Legislature(2005 - 2006)HOUSE FINANCE 519
04/21/2005 01:30 PM House FINANCE
| Audio | Topic |
|---|---|
| Start | |
| HB187 | |
| HB13 | |
| HB231 | |
| HB31 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| += | HB 13 | TELECONFERENCED | |
| += | HB 187 | TELECONFERENCED | |
| + | HB 31 | TELECONFERENCED | |
| + | HB 231 | TELECONFERENCED | |
| + | HB 101 | TELECONFERENCED | |
| + | HB 53 | 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."
Co-Chair Chenault MOVED to ADOPT the new CS for HB 187
labeled 24-GH1070\F, Cook, 4/12/05.
Representative Hawker OBJECTED.
PETE ECKLUND, STAFF, CO-CHAIR MEYER, explained that the new
CS changes the bill by taking the Amerada Hess earnings and
creating a new fund in the general fund called the Alaska
Capital Income Fund. The Amerada Hess bonding proposal is
not moving forward; the intention of this bill is to
transfer those funds to help with this year's capital
budget. He referred to a retroactivity clause on page 2.
1:49:23 PM
Co-Chair Meyer asked for an explanation of the difference
between this version and the original version of the bill.
Mr. Ecklund replied that in the original bill, the account
resided within the earnings reserve of the Permanent Fund.
That fund was renamed and the money was moved to the general
fund. A retroactivity clause was also added. Co-Chair
Meyer inquired if the amount was $60 million. Mr. Ecklund
replied that it was.
1:50:26 PM
Representative Hawker addressed his objection. He opined
that there is a critical deficiency in both bills, however
the approach in the CS compounds the problem. Both bills
would take 100 percent of the earnings every year, leaving
nothing in the permanent fund to protect its value over
time. There is a need to inflation proof it. The new CS
takes the money and moves it into the general fund. He
opined that the Governor's bill did a better job of allowing
discretion by leaving it in the permanent fund. It is
available for spending and the value is kept. The Governor's
approach needs a statutory percent of market value (POMV) to
guarantee the continue growth and availability at a future
date. He argued for a POMV and taking up the Governor's
bill with an amendment.
1:54:54 PM
Mr. Ecklund termed it a policy call and described the
outcome for both methods.
Representative Hawker observed that the earnings this year
of $30 million, with a POMV, would equal $21.9 million, an
$8 million difference, which is the inflation-proofing
component.
Co-Chair Meyer noted there were concerns going that route.
He did not disagree, but opined it would not hurt the value
of the principal of the fund because it is a one-time use of
the fund. He stated a preference to see Representative
Hawker's idea in a separate bill. He pointed out that this
money would be used for a one-time capital expenditure.
1:57:53 PM
Mr. Ecklund noted that with the proposed CS the legislature
could appropriate money back into the fund.
1:58:23 PM
Representative Weyhrauch questioned Representative Hawker
about his proposed conceptual amendment.
Representative Hawker said his amendment refers to the old
bill, version A.
Co-Chair Meyer asked Representative Hawker if he would
remove his objection. Representative Hawker replied that
his amendment is too complex to address today.
Representative Hawker WITHDREW his OBJECTION to adopt the
new CS. There being NO OBJECTION, it was so ordered.
2:00:53 PM
Representative Croft asked if the diversion of $30 million
is just for two years. Mr. Ecklund replied that there is no
sunset date. Representative Croft asked about the interest
rate. Mr. Ecklund thought it was a 7 percent return.
Representative Croft agreed it was between 7 and 7.5
percent. He asked why the amount stays at $30 million.
LAURA ACHEE, ALASKA PERMANENT FUND CORPORATION, explained
the rates of return and the projected returns. The number
remains the same because it is not inflation-proofed.
Mr. Ecklund clarified that the appropriation to the new fund
does not happen automatically. It still takes an
appropriation to take those earnings from Amerada Hess to
the new Alaska Capital Income Fund. Representative Croft
summarized that it sets up the mechanism, but does not
prohibit nor guarantee future action.
2:04:29 PM
Representative Hawker related that the language of the bill
states, "shall be deposited in the Alaska Capital Interest
Fund." Co-Chair Meyer observed that it would not prohibit
the legislature from adding a POMV concept.
Representative Croft referred to page 2, line 25, and asked
if the deposit is diverted for all time. Mr. Ecklund
responded that under current law that transfer does not
happen without an appropriation. If the CS passes, to
capture the FY 05 earnings, last year's operating budget
would have to be amended. Representative Croft asked about
inflation proofing in Section 2. Mr. Ecklund explained that
the Amerada Hess "dead money fund" would not grow any
further. Representative Croft opined that inflation
proofing is more important.
2:08:21 PM
Representative Joule asked for clarification about the
Amerada Hess Settlement and HB 11, as it applies to interest
earning. Mr. Ecklund replied that the Amerada Hess fund
does not grow, other than the appropriation of the interest
earned back into the fund. Co-Chair Meyer replied that HB
11 does not apply to the interest earned.
2:10:55 PM
Representative Hawker MOVED to ADOPT Conceptual Amendment 1,
which was drafted to incorporate the A version of HB 187:
Page 1, line 1, following "establishing the"
Delete "Alaska capital income"
Insert "Amerada Hess earnings reserve"
Page 2, line 14, following "deposited into the"
Delete "Alaska capital income"
Insert "Amerada Hess earnings reserve"
Page 2, line 18, following "(e) The"
Delete "Alaska capital income"
Insert "Amerada Hess earnings reserve"
Page 2, line 19, following "Money in the"
Delete "Alaska capital income"
Insert "Amerada Hess earnings reserve"
Page 2, line following line 23
Insert
"(f) Appropriations from the Amerada Hess earnings
reserve account for a fiscal year may not exceed:
a. five percent of the average of the combined market
value of the Amerada Hess earnings reserve account and
the value of the principal of the fund attributed to
the settlement of State v. Amerada Hess, et al., 1 JU-
77-847 Civ. (Superior Court, First Judicial District)
on June 30 for the first five of the six fiscal years
immediately preceding that fiscal year.
b. the balance in the Amerada Hess earnings reserve
account."
Co-Chair Meyer OBJECTED for discussion purposes.
2:12:31 PM
Representative Hawker explained that the amendment calls the
Alaska Capital Income Account "the Amerada Hess earnings
reserve account", and any money in that account may be
appropriated for any valid public purpose, including
covering annual debt service. He explained the methodology
of the POMV language in the amendment. He spoke about the
guidance of the trustees of the permanent fund. He noted
that his amendment would reduce the amount available from
$30 to $22 million. He emphasized the importance of
protecting the value of the permanent fund. The amendment
would create a sustainable fund at the cost of not funding
all of the projects and would allow for not overspending the
fund. He stated his willingness to fund fewer projects in
order to maintain the integrity of the permanent fund.
2:18:31 PM
Co-Chair Meyer asked Representative Hawker if he agrees that
a one-time draw would not affect the long-term viability of
the fund. Representative Hawker replied that the fund would
survive; however, the issue is that the legislature violates
the public trust by attacking the fund.
Representative Kelly inquired if the POMV approach would
permit the money in the future to be used as a payment
stream for bonding. Representative Hawker replied that it
would. It is an $8 million-a-year cost.
2:21:10 PM
Representative Croft restated the effect of the amendment in
bonding terms.
Representative Kelly agreed with the inflation proofing of
any fund. He noted that the concept of preserving the
corpus is attractive.
Representative Hawker suggested that this proposal might be
enacted for a longer period of time. He pointed out the
value of the fund in 20 years if it is not inflation
proofed.
2:23:26 PM
Representative Meyer suggested a sunset date or a separate
bill to set up a POMV system. He stated his intent to stick
with the bill.
2:24:19 PM
At ease.
2:34:22 PM
Co-Chair Meyer noted that during the bread, a conversation
took place dealing with a possible compromise on the bill.
Representative Hawker WITHDREW Conceptual Amendment 1.
Mr. Ecklund referred to page 2 and discussed inflation
proofing by removing subparagraph (3) of Section 2.
Representative Croft agreed that by removing that section,
Representative Hawker's idea that every year Amerada Hess
could earn money and then 5 percent could be spent, is
addressed. The net effect is that 3 percent is left in the
reserve, which is inflation proofed. The question is where
to inflation proof. He discussed the pros and cons of
removing Section 2.
2:39:15 PM
Representative Hawker addressed Representative Croft's
concern and said what is currently inflation proofed is the
principal of the fund, not the whole value of the fund. He
noted that is taken care of in Section 3, "income earned on
the Amerada Hess settlement shall be treated in the same
manner as other income." He suggested that removing lines
14-17 would solve the problem. Mr. Ecklund concurred that
if lines 14-17 were removed, the whole principal of the fund
would be inflation proofed.
Representative Hawker welcomed further expert testimony on
the subject.
Representative Kelly suggested that legislative legal take a
look at it.
2:45:04 PM
Ms. Achee restated Representative Hawker's question: if
lines 14-17 on page 2 were removed, would the Amerada Hess
principal again be inflation proofed as it currently is and
would the $30 million amount increase. Representative
Hawker explained that the amount taken out for another
purpose must go down. He suggested a review by legislative
legal.
2:46:42 PM
DEVON MITCHELL, EXECUTIVE DIRECTOR, ALASKA MUNICIPAL BOND
BANK AUTHORITY, DEPARTMENT OF REVENUE, spoke of modeling
with inflation proofing. With a realized earnings rate
assumption of 7.04 percent and an inflation rate of 2.6
percent, the inflation proofing for 2005-06 would be about
$11 million each year. He agreed that the largest benefit
would be in the future.
Representative Hawker asked if $22 million rather than $16
million is the correct amount. Mr. Mitchell said yes.
Representative Hawker argued that this is why the POMV
method makes sense. Mr. Mitchell responded that it would
inflation proof the entire fund balance.
2:49:20 PM
MICHAEL BARNHILL, ASSISTANT ATTORNEY GENERAL, DEPARTMENT OF
LAW, noted that all the options previously mentioned are
legal.
HB 187 was HELD in Committee for further consideration.
2:50:14 PM
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