Legislature(2003 - 2004)
03/16/2004 09:07 AM Senate FIN
| Audio | Topic |
|---|
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
CS FOR SENATE JOINT RESOLUTION NO. 19(JUD)
Proposing amendments to the Constitution of the State of
Alaska relating to the Alaska permanent fund.
This was the first hearing for this resolution in the Senate
Finance Committee.
Co-Chair Wilken stated this resolution, "places the current method
to calculate the PFD dividend in the Constitution. In addition, the
constitution amendment requires a majority vote by Alaskans before
the Permanent Fund earnings reserve may be appropriated by the
legislature. This is a constitutional amendment that must be placed
in front of the voters in November of 2004."
MARK STOPHA, Staff to Senator Georgianna Lincoln, informed that
Senator Lincoln is out of town and he read testimony into the
record as follows.
SJR 19 before you contains three elements. It puts the
Permanent Fund Dividend into the Constitution. It puts
inflation proofing of the Permanent Fund into the
Constitution, and it creates a special account for the
remaining earnings reserve of the Permanent Fund, rather than
depositing those earnings into the general fund as we do now.
Those earnings will be available for use by the legislature,
but only by a vote of Alaskan voters.
This bill does not change the current structure of the
dividend program. It continues to payout dividends and
inflation proofs the Permanent Fund in that order, as we do
now, but places these processes in the Constitution. The bill
would never use the principal of the Permanent Fund to pay out
dividends or pay for other government services.
Subsection (a) of Section 3 was added in the Senate Judiciary
Committee. Senator Lincoln did not concur with that amendment.
The vast majority of our constituents are in favor of putting
the Permanent Fund Dividend into the Constitution period. We
believe the Judiciary Committee amendment of an unknown
spending limit as part of this bill is a separate issue and
should be addressed in separate legislation.
Finally, subsection (b) and (c) of Section 3 ensures that if
the bill were to make the Permanent Fund taxable by the IRS if
dividends become part of the Constitution, then the amendment
would be suspended and repealed. Attorney General Renkes has
provided an opinion that he does not believe that the bill
would make the Permanent Fund taxable. Section 3 provides a
provision to rescind the amendment if it does.
As you can see from this stack of e-mails in front of me that
has been sent to all legislators for the most part, the bill
is supported by voters from all corners of the State. The bill
is easy for the public to understand because it maintains the
status quo regarding how the Permanent Fund Dividends are paid
out. Guarantees payment of Permanent Fund Dividends as a
priority and protects the earnings reserve from legislative
spending by requiring a vote of the people.
Co-Chair Wilken questioned the claim made in the sponsor statement
that permanent fund dividends represent one-eighth of Alaska's
economy. He therefore calculated the economy of Alaska at $8
billion, but had understood the amount to be approximately $40
billion.
MARK GNADT, staff to Representative Eric Croft, was unsure where
this figure was derived.
Co-Chair Green acknowledged her comments were premature, recalling
the conversation from the previous meeting indicating that the
Permanent Fund is currently being over inflation proofed and asked
if this resolution contains a provision in the event that a
determination is made that investments are self-inflation proofing,
the inflation proofing provision could be "relaxed".
Mr. Stopha responded that the Permanent Fund would be inflation
proofed in the same manner as currently provided for in statute,
except this resolution would place the provisions in the
Constitution.
Co-Chair Green asked if the language in Section 1 on page 1, lines
10 - 12, inserting new language into Article IX, sec. 15 Alaska
Permanent Fund, reflect this. This language, following "All income
from the permanent fund shall be deposited in the…" reads
"…earnings reserve account and distributed as provided for under AS
37.13.140, 37.13.145, and AS 43.23.025, as those statutes read on
July 1, 2002."
Mr. Gnadt affirmed and explained this is standard method of
determining inflation proofing from the prior year.
Co-Chair Green asked if changes were made in current statutes
whether changes would automatically be made to this amendment.
Co-Chair Wilken answered yes.
SENATOR RALPH SEEKINS asked if the witnesses were aware of the Bess
versus Ulmer case.
Mr. Gnadt was aware of this litigation.
Senator Seekins asked if the sponsor had procured a legal analysis
regarding whether or not this resolution would be defined as an
amendment or a revision to the Constitution.
Mr. Gnadt did not have an official legal opinion to address this
resolution specifically. He indicated that other legal opinions
pertain to a "potential Bess v. Ulmer problem"; however, he stated
these opinions recommend language to comply the resolution with the
amendment criteria.
Senator Seekins asked if witnesses were concerned that a
constitutional amendment establishing a percentage of the annual
budget that would be allocated to the Permanent Fund and thereby
removing this authority from the legislature would constitute a
revision to the Constitution.
Mr. Gnadt replied that no such formal analysis of this had been
conducted.
Senator Seekins expressed concern that any constitutional amendment
that removes significant discretion from the legislature may
constitute a revision rather than an amendment.
Senator Bunde spoke to the proposal presented by Governor Jay
Hammond, referred to as "the Hammond Plan", and a related legal
opinion that determines the proposal to likely be unconstitutional
because it proposes major revisions to the Alaska Constitution.
Senator Bunde was unsure whether this pertains to the resolution
before the Committee, but recommended a legal opinion be procured
on this resolution before proceeding.
Senator Bunde remarked that the framers of the Alaska Constitution
"learned from the mistakes" of other state constitutions and chose
to not allow dedicated funds in Alaska's Constitution. He pointed
out this resolution would dedicate funds and asked if the sponsor
has considered the potential situation of required dividend
payments in the event of inadequate funding for public safety,
education, or other government services.
Mr. Stopha replied that funding for those purposes would continue
to be available, however would require a vote of the people to
authorize such expenditures from the Permanent Fund.
Senator Bunde clarified that each year in drafting the budget an
election would be required to authorize specific expenditures from
the Permanent Fund.
Mr. Stopha affirmed and noted the voting structure for these
appropriations could be negotiated as to whether they were specific
appropriations, "blanket" appropriations, or "forward funding,"
etc.
Senator Hoffman reported he has heard much on the topic of
dedicated funds and concluded that the State has turned a non-
renewable resource, oil, into a renewable resource i.e. the
Permanent Fund, and that the Constitution allows the Legislature to
allocate resources. He therefore questioned whether this resolution
would be dedication of funds or rather, an allocation of resources.
SENATOR HOLLIS FRENCH asked about public reaction to this
resolution since it was introduced.
Mr. Stopha qualified he has only worked for Senator Lincoln for one
year, but relayed Senator Lincoln's claim that no other bill she
has sponsored has received this much attention during her tenure in
the legislature. He told of the importance of dividends to families
in the Yukon Kuskokwim census area, where these payments comprise
18 percent of annual family income.
Mr. Gnadt added that constituents of Representative Croft are also
very supportive of this proposal.
Senator Bunde asked if this resolution would not change the method
in which dividends are calculated.
Mr. Stopha affirmed.
Senator Bunde noted testimony provided at the previous hearing
warning that if the dividend calculation were unchanged, the
dividend amount would be very low or zero in some years. He asked
if the sponsor has relayed this to constituents.
Mr. Stopha responded that the "spirit" of this resolution is
constitutional protection of the Permanent Fund Dividend.
Senator Hoffman asked if public feedback on this resolution has
been primarily related to constitutional protection of the dividend
program, inflation proofing, or other provisions.
Mr. Stopha replied that Permanent Fund Dividends has been the
primary concern.
Senator Hoffman asked if a large margin of expressed interest has
been related to the dividends.
Mr. Stopha answered yes.
Mr. Gnadt added that Representative Croft's office has had the same
experience. He noted that residents are accustomed to the current
system and how it affects their dividend payments.
Senator Olson addressed Senator Bunde's comments regarding public
understanding of the Percent of Market Value (POMV) approach to
managing the Permanent Fund. Senator Olson reported that
constituents are largely in favor of retaining the current system
despite understanding that POMV would stabilize the amounts of
dividend payments. He conveyed these residents are "wary" of the
POMV management method.
Co-Chair Green recalled that she introduced legislation in 1997
that would have accomplished similar goals but in a different way.
She learned from these efforts that to "get to the end of the
race", actions must be taken to provide assurance to the public.
She opined that legislatures have been "very honorable stewards" of
the earnings reserve fund and have "faithfully put forward the
dividend program to the greatest extent every year" as well has had
"great expectations of the investment boards" and Fund managers.
She reiterated that the public must be provided assurance that the
dividend program would continue, although she was unsure of the
proper procedure to attain this. She was unsure she supported all
elements of this resolution, but recognized it as an option.
Senator Hoffman concluded the dilemma is that three-quarters of the
members of the legislature must approve any changes to the dividend
program, after which, Alaskan voters must then approve those
changes. He heard "overwhelming" support for a constitutional
guarantee of dividend payments. He also noted that the membership
of the Conference of Alaskans did not make recommendations as to
what amounts should be allocated for dividends and government
spending. He reiterated that the Committee must address, and
subsequently reach an agreement that could receive support from
both the full Senate and the House of Representatives.
Senator Dyson paraphrased Senator B. Stevens comments made at the
Conference of Alaskans that guaranteeing the dividend in the
Constitution would "tie the hands of legislators" in the future in
the event of a fiscal crisis in which inadequate funds were
otherwise available for education, public safety or other critical
needs. Senator Dyson warned this would be a difficult situation and
he asserted that future legislature should not be subjected to this
possibility. He quoted Carl Marx, "The and once they've tasted it
they will be insatiable until they have drained it." Senator Dyson
cautioned the Committee to be wary of this.
Senator Bunde asserted the reason legislators are not elected at-
large for the entire State is because they represent different
constituencies. He reported that his constituency is of the opinion
that the dividend program has "morphed" from an opportunity to
receive extra money for themselves, into an entitlement. He deemed
this a serious matter and did not support an enshrinement of the
dividend in the Constitution and stated that residents in his
election district do not support this either. He told of findings
of a poll conducted by Dittman Research, in which a question was
posed as to whether the dividend should be guaranteed in the
Constitution. He informed that the results of this poll show an
equal division among respondents. He commented this could be
considered contentious, but disputed that a Constitutional
enshrinement is widely supported statewide.
SENATOR BERT STEDMAN commented that some aspects of this resolution
might seem "attractive" but do not fit well into the entire
"mosaic". He asked what consideration the sponsor has given to the
effect a constitutional guarantee of dividends would have in the
event of an immediate need to respond to a disaster, or in
addressing the current fiscal dilemma.
Mr. Stopha pointed out the earnings reserve account would remain.
He understood the concerns that a vote of the people would be
required before dividend funds could be expended even if an
immediate need were present, such as in the event of a disaster. He
emphasized this resolution is intended to be a part of a long-range
fiscal plan and he relayed Senator Lincoln's assertion that the all
options should be considered and that the permanent fund should not
be singled out.
Senator Stedman gave a historical perspective noting that since its
inception, the legislature has had the authority to appropriate
funds from the earnings reserve account; rather than doing this, he
noted the legislature has deposited $7.1 billion more into the
Permanent Fund than required.
Mr. Gnadt agreed the legislature has a "fairly good history" of
depositing monies into the Permanent Fund. However, he cautioned
against relying upon past actions to reflect future decision-
making. He furthered that the past actions were primarily taken
during years with high oil prices and a strong economy. He assured
this resolution would not eliminate the ability to appropriate
funds from the earnings reserve account, but rather stipulates that
the State currently garners 75 percent of oil revenues for the
general fund and the remaining revenues are "the people's money".
He furthered this resolution would require voter approval before
the remaining 25 percent of oil revenues could be spent for
government services.
Senator Bunde challenged characterization that the legislators are
"running off to Vegas" to spend oil revenues unscrupulously, and
countered that much of the money is spent in rural areas in which
residents do not contribute to education or public safety.
Senator Olson commented that much of the oil revenues are expended
in rural Alaska just as much of the resources came from rural
Alaska.
Senator Hoffman pointed out that Alaska is the only state with a
permanent fund situation and subsequent perceived "problems" with
deciding how to utilize those funds. He disagreed that this
resolution would "tie our hands", arguing that this is the
"peoples' money" and if "they want to tie our hands," voters had
that right. He also surmised that this resolution could also fail
and therefore the voters would not impose these restrictions on the
legislature. He remarked this would not be known unless the
question is placed in the ballot.
Co-Chair Wilken ordered the bill HELD in Committee.
AT EASE 9:45 AM / 9:46 AM
| Document Name | Date/Time | Subjects |
|---|