Legislature(2001 - 2002)

04/11/2001 01:44 PM FIN

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
HOUSE BILL NO.3                                                                                                               
                                                                                                                                
     An  Act relating  to deposits  to  the Alaska  permanent                                                                   
     fund  from  mineral lease  rentals,  royalties,  royalty                                                                   
     sale proceeds,  net profit shares under  AS 38.05.180(f)                                                                   
     and  (g),  federal  mineral   revenue  sharing  payments                                                                   
     received by  the state from mineral leases,  and bonuses                                                                   
     received by the state from  mineral leases, and limiting                                                                   
     deposits from  those sources to the 25  percent required                                                                   
     under  art. IX, sec.  15, Constitution  of the  State of                                                                   
     Alaska; and providing for an effective date.                                                                               
                                                                                                                                
REPRESENTATIVE  NORMAN ROKEBURG  noted  that the  legislation                                                                   
would return  the percentage of  all mineral lease  royalties                                                                   
and  bonuses  deposited  into   the  Permanent  Fund  to  the                                                                   
constitutionally  mandated  25%   percent.    HB  3  proposes                                                                   
changes to a statute, not the  Constitution.  He advised that                                                                   
the surplus  situation with State  revenues no  longer exists                                                                   
today.  He claimed that it is  time for the State to redirect                                                                   
the  extra 25%  to the  General Fund.   Passage  of the  bill                                                                   
would  generate an  estimated  $29 million  dollars per  year                                                                   
over the  next thirteen  years.  As  Prudhoe Bay  and Kuparuk                                                                   
fields, which currently  contribute to the general  fund at a                                                                   
25%  rate   diminish,  the  State   needs  to   replace  that                                                                   
production  with new, smaller  satellite fields  contributing                                                                   
at the same 25% rate, not at the 50% rate.                                                                                      
                                                                                                                                
Representative Rokeburg claimed  that while the State can and                                                                   
should  continue  to  make budget  reductions,  it  would  be                                                                   
foolish  to ignore  the  source of  general  fund revenue  in                                                                   
solving  the  budget  problem.    Prudent  fiscal  management                                                                   
requires a statutory  change.  HB 3 would be a  small step in                                                                   
the right  direction.   He urged  the Committee's support  of                                                                   
what he called "fiscally prudent" legislation.                                                                                  
                                                                                                                                
JIM KELLY, DIRECTOR OF COMMUNICATIONS,  ALASKA PERMANENT FUND                                                                   
CORPORATION   (APFC),   DEPARTMENT   OF   REVENUE,   provided                                                                   
information to Committee members.   [Copy on File].  He noted                                                                   
that  the  impact  on  oil  contributions  would  total  $333                                                                   
million dollars between 2001-2011.   The impact on per capita                                                                   
dividends  would  total $90  million  dollars  over the  same                                                                   
eleven  years.    He  offered  to  answer  questions  of  the                                                                   
Committee.                                                                                                                      
                                                                                                                                
In response  to queries  by Representative  Croft, Mr.  Kelly                                                                   
explained  that it  would be  the  income earned  on the  oil                                                                   
revenues and would be averaged  over five years.  A reduction                                                                   
taken in oil  revenues would amount to $40  million dollars a                                                                   
year.   That would  amount to the  expected income  earned on                                                                   
the $40 million dollars.                                                                                                        
                                                                                                                                
Representative  Harris asked  if the  effect on the  dividend                                                                   
would be higher  than the Capital Budget Reserve  (CBR).  Mr.                                                                   
Kelly replied that the amount  of money coming out of the CBR                                                                   
for FY02  was approximately  $500 billion  dollars.   That is                                                                   
more than the legislation proposes  to take over the next ten                                                                   
years.   To  replace  that with  Permanent  Fund income,  the                                                                   
impact would  be much more dramatic.   The market  during the                                                                   
past few  months has  reduced the dividend  by more  than the                                                                   
bill would reduce it over the next ten years.                                                                                   
                                                                                                                                
Representative Hudson noted his  support for the legislation.                                                                   
The total revenue received from  oil at the original time was                                                                   
over $3.5  billion dollars.   Currently, oil revenues  are at                                                                   
$800-$900  billion dollars.   He stressed  that oil  provides                                                                   
the State two dividends.                                                                                                        
                                                                                                                                
     ·    It provides the permanent fund dividends; and                                                                         
     ·    It provides for the funding of essential services                                                                     
          of government.                                                                                                        
                                                                                                                                
Representative Hudson stated that  funding has been deposited                                                                   
in excess  to the  statutory requirement.   He observed  that                                                                   
the Legislature  has been  an outstanding  trustee.   At this                                                                   
time, there is not enough funding  in the second dividend for                                                                   
essential  services.   It  is  time  to redirect  the  income                                                                   
stream  to where  it was  originally.   The 25%  contribution                                                                   
would be  the number  excluding the  bonus originally  given.                                                                   
The bonus should be stopped, allowing  the State of Alaska to                                                                   
provide an  income stream and  continue to provide  essential                                                                   
services.                                                                                                                       
                                                                                                                                
Representative Hudson  MOVED to report HB 3  out of Committee                                                                   
with  the accompanying  fiscal note.   Representative  Davies                                                                   
OBJECTED for the purpose of discussion.                                                                                         
                                                                                                                                
Representative J.  Davies agreed that  HB 3 was a piece  of a                                                                   
long-range  fiscal  plan, but  he  emphasized  that  it is  a                                                                   
"small" piece relative to what  the problem is.  He expressed                                                                   
concern that  the State's fiscal  problem is being  addressed                                                                   
"piece  meal".     Representative  J.  Davies   WITHDREW  his                                                                   
OBJECTION.                                                                                                                      
                                                                                                                                
Representative  Croft OBJECTED  and stressed  that there  has                                                                   
been  no comprehensive  discussion  on  a  fiscal plan.    He                                                                   
reiterated that no  components of a plan have  been addressed                                                                   
to date.   Representative Croft maintained that  there should                                                                   
be a comprehensive discussion  and indicated that a five-year                                                                   
fiscal plan should raise revenues.                                                                                              
                                                                                                                                
Representative  Harris commented  that the legislation  would                                                                   
raise revenues  into the General  Fund that otherwise,  would                                                                   
not have been available.                                                                                                        
                                                                                                                                
Representative  Rokeberg disagreed  with the indication  that                                                                   
the  legislation was  a mistake  except  as part  of a  total                                                                   
plan.                                                                                                                           
                                                                                                                                
A roll call vote was taken on the motion.                                                                                       
                                                                                                                                
IN FAVOR:      Bunde, Davies, Harris, Hudson, Lancaster,                                                                        
               Williams                                                                                                         
OPPOSED:       Croft                                                                                                            
                                                                                                                                
Representatives  Moses, Foster,  Mulder,  and Whittaker  were                                                                   
absent from the vote.                                                                                                           
                                                                                                                                
The MOTION PASSED (6-1).                                                                                                        
                                                                                                                                
HB  3  was  reported  out  of  Committee  with  a  "do  pass"                                                                   
recommendation  and  with  a fiscal  note  by  Department  of                                                                   
Revenue dated 3/13/01.                                                                                                          
                                                                                                                                

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