Legislature(1997 - 1998)
02/18/1998 08:05 AM House CRA
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
HB 279 - MUNICIPAL DIVIDEND PROGRAM Number 0076 CHAIRMAN IVAN announced the committee would hear HB 279, "An Act relating to the municipal dividend program; and providing for an effective date," sponsored by Representative Moses. Number 0115 REPRESENTATIVE CARL MOSES came before the committee to explain the legislation. He said he introduced HB 279 to create a dialogue as to why we don't have a budget crisis. Representative Moses stated he feels very strongly that we should be using surplus earnings to help with the needs of various communities. The bill states that all the surplus earnings would be distributed to communities on a per capita basis. He noted it doesn't have to be 100 percent. It could be 50 percent. It could be based on potential property tax revenue. Some could go to education. Representative Moses said it could be formulated in various ways. For example, we have a tremendous deferred maintenance problem and he ventured to say it is a lot more than $1.5 billion. He said that just didn't happen yesterday, it was created by cutting the budget. The surplus earnings should have been used long ago. Representative Moses said that the main reason why the permanent fund was created was to develop a fund for a rainy day. If the rainy day is here, we should be using it. A fund could be created with a portion of the surplus earnings for disaster situations. He stated that two years ago, the legislature put almost $700 million into the principal of the permanent fund. If that continues, the permanent fund will get out of hand. Representative Moses said he is sure the permanent fund dividend is a magnet to various people in the Lower 48 that are "down and out." REPRESENTATIVE MOSES pointed out that there is a method for the fund to grow anyway with a percentage of our resources that go into it. He said, "This doesn't touch the money that's used to inflation-proof or the distribution to the residents of the state." Representative Moses stated is willing to answer questions. Number 0365 REPRESENTATIVE JOE RYAN referred to AS 37.13.145 (e), "transferred to the fund under that..." He indicated he may not have the most current version of the bill. He said he is trying to figure out where the money will come from. Representative Ryan asked if there is more current statute as it is referenced in the bill. Number 0436 BRYCE EDGMON, Legislative Assistant to Representative Carl Moses, Alaska State Legislature, came before the committee. He stated, "The way I read the bill, that would introduce this portion of the bill under the statute (e)." Number 0466 REPRESENTATIVE REGGIE JOULE asked how much money would be in the undistributed account. REPRESENTATIVE MOSES said this year it is estimated to be almost $1 billion. He said the amount could be adjusted. The bill currently states all of it would be used, but it could be adjusted to the figure of 50 percent or whatever. Number 0510 CHAIRMAN IVAN referred to Representative Moses mentioning the $1 billion figure after inflation-proofing and asked if that is positively the number. REPRESENTATIVE MOSES responded the figure is an estimate of the surplus earnings this year. He said he believes the figure is $982 million. Number 0550 REPRESENTATIVE REGGIE JOULE asked Representative Moses if he has any idea how much interest that amount would be generated annually. REPRESENTATIVE MOSES indicated he didn't know. Number 0577 CHAIRMAN IVAN indicated there was someone from the Alaska Permanent Fund Corporation that will respond to the question. Number 0589 REPRESENTATIVE RYAN asked why there is a zero fiscal note. REPRESENTATIVE MOSES responded, "No general funds." REPRESENTATIVE RYAN asked if that money wouldn't become general fund money if it was appropriated. CHAIRMAN IVAN indicated there would be witness later in the meeting who would respond to the question. Number 0618 REPRESENTATIVE SCOTT OGAN referred to a comment by Representative Moses, "The rainy day is here and we should use it," and said that opinion is subjective. He stated, "We've been able to access the earnings of the permanent fund with a simple majority vote since it was created, yet it is never been spent on anything but the excess -- never been spent on anything but redepositing into the corpus." He stated that he hasn't heard from his constituents that the rainy day is here yet. Representative Ogan said he is under the philosophy that money in the hands of the people is better than money in the hands of the government. He stated he would rather make his decisions on how to spend the money rather than a municipality make a decision on how to spend it on his behalf. He said he is not going to be able to support the legislation. Number 0740 REPRESENTATIVE MOSES said he feels that this is a method of giving government back to the people. He said he believes the people should be able to decide how that money should be spent. He noted there is a move to cut $50 million in revenue sharing. By passing the legislation, the state could get out of maintaining roads in the various communities, particularly in the larger cities. Representative Moses pointed out there could be a future problem with the Internal Revenue Service (IRS) if something isn't done. He noted that 30 percent of permanent fund dividend that is distributed is taxed and goes to the federal government. He stated that he believes that the day is here where it's affecting that nest egg that we have of $24 billion. It is affecting the funds we receive from the federal government, and if it isn't, it will very shortly. Most people in the Lower 48, the bureaucrats and congressmen, will certainly lose sympathy for us when we have probably $30 billion in a savings accounts. He said we're not hurting. Number 0826 REPRESENTATIVE JOULE pointed out that there many communities that are still without water and sewer. There are also many communities that are facing, or are in limbo, about how to continue to provide assistance with regards to power and keeping the lights on in those communities. He stated we have a university system that is hurting and some parts of it are losing accreditation. Representative Joule said while he may not necessarily agree with HB 279 as being the vehicle to use, but he believes it does create the kind of dialogue that Representative Moses is looking for in terms of when do we start looking at some of the nest eggs that we have set aside. He referred to areas where there aren't economies and stated people are hurting. Number 0915 REPRESENTATIVE MOSES referred to the insinuation where local communities might spend the money wrong and said he believes the local communities are in a much better position to change their councils or assemblies, on a local basis, than changing the legislature if the money is spent wrong. That is why he says it gives government back to the people, where it belongs. If a council or an assembly squanders the money, there can be a local recall and change those members. On the other hand, if they get too much of a rebate and want to start their own local permanent fund, they can do that. Number 0963 REPRESENTATIVE JERRY SANDERS stated he appreciates Representative Moses introducing the bill. He said he believes it really needs to be discussed all over Alaska. Representative Sanders pointed out his own personal position has always been, and may not always be as he may change his mind some day, that if we were going to do anything with that money - it belongs to the people and it should be given back to the people. If they want to give it to their community to get sewer and water, it would be their choice. It's their money. He stated, "I feel guilty holding it in state government and I would feel just as guilty giving it to any other branch - any lower branch of government without the people's -- at the very least, the people's vote on it. And what I would really rather do is give it to the people and let the municipality try to get it back from them." Number 1029 REPRESENTATIVE RYAN stated he is not a firm believer that government is the most efficient way to get something accomplished. He stated he agrees with some of Representative Sander's comments. If we have to get rid of the permanent fund, he would favor a per capita distribution and let the people decide what they want to do with the money. Number 1203 KEVIN RITCHIE, representing the Alaska Municipal League and the Alaska Conference of Mayors, came before the committee to testify on HB 279. He noted the Alaska Municipal League and the Alaska Conference of Mayors joined consensus priorities, which is in information the committee has received. He stated the third priority says, "Consider creating a community dividend program to help develop Alaska's communities for citizens while assuring every Alaskan continues to receive an individual permanent fund dividend." Mr. Ritchie said, "What a number of you have stated is that now is the time to discuss the issue with Alaskans. And that is, in fact, what the Alaska Municipal League and the Alaska Conference of Mayors came to a consensus opinion on. Not that there is any bill now in existence which perfectly answers the question, but that the public really hasn't had the opportunity to really debate the issue to this point and they should." Mr. Ritchie said there are so many nuances with how the Alaska permanent fund is grown and managed. He said one thing that is real important is that it's a fact that property taxes for schools have doubled over the last ten years. The type of debate that would be very fruitful with constituents would be to discuss with them if they would rather see property taxes for schools to continue to go up or if part of the support for schools could be provided through something like a community dividend. Mr. Ritchie stated one of the real advantages that Governor Hickel has mentioned regarding a community dividend type of program is that it is not subject to federal income tax. The issue of whether municipalities continue to tax individuals and those individuals continue to get permanent fund dividends, if an individual gets a $2,000 permanent fund dividend and then pays 30 percent to the federal government, and then pays more out of that to support schools, you're essentially cutting the federal government in for 30 percent of the permanent fund dividend that could be going directly to operate schools. Mr. Ritchie stated that is a consensus position of mayors and the Alaska Municipal League. Number 1366 FORMER GOVERNOR WALTER HICKEL testified via teleconference from Hawaii. He referred to the community dividend program and said it is something that he has had in mind for a long time. He stated he has taken it to the Conference of Mayors two different times. Governor Hickel stated, "If you go back to the original reason why did we get the resources like the 103 million acres. The 90/10 and those possibilities was that the federal government at that time didn't think that Alaska could support itself of taxes alone. It was an interesting thing during the 50s, and Senator Bartlett wrote a good letter to the Constitutional Convention in 1956, stating that if these things happened - what would be the good consequences." Governor Hickel explained what he is trying to come up with is something that won't affect what is happening today. It won't affect the constitutional budget reserve. The idea is that the corpus wouldn't be touched. He pointed out that the legislature could decide to cap the permanent fund dividend at $1,000 until the community dividend program grew up to that same figure, and then they would both grow in comparison to one another. GOVERNOR HICKEL said the money would go the area in which the person lived. For example, if a person lived in Hooper Bay or Stevens Village, the person would receive a dividend for $1,000 and that area would also get a dividend of a smaller amount until it grew until they were both even. He stated in about seven to ten years, they would both be the same. Each community would decide what to do with the money on a local basis. Governor Hickel said the money wouldn't be taxable and the local people, at the local level, would decide what was the best thing to use that money for. The legislature would continue to have the functions they had before. This would just take from the dividend program and add it to local decision-making. GOVERNOR HICKEL stated the obligation of ownership in Alaska is very different than any state in the union. We have an obligation to manage those public resources. He pointed out that in a mid- western state, it would be done by the private sector. This kind of a dividend program would help every individual, whether water and sewer in a village is needed, or whether the money is needed for schools. He stated, "The legislature could decide at kind of what basis they want to use that for, but the finest government is to keep it at that local level." He said he would answer any questions the committee members may have. Number 1572 REPRESENTATIVE SANDERS thanked Governor Hickel for bringing the issue forward as he believes it is time that the state discuss things like this. He referred to a statement Governor Hickel said about the people within the local communities deciding what to do with the money. He asked how the decision would be made. He questioned if it would be decided by the elected officials or would the people vote on it like a bonding issue. He questioned how the decision would be made as to how the money should be spent. GOVERNOR HICKEL said if money went to Juneau, the Juneau City Council could make the decision. It also could be decided in some other way. An unincorporated village could do it at a council level. He pointed out he would like to get that money down to the lowest common denominator in a village or city. Number 1664 JIM KELLY, Director, Communications, Alaska Permanent Fund Corporation, came before the committee to testify. He said he would like to point out that it is the policy of the corporation to neither support nor oppose any proposal for the use of permanent fund earnings. It is the job of the board to make the money, and it's the legislature's and the administration's job to decide what to do with it. Mr. Kelly said the corporation does try to provide information about what would be the likely impacts of many of the decisions. He pointed out that there are some financial projection sheets which he believes have been included in the committee files. Number 1715 REPRESENTATIVE OGAN referred to Section 2 and asked if he is interpreting it correctly in that all of the earnings in the earnings reserve account would be transferred to municipal dividend funds. Assuming that the fund continues to grow every year, it looks like the municipalities would receive an ever increasing amount of money disbursed to them every year. He asked if that would be automatic or would the legislature have the ability to set the amount every year. MR. KELLY pointed out that the statute relating to the transfer of the dividends, which is 145 (b), is the authorizing language, but there is also a line item in the budget each year which makes that appropriation. He said he believes the line item rules. If there was a line item to change that amount, that is what it would be. Mr. Kelly said he believes that future legislatures would have the ability to adjust that number up or down as they see fit. Number 1788 GOVERNOR HICKEL asked why the community dividend program couldn't be tied to the same kind of an allocation or percentage as the individual dividend. MR. KELLY responded that the way the bill is written, it requires the transfer of any money remaining in the earnings reserve account, after dividends and inflation proofing, to the municipal dividend fund. He said, "For example, in the next several years the math doesn't even provide -- if all of the money that's in the earnings reserve account this year -- and this is a very - this is an extraordinarily good year for the permanent fund. The fund is expected to earn almost $2.2 billion, which is about $700 million or $800 million more than we normally would be expecting to earn except that the market has been so good. And we had another year like that last year." GOVERNOR HICKEL said if the dividend was capped at a figure that the legislature decided on, and then the community dividend started out with maybe $100 or $200 a year, as it grew to where the community dividend was the same as the individual dividend, they'd grow together and there wouldn't be any fluctuation from a standpoint that if the earnings weren't that high, they'd get a little less. If the earnings were higher, they'd get more. He asked if that kind of thought would be possible. Number 1872 MR. KELLY responded that it is possible. He pointed out that the proposed law would have to be written a little bit differently. He said dividends are paid out of what is called income available for distribution, they get 50 percent of it. The other 50 percent could be split to the municipal dividend fund. GOVERNOR HICKEL said that was the simplicity he was trying to get at. He said that as he took this idea around the state, that idea seemed to be understood the best and seemed to be acceptable. Number 1903 REPRESENTATIVE RYAN asked Mr. Kelly if he knows what the average percentage rate of return on the fund has been since inception. MR. KELLY responded that it has been somewhere around 12 percent per year. REPRESENTATIVE RYAN referred to there being two formulas set up, one is for inflation proofing and one for the dividend. He said he believes it goes back to a five-year average. Representative Ryan asked Mr. Kelly to explain how it works. MR. KELLY informed the committee that dividends are paid first. The formula exists in law and it says that the way you calculate them is you first would figure out what is income available for distribution. He noted income available for distribution is defined as the net income of the five years, including the year just ended, multiplied times 21 percent. You would then divide that in half and the dividends are 50 percent of that - 50 percent of the income available for distribution. Mr. Kelly informed the committee that the inflation proofing is done secondly. You take the amount of money in the principal on the last day of the fiscal year and you multiply it times the change in the consumer price index for the last calendar year and you multiply times that amount, and whatever that figure is you take it, in accordance with another line item in the budget, and transfer that from the earnings reserve to principal. What is left is the earnings reserve. Number 1961 REPRESENTATIVE RYAN asked if that reserve would be available if we had a bad year and didn't have enough money for dividends and inflation proofing. He asked if that wasn't the purpose of the earnings reserve. MR. KELLY said that is correct. He pointed out that projection sheet 2 indicates that because over the last two years we've had good years, and because we have the calculation on dividends as a five-year rolling average, dividends for the next three years are going to take these large years into account. He said, "So for the next three years, we'll be paying pretty high dividends, so high in fact if the income next year goes down, that we will not have enough money, as are indicated on the projection sheets, to pay both dividends and inflation proofing. In other words, there'll be no money left over after dividends and inflation proofing out of current year income for any purpose." He noted that because inflation proofing is behind dividends, dividends would get the full payment and inflation proofing would get the second. Mr. Kelly said a nuance that occurred to him after he did the projection sheets, is that there is a provision in the law that says net income available for distribution is the five years just ended times 21 percent, but may not exceed current year net income plus the balance in the earnings reserve account. Mr. Kelly said if the earnings reserve account were appropriated either to principal or a municipal dividend account, dividends next year are going to have to be based not on the 5-years times 21 percent, but on the current year's income only because that is going to be a smaller number than the five years. He stated what that means is that if the money were appropriated out of the principal, according to the way the law is currently written, instead of going up $20 million, dividends would go down $200 and some million next year. Mr. Kelly indicated he would forward revised projection sheets to the committee. Number 2104 REPRESENTATIVE OGAN stated the problem he has with funneling a whole lot of money to municipal governments is the area where he lives, the Mat-Su Borough, they have a fairly entrenched bureaucracy already set up. The more money you put into the bureaucracy, the more time they have writing regulations and the more they oppress people's lives. If there is a way to write the bill so it goes into capital or deferred maintenance projects, that would give him a better comfort level. Number 2200 REPRESENTATIVE MOSES stated the reason for the bill is to have the decisions made on a local level as to what is most needed, rather than 60 legislators in Juneau trying to decide what is good for somebody in a local area. The local bureaucracies should know exactly what they need the most. Representative Moses stated, "I don't think we should be playing politics down here as to what they should be spending their money on. We do it through revenue sharing. We don't put any real stipulations on how they're going to spend that money, and I don't think we should. It's going to tough to cut another $50 million out of the budget this year, and I maintain if we do something like this, we can eliminate revenue sharing. We can eliminate a lot of things we're doing for the communities." He said if the local IRA council, city council or borough assembly squanders the money, and if it's a terrible situation, they can recall. It is pretty hard for the public to recall the legislature. Number 2276 REPRESENTATIVE SANDERS said he has a philosophical statement. He said, "I think we do a terrible job, but I have never seen where I felt the local government did much better." He asked Mr. Kelly if he just said that under the bill, instead of the permanent fund dividend going up $40, it would go down $400." MR. KELLY clarified that if all of the money were appropriated from the earnings reserve account so that next year the earnings reserve account were zero, and if next year we earn the realized rate of return at 6.76 percent, which is what is projected, so next year we would earn $1,350,000,000, the dividend would have to go down probably to $650 million as opposed to being at $869 million. REPRESENTATIVE SANDERS asked if that is down $400 as opposed to up $40. MR. KELLY stated last year they paid $750 million at $1,300 per person. It would be 15 percent less than what we got last year instead of 15 percent more. REPRESENTATIVE SANDERS said, "It is $200 down as opposed to how much would it go up under that same scenario without this?" MR. KELLY said he doesn't know what the number would be. He said it is going to go up another 15 percent or 16 percent. Number 2361 CHAIRMAN IVAN asked Mr. Kelly to please provide the committee with a copy of the revised figures. Number 2367 REPRESENTATIVE RYAN asked Representative Moses if the distribution would be similar to the formula that is used for municipal assistance. REPRESENTATIVE MOSES responded in the affirmative. He noted he would like to see a minimum for a small community because if there are only 200 people, it wouldn't amount to much. Representative Moses said it could be distributed on their potential property tax revenue or assessed property in a community. He pointed out that the North Slope Borough, Valdez and Unalaska has a high amount of potential property tax revenue. The ideal situation would be that there would be a formula where they would get less based on their ability to tax themselves. Representative Moses stated there are various formulas that can be created. Number 2419 REPRESENTATIVE JOULE asked if $900 million is the amount that is in the earnings reserve account. MR. KELLY stated $982 million is what is being projected to be left over this year after dividends and inflation proofing. REPRESENTATIVE JOULE asked how much 12 percent would generate. MR. KELLY stated $120 million is 12 percent. Every billion dollars that the fund currently has invested will earn about $75 million total return and about $67 million in cash returns. He stated that next year, with the whole $23 billion invested, you would be looking at cash earnings of about $1,350,000,000, and total returns of $1,750,000,000. TAPE 98-10, SIDE B Number 0001 MR. KELLY continued, "You wouldn't be able to transfer the whole $982 - it's probably going to show that you're going to need to keep about $600 million in there. So maybe you could be able to transfer as much as $300 million without having any impact at all on dividends and inflation proofing in future years." Number 0020 GOVERNOR HICKEL stated that there were some good points raised about how the money would be spent at the local level, but he believes that the local level of government could make their decisions best. He referred to the Capital Matching Grant Program and stated a small village wanted to build a boardwalk down at the dock that would cost $100,000. If they applied for a matching fund grant from the state, they don't have to come up with 10 percent of that money where a large city, such as Anchorage, Fairbanks or Juneau, would have to come up with 40 percent or 50 percent. Governor Hickel said he thinks that we can trust basically the good sense of people at the local level given the money and a community dividend program. He stated that he is sure that they will put it to the best use. Number 0086 GARY HENNIGH, City Manager, City of King Cove, testified via teleconference from Anchorage. He noted he has been in his position for nine years. Mr. Hennigh stated the City of King Cove supports the concept of HB 279. He stated they certainly respect the wisdom and experience that Governor Hickel and Representative Moses are trying to bring to this issue. He said not all of Bush Alaska is the same. He said that the urban versus bush scenarios that he has heard some "give and take" about today, are quite interesting to him. Mr. Hennigh pointed out King Cove has an economic base because they are in the middle of the Southwest fisheries. He said just within the last five years, King Cove has seen their operating budget decrease by 25 percent and their capital project budget has been reduced between 60 percent and 70 percent. He stated he would submit to the committee that the rainy day is here for them. Mr. Hennigh said he would encourage serious dialogue and discussion about HB 279, having the ability to have a dedicated source of capital funds come to the local governments. Number 0180 JON BOLLING testified via teleconference from Craig. He stated that he believes the concept represented in HB 279 is a good idea for two reasons. One, the permanent fund was set up to help pay for state government when oil revenues dwindle, as they currently are. One of the programs that the state currently funds is the Municipal Assistance Revenue Sharing Program. He stated the plan to use a portion of the permanent fund earnings, not the corpus, to meet this obligation for municipalities allows the permanent fund earnings to be spent locally rather than at the state level. Mr. Bolling stated that he believes that local management of these dollars gives the average citizen a greater voice in how they're used than if the legislature budgets the money at the state level. He referred to Article X, Section 1, of the Alaska Constitution which provides for maximum local self government. Mr. Bolling said he thinks that distributing the money, as proposed in Representative Moses' bill, helps meet the intent of that provision of the Alaska Constitution. Ensuring local management of funds provides that the dollars be controlled locally as much as possible and not from Juneau. Mr. Bolling stated the proposal stands to be a huge resource for local governments. If the permanent fund dividend was capped at $1,000, and if the balance was to be distributed to municipalities, on a per capital basis, the City of Craig would have received $776,000 last year alone. That is about one-third of the annual operating budget. He pointed out that any annual income that amounts to one-third of an operating budget would be an incredible boost for the municipality. Economies of all municipalities across the state would benefit from a more stable tax base. Increased local employment could result from the backlog of capital projects that most municipalities face. The cost to the municipalities to borrow money, through bond sales and the like, will decrease because those municipalities will have greater cash reserves and a much more stable level of municipal income. Number 0309 MR. BOLLING informed the committee members that he does support some kind of a cap on the Permanent Fund Dividend Program. He said, "The dividend program was established to immediately benefit those of us who are Alaska residents, and whether we intended to replace the fund's original purpose, which was to fund state government when oil revenues decreased due to declining productivity of Prudhoe Bay and other places -- now that the dividend is at an all time high, people tend to see the Permanent Fund Dividend Program as the purpose of the permanent fund rather than as an offshoot from it. And I believe that the permanent fund dividend is creating a dependence on those who it was intended to benefit." He pointed out that if you encourage people to rely on the government to solve their financial problems, provide them a guaranteed income, they will indeed come to rely on the government. It is not the state's obligation to provide him or anybody else with a cash stream every year. MR. BOLLING said he has always felt that Permanent Fund Dividend Program was an inefficient way to distribute the state's oil wealth because it is subject to federal personal income tax. If a newspaper headline read that $140 million of permanent fund earnings were to be sent to the IRS, a lot of people would be outraged, but that is what will happen by April 15, 1998. He added that the IRS is considering levying a tax on the earnings of the permanent fund itself. They claim that because the permanent fund is not clearly for a public purpose, it may be subject to taxation. He explained that if that came to pass, the IRS would benefit twice. Once would be from taxing the actual earnings of the fund itself. They would benefit again when they taxed the individual permanent fund dividend given out the Alaskan residents. MR. BOLLING stated he believes HB 279, combined with a permanent fund cap, would do great things in providing stable revenue to the municipalities across the state and it would allow the local governments to better control how oil money is spent. He thanked the committee for listening to him. Number 0433 REPRESENTATIVE OGAN referred to the comment made by Mr. Bolling in that if the dividend was capped at $1,000, it would have brought $776,000 to the Craig if the city were to receive that money. He asked Mr. Bolling if he is saying that money in the hands of the City of Craig is better than money in the hands of the citizens that reside there. Representative Ogan asked if the local government doesn't currently have the authority, through taxes, to raise $776,000. A property tax could be instituted or the sales tax could be raised to make up that difference. MR. BOLLING said it is certainly true that the city does have authority to, and already does, assess a sales tax and a property tax. He said, "But I think that the perspective that you should take is that if you ask the citizens of Craig what they would rather do, pay more local taxes to substitute the money that the state used to pay, or to benefit 100 percent from oil revenues that the state could hand down rather than to disburse individually and having us give up 20 or 30 percent or whatever to Uncle Sam, I think that they would choose, 'Do not pay an increased local tax and to receive money from the permanent fund earnings to meet the obligations that the city has.'" Number 0503 REPRESENTATIVE SANDERS said the only way he could support the bill is if the people voted for it, statewide, to do it this way and if there was a provision included that the people of Craig would vote on how it was to be spent locally. Number 0526 REPRESENTATIVE RYAN stated because of federal law, there are a lot of people who own property who have no tax liabilities as far as a property tax is concerned. He said, "The state is made up, through municipal grants and various other forms, monies to these communities for these people to develop infrastructure and capital projects. And then in education we have the same situation. The largest recipients of education money make no local contribution where people in the organized areas make a substantial contribution to the education of their children. Until we get some equity and have these things straightened out, I'm going to be kind of hard pressed to anteing out more money to people when they're not ponying up like everybody else is." Representative Ryan said he is sure a lot of his constituents take their permanent fund dividend checks and pay their property taxes which supports not only their local communities, but their children's education. For them to bear that responsibility, and yet other people have no responsibility and get the same amount of money from the state is an inequitable situation. Representative Ryan indicated he was around when the permanent fund was created and he remembers debate where a lot of people felt that the state was much more wiser in spending the money than the people. Fortunately, wiser heads prevailed and we did save some money and put it aside. Representative Ryan said it was always his understanding that this was money that would be kept out of the hands of government. Number 0650 REPRESENTATIVE JOULE said there is so much that he doesn't understand about this huge fund that exists and all the nuances around it. He said he believes that as those issues are debated in our communities and there is a forum, then we can hear from constituents. That forum needs to be provided in order for the discussion to take place in the communities. He asked Mr. Kelly to speak to the issue of the IRS taxing the fund in addition to the individual permanent fund dividends. MR. KELLY explained the permanent fund is not currently taxed by the IRS because it is a public fund and it's like any other public fund in the country. He stated it is not in jeopardy and nobody is proposing that it is in jeopardy as it currently stands. He informed the committee that the reason the fund is not in jeopardy is because the legislature has full ability to take that money and do anything they want with it - put it to any public purpose. Mr. Kelly stated, "There are proposals that would put into the constitution, and take it out of the hands of the legislature, what is done with that money and to the extent that all of that was to put the dividend into the constitution specifically, which could be perceived as a private purpose rather than a public purpose. And the legal counsel advises us that if such a path were gone down that the arguments would be weakened on the state's behalf in terms of keeping the permanent fund tax exempt. It doesn't say that wouldn't still prevail, it just says it would weaken the arguments." Number 0816 ROSEMARY HAGEVIG, Past President, Alaska Municipal League; Member Borough Assembly, City and Borough of Juneau, came before the committee to testify on HB 279. She explained that this concept has been a major priority for the Alaska Municipal League and the Alaska Conference of Mayors for the last couple of years. She stated that they find it to be a very intriguing concept. Ms. Hagevig informed the committee members that they have participated in some excellent meetings with past governors, Hickel, Hammond and Sheffield. They have been very interested and supporting of helping move forward with the concept. Ms. Hagevig stated, "We would like to go on record as stating to you that as a umbrella organization, we would be very interested in working with any legislative committee that would continue discussion." She noted she is very interested in Representative Sander's concept that this be sort of a public driven kind of idea. She said nothing happens without a great deal of public pressure and a good deal of public input. The concept of perhaps being able to funnel this money into much needed capital projects at the local level would certainly be something that they would be interested in considering. She noted any capital project of any stature at the local level does end up being placed before the voters for approval. Ms. Hagevig said she would be happy to answer questions the committee members may have. Number 0943 REPRESENTATIVE OGAN said in his opinion, it is probably easier for a past governor to support the idea rather than a present governor or somebody that is currently in a political office because they are not worried about getting reelected. He said the current governor has publicly said that no money will be spent from the permanent fund without a vote of the people. Representative Ogan said he doesn't know if he meant the corpus of the fund or the earnings, but in the eyes of the public he doesn't think there is much difference. He asked Ms. Hagevig if she would support an amendment to the bill that would require a vote of the people. MS. HAGEVIG stated she would support such an amendment. She added that she feels a tremendous amount of public education and discussion would have to occur. There would have to be an opportunity for the people of the state of Alaska to take a look at why the permanent fund was originally created. She said there are certainly a lot of extenuating ideas that would probably evolve as a matter of having this discussion occur. Ms. Hagevig stated, "We certainly welcome all good ideas. We just think it's time for this concept to get some public attention and we certainly are pleased that the legislature is taking this opportunity to begin that discussion." Number 1012 REPRESENTATIVE OGAN pointed out there was an education endowment petition being circulated which failed to get enough signatures. It would have basically used the same earnings reserve account for education. He indicated he would be more supportive of that as he believes education is one of the biggest priorities. He said he kind of looks at that as a defacto public poll on the sentiments to use the earnings of the permanent fund. Number 1063 REPRESENTATIVE RYAN pointed out that different communities have different outlooks. Juneau has a sales tax. The people of Anchorage recently amended their charter to require a 60 percent vote to impose a sales tax, super majority. Representative Ryan stated that there is a theory that anytime the gate is opened to spending the permanent fund money, it will become a flood. He said, "And I know through my political career, I've had people lined up down the hall with good ideas on how to spend the money. What's your feeling on this?" MS. HAGEVIG said she agrees with Representative Ryan in that many of us have had the same kind of observation. She said she thinks that at the local government level there are a lot of real unmet needs and a lot of pressure on local taxpayers. Ms. Hagevig said there is probably a good reason that Anchorage is considering a 60 percent requirement to put a sales tax on the ballot. She pointed out that most of the communities in the state do have some sort of a sales tax, but it is literally impossible to meet all of the needs of the communities. She said she wouldn't even suggest that if this concept should become a reality that we would still be able to meet all of the needs of the citizens. Ms. Hagevig referred to the issue of opening the flood gates on the permanent fund and said she believes that we need to go back to the original concept of why the permanent fund was put in place. She said it was put in place to take care of the public needs of the people of the state of Alaska. Number 1263 CHAIRMAN IVAN said there has been a great deal of discussion and a lot of interest regarding the permanent fund and how the corporation works. He said he believes that Mr. Kelly will provide the committee with projections. Chairman Ivan indicated that he doesn't believe the bill would move, but does see some possibilities of working with Representative Moses regarding the legislation. He said if communities don't trust their local government, maybe there is a possibility of creating a public corporation that would serve the purpose. He said he has heard comments regarding getting a vote of the people to authorize this concept to move forward. Chairman Ivan said he would encourage the committee members to work with the sponsor to see what can be done to improve the bill. He said the bill could be taken up at a later time. Number 1376 REPRESENTATIVE RYAN noted he is a member of the Anchorage caucus and had attended a caucus the previous Saturday. He informed the committee that he questioned the superintendent on where teachers' wages were in comparison to the Lower 48, and Alaska is way up high. The comment the superintendent made was that even though we're paying these very good wages, the teachers were disquieted because they noticed that their neighbors who work for the government are making more. He said they don't believe they are on a parity and equity with the government employees, therefore, they believe they need an increase in wages to keep track. Representative Ryan informed the committee that his wife is a registered nurse and she doesn't make anywhere near what teachers do. He said he wonders how much behind the government employees she is. Number 1430 REPRESENTATIVE JOULE asked Representative Moses if he is aware that the Alaska Humanities Forum is holding public hearings around the state to discuss issues relating to the permanent fund. REPRESENTATIVE MOSES said he is aware of the hearings. REPRESENTATIVE JOULE asked Representative Moses if he is going to work with the forum and ask to have discussions at those community levels as well. REPRESENTATIVE MOSES indicated he is willing to work with anybody to make something like this happen. He said the deferred maintenance problem is a good example, it didn't happen yesterday. It happened over a period of time because we neglected it. He said he believes we have an obligation to take care of the problem. Sure, we can bond it and pass it onto future generations, but he believes we are derelict in our duties for not having taken care of the problem. He said these funds could have been used for that purpose. Representative Moses stated he believes he has an obligation to his constituents to see that things like this are taken care of. If they don't want to reelect him because he is suggesting that the surplus earnings of the fund should be used for these purposes, that is fine. He said as leaders or as elected official of this state, he believes this is something that can't be ignored. Representative Moses said he would submit to the committee that the estimate of $1.5 billion is probably low. It is probably more like $2 billion or $2.5 billion. If you don't do maintenance on a building, you won't have a building or it becomes useless. Representative Moses said, "Now we're sitting here letting that happen. We have psyched the public into thinking that we have a budget crisis. Some of us have campaigned on no taxes. And there is another thing, sure you put it up to the vote of the people, it's only human nature not to want to pay taxes. That's our obligation to decide I think. And the permanent fund basically is something for nothing and if you let the public decide, sure they'd want all these surplus earnings distributed to them. I mean they have no obligation to worry about a lot of things that we get faced with down here. That's what we're here for, and to say that we may not get elected again if we do such and such, I strongly feel that's why I was elected -- to make some of these tough decisions that maybe the public may not like." Number 1612 REPRESENTATIVE SANDERS said if the funds were used for capital improvements and maintenance, he could support the bill. If there is a lot of leeway in there to use the money for operating municipal government, it draws him away from the bill. Number 1655 REPRESENTATIVE MOSES said he would subscribe to using the fund for education, deferred maintenance and anything of that sort. He said, "This is probably the easiest way of getting a dialogue going and it's based on giving the government back to the people and let them decide how to spend that money if we don't have the guts to do it ourselves." Number 1686 REPRESENTATIVE OGAN said he believes very strongly that a majority of the people in his district wouldn't support the legislation. He said he is elected to represent what their viewpoint is. Representative Ogan said we can't lose sight of the fact that the permanent fund dividend represents the citizen's ownership in the natural resources of the state." He noted it's the people's oil and resources, and it doesn't belong to any particular exclusive group. Number 1769 REPRESENTATIVE MOSES said he believes that every dollar that is taken in in revenue belongs to the people. Number 1800 MR. EDGMON said that he and Representative Moses have been in contact with the Alaska Humanities Forum in terms of their outreach program. He said he has also been in contact with Dave Rose regarding the legislation. Mr. Rose has presented information in which he talked about his fear about the corpus of the fund being taxed by the IRS. His point of view is that it is an inevitability. He said he would provide the information from Mr. Rose to the committee. House Bill 279 was held for further consideration.
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