Legislature(1999 - 2000)
03/22/2000 09:06 AM Senate FIN
| Audio | Topic |
|---|
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
SENATE JOINT RESOLUTION NO. 33
Proposing amendments to the Constitution of the State
of Alaska relating to the permanent fund and to
payments to certain state residents from the permanent
fund.
SENATOR JERRY MACKIE told of how he wanted to generate
public discussion on his proposed plan prior to the
resolution being heard in any committee. He stated there was
a huge response that represented both pro and con
viewpoints. He continued that he was appreciative of those
who supported the plan. Of those who opposed the plan, he
said he wanted to find out why to determine how the concerns
might be addressed.
Senator Mackie then began to describe the elements of the
resolution, referring to a handout entitled, Mackie Plan
Assumptions. [Copy on file.]
Senator Mackie stated the resolution is a constitutional
amendment that would require voter approval. If approved, he
said the plan would provide a one-time final dividend
payment of $25,000 from the permanent fund for each Alaskan
who is eligible for the dividend as of January 2001. He
qualified that no new people would move to the state to take
advantage of the payout because the one-year residency
requirement has already begun.
Senator Mackie noted the plan requires no new statutes or
changes to statutes.
Senator Mackie shared that after the $25,000 dividends were
paid out, which he estimated to total approximately $14
billion, the dividend program would end and there would be a
balance of $12 - $13 billion in the permanent fund. He said
the Permanent Fund Corporation estimates that 592,000 people
would be eligible to collect a dividend in the year 2002. He
added that the fund would continue to be managed by the
Permanent Fund Corporation, the principal would be
constitutionally protected against spending without voter
approval and that only the earnings would be available for
government spending.
Senator Mackie pointed out that the plan also calls for
inflation proofing the fund and stated that most people
agree that inflation proofing the fund was the responsible
thing to do.
Senator Mackie relayed that the Corporation gave an estimate
of the annual earnings off of the $12 billion balance using
rates of return of eight, ten and twelve percent. He
qualified that the Corporation issued a disclaimer stating
their prediction was an eight-percent rate of return.
However, he said their projections were always conservative
and he noted that the fund has never earned below ten
percent. Therefore, he believed ten percent was the most
reasonable assessment of future earnings. He referred to the
chart in the handout that showed that once the fund was
inflation-proofed earnings of ten percent would be $884
million in the first year of the plan. In the year 2003, he
said the fund would earn $923 million. He continued with
predicted earnings of $962 million and $1.4 billion in the
next two years with the amount continuing to grow. He said
the reason the earnings continue to increase was because the
plan does not change the current constitutional requirement
that 25 percent of oil revenues go to the corpus of the
permanent fund.
Senator Mackie's prediction was that after the payout, this
plan balances the budget with no additional taxes required.
He indicated his opposition to taxes.
Senator Mackie admitted there would be a significant impact
on dividend recipients' individual income taxes. He relayed
that the Alaska Society of Public Accountants has
volunteered to do a complete analysis on the tax
consequences for all tax brackets. He thought the members'
would be surprised to learn that individuals would actually
have more money after they received the one-time large
dividend, paid the tax, invested the remaining funds and
received an annual dividend from their personal investment.
Senator Mackie noted that the average Alaskan was in the 28
percent tax bracket. He said an individual would have to
earn over $250,000 per year in order to reach the 39 percent
tax bracket. He added that he was continuing to work on
determining how Individual Retirement Accounts (IRAs),
educational trusts and other investments could avoid some of
the tax burden.
Senator Mackie voiced another question raised was the affect
the payout would have on the eligibility of recipients of
such public assistance programs as welfare, Medicare, and
low income housing programs. He talked to Margaret Pugh,
Commissioner, Department of Health and Social Services and
was told that this could be the best public assistance
program ever to get people off welfare and to become self-
supporting. Senator Mackie avowed that the reason people are
poor was because they didn't have any money. He predicted
that giving this money would help people. He also
anticipated that the state would save money with the
reduction of public assistance.
Senator Mackie explained how current statutes does not
calculate permanent fund dividends as income for eligibility
for the Alaska Temporary Assistance Program Denali KidCare,
Adult Public Assistance, or the Longevity Bonus Program. He
also learned that permanent fund dividend income was not
included in the eligibility requirements for most Medicaid
benefits. However, he noted that the dividend would be
considered as income for those recipients of two programs,
food stamps and supplemental social security insurance.
Senator Mackie spoke to low income housing programs saying
that while current participants would not be affected
because federal guidelines allow for a one-time receipt of
cash, any new applicants would be affected. He added that
daycare assistance, the USDA child and adult care food
program, school meals eligibility, and Headstart would not
be adversely affected by the large payouts to eligible
Alaskans.
Senator Mackie next addressed child support saying that
Commissioner Perdue said the reason many people were on
welfare was because of back child support owed to custodial
parents. He told about the large amount of money that a
single parent household would receive after the parent and
children's' dividends were collected and after the deadbeat
parent's dividend was garnished. He suggested that the money
could provide for the children's education, provide job
training or fund a small business to allow the family to get
off public assistance. He quoted the Department of Health
and Social Services "It's not fair to assume these folks
want to stay on welfare. Any opportunity they have to get
off - they're gone." He stressed that this plan would
provide a tremendous opportunity for people who are
dependent upon the government for basic support.
Senator Mackie shared there were currently 11,000 cases of
overdue child support payments in the state, where dividends
are garnished to help make those payments. He estimated that
garnishing a $25,000 dividend from deadbeat parents, who are
Alaskan residents would collect $103 million for those
children. He continued that 7,500 of those cases would be
closed because the amount due was equal to or less than the
amount of the large payout. The balances due on the cases
would be reduced greatly, he stressed.
Senator Mackie next addressed the 10,100 defaulted student
loans equaling $80.9 million owed to the State Of Alaska
noting that the garnishment of the large dividend would
close 9,000 accounts and repay $67 million to the student
loan program.
Senator Mackie stated that the $25,000 dividends from the
current number of 3,500 felons would yield $87.5 million. He
told of how the funds are allocated to the Sexual Violence
and Domestic Abuse programs, the Violent Crimes Compensation
program and the Department of Corrections Prisoner
Rehabilitation program.
Senator Mackie believed that the permanent fund was
established by the voters to provide a source of revenue
that would pay for essential services when oil revenues
declined. He stated that only 40 percent of the current
residents of Alaska were residents when the permanent fund
was established. He continued that it wasn't until six years
after the fund was established that the legislature decided
to distribute some of the earnings among individual
residents. He argued that many people have since developed
the attitude that the permanent fund is only in place to
provide the dividends.
Senator Mackie admitted that he and other legislators had
been unwilling to argue this point with the public. He
divulged that he was as guilty as many others were of
championing on the campaign trail, to protect the citizen's
dividends at any cost. As a result, he remarked that because
of this attitude, "our state's going down the drain." Since
he and others were retiring, he shared that they could now
"tell it like it is."
Senator Mackie expressed that the state was unable to
adequately fund the University of Alaska, K-12 education,
deferred maintenance needs and road systems. He expounded
that this has had a significant negative impact on the
public at a time when Alaska is the richest state in the
nation. He surmised that there was not one other state that
would not want to trade places with Alaska's financial
problems.
He restated his opposition to tax, saying that to implement
a large sales tax would only drain money from the community
He did not appreciate the use of the word "bribe" but noted
that the $25,000 dividend was an incentive or a negotiation
to try to break the hold that people have on the notion that
the fund is only for providing dividends.
He talked about the different reasons the September 14, 1999
advisory vote regarding the use of the permanent fund had
failed. He asserted that those who claim the budget should
be cut further don't understand that an additional $1
billion cannot be cut from a $2 billion general fund. His
assessment of the reason the long-range budget plan was not
approved was because the legislature did an inadequate job
of educating the public. He stated that the plan "looked
like a blank check that we are writing to ourselves." He
added that the plan was too complicated and did not give the
voters enough time to thoroughly understand it.
Senator Mackie warned against "sticking our heads in the
sand," suggesting that the legislature should devise another
option to present to the voters. "If you don't like my plan
let me see your plan" he remarked and said he appreciated
others' plans. He made further comments about other plans
and surmised that other legislators would prefer the matter
to "go away."
Co-Chair Torgerson warned the witness to keep his comments
to the bill rather than speculation of the other member's
intentions.
Senator Mackie shared one of the reasons he developed this
plan was because of his concern about the future. He
cautioned that if the state's reserved continued to be spent
down, in four to five years the reserves would be gone and
the legislature would be unwilling to tax at the high rate
that would be necessary to fund government. The only option,
he stressed would be to tap into the earnings of the
permanent fund, which is what pays for the dividend program.
Senator Mackie stated that because of the state's
constitutional mandate to balance the budget, the
legislature would have no other choice but to use funds from
the earnings reserve account.
REPRESENTATIVE GARY DAVIS added that when the legislation
was introduced he immediately supported it. He noted that
this plan balances the budget without imposing new taxes.
Representative Davis gave a history of the expectations of
dividend recipients that initially were "wow, this is nice"
to entitlement sentiments after several years of the
program. He spoke of testimony from Alaskans challenging the
legislature to not take away their individual dividends. He
expressed that those people who argue so ardently against
using the permanent fund to help pay for government services
are not the same people trying to make the decisions
necessary to keep government functioning.
Representative Davis stressed that while this legislature is
attempting to make a $30 million budget reduction, future
legislatures will face the need to make much larger
reductions. He admonished those who simply call for
reductions without understanding what was involved.
Representative Davis stated that in the previous year, the
voters rejected a long-term solution to the budget situation
and that this resolution offered a short-term solution,
which may be what the voters wanted.
Senator Green asked if the sponsor had looked at what
statutes would need to be revised to incorporate this plan.
Senator Mackie said he had not because other than clean-up
language in the reviser's bill, there would be no other
changes to statute. He was careful to not make any changes
to statute.
Senator Green repeated Senator Mackie's comments that those
recipients of welfare, Medicaid, low income housing,
Temporary Aide for Needy Families (TANF) or Denali KidCare
would not loose their eligibility for those programs after
collecting the large dividend. She asked what would be the
impact on the hold harmless and if it would be only a
portion of the payout amount or the entire $25,000.
Senator Mackie understood that the hold harmless did not
automatically rise with the amount of the dividend, but was
an amount set in statute.
Senator Green wanted to know if the witness thought it was a
good thing for people who's income and need were the
qualifying factors for these programs to receive $25,000 and
not have their eligibility impacted. Senator Mackie
responded that it was a good thing in that those individuals
and families would become able to move off of welfare, which
he predicted all would do.
Senator Green said that she understood that those recipients
would not be required to move off welfare.
Senator Mackie deferred to the department for a specific
response. He expressed his prediction that many people would
leave these public assistance programs and that the entire
hold harmless provision would go away since there would no
longer be a dividend.
Senator Leman continued on Senator Green's point that the
sponsor had said the large dividend would not prohibit
people from qualifying for certain programs and that the
sponsor thought that was positive. Senator Leman found it
interesting that the sponsor took that approach rather than
considering it a positive incentive for those people if they
would not qualify for the programs.
Senator Mackie responded that the hold harmless was already
placed in statutes and that the legislature could change
those provisions if desired. After listening to those who
manage the programs and deal with the participants daily, he
realized that the participants would be gone.
Senator Leman asked if "gone," meant gone from the state or
from the programs.
Senator Mackie clarified that he meant those program
recipients would no longer participate in the public
assistance programs, although some could leave the state as
well.
Senator Leman asked where is the credibility of the
permanent fund program when applicants sign an oath that
they intent to stay in the state indefinitely.
Senator Mackie countered that was the way the system
currently operated and that he was not changing anything.
While he was not promoting that people leave the state after
receiving a large dividend, for those people who lived in
Alaska only to receive the benefits of the permanent fund he
said, "don't let the door hit you in the butt on the way
out." He stressed that he was born in Alaska, his family has
been in the state forever and that he would die in Alaska.
He suggested that if those people left, there might be
smaller class sizes and fewer people to worry about.
Co-Chair Torgerson stressed that this resolution did not
repeal any statutes. He thought that for Committee members
to drill the witness on the impact the resolution would have
on any laws was unfair.
Senator Wilken requested another opportunity to continue
this conversation after the public testimony. He wanted to
discuss the fund's earnings and how they would be projected
in relation to inflation proofing.
Senator Adams stated that the presentation was excellent but
that the plan was ahead of its time because the state was
not yet "broke". However, he surmised that this was the best
long-range plan before either the Senate or the House of
Representatives. He supported no taxes, and expressed "let
the people vote."
Senator Adams then asked about future generations.
Senator Mackie agreed the intergenerational issue was a
problem and admitted this was not a perfect plan. However,
he was also concerned about future generations if there is
no money to fund certain services such as the university
system and senior citizen programs.
Senator P. Kelly questioned whether this plan would actually
lose on the intergenerational point, because of the argument
that if the state is going to be able to pay for future
services, a long-range fiscal plan needs to be implemented
now.
Co-Chair Torgerson asked the sponsor to provide a written
response from the Department of Health and Social Services
regarding Senator Green's concerns about whether recipients
of a large dividend would qualify for certain public
assistance programs.
ART GRISWOLD testified via teleconference from Delta
Junction as an older resident who would lose money from his
Social Security Insurance as well as his tax deductions for
his minor children and his spouse if the large payout was
made. He encouraged funding of the land grant university
work as intended.
MARY GRISWOLD testified via teleconference from Homer that
she was opposed to SJR 33 and supported HB 411 as a better
method of providing essential government services while
preserving the dividend program.
JAMES SHOWALTER testified via teleconference from Kenai
against SJR 33 saying that legislatures did not know the
meaning of the word "no".
KATE BALLENGER testified via teleconference from Kodiak in
strong support for SJR 33 because she believed it would
relieve the current funding situation. She was tired of
hearing the debate on what programs to cut when this money
was available. She could not understand how anyone could
oppose this plan when it would eliminate the deficient.
JUNE BURKHART testified via teleconference from MatSu asking
Senator Mackie what part of no didn't he understand. She
took issue with his suggestion that voters did not
understand what they were voting for on the advisory vote.
She avowed that she knew what she was voting for.
BRYAN VAN ETTINGER testified via teleconference from
Petersburg against SJR 33 because he believed it would place
a wedge between divorced parents. He addressed the deadbeat
dad comment and took offense to the term.
JOHN GLOTFELTY testified via teleconference from Delta
Junction that the resources were given to all Alaskans in
the constitution and told the Committee not to remove the
citizens from the oversight of the fund.
Tape: SFC - 00 #57, Side B 9:54 AM
Mr. Glotfelty continued.
SUSAN GIBSON testified via teleconference from Kenai taking
issue with Senator Mackie's comment about people's attitude
regarding budget reductions. She suggested the legislature
get some courage to stand up to special interest groups.
LINDA ANDERSON testified via teleconference from MatSu
accusing the legislators of lining their pockets.
BILL PHILLIPS testified via teleconference from Kenai about
his mistrust of the legislature.
JESSE CHANDLER testified via teleconference from MatSu that
he thought the $25,000 payoff was "stupid".
KEITH LIPSE testified via teleconference from MatSu telling
the Committee to not use his dividend to fund welfare. He
charged that the people on public assistance would return
even after receiving the large payout.
Senator Mackie concluded thanking the Committee for hearing
this resolution. He promised that at the next hearing he
would ask those who support the plan to come testify.
AT EASE 9:59 AM / 10:04 AM
| Document Name | Date/Time | Subjects |
|---|