechanism for the
wealth generated from the state's finite oil, gas and other
resources. He pointed out to the adult Alaskans in the room that
the Fund has been in place for the entirety of their adult lives
and has grown due to the state's hard work over time.
He referenced slide 4: "The Permanent Fund Is an Alaska Success"
as follows:
• Graph on the "Historical Values of Principal and
Earnings Reserve" (1976-2016).
• The Permanent Fund is an Alaska success. Current
value of $65 billion from a total contribution of
$39.9 billion.
He commented on slide 4 that the chart showed the
constitutionally-protected principal and the ERA which
represented the trading profits from the net gains and
losses along with dividends and interest income. He pointed
out that the ERA changes a lot due to constant economic
changes that goes on worldwide.
4:59:22 PM
He referenced slide 5: "ERA Is Variable and Uncertain" as
follows:
• ERA is variable and uncertain. By its nature it
lacks stability to be relied upon for budget
stabilization:
o 2000:
square4 ERA: $2.973 billion,
square4 Principal: $23.543 billion.
o 2001:
square4 ERA: $2.384 billion,
square4 Principal: $22.431 billion.
o 2002:
square4 ERA: $1.136 billion,
square4 Principal: $22.389 billion.
o 2003:
square4 ERA: $0.100 billion,
square4 Principal: $24.094 billion.
o 2004:
square4 ERA: $0.859 billion,
square4 Principal: $26.541 billion.
o 2005:
square4 ERA: 1.440 billion,
square4 Principal: $28.522 billion.
o 2006:
square4 ERA: $2.585 billion,
square4 Principal: $30.325 billion.
o 2007:
square4 ERA: $4.132 billion,
square4 Principal: $33.695 billion.
o 2008:
square4 ERA: $5.321 billion,
square4 Principal: $31.213 billion.
o 2009:
square4 ERA: $0.420 billion,
square4 Principal: $29.496 billion.
o 2010:
square4 ERA: $1.210 billion,
square4 Principal: $32.045 billion.
o 2011:
square4 ERA: $2.308 billion,
square4 Principal: $37.832 billion.
o 2012:
square4 ERA: $2.081 billion,
square4 Principal: $38.253 billion.
o 2013:
square4 ERA: $3.994 billion,
square4 Principal: $40.909 billion.
o 2014:
square4 ERA: $6.211 billion,
square4 Principal: $45.002 billion.
o 2015:
square4 ERA: $7.162 billion,
square4 Principal: $45.638 billion.
o 2016:
square4 ERA: $8.570 billion,
square4 Principal: $44.200 billion.
o 2017:
square4 ERA: $12.816 billion,
square4 Principal: $46.970 billion.
SENATOR STEDMAN commented on slide 5 and pointed out the "no
bars at all" for the ERA for the years 1996-1998 and 2003. He
noted that the Fund is constitutionally protected where the
Legislature cannot access the corpus without a vote of the
people. He pointed out that the trading profits and dividends in
the ERA can be appropriated by the Legislature. He added that
inflation proofing the Fund comes from the ERA as well. He noted
that the Legislature was presently talking about taking funds
from the ERA for the following fiscal year to pay the state's
bills.
SENATOR STEDMAN addressed slide 5 and noted the years 2003
and 2009 as follows:
In 2003 we had $24 billion in principal and $100
million in the ERA, the next year a little less than
$1 billion in the ERA. If we jump up to 2009, we see
the ERA down to $420 million, next year it is $1.2
billion. So, when we take a look at relying on the
Permanent Fund and pulling money out of it, we all
recognize that we can only pull funds out of the
lighter colored bar on the top [ERA]. Well, some years
there isn't any, and I would like to also highlight
that we haven't, in the Legislature, appropriated
monies out of the ERA other than dividends, inflation
proofing just goes into the other account, we've taken
a little bit every year off for internal management of
the Permanent Fund, it kind of runs itself, but for
all significant analysis it's basically we haven't
touched it until this year.
He explained that the intent of his presentation was to
look at the Fund from several different angles. He offered
that the state could look at the Fund as either a "milk
cow" for revenue to get as much out without collapse for
budgetary needs, or the strategy, which he recommends,
would be to isolate the state's needs and to ask how the
Fund should be structured and managed for its long-term
viability for future generations. He said he was concerned
with the current structure which relies on draws from the
ERA but noted that times like 2003 and 2009 when there was
virtually no earnings reserve would occur again. He
asserted the state needs to take a serious look at the
current structure's constitutionally protected Fund and the
ERA which the Legislature can appropriate from. He conceded
that he was worried that the state was in peril of over
drawing the Fund.
5:04:53 PM
He referenced slide 6: "Current Principles For The Permanent
Fund: Save and Grow" as follows:
• A "Permanent" Savings Account: The fund should
conserve part of the state's revenue from mineral
resources to benefit all generations of Alaskans. AS
37.13.020(l).
• The Fund's Principle Should Be Protected While
Prudently Invested The fund should be managed to
protect the principal while maximizing total return.
AS 37.13.020(2).
• The Fund's Purchasing Power Over Time Should Be
Preserved While Maximizing Return AS 37.13.120(a).
SENATOR STEDMAN commented on slide 6 as follows:
If we take a look at the Permanent Fund and follow and
not get away from the guiding principles, it's a
savings account and we should conserve it for future
generations, there's no doubt about it. Our
forefathers set up this structure and it's held up,
frankly, worldwide as a model. Without going through
the effects of purchasing power, the "thief of the
night" of inflation, we all understand that, we want
to come up with something that is going to protect us.
5:05:25 PM
He referenced slide 7: "SJR 9 Does Not Alter The Fund's
Principles: Save and Grow:" as follows:
• SJR 9 merges the ERA into the principal, which
constitutionally protects the whole Fund from
legislative appropriation:
o Current Alaskans shouldn't take ad hoc draws
from the Fund that will significantly affect
its value to future Alaskans.
o Overspending will decrease the Fund's
benefit to future generations this is the
opposite of saving.
He commented on slide 7 and noted that one of the most critical
parts is to put the ERA into the constitutionally protected
corpus of the Fund, a fund that the Legislature cannot draw any
money out unless a constitutionally-protected mechanism was also
set up. He continued as follows:
We should not have ad hoc draws. The adults today I
don't feel should have ad hoc draws that are going to
significantly or minorly impact the future balance of
the account. The monies or the value of the Permanent
Fund is possibly to use a little bit today but it's
really for future generations, our grandkids, our
great grandkids that aren't even born yet, future
generations. When we have an oil field that is 100
years old and not much future in front of it, that we
have built up a massive amount of wealth for future
Alaskans. If we allow the current needs, today and the
near distant future, if we let our spending desires
and our budgetary desires drive the structure of the
Permanent Fund, we could easily make a mistake that
hurts our long-term objectives and goals of protecting
it for the future of the kids, our future Alaskans.
5:07:35 PM
SENATOR STEDMAN referenced slide 8: "SJR 9 Does Not Alter The
Fund's Principles: Save and Grow:" as follows:
• SJR 9 limits any draw from the Permanent Fund to an
annual 4.5 percent of its 5-year average value:
o This draw limit is conservative and sustainable.
o 4.5 percent is well under the Permanent Fund's
growth performance.
• 1 year (FY2017):
o Total growth: 12.89 pct.,
o Objective (CPI + 5 pct.): 6.63 pct.
• 3 years:
o Total growth: 6.21 pct.,
o Objective (CPI + 5 pct.): 5.92 pct.
• 5 years:
o Total growth: 8.85 pct.,
o Objective (CPI + 5 pct.): 6.32 pct.
• Since inception:
o Total growth: 8.79 pct.,
o Objective (CPI + 5 pct.): 7.67 pct.
He said based on the information disclosed on slide 8 he
proposes that the ERA be combined with the Fund's
constitutionally-protected principal so that "The whole thing is
constitutionally protected." He added that a draw limit would be
placed on the Fund that dictates what annual percentage could be
taken out. He specified that the Fund's potential rate of return
would be dictated by its asset mix, then the real rate less
inflation. He emphasized that the Fund's current management
structure would not be altered, that it be left intact to do
their job and manage the Fund.
SENATOR STEDMAN explained that SJR 9's proposes a 4.5-percent
draw, a percentage that takes into the targeted rate of return
with the historic inflation rate of 2.5 percent. He emphasized
that the rate of return must be north of the inflation target
plus the draw, a percentage that leaves a little bit of room. He
proposed that at the end of the fiscal year the 4.5-percent
payout of the Fund be based on a 5-year average to smooth out
the volatility. He pointed out that a 5-year average could be
calculated using the first five years out of a 6-year timeframe
to make sure everyone knows how much money would be drawn up to
the 4.5 percent. He continued as follows:
That's why there's a five-year average, you use the
average rates of return targeted by your asset
allocation and then you add in your inflation and you
basically have your structure. So, some of the most
important points when we restructure this Permanent
Fund: first, you got to get on the road you want to be
on, do you want to be on a road that you are going to
just look at it as a milk cow and strain, which is one
road; or, you can go down the other road and say, "I
don't care initially what the fiscal position of the
state is, I'm not going to let it drive the management
and structure of the Permanent Fund, I want the best
structure for the Permanent Fund and then I'll come
over here and work on this other problem."
5:13:13 PM
He referenced slide 9: "SJR 9 Protects The Fund: Mechanics Of
The Draw and The Split" as follows:
• $65 billion Permanent Fund:
o 4.5 pct. draw:
square4 2.0 pct. dividends,
square4 2.5 pct. to remain in the Permanent Fund, augment
the dividend, or for state services.
He commented on slide 9 and noted that the there was nothing
"magical" in his proposed 4.5 percent draw for a split with 2
percent for dividends and 2.5 percent for state services. He
opined that the proposal would be easy for the public to look at
and see where the money is going. He pointed out that the
committee might through its process decide to change the
percentages. He noted that the Legislature could decide in years
of higher oil prices to reinvest the state services' percentage
back into the Fund, or to pay a higher dividend, perhaps due to
situation that occurred a few years ago to address higher
heating fuel prices. He said the third option would be in times
like today where the state needs the 2.5 percent to come into
the treasury to pay for basic services. He emphasized that his
proposal provides flexibility.
5:16:20 PM
SENATOR STEDMAN referenced slide 10: "SJR 9 Protects The
Permanent Fund - 'Let's Talk Dividends'" as follows:
• Since 1982 the dividend has disbursed $22 billion to
Alaskans:
o Equitable distribution of resource wealth to those who
own the resources.
o SJR 9 provides a predictable and transparent dividend
via constitutional formula.
o Dividends will once again be reliable and linked to
the investment success of the fund.
He commented on slide 10 and noted that some people have said
the dividend money should have been left in the Fund where the
state would have $100 billion; however, he pointed out that
Alaska is the only state where the citizens own the subsurface.
He emphasized that the intent is to share and continue to share
the wealth that all Alaskans own.
He referenced slide 11: "SJR 9 - Projected 4.5 Percent Draw and
Dividend Amounts" as follows:
• FY 2020:
o 4.5 pct. draw: $2.513 billion;
o 2.0 pct. draw for dividends: $1.117 billion,
square4 Dividend: $1,816;
o 2.5 pct. draw for General Fund: $1.396 billion;
o Total ending Fund value: $67.017 billion.
• FY 2021:
o 4.5 pct. draw: $2.638 billion;
o 2.0 pct. draw for dividends: $1.172 billion,
square4 Dividend: $1,906;
o 2.5 pct. draw for General Fund: $1.369 billion;
o Total ending Fund value: $68.984 billion.
• FY 2022:
o 4.5 pct. draw: $2.766 billion;
o 2.0 pct. draw for dividends: $1.172 billion,
square4 Dividend: $1,998;
o 2.5 pct. draw for General Fund: $1.537 billion;
o Total ending Fund value: $70.882 billion.
• FY 2023:
o 4.5 pct. draw: $2.911 billion;
o 2.0 pct. draw for dividends: $1.294 billion,
square4 Dividend: $2,103;
o 2.5 pct. draw for General Fund: $1.617 billion;
o Total ending Fund value: $72.792 billion.
SENATOR STEDMAN commented on slide 11 and noted that if the 4.5-
percent draw was used, changing the draw percentage would take a
vote of the people. He pointed out that markets are not linear
but the projections on slide 11 are linear. He admitted that
some people would say the projected dividend amounts are ghastly
but noted that the state would currently be paying out a $2,800
dividend with a picture of the governor holding a big check like
previous governors had done. He said the state was experiencing
different economic times but emphasized that the dividend should
be based on the portfolio's value where Alaskans get 2 percent
of the market value over 5 years. If the economy expands the
dividend goes up, if the economy shrinks the dividend goes down.
He added that new oil and gas coming online would add to the
Fund as well.
He summarized that SJR 9 would take the politics out of the
dividend where 4.5 percent mechanically comes out with 2 percent
for dividends and the remaining balance for the State of Alaska.
He conceded that state services would require the draw for the
foreseeable future but asserted that the state can find its way
out of relying heavily on the Fund going forward.
5:20:45 PM
He summarized as follows:
Let me recap because it's a different conversation
that has been in the press for months. This is driven
off of how to manage the Permanent Fund without being
unduly influenced over our own financial position,
good or bad for the State of Alaska, and how do we set
it up to split the earnings and benefit directly with
the people and have the ability of the state treasury
and or leave the monies in the fund to grow, and then
we can look at this projection and we can see roughly
$1.4 billion this next year into our budget. We all
know sitting here, we've all been up to our neck in
budget mess the last several years, we know we are
going to need a lot more than that.
What we did 30 years ago in Sitka is we had a spending
rate of 6 percent. The financial markets were a lot
different then, they had a lot higher dividend yields
and the administrator at the time, he needed cashflow
because we lost our pulp mill. We on the investment
committee wanted a lower payout because we wanted the
future value for the community and we settled in on a
6 percent payout; that's run for years and that has
been ratcheting back a quarter percent a year. We had
political difficulties in ratcheting it back because
it's like, all governments are the same, they get used
to the cashflow, it's very hard to pull it back.
So, I would suggest, and hopefully we will over the
next several years, go forward with a discussion and a
conclusion that we are going to set the Permanent Fund
up in isolation regardless of our needs and desires,
then overlay that with a transition from where we are
at that given time to where we need to be with the
Permanent Fund; in other words, we may not, and this
is kind of getting kind of one step further, we may
not want to say starting in 2020 we are going to have
a 4.5-percent payout, just bang. We might want to
start, I think in the building now, we are talking
about 5.25 percent, we might want to start with a
higher one and ratchet ourselves back over several
years like 0.25 percent back so we can get to the
position where we want the Permanent Fund to be run
without undo influence, but we work in the real world
and we have real bills to pay, so we have to have some
flexibility. So, don't get the impression I am
advocating that one day we come with a number and shut
the door on the Permanent Fund and lock it up and we
can't put everybody in a pickle, we can work these
things through.
Mr. Chairman, I waited 30 years to come before your
committee to talk about percent of market value,
that's how long I have been working on percent of
market value. Nothing new to me, my staff just laughs,
they don't have to prepare the boss for anything, just
stick him in front of the group, it's very simple.
We had sent this piece of legislation back several
times to the drafters, they over complicate it, with
good intentions. For the public I think to become
comfortable with the restructuring of the Permanent
Fund, it needs to be very clear, very transparent, "No
bells and whistles of this arm wiggles money comes out
of this end," just straight forward. Under this plan
we would close the door for any draws over 4.5 percent
and the Permanent Fund would manage the fund, it would
be inflation proofed, we wouldn't have any inflation
discussions on the floor of the Legislature because it
is automatically done. The Department of Revenue would
get a check coming in, we would have the discussion on
what do we want to do with our share, the state's
share, the 2.5 percent, the other 2 percent goes out
as a dividend, and then we manage the financial
affairs of the state with what we have.
5:25:55 PM
CHAIR MEYER asked if the forefathers and mothers who put the
Permanent Fund and dividend together intended the dividend to go
into the constitution.
SENATOR STEDMAN answered as follows:
I firmly believe that the Earnings Reserve needs to be
rolled into the principal and the entire Permanent
Fund needs to be constitutionally protected. I think
having the portion, the 2-percent dividend portion or
the split, in this case we are talking about a 4-
percent draw, so the split of the draw is open for
public discussion, I think the Judiciary Committee has
been working on that. My expectation is it would be
less than a 50:50 probability that that would prevail
in the final version of this piece of legislation, it
is much more critical that the 4.5-percent draw is
protected than the dividend.
CHAIR MEYER asked if the 2.5 percent for the General Fund would
used for inflation proofing the Fund.
5:27:56 PM
SENATOR STEDMAN answered no and explained as follows:
The inflation proofing is derived as a component off
of your rate of return; for instance, if you had a 2-
percent inflation in this scenario, you would have to
make at least 6.5 percent or more a year, so if you
make 6.5 percent and you took out 2 percent inflation,
that leaves you with the 4.5 percent. So, if you run
your draw up too high relative to the performance of
your portfolio, you will erode your purchasing power,
that's why it is so critical that the draw rate is
less than the targeted after-inflation rate of return,
if you make them the same you have no room for error
and the probability is not good that you will step on
your foot, most likely. So, you draw that down, you
move that draw number down to give you some real rate
of return after inflation, after your withdrawal, so
it's growing beyond the rate of inflation every year.
5:29:21 PM
CHAIR MEYER asked what would happen if the Fund does not make at
least 6.5-percent rate of return. He inquired if the dividend or
the General Fund would be impacted.
SENATOR STEDMAN explained as follows:
When you have really robust markets, we are going to
payout 4.5 percent a year on a five-year average
regardless of what the market does. Market could go
up, market could go down, market could stay flat,
doesn't matter, 4.5 percent every year. There will be
times, if fact there will be more up markets than down
markets, on average, that's why economies get larger
and larger on average, that's why the markets get
bigger. So, there will be more years when you make
extra, you'll make your 4.5 percent draw, you will
make your 2 percent inflation, whatever your inflation
is at the time, 2.5 percent, whatever. You might make
12 percent in a year or 15 percent in a year, and all
of that is great because you are jumping up in your
return.
There will be years like when you go back and look at
recessions, 2008 and 2009, 2000, go back to 1978 with
"Black Monday," you can go back about every decade
you'll have a dip. In those dip years you'll still get
a draw of 4.5 percent over the 5-year average, but the
5-year average is going to be coming down because your
market value is going down. Some would argue, "Well,
then from the previous year you spent part of the
principal," let's say you only made 1 percent in a
given year and you take out 4.5 percent as an example,
some would argue, "Well, then you spent some of the
principal," but that's true in certain regards, but
that's why you want this structure so when we have
down years you have the smooth cashflow coming out
because your up years are going to more than offset
that. To turn it upside down you just bring your
payout rate 6-8 percent, and then your down markets
push your value down, your purchasing power, you can't
afford down markets, that's why it's more comfortable
to have a draw rate with some cushion in it, that's
why it is not at 4.75-5.25 percent, but that's also
the discussion and the evolution in the Legislature.
The Legislature may decide that 4.5 percent is too
conservative, they want 4.75 percent to 5.25 percent.
I think the Permanent Fund will have some discussions
or some input on some of that, what rates they are
comfortable with, but there will be times when you
have a down market and it could last two to three
years.
5:32:38 PM
SENATOR GIESSEL asked how he calculated for population during
the four years he portrayed.
SENATOR STEDMAN answered 1 percent growth.
He continued as follows:
I think what we did on these we took the amount of
dividends that they paid, the number, and just divided
it into the dollars, I don't have the equation in
front of me, that's how we derived the $1,800
dividend. I think it was 615,000, the actual dividend
checks are paying out, trying to get it as close as we
could, and then population historically has been
growing at 1 percent, I think lately it has been
shrinking, so if the population shrinks, I think in
this case $1.116 billion would be divided amongst
fewer people.
SENATOR GIESSEL commented as follows:
I don't question at all the mathematical accuracy of
what your calculation shows or the mathematical logic
of it at all, but as someone who deals in the realm of
people, if we had a dividend that was growing like
this, I believe our population would grow and I
believe that our Medicaid costs would mushroom to say
nothing of Office of Children's Services issues and
our substance abuse issues. Again, I'm not thinking
about this in a mathematical way, I'm thinking about
the impact that this kind of a dividend, over $2,000,
will have on people. This is pretty serious as I look
at it in a serious in a negative way.
5:34:45 PM
SENATOR STEDMAN answered as follows:
The draw rate was driven off of the asset allocation,
their investments and then performance, and that's
what set that. The dollar amounts are driven off of
the happenstance of the size of the fund, $65 billion,
and the 5-year average just happened to be what the
average was. If in through the process that the
Legislature felt that 2 percent for a dividend is too
big, you could take it down to 1.5 percent and add 3.0
percent on the other side, add that 0.5 percent to the
general fund. You could move those numbers around to
whatever the Legislature feels comfortable, but at the
end of the day we need, I firmly believe, the public
support for a constitutional amendment to restrict and
collapse the Earnings Reserve into the corpus and
block the Legislature's ability to do ad hoc
withdrawals or we are going to spend the money.
SENATOR COGHILL said he agreed with Senator Stedman on
collapsing the ERA into the corpus. He remarked that Senator
Stedman's proposal was an endowment approach that takes out
volatility. He admitted that he struggles with putting a
constitutional amendment in for the right of a dividend. He
opined that Senator Stedman's proposal was an excellent approach
of managing the wealth but noted that he would much rather have
the wealth go to a dividend in statute that could be revisited.
He explained that he did not want to put the dividend alongside
any other right in the Alaska Constitution. He added that the
state must address how to determine residency in Alaska due to
the state's transitory military population as well as the act of
people swearing that they are going to move back. He concurred
with Senator Giessel on the question she brought up of people
moving into the state "just for the right." He opined that
Senator Stedman's proposal is the best management structure that
he has seen to date.
5:38:50 PM
SENATOR STEDMAN suggested that the resolution be discussed in
the Senate Judiciary Committee. He said he would not be opposed
to the dividend's constitutional protection being removed or
adjusted with a flexible formula. He emphasized that the key
point was to protect the entire Fund with a constitutional
protection from the Legislature.
SENATOR STEDMAN said the 4.5 percent draw was a comfortable and
safe draw, albeit a lot people would consider the draw to be on
the low side. He opined that the Legislature would not establish
a draw rate that was excessively high because the Permanent Fund
Corporation would object if they saw an erosion of value.
He said he thought the concerns that Senators Coghill and
Giessel brought forward were part of the process the Legislature
goes through when each committee works on a bill and changes it.
He opined that how to control the size of the dividend was a
legitimate discussion because the state may end up with a
portfolio nest egg for future generations that is large enough
to run the state on.
5:41:14 PM
SENATOR COHILL concurred that the Fund should be preserved for
future generations with a structure that was a tried-and-true
method. He agreed that the resolution should move along to the
Senate Judiciary Committee.
SENATOR STEDMAN commented that those that think the proposal is
concrete, "Thou shalt not change it, it's perfect," are going to
be surprised. He emphasized that he is adamant of constitutional
protection of the corpus, preferably the ERA in closing that
door. He reiterated that the discussion on the dividend and
payout structure was just part of the process. He concurred that
there is a downside to constitutionally putting the dividend in
as well as the growth of a very large dividend that attracts
some social issues.
5:42:54 PM
CHAIR MEYER opened and closed public testimony.
SENATOR COGHILL agreed with the resolution's focus and said
legislators' responsibility was to bring as much stability to
the Fund as possible. He opined that the state has created a
treasure that needs to come to the time of life that it can go
on the next generation.
CHAIR MEYER pointed out that SJR 9 has a zero fiscal note.
5:45:12 PM
SENATOR GIESSEL moved to report SJR 9, version 30-LS1085\O, from
committee with individual recommendations and attached zero
fiscal note.
5:45:24 PM
CHAIR MEYER announced there being no objection, the motion
carried.
| Document Name | Date/Time | Subjects |
|---|---|---|
| SJR 9 Sponsor Power Point Presentation.pdf |
SSTA 4/13/2018 3:30:00 PM |
SJR 9 |