Legislature(2001 - 2002)
05/03/2002 01:44 PM Senate JUD
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
SJR 13-CONST. AM: PERMANENT FUND
CHAIRMAN TAYLOR said SJR 13 proposed amendments to the
Constitution of the State of Alaska relating to the Alaska
permanent fund. He asked Mr. Jay Hogan to provide testimony.
MR. JAY HOGAN referred the committee to his letter dated May 3,
2002. He wanted to make one correction to that letter and said
HB 304 had passed out of the House of Representatives and was now
in the Senate. He said the letter explained his position.
He said a great deal of change had been made to the permanent
fund by statute over the past 26 years. He said the investment
policy and inflation proofing was provided for by statute, as
well as a host of other improvements. He said that was the way
it was supposed to be.
He said he sat through many committee hearings in 1975 when the
statutory permanent fund was passed by the legislature and vetoed
by the governor. He said the discussions in 1976 focused on
making it a flexible provision so that future legislatures would
be able to change the administrative structure, purposes of use
and other things. He said the only provisions that were put in
the Constitution were the concept of a trust fund, the source of
income (25% of certain mineral royalties) and that funds could
not be withdrawn once they were in the corporate status.
MR. HOGAN said Wyoming had created a payout provision for their
public school fund and permanent mineral trust fund by statute.
He said other states did the same thing by statute and through
their constitution. He said it was historically correct to make
this change by statute. He didn't understand why there should be
a constitutional provision when a statutory provision would do
the job.
3:35 p.m.
CHAIRMAN TAYLOR said it seemed that SJR 13 would set up a
disconnect between the earnings and dividends by going to a fixed
average percentile instead of the 5-year income averaging. He
asked if SJR 13 would cause dividends to eat into the principal
of the fund.
MR. HOGAN said from his own research on the issue he discovered
that there were a number of endowments and trust funds that used
the 5% payout method. The theory is that over time it would
allow for inflation proofing of the fund and allow a reasonable
return of money to be used for other purposes. He said the State
had more than 20 years of experience inflation proofing the
permanent fund by statute by putting earnings reserve money into
it and inflation proofing on an annual basis. He said that was
the choice of those individual legislatures. He felt the
permanent fund had been doubly inflation proofed. He said the
legislature should retain the ability to choose what to do with
the income of the permanent fund.
SENATOR THERRIAULT commented that Mr. Hogan's letter provided a
good synopsis of the history of the permanent fund and what other
states were doing. He would probably use the first part of the
letter that talked about the creation of the permanent fund. He
received an email from a constituent that said the permanent fund
was created to dish out dividends. He was amazed that there was
so much misinformation out there.
He said the Senate State Affairs committee substitute (CS)
addressed the issue of the possibility of eroding the principal
of the permanent fund. He referred to page 1, line 16, which
stated, "Money may be appropriated from the earnings reserve
account." He said Section 1 specified that all income from the
permanent fund would be retained in a separate earnings reserve
account. He said the 5% draw was limited to that earnings
reserve account and would not be taken from the principal.
CHAIRMAN TAYLOR asked if there were any further questions for Mr.
Hogan. There were none. He asked Ms. Sheila Howe to provide
testimony.
MS. SHEILA HOWE, N.E.C., said she was a mother. She said she
spent most of the summer reading over the information on SJR 13.
She supports SJR 13 because the bill would give some stability
and permanency to the inflation proofing qualities of the
permanent fund. She understood that the permanent fund was
initially intended to meet the needs of the state in the future.
She wasn't concerned about the dividends paid out on a yearly
basis. She saw the need to protect the permanent fund against
inflation and perpetuities and thought SJR 13 was the best way to
accomplish that.
SENATOR THERRIAULT asked if she was in Alaska during the advisory
vote on the permanent fund dealing with the long-range fiscal
plan.
MS. HOWE said she had been in Alaska since 1969 and had not
missed an election.
SENATOR THERRIAULT asked if she felt comfortable telling the
committee how she voted.
MS. HOWE was against that proposal because of the way it was laid
out. She wasn't against using the APF.
SENATOR THERRIAULT said Mr. Eddie Burke [ph.] said he spoke for
Ms. Howe. He said Mr. Burke's editorials lumped Ms. Howe's no-
vote with the 83% that voted against the proposal. He said Ms.
Howe's position was very different than Mr. Burke's.
CHAIRMAN TAYLOR asked Mr. Robert Storer to provide testimony.
MR. ROBERT STORER, Executive Director, Alaska Permanent Fund
Corporation (APFC), Department of Revenue (DOR), said the board
of APFC believed that inflation proofing should be memorialized
in the Constitution. He said that could be done by creating a
spending limit of no more than 5% of the moving average of the
APF over a five-year period. He said only the earnings reserve
of the APF would be available and the principal of the APF would
be protected. He said SJR 13 was heard extensively in the Senate
State Affairs Committee.
MR. JIM KELLY, Director of Communications, APFC, DOR, referred
the committee to the memorandum from Mr. Storer requesting
amendments to SJR 13 dated April 23, 2002. He addressed the
fourth paragraph on page 2 of the memorandum, which requested a
technical amendment:
Sec. 30. Transition. On the effective date of the
2002 amendments relating to the Alaska permanent fund
(art. IX, sec. 15), the balance [PORTION] of the
statutory earnings reserve account (AS 37.13.145) [THAT
CONSISTS OF INCOME] of the permanent fund is
transferred to the earnings reserve account established
in Section 15(a) [15(b)] of Article IX.
MR. KELLY said he discussed this amendment with Senator
Therriault and believed he was supportive of it. He said APFC
had not had time to show the Senate State Affairs CS to the board
and legal counsel when it was moved out of committee. After
legal counsel reviewed the CS, it was discovered that 15(b) would
need to be changed to 15(a). He said that was just a technical
error. The addition of the word "balance" and the subtraction of
"that consists of income" would be necessary to make the intent
clear. He said the APF's market value was the combined total of
the principal, the realized and the unrealized income. He said
5% of that would be the payout limit in any given year, all of
which would come from the earnings reserve account.
He asked for a further amendment to add the words "inflation
proofing" after the words "relating to" in the first line of the
title. He said SJR 13 was really about inflation proofing the
APF. He said the 5% limit would ensure that the APF was made
permanent in the Constitution. He said as long as those
provisions were in the Constitution, APFC would be able to
provide a growing income stream in addition to what would be
needed to be retained to offset inflation. He believed the
change in the title would make it easier for the people to
support SJR 13 at the polls after it passed the legislature.
CHAIRMAN TAYLOR moved Amendment 1 to add the words "inflation
proofing" after the words "relating to" on page 1, line 1 in the
title; replace the word "portion" with the word "balance" on page
2, line 9; strike the words "that consists of income" on page 2,
line 10; and replace "15(b)" with "15(a)" on page 2, line 11.
3:50 p.m.
SENATOR THERRIAULT said the wording of the title had gone back
and forth between the legislative drafters and the APFC. He said
bill titles were supposed to express the contents of the bill.
He understood that the APFC wanted the title reworded for
salesmanship but inflation proofing didn't really cover the full
contents of the bill. He said SJR 13 was more than just an act
dealing with inflation proofing because it would set up the 5%
draw. He said inflation proofing would be accomplished but he
didn't think that would be a correct title for the bill.
SENATOR DONLEY said it wouldn't be a legal title.
CHAIRMAN TAYLOR removed the title change from Amendment 1.
MR. KELLY said the rest of the amendment was for clarification
purposes. He said the point of that section was to transfer all
of the money that was in the earnings reserve account and
everything that everybody thought was in the earnings reserve
account. He said that was currently in a statutory earnings
reserve account and SJR 13 would set up a constitutional earnings
reserve account. They just wanted to be sure that the two
accounts matched up.
SENATOR THERRIAULT said that was added in the Senate State
Affairs Committee so that the legislature wouldn't have access to
the earnings reserve account by a simple majority vote. He said
the new account would be protected and only 5% per year would
come out.
MR. KELLY said the words "that consists of income" should be
stricken because they suggested that the unrealized earnings
would not be transferred when they should be.
SENATOR THERRIAULT said they wanted to make sure that everything
from the statutory earnings reserve account got moved into the
constitutional earnings reserve account.
CHAIRMAN TAYLOR asked if there was objection to Amendment 1.
There being no objection, Amendment 1 was adopted.
CHAIRMAN TAYLOR asked if there was further discussion on SJR 13.
There was none. He asked if anyone else wished to testify on SJR
13. There was nobody.
SENATOR THERRIAULT moved CSSJR 13(JUD) out of committee with
attached fiscal note and individual recommendations.
CHAIRMAN TAYLOR noted that there was an objection.
Upon a roll call vote, Senators Cowdery, Ellis and Therriault and
Chairman Taylor voted in favor of moving CSSJR 13(JUD) out of
committee and Senator Donley voted against moving CSSJR 13(JUD)
out of committee. Therefore, CSSJR 13(JUD) moved out of
committee by a vote of four to one with attached fiscal note and
individual recommendations.
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