Legislature(2005 - 2006)HOUSE FINANCE 519
04/25/2005 08:30 AM House FINANCE
| Audio | Topic |
|---|---|
| Start | |
| HB187 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| *+ | HB 187 | TELECONFERENCED | |
| + | TELECONFERENCED |
HOUSE BILL NO. 187
An Act establishing the Alaska capital income account
within the Alaska permanent fund; relating to deposits
into the account; relating to certain transfers
regarding the Amerada Hess settlement to offset the
effects of inflation on the Alaska permanent fund; and
providing for an effective date.
Representative Hawker MOVED to ADOPT work draft #24-
GH1070\I, Cook, 4/23/05, as the version before the
Committee. There being NO OBJECTION, it was adopted.
PETE ECKLUND, STAFF, REPRESENTATIVE KEVIN MEYER, provided an
overview of the handout drawing. (Copy on File).
Currently, the principle of the Permanent Fund including the
Amerada Hess principle is inflation proofed after paying
dividends. Under the adopted committee substitute, when the
Amerada Hess portion has earnings, the Permanent Fund
Corporation would determine the amount of the inflation
proofing, calculated from the total value, calculates the
dollar amount and then removes it from the Amerada Hess
earnings and places it into the Amerada Hess principle.
Under current statute, the remainder of the earnings from
the Amerada Hess principle is placed back into that fund.
The larger section of principle is inflation proofed from
the Earnings Reserve Account. Under the committee
substitute, the inflation proofing would be calculated on
the total value of the principle, including the Amerada Hess
section. That amount would be paid out of the Earnings
Reserve Account and applied to the principle other than the
Amerada Hess principle. The Amerada Hess principle would
stay static at $420 million dollars; it would not grow. The
total value of the principle of the Permanent Fund would be
inflation proofed at the correct rate out of the Earnings
Reserve Account and the earnings from the Amerada Hess would
flow into the Alaska Income Fund.
Mr. Ecklund advised that the proposal would be "neutral" on
dividends as both the principle and the Earnings Reserve
Account would be invested in the same way and used in the
dividend calculation in the same manner. Whether money is
in principle of the Permanent Fund or the Earnings Reserve
Account, it would have no affect on the dividend checks.
Representative Kelly attempted to understand the transfer
for inflation proofing including that for the Amerada Hess
component, it would all be placed into the principle of the
Permanent Fund. Mr. Ecklund explained that earnings from
the Amerada Hess section would be providing the inflation
proofing for the Permanent Fund.
Representative Kelly understood that the bill would transfer
earnings from the Amerada Hess fund into useful principle
dollars for the Permanent Fund. Mr. Ecklund remarked that
the entire principle of the fund would be inflation proofed
as it is at this time. The difference is that Amerada Hess
account would not be inflation proofed. That action would
have no affect on dividends as the inflation proofing comes
from the Earnings Reserve Account into the principle of the
Permanent Fund. The value of those investments would be
used in the dividend calculation in the same way; however,
the Amerada Hess account would not be growing.
Representative Kelly wanted to make certain that the
legislation would not negatively affect the Permanent Fund
dividends. Co-Chair Meyer noted that it would protect the
dividends. Mr. Ecklund interjected that it protects the
principal at present time.
Representative Kelly hoped that the availability of the
Permanent Fund corpus would be slightly advantaged by
passage of the legislation. Co-Chair Meyer reiterated that
the proposed bill would no longer inflation proof the
Amerada Hess sub account.
Representative Hawker acknowledged that was correct. He
pointed out that the legislation insures inflation proofing
of the entire principle of the Permanent Fund, using the
current statutory formulas for inflation proofing. He
stressed that members could be assured that the proposed
approach was "neutral" and applied to the whole fund. He
added that the State would no longer continue to inflation
proof the Amerada Hess component. The State will be able to
extract from that, the full earnings. The trade-off is that
there will be more cash today; however, the State would
loose "buying power" in the future.
Representative Hawker advised that he would be sending it
out of Committee with a "no recommendation", as it could
affect future earnings. He noted that the bill was a "good
compromise".
Co-Chair Meyer explained that this year's intent was to use
the earnings for debt retirement and/or the capital budget.
The Governor has proposed using up to $340 million dollars
for bonding.
8:45:57 AM
Representative Kelly clarified for the record, that the bill
would neutrally affect the Permanent Fund dividend. He
indicated that he would "find it difficult" to vote for
anything using the Permanent Fund.
Co-Chair Meyer stated that the legislation would have no
impact on the dividend.
8:47:20 AM
Representative Hawker MOVED to REPORT CS HB 187 (FIN) out of
Committee with individual recommendations and with the
accompanying fiscal note. There being NO OBJECTION, it was
so ordered.
CS HB 187 (FIN) was reported out of Committee with a "no"
recommendation and with a zero note #1 by the Alaska
Permanent Fund Corporation.
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