Legislature(1999 - 2000)
05/11/1999 06:20 PM House FIN
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
HOUSE BILL NO. 231
An Act relating to income of the Alaska permanent fund,
to the Alaska Income Account, and to permanent fund
dividends; and providing for an effective date.
HOUSE BILL NO. 232
An Act making a special appropriation from the budget
reserve fund under art. IX, sec. 17©, Constitution of
the State of Alaska, to the Alaska Income Account; and
providing for an effective date.
JIM KELLY, DIRECTOR OF COMMUNICATIONS, ALASKA PERMANENT FUND
CORPORATION, DEPARTMENT OF REVENUE, addressed materials
distributed to Committee members. [Copies on File]. He
noted that the job of the Permanent Fund Corporation (PFC)
is managing investments of the permanent fund. It is not
the job of that staff to make policy decisions, instead that
is the work of the Legislature. The PFC provides an
analysis of implications of any proposed changes.
Mr. Kelly stated that SB 232 is an investment matter. He
noted that Greg Allen had modeedl the proposed statute in
order that PFC could get a concrete understanding of the
financial implications under a variety of financial market
conditions. The initial implications of the proposal are as
follows:
1. Moving to a percentage of "market value
distribution" approach, which is a sound approach to
meeting long term objectives of achieving consistency
in distributions and long term preservation of
purchasing power.
2. Shifting to a GAAP model from a statutory income
approach appears to be an appropriate action.
3. Using a five-year averaging approach should reduce
the volatility of distributions.
4. The transition approach appears to be very
reasonable (phasing in the five-year period).
5. Incorporating a one-year lag improves planning
flexibility and also will ten, over the long term, to
reduce the magnitude of the 5.25% distribution when
related to current market value. That would make the
distribution level more consistent with preservation of
fund purchasing power.
6. Limiting fiscal 1999 distributions to the $1,000
dividend would definitely enhance the probability of
maintaining sufficient future balances to fund
operations in accordance with constitutional
requirements.
7. Including the Capital Budget Reserve Fund (CBRF)
balance in the new Alaska Income Fund would similarly
improve the probability of the program working within
Constitutional limits.
8. The future dividend mechanism appears workable.
9. Liberalization of the maximum equity limitation is
essential to the attainment of the return objectives
that are essential for achievement of both distribution
and purchasing power objectives.
10. It is clearly possible, although improbable, that
a protracted period of weak financial market returns
would undermine the plan or any alternative plan based
on distributed earnings.
11. The distribution percentage (5.25%) initially
appears aggressive and warrants careful analysis. As
noted earlier, the averaging and lagging features
incorporated in the proposal moderate the magnitude of
the distribution percentage. However, it leaves little
if any margin for error.
Mr. Kelly stated that it was improbable that any plan based
on distribution of earnings would be in jeopardy.
Representative Austerman asked if the proposed plan was
stronger than what currently exists. Mr. Kelly spoke to the
features which make it stronger.
* Reduction in this year's payout;
* The addition of the CBR account; and
* The averaging provisions.
Co-Chair Mulder asked if during times of a "bull market"
would any plan suffer. Mr. Kelly stated it would. Co-Chair
Mulder continued, how would this plan stack up in a
protracted market. Mr. Kelly replied that for the concerns
listed, it would be structurally sound.
Mr. Kelly referenced Page 2 of the handout which addresses
the endowment long term spending goal prepared by Greenwich
Associates in February 1999. The medium payout rate of all
endowments in the United States is 4.9%. The average payout
rate is 4.7%. In the case of HB 231, it is averaged over a
lagging 20 quarters and is infused with dedicated oil
revenues which makes the effective rate less than 4.9%.
Mr. Kelly continued, the following 20 pages of the handout
were prepared by Gregory Allen, EVP, Callan & Associates,
Inc., on the Alaska Permanent Fund Simulation Model, (Mother
of Models, All - or MOMA), for HB 231.
* Asset allocation assumptions;
* 5.25% distribution - using actual results through
March 1999, and using the 1999 Callan capital market
assumptions. It would assume a 48% equity moving to a 58%
equity by the end of FY2000; assuming a net contribution to
the income account of $1.873 billion dollars; distributing
income of 5.25% of a graduated 5 year average; assuming the
dividend is paid at $1 thousand dollars per applicant in
1999, 2000 and 2001 and that general accepted accounting
principles are used;
* Fund value versus principal balance;
* Real fund value adjusted for inflation;
* Illustrates how the Alaska Income Account grows
based on the median expected rates of return;
* Illustrates the distribution from that account
each year, dividing it into two pieces, government and
dividends;
* Range of fund value which identifies the
volatility of the plan. The median case expectation is
$29.949 billion dollars. The middle line on the chart
illustrates the medium case scenario.
* Illustrates the "real" inflation adjusted value of
the fund. There is a range of possibilities from $37
billion down to $18 billion dollars.
* Range of ending Alaska Income Account (AIA)
balance. The chart shows the ending balance in that account.
* Range of distributed income at 5.25%.
Discussion followed among Committee members regarding "doing
nothing" and the outcome of that to the Permanent Fund.
PETER BUSHRE, CHIEF FINANCIAL OFFICIER, PERMANENT FUND
CORPORATION, DEPARTMENT OF REVENUE, commented that the
approach to the health of the State's revenue crisis would
be as much of a decision as taking no action. Co-Chair
Mulder agreed.
Mr. Kelly acknowledged that the plans implemented twenty
years ago were good plans and worked well during that time.
The fund has grown to $26 billion dollars which is greater
than ever expected. During the next twenty years for
reasons described before, because of crossing the line for
oil revenues and fund income, change in the accounting
methodology and increased volatility income returns, make
having a plan essential. He emphasized that HB 231 is a
change in plan.
Mr. Kelly continued previewing the handout.
* Range of distributed government income. In the
year 2003, the median expected production of income would be
$831 million dollars. In the year 2008, it is expected to
pay just under $1 billion dollars.
* Range of effective payout rate. The median payout
rate for 1999 is $2.37 billion dollars. The effective
median payout rate achieved at 5.25% is 4.85% of market
value, which is not much error in margin points. He
reiterated that it is important that the effective payout is
sound.
Mr. Bushre spoke to the financial projection provided in the
handout for the years 1999 - 2020. The sheet reflects the
status quo, current law, and includes the provision for the
Amerada Hess settlement income being transferred to the
principal. He offered to provide a comparison of the status
quo and HB 231. [Chart included in File]. HB 231 creates a
much simpler environment and contains no Amerada Hess
settlement income and no inflation proofing.
(Tape Change HFC 99 - 127, Side 2).
Mr. Bushre continued, there is only one kind of income,
which conforms to today's accounting standards. That would
be a total return which includes appreciation. Dividends
are based upon the thousand dollars per year per recipient
for the first three years and 42% of the distribution. He
emphasized that the spreadsheets are merely flat
projections. They are not forecasts or anything like the
MOMA model. Mr. Bushre pointed out that conditions would
not be that consistent over the next 20 years.
In response to questions, Mr. Bushre commented that the
market has been rising since October 29, 1929. The market's
history teaches us that over the long term equities have
appreciated in value.
Co-Chair Mulder clarified that the comparison of financial
projections of the status quo versus HB 231, under the
status quo, funds would amount to $63.733 billion dollars
and under HB 231, those funds would be $56.174 billion
dollars. Mr. Bushre agreed. That resulted because of a
larger distribution under HB 231. Co-Chair Mulder
acknowledged the figure was closer than he had expected.
Co-Chair Mulder pointed out that the status quo plan does
not take into consideration how the unrealized gains and the
needs of the Legislature will come into play to fund
government. Mr. Kelly replied that for the past several
years, the Board of Trustees has been looking at the
percentage of market value distribution of income and the
long term spending policy that would fit well with a long
term investment policy. Their interest is structurally
creating a system that works.
Mr. Bushre suggested a hypothetical situation in which there
were no other "pockets" of money left in the earnings
reserve or the Alaska Income Account which would mean, the
only thing left would be the principal. The principal is
protected by the Constitution and it would take a
constitutional amendment to access. Representative J.
Davies commented that the choice would be whether the
dividend was funded or if the government was funded. The
status quo assumes that conversion would not happen.
Representative Bunde questioned the language of the
amendment. [Copy on File]. Mr. Bushre explained that one
item missing from HB 231 had been included in the amendment.
The amendment would clarify in law that the permanent fund
could disburse the amount of the distribution to the general
fund over the following 12 months which allows the
Department of Revenue to project a reasonable cash flow for
funding the principal.
Representative Bunde asked if the corpus definition would
include unrealized earnings. Mr. Bushre stated it would
not. The unrealized earnings, if HB 231 were passed would
become part of the Alaska Income Account.
Representative J. Davies pointed out that this was
considered consistent with the generally accepted accounting
principles. He questioned where the volatility would lay.
Mr. Kelly explained that the model runs 300 different
correlated scenarios. Stocks and bonds still move in
relationship as do components of the assets.
Representative J. Davies asked how the 20-year risk was
determined. Mr. Kelly explained that was important because
of a transition period. In all cases, the model runs out in
20 years, and usually, only five years is listed, although,
once again, the model does provide numbers for 20 years.
Representative J. Davies pointed out that the included
information shows all stocks and bond market and real estate
return variability. The oil price variability is not
included.
Mr. Bushre provided a sectional analysis of the bill. HB
232 will appropriate the balance in the Constitutional
Budget Reserve to the Alaska Income Account, which is the
balance remaining after the appropriations for the coming
fiscal year's operating budget deficit, included and
estimated to be $1.873 billion dollars. In order for that
to be effective, the CBR must be invested under the same
asset allocation as the Permanent Fund if kept in a separate
fund. The Department of Revenue could do that.
Additionally, if there is a protracted period of market
downturns, and there is 5.25% draw, a larger portion of the
AIA balance, the CBR would require a 3/4 vote to be
accessed.
Mr. Bushre noted that HB 231 is the primary bill before the
Committee and that it would establish the definition of the
AIA, placing it on the same footing as used by all funds in
computing income and determining the balance of the earnings
reserve.
Mr. Bushre noted that Section 2 is the heart of the bill.
It would establish this as a separate account of the
Permanent Fund and would establish the percentage of the
market value distribution formula.
Mr. Bushre spoke to an additional housekeeping amendment
provided by the Permanent Fund. The end of 1999 should be
addressed because there is a legal opinion that if the bill
is silent, the 20-quarter distribution formula would
automatically "kick in" on what is already appropriated by
the Legislature. That would wipe out the AIA. Nothing to
date has been proposed concerning the distribution rate.
There is a small margin for error because of the 60% cap on
equity investments. If the cap were higher, it would not be
a problem.
Mr. Bushre testified that the board would recommend moving
to a percentage of market value. Mr. Kelly interjected that
Mr. O'Leary would be more comfortable with a 5.1% payout,
and that the allocation equity ceiling on investments was
65%.
Co-Chair Mulder questioned speculation regarding the time
frame in which the Internal Revenue Service (IRS) might look
at the Permanent Fund as non-taxable. Mr. Bushre replied
that the Permanent Fund receives its tax exemption by virtue
of the fact that it is a fund of a sovereign state
government's legislative bodies. Even if HB 231 was passed
and enacted into law, future legislatures have the option of
changing it or appropriating different amounts. It is the
opinion of the Attorney General that we need the
appropriation from the Legislature. And so, if HB 231 was
enacted, there would be a need to come back to the
Legislature every year with language to appropriate the
5.25%. Mr. Bushre did not see any change between the status
quo and the proposed bill in regard to protecting the fund
from future taxation.
WILSON CONDON, COMMISSIONER, DEPARTMENT OF REVENUE, provided
his observations of the plan before Committee. He made a
brief comparison of the policy choices reflected in the plan
and the consequent results in comparison to the plan that
Governor Knowles submitted. He believed that there were a
few policy considerations that needed to be addressed. When
comparing plans, it is important to consider how they work,
who pays, and what burdens would result based on the same
assumptions.
Commissioner Condon continued, in terms of return on assets
for both for the Permanent Fund and the Constitutional
Budget Reserve Fund, the Department of Revenue used 8.25%,
the return rate consummate with the spreadsheet provided by
the House Majority Plan. Additionally, the Department of
Revenue proposes a correction for the projections relating
to production of oil and gas resources that have not yet
been discovered or which have been discovered but which
currently, there are no development plans.
JOHN SHIVELY, COMMISSIONER, DEPARTMENT OF NATURAL RESOURCES,
spoke to a distinct possibility which might occur in a high
case scenario for resource development. Obviously a
discovered reserve is less risky than an undiscovered
reserve. He added that NPR-A may have a lot of oil or
concurrently, it could have nothing. He spoke to low case
possibilities. The Administration has used the mid case
projections, which are more probable.
Commissioner Condon spoke to the Governor's plan. He noted
that the balance in the CBR would as projected today, go
down between the years 2010 and 2020. At that time, the
Governor would propose to make another transfer. Details
are being worked out. Whether to use a separate fund or use
the proposal by the House Majority to access the Permanent
Fund. He observed that all technical details have some
benefit. The important issue to address is the policy
trade-off between the dividend and a broad-based tax. The
Governor suggests shifting the burden to a broad-based tax
called the Alaska Credit Income Tax.
Commissioner Condon continued, the House Majority plan
represents a different policy choice for a smaller dividend
and then to use that revenue to pay for government services.
He spoke to market place volatility, whether the plans would
fit together, the investment limit which could result from
the proposed legislation, and the asset allocation which
would follow the legislation. He questioned if the State
could plan to pay out 5.25% of the base specified in the
bill while covering inflation proofing and management fees.
(Tape Change HFC 99 - 128, Side 1).
Commissioner Condon explained that when investment
professionals quantify risk, they are talking about
volatility. It is important to be realistic about how much
the State can depend upon the revenue from the Permanent
Fund to pay for schools, hospitals, Pioneer Homes and all
those things that are generally believed essential for
government to provide. He questioned if the State was
putting "too many eggs in the Permanent Fund basket". He
acknowledged that a broad-based tax would not help
legislators to win a popularity contest, but that it would
diversify and provide sound management of State's finances.
Commissioner Condon expressed that diversification is an
important consideration. Additionally, there will be a need
for a vote to access the Permanent Fund.
Co-Chair Mulder commented that taxes mean "trouble" in
Alaska, particularly with also accessing the Permanent Fund.
He suggested that the "new" revenues proposed by
Commissioner Condon are flat. Commissioner Condon
interjected that the purpose of that number is to simply
indicate a target revenue level from a broad-based tax.
There was no judgement intended in that number on the
performance of Alaska's economy. He emphasized that the
plan proposed by the Administration does fill the gap. The
Governor is open to using a percent of market value.
Those who manage the fund can explain the benefits that go
with that approach. In addition to the use of the Permanent
Fund, the Governor would ask to see a broad-based tax such
as an income or sales tax. That would diversify the revenue
being used to fill the gap.
Co-Chair Mulder pointed out that the Governor's plan assumes
utilization of some portion of the Permanent Fund earnings.
Representative Austerman inquired how far off the numbers
used in the House Majority plan were for the projection of
new oil revenue. Commissioner Shively responded that it was
not significantly off. The Governor's plan is less
aggressive in the early years and more so later on. The
total amount would be the same if the high case scenario was
used.
Representative Grussendorf commented that regardless of
which plan is chosen, taxes will need to be addressed. He
asked which plan would Callan and Associates deem more
stable from a point of view of investment and soundness of
the fund. Commissioner Condon replied that he did not know
which plan they would choose, however, that agency has
advised the Department for several years on use of the
Permanent Fund and that the payout of earnings should be
based on a formula percent of market value. That agency
would recommend that taking steps to make the Alaska Income
Account relatively large compared to the overall size of the
Fund which has the effect of reducing the availability of
income over the long range. It is important to make the
earnings reserve account as large as possible.
Co-Chair Mulder pointed out that on Table 5 of the handout,
revenue from incremental oil and gas production moved to a
well head price per barrel, which is historically different.
Commissioner Shively explained that the revenue is based on
a well head. He added that both the production tax and the
royalty is based on the well head value, not the market
value. Commissioner Condon added that every revenue
forecast begins with a market determination and then deducts
transportation costs to arrive at a value point for
royalties and taxes.
Representative Austerman inquired if there would come a
point when it would be important to deposit more funds into
the corpus. He believed that the AIA should be as large as
possible given the fluctuations in the market and the income
earnings. Commissioner Condon acknowledged Representative
Austerman's concern, although, suggested that there were
competing considerations and judgements. If there is a
possibility that future legislators would be irresponsibly
managing the principal, it would be important to take that
money "off the table". On the other hand, to have the
required flexibility to manage finances is important to
readily access the funds.
Representative J. Davies requested Commissioner Shively to
walk members through the handout: "Incremental Revenue From
High Case Forecast of:
1. New Discoveries of Oil and Gas, and
2. Development of Discovered Oil and Gas Not Currently
Scheduled for Development". [Copy on File].
Commissioner Shively highlighted major points of the
handout:
* Table 1 Base line Alaska Production from
Department of Revenue Spring 1999 Forecast:
* Chart 1 High Case Technically Recoverable Oil
Production Not Reflected in Department of Revenue Spring
1999 Forecast;
* Table 2 Department of Natural Resources
Technically Recoverable Incremental Production 2000-2020;
* Table 3 Department of Natural Resources
Economically Recoverable Incremental Production 2000-2020;
* Table 4 Severance Tax and Royalty Fraction
Contributing to State Revenue;
* Table 5 Revenue from Incremental Production
Estimates; and
* Table 6 Unrestricted Revenue to State Using
Department of Revenue baseline and Department of Natural
Resources Incremental Production.
Commissioner Shively agreed that there is not a huge
difference between the two plans.
Co-Chair Mulder requested Mr. Bushre to have Callan and
Associates run the MOMA model on the Governor's plan so that
there could be a comparison of the two plans.
Representative J. Davies asked why the number for inflation
proofing varied among different departments, studies and
groups. Commissioner Condon explained that two different
types of inflation were being addressed. The first is the
national level, the nexy inflation rate is the one reflected
in asset prices. The numbers used by the State are the ones
provided by Callan and Associates. Much of the work that
they provide annually for the State is projection of
inflation and the real returns for all the different asset
classes which form our asset allocation. Callan and
Associates believe that over the next 5 years, given the
current economy, Alaska will see an average inflation rate
of 3%.
Representative J. Davies understood the need for the
different figures and agreed that we should not use the
inflation rate for growth of government. He acknowledged
that the two numbers should be a different policy calls.
Representative J. Davies questioned why the Anchorage API
was substantially different than the national rate.
Commissioner Condon explained, it is assumed that there will
be less growth in concerns such as wages. He stated that
that broad-based tax would allow a higher dividend.
Representative J. Davies requested a calculation scheme
which would indicate what each household would pay according
to income level. Co-Chair Mulder reiterated the need for
the back-up materials.
Co-Chair Mulder requested feedback from Legal Counsel
regarding the effective date of the statutory enactment to
the passage of an advisory vote.
TAMARA COOK, DIRECTOR, LEGISLATIVE LEGAL AND RESEARCH
SERVICES, LEGISLATIVE AFFAIRS AGENCY, explained that there
is little information available since it has not been
challenged in our State. She noted that in the research
that she had done, there had been one vote placed before the
people by the Legislature to approve a voter registration
law in 1968. It was a binding vote of the people and
apparently it went unchallenged.
She continued, the issue is whether the Legislature can
delegate its legislative power to enact laws to the people.
The Constitutional proceedings discuss that point. At one
point in time, some of the members were in favor of an
amendment to the Constitution that would provide that. That
amendment was defeated following some discussion suggesting
that the members who attended the Constitutional Convention
felt that the power of initiative and referendum, operated
to provide the people a voice in the enactment of laws.
That was sufficient, and there was no need to have the extra
step of allowing the Legislature to submit to the people for
a binding vote the enactment of the law. The issue is
whether such a submission would be an improper delegation of
the legislative power.
Ms. Cook pointed out that the Attorney General's office
issued two opinions in 1982 and 1983, concluding that a
binding vote scenario tying an effective date to a vote of
the people would survive, but acknowledged that was a
minority view. The bulk of the United States jurisdictions
has looked at that question and has not come out supporting
that view.
It was recently addressed when our Supreme Court stated that
the Constitution specifies that we cannot use an initiative
for appropriation, and the Court's have expanded the notion
of appropriation to include concerns such as determination
between beneficial users of natural resources. The Court
found that the transfer by initiative was an improper
appropriation. Assistant Attorney General Jim Baldwin has
warned that particularly in the area of appropriations, the
power of initiative seems to be restricted. The binding
vote scenario has not been tried and challenged.
Ms. Cook believed that if the Legislature elects the vote
scenario with a concern as significant as the long-term
fiscal plan, it certainly will be challenged. She
recommended that the Legislature take the opportunity to
make it very clear to the Court what the intention is
regarding severability. If the Court finds that the binding
vote is an invalid condition on an effective date, the
Legislature should make it clear whether they want the
entire bill to fail if the condition is struck down, or if
the legislation is to survive if the condition is struck
down.
In response to comments made by Co-Chair Mulder, Ms. Cook
voiced concern with the issue of severability included in
legislation of this magnitude.
Representative J. Davies asked if the bill was passed, could
an initiative be crafted to reverse the legislation. Ms.
Cook replied that people have the right to do by initiative
more or less what the Legislature has the right to do by
law, with some limitations on the power of initiative. One
of the limitations is that people may not dedicate revenue.
The Legislature has a very restricted ability to dedicate
revenue. Additionally, a referendum cannot address a
dedication, which creates a curiosity for the Earnings
Reserve Account, a dedicated account. In addressing the
Permanent Fund, the entire concern becomes confused. The
Legislature has the power to dedicate if required by federal
programs or perhaps in the case of the Permanent Fund
income. However, the people have a clear restriction
against dedicating revenue.
The first concern Ms. Cook foresaw would be the fundamental
question of the interrelationship between the restriction on
the initiative process, dedications and the power that the
Permanent Fund provision seems to contain to dedicate income
of the fund. She believed that the initiative would fail.
Co-Chair Mulder agreed that the public, when given the
opportunity would raid the treasury. The initiative
prevented that from occurring. Ms. Cook added that Alaska
is not unique in curtailing the power of initiative with
respect to appropriations. It is a common restriction.
Representative G. Davis asked if there were restrictions on
the timing of a vote. Ms. Cook explained that there is not
a statutory method for holding a special election.
(Tape Change HFC 99 - 128, Side 2).
Ms. Cook suggested that the Legislature could direct the
Lieutenant Governor to hold an election on a specified date.
She recommended that the election date be scheduled after
receiving specific advice from the Division of Elections.
Co-Chair Mulder advised that the Division of Elections had
indicated that the earliest that they could schedule an
election following Legislative adjournment would be
September 14th.
Representative G. Davis asked if the Governor had proposed a
binding vote on an appropriation. Ms. Cook explained that
would be the effect of SB 66, which appropriates money from
the earnings reserve account to the budget reserve fund.
She understood that the effective date would be tied to a
vote of the people in a binding fashion. Representative G.
Davis understood that would be unconstitutional. Ms. Cook
replied from a letter written by Assistant Attorney General
Baldwin, it has been suggested that the power to hold a
binding vote may be limited. In particular, Mr. Baldwin is
concerned about any effort to have a binding vote attach to
an appropriation.
Co-Chair Mulder questioned how the severability concept
would affect this scenario. Ms. Cook explained that was a
fundamental question. She did not know how the Courts would
treat severability, regardless of what the Legislature says.
However, severability should be used to carry out
legislative intent.
Representative J. Davies asked if it would be admissible for
the populace to have an initiative on an advisory vote. Ms.
Cook replied that historically, when an advisory note has
been presented to the people, the Legislature has always
used legislation to present the note and it is then treated
as any other substantive piece of legislation.
ANNALEE MCCONNELL, DIRECTOR, OFFICE OF MANAGMENT AND BUDGET,
OFFICE OF THE GOVERNOR, pointed out that the Governor's
proposal was for an advisory vote, not a binding vote. It is
the Governor's intent that any kind of plan adopted which
would use the Permanent Fund earnings, will be most
successful if it has the support of the public. She
emphasized the need for public education in order to
accomplish this concern. Ms. McConnell stressed that Alaska
must take some kind of action as soon as possible in
addressing the fiscal crisis. The question continues to be
how to accomplish what needs to be addressed with the
support of the public.
REPRESENTATIVE SHARON CISSNA asked if the Governor believes
if an advisory board would be polarized. Ms. McConnell
replied that the issue could be polarizing, but not whether
the State has a vote. She anticipated that the vote could
provide an opportunity to Alaskans to come together on the
plan. Ms. McConnell reiterated that there will be a
tremendous amount of public education and information that
needs to be accomplished first.
Ms. McConnell continued, if the vote were not positive and
if the public said no, the plan presented would not be the
one to implement, which would provide an opportunity to come
back and take different action. The Office of the Governor
would be interested in pursuing either a broad base income
tax or a sales tax.
Representative Williams asked if the Governor's plan would
be delayed until there was a positive vote. Ms. McConnell
replied that the plan would be put into place if the public
advisory vote was positive. If the vote was not positive,
then subsequent action would need would to be taken by the
Legislature.
Co-Chair Mulder pointed out that if there was a negative
vote, nothing would then be in place under the proposed
Governor's plan. Ms. McConnell agreed. She added that in
order to pass a plan, there has to be the support of the
House and the Senate. She submitted that an additional
challenge would be public education and gaining public
support. The question is at what stage do we get public
support before it is implemented. These are the concerns
behind the Governor's proposal, which need advisory vote
action.
Co-Chair Mulder asked if it would be necessary to have a
separate piece of legislation or could it be tacked onto HB
231. Ms. Cook replied that if there was going to be a
question about placing a ballot before the people, it must
be in a substantive piece of law, rather than in an
appropriation act.
Co-Chair Mulder asked if HB 231 was considered an
appropriation act. Ms. Cook replied that the bill is
substantive and it could be contained within that bill
subject to a single subject requirement. It is possible
that the single subject line could be crossed. She believed
that there would be quite a bit of latitude in addressing a
fiscal plan.
Ms. Cook suggested that there are many mechanisms which
could be used. Some would involve a policy choice of
whether we want the plan in place or to let the Legislature
respond to a negative effective vote, or whether, we want to
delay implementation of the plan until the result of the
advisory vote is known.
Representative J. Davies pointed out that the common
denominator is that in no case does the law automatically
come into effect depending on the result of the election.
Ms. Cook said that was her understanding of a binding,
conditional, effective date. That mechanism states that the
Legislature recognizes that the law only takes effect if
another action occurs. The other action would be a positive
vote by the people. That would put the people in the
position of taking the last action to make the law go into
effect, which is the binding effective date.
Representative J. Davies pointed out that HB 232 is
dependent on passage of HB 231. In effect, even though the
binding vote was on HB 231, HB 232 would be dependent on an
advisory vote of the people. Ms. Cook agreed that could
"cast a cloud" on the binding vote, however, the effective
dates could be untangled if that was a concern of the
Legislature.
Ms. Cook spoke to the two restrictions on the initiative.
The first restriction is against dedicated funds. The
Permanent Fund is largely a gigantic dedicated fund program.
Additionally, there is a restriction on appropriations
through initiative. When speaking of a provision like
Section 6, both issues are at play because a system
currently exists without the bill. The existing system
states that there is a formula under which we will transfer
an amount of money from the income of the Permanent Fund to
the dividend program. That transfer, if you read the
statute, purposes to be automatic. It is a dedication.
However, the Legislature implements it every year by making
an appropriation.
Ms. Cook commented that raised another fascinating question.
Assuming that the Permanent Fund indeed can be dedicated,
because of the curious last sentence that is attached to
that particular constitutional provision, she asked, would
that mean that a dedication is not subject to appropriation.
She stated that it would be consistent to permit a
dedication and still impose an appropriation requirement
that the two operate as independent requirements. There is
nothing that states in the Permanent Fund language, that
expenditures are not ultimately subject to appropriation.
Section 6 is essentially a modification to the formula that
now exists and does not affect the appropriation question.
Representative Austerman voiced his appreciation for all the
information that had been made available to Committee
members. He recommended that language of the Constitution
must also be considered. Representative Austerman
acknowledged that the vote of the people is essential
because this is such an emotional issue given the perceived
right of a dividend.
Representative Foster commented that his district has the
highest rate of unemployment of any district in the State.
A plan depending solely upon dividends would unfairly affect
his area. People in the Bush do not understand the long-
range implications of these changes. He acknowledged that
conversely, an income base tax would affect urban areas
more.
Representative G. Davis interjected that to do nothing will
create an incredible dilemma for both the Bush and Urban
Alaska. Doing nothing will make the dividend "go away".
HB 231 and HB 232 were HELD in Committee for further
consideration.
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