Legislature(2015 - 2016)HOUSE FINANCE 519

02/22/2016 01:30 PM House FINANCE

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01:34:08 PM Start
01:35:40 PM Presentation: Flow Charts & Modeling: Legislative Finance Division
03:36:13 PM Adjourn
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
Heard & Held
Heard & Held
Heard & Held
+ Flow Charts & Modeling by David Teal, Director, TELECONFERENCED
Legislative Finance Division
+ Bills Previously Heard/Scheduled TELECONFERENCED
SPONSOR SUBSTITUTE FOR HOUSE BILL NO. 224                                                                                     
     "An  Act relating  to income  of  the Alaska  permanent                                                                    
     fund;  relating to  the disposition  of  income of  the                                                                    
     Alaska  permanent fund;  establishing  and relating  to                                                                    
     the distribution  account; relating to  the calculation                                                                    
     of permanent  fund dividends; relating to  the dividend                                                                    
     fund; and providing for an effective date."                                                                                
HOUSE BILL NO. 245                                                                                                            
     "An  Act   relating  to  the  Alaska   permanent  fund;                                                                    
     relating  to  appropriations   to  the  dividend  fund;                                                                    
     relating  to  income  of  the  Alaska  permanent  fund;                                                                    
     relating to  the earnings reserve account;  relating to                                                                    
     the Alaska  permanent fund dividend;  making conforming                                                                    
     amendments; and providing for an effective date."                                                                          
HOUSE BILL NO. 303                                                                                                            
     "An  Act   relating  to   the  Alaska   Permanent  Fund                                                                    
     Corporation,  the  earnings  of  the  Alaska  permanent                                                                    
     fund,  and the  earnings reserve  account; relating  to                                                                    
     the  mental health  trust  fund;  relating to  deposits                                                                    
     into the dividend fund; and  providing for an effective                                                                    
Co-Chair Thompson reviewed the meeting for the day.                                                                             
^PRESENTATION: FLOW CHARTS & MODELING: LEGISLATIVE FINANCE                                                                    
1:35:40 PM                                                                                                                    
DAVID   TEAL,   DIRECTOR,  LEGISLATIVE   FINANCE   DIVISION,                                                                    
introduced  the PowerPoint  Presentation:  "A Comparison  of                                                                    
Plans  to Re-Plumb  Alaska's Cash  Flow." He  indicated that                                                                    
the Legislative  Finance Division  (LFD) prepared  models of                                                                    
the fiscal  plans. He  believed that  modeling was  the best                                                                    
method  for  comparison  between  plans  which  allowed  for                                                                    
evaluation  of projected  deficits,  dividends, and  reserve                                                                    
balances. However, understanding  each plan individually was                                                                    
necessary   for   comparison.   Cash  flow   models   helped                                                                    
illustrate   where   money  flowed,   identified   "decision                                                                    
points,"  and underlined  the  "trade-offs  inherent in  the                                                                    
decisions." He explained that  the following slides depicted                                                                    
the cash flow  for each fiscal plan but did  not include the                                                                    
account balances.                                                                                                               
1:38:11 PM                                                                                                                    
Mr. Teal turned to the cash  flow diagram on slide 2: titled                                                                    
"Current Cash  Flow." He explained  that the  Permanent Fund                                                                    
(PF) was  divided into two  accounts: the principal  and the                                                                    
Earnings Reserve  Account (ERA). He noted  that the accounts                                                                    
were  separate from  the General  Fund (GF)  and funds  from                                                                    
both  accounts were  not used  for government  expenditures.                                                                    
Earnings from  investments from  the PF  and the  ERA itself                                                                    
accumulated in  the ERA. Dividends  were the  first priority                                                                    
based on  a five  year moving average,  which were  based on                                                                    
investment  earnings and  were not  connected to  the fiscal                                                                    
health  of the  state. He  added that  dividend distribution                                                                    
was  guided  by  statute.  He pointed  to  the  fiscal  loop                                                                    
between the  PF principal  and the  ERA where  the statutory                                                                    
net  income  flowed from  the  principal  into the  ERA  and                                                                    
inflation  proofing money  looped  back. Inflation  proofing                                                                    
occurred annually and was outlined  in statute. He turned to                                                                    
the  general  fund  which was  comprised  of  revenues  from                                                                    
production   tax,  royalties,   and  other   "less  volatile                                                                    
revenue"  derived  from taxes  and  fees.  He reported  that                                                                    
currently the  state revenues were  roughly $800  million in                                                                    
royalties, $200 million in production  tax, and $800 million                                                                    
in  less   volatile  revenues  totaling  $1.8   million.  He                                                                    
explained that  when oil prices were  high revenue increased                                                                    
and  any surplus  was deposited  into reserve  accounts: the                                                                    
Constitutional  Budget  Account   (CBR)  and  the  Statutory                                                                    
Budget  Reserve  (SBR).  Conversely, when  revenue  was  low                                                                    
deficits  were filled  by reserve  funds. He  qualified that                                                                    
although  the  system  had  worked   for  25  years  it  was                                                                    
dysfunctional  in a  low production,  low price  environment                                                                    
due  to the  fact  that reserves  were  being drawn  without                                                                    
being replenished.  The model indicated that  reserves would                                                                    
be exhausted  by FY  2019. He relayed  that the  following 5                                                                    
slides   depicted   how   the  governor's   Permanent   Fund                                                                    
Protection Act (PFPA) changed the "fiscal plumbing."                                                                            
1:42:24 PM                                                                                                                    
Mr. Teal advanced to slide  3: "1. Change Royalty Percentage                                                                    
(PFPA)." He  reported the first  change portrayed  the state                                                                    
"harvesting" money from the ERA,  which reduced the savings.                                                                    
Currently 30  percent of  the royalties  flowed into  the PF                                                                    
principal,  which  was  comprised   of  25  percent  of  the                                                                    
royalties from  old leases  (prior to  1980) and  50 percent                                                                    
from new  leases. He noted  that revenue from new  field oil                                                                    
was  so much  smaller than  from the  legacy fields  that it                                                                    
averaged  5  percent. Under  the  PFPA,  25 percent  of  all                                                                    
field's royalties  would flow into  the PF principal.  The 5                                                                    
percent was added  to the royalties that flowed  into the GF                                                                    
(69.5 percent to 74.5 percent).                                                                                                 
Representative   Gara  asked   whether   the  governor   was                                                                    
proposing not depositing the revenues  from new oil into the                                                                    
PF principal. Mr. Teal answered  in the negative because the                                                                    
second changed  proposed under PFPA rerouted  both royalties                                                                    
and production taxes from the  GF into the ERA. He explained                                                                    
that  25 percent  of the  royalties  was the  constitutional                                                                    
minimum  deposit into  the PF.  The deposit  was statutorily                                                                    
changed  to  include 50  percent  of  the revenue  from  oil                                                                    
fields developed after 1980.                                                                                                    
Vice-Chair Saddler  asked whether inflation proofing  the PF                                                                    
principal  account  was  accomplished with  funds  withdrawn                                                                    
from  the ERA.  Mr. Teal  responded in  the affirmative.  He                                                                    
clarified that  a small  amount of ERA  money did  flow into                                                                    
the GF,  which was expended  on the Permanent  Fund Division                                                                    
operations.  In  addition,   approximately  $8  million  was                                                                    
divided between the Department of  Law (DOL), the Department                                                                    
of Revenue  (DOR), and the  Department of  Natural Resources                                                                    
(DNR) for  activities related to  increasing money  into the                                                                    
Co-Chair  Thompson  recognized  former  Representative  Bill                                                                    
Thomas in the audience.                                                                                                         
1:46:49 PM                                                                                                                    
Representative  Kawasaki asked  whether the  small withdraws                                                                    
from  the ERA  was  historical. Mr.  Teal  replied that  the                                                                    
precedent  went  back to  the  late  1990's  as part  of  GF                                                                    
spending   reduction   measures.   Representative   Kawasaki                                                                    
wondered  whether reducing  the PF  royalty deposit  from 30                                                                    
percent  to   25  percent   significantly  altered   the  PF                                                                    
principal and  if LFD performed  modeling in regards  to the                                                                    
change.  Mr. Teal  argued that  the reduction  was not  very                                                                    
material  relatively.  He  remarked that  when  compared  to                                                                    
inflation  proofing   that  amounted  to   approximately  $1                                                                    
billion, the roughly  $50 million (5 percent  of the current                                                                    
year's royalties of $1 billion) was "dwarfed."                                                                                  
Co-Chair Thompson  recognized Representative Matt  Claman in                                                                    
the audience.                                                                                                                   
In  response to  remarks  by Representative  Gara, Mr.  Teal                                                                    
clarified that  5 percent of  the royalties  were redirected                                                                    
which was roughly $50 million.                                                                                                  
Mr.  Teal  turned  to  slide   4:  "2.  Re-Route  Taxes  and                                                                    
Royalties  to  ERA (PFPA)."  He  indicated  that the  second                                                                    
change proposed by  the PFPA redirected the  74.5 percent of                                                                    
the  royalties   from  the  GF   into  the   ERA.  Currently                                                                    
approximately $1  billion would  move into  the ERA  and the                                                                    
same amount would be withdrawn from  the ERA into the GF and                                                                    
called the "Sustainable  Draw." He scrolled to  slide 5: "3.                                                                    
Add Sustainable Draw  from ERA (PFPA)." He  offered that the                                                                    
Sustainable  Draw was  statutorily set  at $3.3  billion and                                                                    
could  be  adjusted downward  if  oil  revenues or  interest                                                                    
rates were  not able to  maintain the  real value of  the PF                                                                    
and could be  adjusted upward by inflation.  He related that                                                                    
in dollar terms the change  reduced GF revenue by $1 billion                                                                    
and  replaced  it  with  a  $3.3  billion  Sustainable  Draw                                                                    
totaling a net gain of $2.3 billion.                                                                                            
1:51:54 PM                                                                                                                    
Mr.  Teal  continued  to  slide   6:  "4.  Change  Inflation                                                                    
Proofing to an "Overflow"  Mechanism (PFPA)." He stated that                                                                    
the  fourth change  was the  altering  the annual  inflation                                                                    
proofing  mechanism to  an  overflow  mechanism. The  bill's                                                                    
inflation proofing was predicated  on an overflow or surplus                                                                    
of 4  times the  Sustainable Draw  amount. He  discussed the                                                                    
differing  view points  on inflation  proofing. He  observed                                                                    
that the goal  of the plan was to "maintain  the real market                                                                    
value"  of the  sum of  the principal  and ERA  accounts and                                                                    
that it did not matter  which account inflation proofing was                                                                    
deposited into.                                                                                                                 
Co-Chair Thompson  recognized Representative  Laura Reinbold                                                                    
and Representative Wool in the audience.                                                                                        
Representative  Wilson asked  whether  the Sustainable  Draw                                                                    
was  a  figure or  a  formula.  Mr.  Teal offered  that  the                                                                    
Sustainable Draw  was a  "fixed" draw  and did  not randomly                                                                    
change.  The  governor had  a  "module  in the  model"  that                                                                    
determined  the Sustainable  Draw. The  model had  projected                                                                    
the total cash  inflow and determined that  the amount could                                                                    
be annuitized  at $3.3 billion  per year in  perpetuity. The                                                                    
module also  included an inflation proofing  adjustment. The                                                                    
Sustainable   Draw  increased   with   the  adjustment.   In                                                                    
addition,  there  was a  review  provision  to decrease  the                                                                    
1:55:19 PM                                                                                                                    
Representative Kawasaki  asked whether  the Sustainable Draw                                                                    
amount  was sustainable.  Mr. Teal  answered that  under the                                                                    
"current set  of assumptions" the  draw was  sustainable but                                                                    
it was "highly sensitive" to  interest rates and oil prices;                                                                    
i.e., the methods the portfolio  was replenished. He related                                                                    
that  the bill  contained  a provision  for  review every  4                                                                    
years and could  be adjusted downward if "the  real value of                                                                    
the  PF  and  ERA  was not  keeping  pace  with  inflation."                                                                    
Representative Kawasaki  asked whether Mr. Teal  modeled the                                                                    
best  and worst  case scenarios.  Mr. Teal  answered in  the                                                                    
affirmative  and stated  that  he would  address the  models                                                                    
later in the presentation.                                                                                                      
Mr. Teal  advanced to  slide 7:  "5. Change  Dividend Source                                                                    
and  Calculation (PFPA)."  He explained  that the  source of                                                                    
the dividend  changed from a  percentage of a 5  year moving                                                                    
average to 50  percent of the previous  year's royalties and                                                                    
altered both the source and the  amount. The PF was based on                                                                    
a completed fiscal year in  order to determine the dividend.                                                                    
He  summarized that  74.5 percent  of royalties  flowed into                                                                    
the  ERA,  24.5 percent  remained,  and  50 percent  of  the                                                                    
previous year's  royalties was distributed via  the dividend                                                                    
1:59:33 PM                                                                                                                    
Co-Chair Neuman  asked Mr. Teal  to further  discuss placing                                                                    
production  taxes and  royalties directly  into the  ERA and                                                                    
the  ability  to  withdraw  money from  the  ERA.  Mr.  Teal                                                                    
responded  that the  model  worked  by reducing  volatility,                                                                    
which involved switching cash flows  from the GF to the ERA.                                                                    
He  shared that  concerns  about the  legality  of the  plan                                                                    
existed.  He relayed  that  the  attorney general  testified                                                                    
that  he  would  argue  in  favor of  the  legality  of  the                                                                    
"sweepability"  of  the  ERA. The  Legislative  Legal  staff                                                                    
argued that  depositing royalties,  production tax,  and CBR                                                                    
into  the ERA  changed the  "character" of  the account  and                                                                    
questioned the  legality of the  plan. He revealed  that the                                                                    
CBR  sweep into  the ERA  was a  onetime event  and was  not                                                                    
illustrated  on the  diagram. The  ERA was  exempt from  the                                                                    
sweep of  funds into  the CBR  in the  years that  the state                                                                    
carried a liability to the CBR  due to the fact that the ERA                                                                    
only  contained  PF  earnings. Therefore,  the  legal  staff                                                                    
concluded  that a  legal issue  occurred with  the sweep  of                                                                    
funds from  the ERA.  He understood  that the  motivation of                                                                    
the  plan was  "stability" which  was only  achieved through                                                                    
moving the volatile  revenue sources from the GF  to the ERA                                                                    
and replacing it with a  steady fixed draw; resulting in the                                                                    
elimination  of  volatility.  He  was unsure  why  the  plan                                                                    
included  the CBR  draw into  the  ERA; he  offered that  it                                                                    
could  be interpreted  as a  way to  avoid a  super majority                                                                    
vote.  He suspected  that the  move  was due  to the  higher                                                                    
earnings the  ERA garnered. He  underscored that  the higher                                                                    
earnings  was not  the difference  in interest  each account                                                                    
earned; the CBR  earned 1 percent and  the ERA's anticipated                                                                    
earnings  were  6.9  percent.  Earnings   in  the  ERA  were                                                                    
spendable and CBR earnings were  only spendable with a super                                                                    
majority vote.  He voiced that  the increase on the  rate of                                                                    
return  of 7  percent on  $7 billion  was over  $400 million                                                                    
"and  not an  insignificant  amount of  money." He  believed                                                                    
that the matter was a  "legalistic argument" and that it was                                                                    
"not  worth getting  into the  weeds." He  advised that  the                                                                    
easiest  solution  was  to  move  the  CBR,  royalties,  and                                                                    
production tax in a type  of "holding tank" comprised of the                                                                    
CBR, ERA,  and principal and  compute the draw based  on the                                                                    
sum of  the accounts. Consequently,  it was not  required to                                                                    
physically move the  funds; it was only  necessary to define                                                                    
the  pool  of  money.  He  thought  the  legal  issues  were                                                                    
2:04:47 PM                                                                                                                    
Vice-Chair  Saddler  understood  that  the  CBR  draws  were                                                                    
required to  be replenished.  He asked  what the  balance of                                                                    
the  CBR  was. Mr.  Teal  responded  that  the CBR  was  the                                                                    
highest that it  had ever been. He stated  that the question                                                                    
vis-à-vis when  payback was required remained.  He explained                                                                    
that  the  repayments  were "ratcheted."  The  state  had  a                                                                    
liability  to the  CBR for  any  type of  withdrawal and  an                                                                    
annual  sweep into  the CBR  occurred until  the amount  was                                                                    
Representative Gara referred to  the governor's plan and the                                                                    
$3.3  billion draw.  He discerned  that the  PFPA was  "more                                                                    
comprehensive"  and  ultimately  wanted to  produce  a  $4.5                                                                    
billion annual draw.  He asked how much  the governor's plan                                                                    
was reduced if the  entire package including revenue raising                                                                    
measures  was  not  adopted.  Mr.   Teal  replied  that  the                                                                    
question  was answerable  through a  model he  had available                                                                    
that allowed for the calculation  of different variables. He                                                                    
agreed  that the  governor's plan  "was not  merely changing                                                                    
cash  flow."  He  reminded  the  committee  that  cash  flow                                                                    
alterations, cuts,  or revenue by itself  was not sufficient                                                                    
to close  the deficit  and a combination  of all  three were                                                                    
most likely required. He indicated  that the governor's full                                                                    
plan demonstrated his cognizance of the situation.                                                                              
Mr. Teal continued to discuss  issues regarding the PFPA. He                                                                    
remarked on  the inflexibility of the  plan. Hypothetically,                                                                    
if  the  state  currently  gained an  extra  $4  billion  in                                                                    
production  tax   and  royalties,  the  entire   amount  was                                                                    
spendable. He noted  that a price of $110 per  gallon of oil                                                                    
was necessary  to generate  $4 billion  under the  PFPA. The                                                                    
windfall   would  be   deposited  into   the  ERA   and  the                                                                    
Sustainable Draw  remained $3.3 billion without  a provision                                                                    
to  increase  the amount.  A  provision  allowing an  upward                                                                    
adjustment of  the Sustainable Draw granted  the legislature                                                                    
the  flexibility to  spend only  a portion  of the  windfall                                                                    
prorated out over  years and also save a  desired amount. He                                                                    
worried that the inherent rigidity  would create a situation                                                                    
where the legislature broke the  rules in a windfall year by                                                                    
spending above the Sustainable Draw.  He suggested that in a                                                                    
rule  based system,  the rules  should be  revised to  allow                                                                    
upward or downward adjustments to  the draw. He communicated                                                                    
that the  PFPA relied  heavily on  long term  projects which                                                                    
made  it vulnerable  to changes  in interest  rates and  oil                                                                    
prices. He  warned that a  Sustainable Draw did not  equal a                                                                    
sustainable budget. He calculated that  even if the draw was                                                                    
accurately predicted it did not  fill the deficit, which was                                                                    
closer  to  $3.8  billion  and   diverted  $1  billion.  The                                                                    
restructuring  alone did  not fill  the  budget deficit.  He                                                                    
reiterated  that the  governor was  aware of  the situation;                                                                    
therefore, added revenue measures and spending reductions.                                                                      
2:11:55 PM                                                                                                                    
Representative Wilson  stated that under the  plan, money to                                                                    
refund the CBR was  unavailable unless less volatile revenue                                                                    
increased and  wondered whether her assessment  was correct.                                                                    
Mr.  Teal  explained  that the  statement  was  correct.  He                                                                    
explained  that  any  windfall  oil  revenue  was  deposited                                                                    
directly into the ERA without a provision to repay the CBR.                                                                     
Representative  Gara believed  that  any  plan adopted  that                                                                    
only included restructuring the PF  as a revenue measure was                                                                    
"completely imbalanced."  He relayed that in  the first year                                                                    
the governor promised  a $1000 dividend but  in future years                                                                    
the  dividend would  be less.  He wondered  what the  future                                                                    
dividend amounts were at oil price  ranges of $30 to $70 per                                                                    
barrel.  Mr.  Teal  answered  that  roughly  50  percent  of                                                                    
royalties would  pay $500 million  and calculated on  a per-                                                                    
capita  basis that  the dividend  amounted to  $750. At  $30                                                                    
dollar  per barrel  oil dividends  dropped to  approximately                                                                    
$400.  He  recommended consulting  the  LFD  model for  more                                                                    
accurate information.                                                                                                           
2:14:48 PM                                                                                                                    
Representative Edgmon  asked whether LFD  modeled depositing                                                                    
production  tax directly  into the  PF principle  or if  the                                                                    
Sustainable  Draw was  too heavily  dependent on  the annual                                                                    
production tax  flowing into  the ERA in  order to  make the                                                                    
draw  sustainable.  Mr.  Teal responded  that  LFD  had  not                                                                    
modeled his scenario  but knew the answer.  He detailed that                                                                    
production  tax was  currently low  but projected  to be  $1                                                                    
billion. If  the tax  was deposited  into the  principal the                                                                    
Stainable Draw  was at  risk. The tax  was not  spendable in                                                                    
the corpus  and the money  was needed  in the ERA  to ensure                                                                    
the Sustainable  Draw amount.  He added  that in  years with                                                                    
low   earnings  the   reserves   were   necessary  for   the                                                                    
Sustainable  Draw.  Representative  Edgmon  stated  that  he                                                                    
lacked expertise in sovereign  wealth funds but deduced that                                                                    
most  sovereign wealth  funds would  deposit production  tax                                                                    
into  the  principal.  He  thought   it  was  a  fundamental                                                                    
difference between the PFPA and  sovereign wealth funds. Mr.                                                                    
Teal responded  that the state  was in an  unusual situation                                                                    
with  the PF;  the corpus  was not  spendable. He  expounded                                                                    
that  most  sovereign  wealth  funds  were  designed  as  an                                                                    
endowment comprised  of one spendable account.  In Alaska, a                                                                    
constitutional   amendment  was   required   to  spend   the                                                                    
2:18:33 PM                                                                                                                    
Representative  Edgmon  added  that  most  sovereign  wealth                                                                    
funds  did not  pay  dividends and  was another  significant                                                                    
difference. Mr. Teal affirmed the  statement. He voiced that                                                                    
no other sovereign wealth fund  paid dividends. The PF could                                                                    
be turned into  a sovereign wealth fund or  endowment with a                                                                    
constitutional change.                                                                                                          
Vice-Chair  Saddler  referred  to   the  AKLNG  project  and                                                                    
relayed  that  the project  "envisioned"  a  portion of  gas                                                                    
royalties and  gas production tax  to help fund the  cost of                                                                    
the  project  and  noted  that  was  in  conflict  with  the                                                                    
governor's  plan. The  royalties  and  taxes were  deposited                                                                    
into the ERA and draws  were limited to the Sustainable Draw                                                                    
amount. He asked what would happen  if the state had to make                                                                    
a cash call for AKLNG.  Mr. Teal reminded Vice-Chair Saddler                                                                    
that royalties  were meant for  dividends under the  PFPA so                                                                    
the pledged  royalties reduced  the Permanent  Fund Dividend                                                                    
(PFD).  Vice-Chair Saddler  wondered when  the CBR  would be                                                                    
totally empty. Mr. Teal deferred  to the models later in the                                                                    
Mr.  Teal  turned  to  slide  8:  "Current  Cash  Flow."  He                                                                    
advanced to slide  9: "1. Change Royalty  Percentage (SB 114                                                                    
/HB 303)"  and discussed the  cash flow for the  fiscal plan                                                                    
contained  in the  legislation. He  remarked that  the first                                                                    
change  was  identical  to  slide   3  under  the  PFPA.  He                                                                    
highlighted  slide  10: "2.  Add  POMV  Payout (SB  114/  HB
303)." The second change did  not redirect the royalties and                                                                    
production  tax out  of  the  GF into  the  ERA. The  second                                                                    
change  was  considered  a  Point  of  Market  Value  (POMV)                                                                    
payout. He  elaborated that the  volatile revenue  stayed in                                                                    
the GF and was not as stable  as the PFPA. The draw from the                                                                    
ERA was variable  and was a percent of  balance that changed                                                                    
over  time.  Mr.  Teal  pointed  to  slide  11:  "3.  Remove                                                                    
Inflation Proofing  (SB 114/HB 303)." He  indicated that the                                                                    
third   change  removed   the   annual  inflation   proofing                                                                    
mechanism   and  did   not  include   a  provision   in  the                                                                    
legislation. However,  inflation proofing  theoretically did                                                                    
happen when the earnings were  in excess of the payout rate.                                                                    
The  excess earnings  accumulated in  the ERA  and could  be                                                                    
appropriated  to  the  corpus.   He  deemed  that  inflation                                                                    
proofing was "ad hoc" rather than through rules.                                                                                
2:24:32 PM                                                                                                                    
Mr. Teal discussed slide 12:  "4. Change Dividend Source and                                                                    
Calculation (SB  114/HB 303)."  He announced  that dividends                                                                    
were higher than  those generated from the  PFPA because the                                                                    
full  74.5 percent  of  the previous  year's royalties  that                                                                    
flowed into  the general fund  were used for  dividends. The                                                                    
GF was  used due to the  year time lag. He  pointed to slide                                                                    
13: "PFPA  vs. SB  114/HB 303" and  stated that  the diagram                                                                    
compared  the  two  bills.  He   noted  that  the  PFPA  was                                                                    
represented  by  blue  lines  and  SB 114  and  HB  303  was                                                                    
presented  in  red  and  that  black  represented  the  same                                                                    
provisions. He explained that both  plans maintained the 0.5                                                                    
percent  of royalty's  distribution into  the Public  School                                                                    
Trust Fund  and changed to  the 25 percent royalty  into the                                                                    
PF principal.  The royalties and production  tax percentages                                                                    
were the  same but under the  PFPA they flowed into  the ERA                                                                    
and  under  SB  114/HB  303  they remained  in  the  GF.  He                                                                    
commented  that the  governor  placed a  high  value to  the                                                                    
stability  of  the GF.  Directing  the  money into  the  ERA                                                                    
allowed a  fixed draw  for the PFPA  versus a  variable draw                                                                    
under SB 111/HB 303. The amount  of the draw changed but not                                                                    
the  5 percent  POMV.  He believed  that  the difference  in                                                                    
inflation   proofing  was   a  policy   choice  and   not  a                                                                    
"conceptual  difference. Inflation  proofing could  be added                                                                    
to the  POMV plan as  a provision  in the bill.  The divided                                                                    
change between the  plans was a policy choice  rather than a                                                                    
technical  change.  He  believed  that the  two  plans  were                                                                    
"conceptually close"  except for the legal  issues regarding                                                                    
"contaminating  the ERA"  with outside  funds. He  concluded                                                                    
that  the only  "significant difference"  was the  degree of                                                                    
Representative  Edgmon  thought  that  the  PFPA  offered  a                                                                    
"better  opportunity to  grow more"  than the  POMV concept.                                                                    
He  wanted to  better  understand how  the governor's  claim                                                                    
that his plan offered greater  opportunity for the PF corpus                                                                    
to grow.                                                                                                                        
2:30:39 PM                                                                                                                    
Mr. Teal  agreed that  the PF corpus  would be  larger under                                                                    
the  governor's   plan  because   the  Production   tax  was                                                                    
deposited into the ERA. He  related that the corpus may grow                                                                    
more  under the  governor's  plan, because  more funds  were                                                                    
necessary to  sustain the $3.3  billion annual draw.  If oil                                                                    
was  less than  $85 per  barrel, than  the Sustainable  Draw                                                                    
would be larger. If oil was  greater than $85 per barrel, SB
114/HB 303 plan would result  in a larger revenue source for                                                                    
the  GF.  He furthered  that  "which  plan would  pay  more,                                                                    
depended upon oil prices."                                                                                                      
Representative  Wilson asked  what money  could travel  from                                                                    
the GF into the CBR under  SB 114/HB 303. Mr. Teal confirmed                                                                    
that he  left out the arrow  on slide 13. He  explained that                                                                    
under SB  114/HB 303  a surplus  could build  in the  GF. If                                                                    
there was  high revenue coming  from production tax  and the                                                                    
POMV  that  was higher  than  expenditures  the surplus  was                                                                    
available for spending or saving in the CBR.                                                                                    
2:33:41 PM                                                                                                                    
Co-Chair  Thompson interjected  that the  surplus in  the GF                                                                    
had  potential to  "grow government."  Mr.  Teal agreed.  He                                                                    
suggested that it  was important to consider  the point that                                                                    
the  PFPA  offered more  stability  in  the fixed  draw.  He                                                                    
referred to slide 14:                                                                                                           
 "PFPA vs. POMV: Which is Better?"                                                                                              
     1.  A  fixed  draw  is  highly  dependent  on  actually                                                                    
     attaining the  projected rates of return  and projected                                                                    
     oil revenue.                                                                                                               
     2. Those  projections look forward 20  years--hence the                                                                    
     need for review of sustainability of the draw.                                                                             
     3. We are not very  good at projecting rates of return,                                                                    
     and even worse at projecting oil revenue.                                                                                  
     4.  POMV looks  backwards  5 years  and  the payout  is                                                                    
    based on actual events rather than on projections.                                                                          
     5.  Ask  yourself  this  question:  Is  your  hindsight                                                                    
     better than your foresight?                                                                                                
     6.  Lest that  question appears  to be  one-sided, note                                                                    
     that  POMV fails  the stability  test-if royalties  and                                                                    
     production tax  revenue jump $4b  and fill  the deficit                                                                    
     without the need for a  payout, the payout still occurs                                                                    
     and  there  would   be  a  tendency,  or   at  least  a                                                                    
     possibility, of spending the windfall.                                                                                     
     7.  Is  there  a  hybrid that  offers  the  comfort  of                                                                    
     hindsight offered by POMV and the stability of PFPA?                                                                       
Mr. Teal  suggested limiting  the payout  from POMV  when it                                                                    
was  not  required  that   removed  the  primary  difference                                                                    
between the two plans. He  indicated that at that point they                                                                    
became very similar bills.                                                                                                      
Co-Chair  Thompson  recognized  Senator  Lesil  McGuire  and                                                                    
Representative Liz Vasquez in the audience.                                                                                     
2:38:17 PM                                                                                                                    
Representative   Wilson  wondered   whether   there  was   a                                                                    
mechanism  that could  also limit  spending in  either plan.                                                                    
Mr.  Teal responded  that the  legislature  could include  a                                                                    
provision that  limited the draw  in some way for  SB 114/HB
303.  The   PFPA  Sustainable  Draw  provided   a  limit  by                                                                    
mandating a fixed draw.                                                                                                         
Representative  Kawasaki  returned  to slide  13.  He  asked                                                                    
whether HB  303 had  a material impact  on the  PF principle                                                                    
without  specific inflation  proofing.  Mr. Teal  reiterated                                                                    
that he viewed inflation proofing  as a policy decision that                                                                    
could be easily  accomplished. He observed that  a number of                                                                    
ways existed  to build  inflation proofing  into any  of the                                                                    
plans. He noted  the tradeoff was between  protecting the PF                                                                    
and maintaining  a sufficient balance  to make  the spending                                                                    
draw. Representative  Kawasaki agreed  that the issue  was a                                                                    
policy discussion.  He relayed  that historically  the state                                                                    
had  inflation proofed  in  the amount  of  $17 billion.  He                                                                    
worried  that the  corpus would  not grow  without inflation                                                                    
proofing.  Mr. Teal  offered that  the  principle cannot  be                                                                    
spent. The issue  was how much each plan  deposited into the                                                                    
principle.   The  constitution   mandated   25  percent   of                                                                    
royalties  as  a  minimum  and  did  not  require  inflation                                                                    
proofing.  He mentioned  that inflation  proofing was  added                                                                    
years later.  He thought that  the argument went  both ways.                                                                    
One could  argue the issue  in terms  of the "real  value of                                                                    
the  sum of  both accounts"  (ERA and  principle) where  the                                                                    
inflation proofing  money remained  in the  ERA and  was not                                                                    
2:43:54 PM                                                                                                                    
Representative   Kawasaki  wanted   the  PF   to  remain   a                                                                    
"permanent fund."  He felt  that without  inflation proofing                                                                    
in SB 114/HB 303 the fund was not "permanent anymore."                                                                          
Vice-Chair  Saddler  referred to  slide  14  and pointed  to                                                                    
points  6  and 7.  He  liked  that  failure was  defined  as                                                                    
collecting more  money than expected. He  commented that the                                                                    
bills were  not designed to  fix every aspect of  the fiscal                                                                    
plan and that  a spending cap currently  existed in statute.                                                                    
He relayed  that the  cap was  $2.5 billion  plus population                                                                    
and inflation.                                                                                                                  
Representative  Gara  understood  the  bulk  of  Mr.  Teal's                                                                    
presentation.  He   was  unclear  about  the   dividend.  He                                                                    
referred  to  Mr.  Teal's   remarks  regarding  the  revenue                                                                    
generated  in SB  114/HB 303  was slightly  larger than  the                                                                    
PFPA. He asked  how that was possible when  the reduction in                                                                    
the dividend  was larger  in the  governor's bill.  Mr. Teal                                                                    
deferred to the models.                                                                                                         
2:46:57 PM                                                                                                                    
Mr. Teal examined slide 15:  "HB 224 Cash Flow." He reported                                                                    
that HB  224 incorporated  spending limits  in the  plan and                                                                    
contained a  "strong rules  based system."  He characterized                                                                    
the plan  as a "waterfall approach."   The bill set  forth a                                                                    
number of rules in statute.  He explained that the statutory                                                                    
net income  flowed from the  PF principle into the  ERA that                                                                    
happened in all  plans. The other plans priority  was to pay                                                                    
a dividend.  The first priority of  HB 224 was to  pay a 4.5                                                                    
percent POMV  and fill  a deficit.  The entire  payout could                                                                    
pay a  deficit. If  the payout filled  the deficit,  some of                                                                    
the surplus could  be used for dividends.  He expounded that                                                                    
dividend payouts  of $250  up to  $2000 depended  on reserve                                                                    
balances.  He   viewed  the  plan's  philosophy   as  paying                                                                    
dividends based on the long  term fiscal health of the state                                                                    
measured by  reserve balances. The plan  offered very strong                                                                    
protection to  the treasury  and filled  the deficit  at the                                                                    
expense  of  the dividend.  He  maintained  that whether  to                                                                    
amend the plan to ensure  dividend distribution was a policy                                                                    
call.  He  continued  that  once  dividends  were  paid  any                                                                    
remaining funds were deposited into  the CBR until repayment                                                                    
was reached.  After the obligation  to the CBR  was reached,                                                                    
the  excess  was  distributed   into  the  Statutory  Budget                                                                    
Reserve (SBR).  He relayed  that if all  funds were  used to                                                                    
achieve the payout, the deficit was filled from the CBR.                                                                        
Representative  Gara  relayed   that  Representative  Hawker                                                                    
stated the  plan raised approximately  $2.4 billion  in POMV                                                                    
payout.  He noted  that a  dividend would  not be  issued in                                                                    
deficit situations  and a dividend would  be eliminated with                                                                    
implementation  of   income  taxes  in  HB   224.  Mr.  Teal                                                                    
responded  that there  was a  significant  amount of  policy                                                                    
embedded in  the bill and  any of  the other plans  as well.                                                                    
All  of  the payouts  were  passed  on  a five  year  moving                                                                    
average. HB 303's POMV was  basically 5 percent based on the                                                                    
balance three years  ago. He delineated that  in essence the                                                                    
effective  payout   was  approximately   two  tenths   of  a                                                                    
percentage point  below 5  percent or  4.8 percent  that was                                                                    
inflation  proofing the  fund. The  HB 224  plan with  a 4.5                                                                    
percent  payout  seemed  less   than  a  5  percent  payout;                                                                    
however, more  money accumulated  in the  fund. In  the long                                                                    
run a  4.5 percent payout  could be  a higher payout  than 5                                                                    
percent. The  higher balance made  more earnings.  The lower                                                                    
payout  rate favored  future  generations  over the  current                                                                    
generation and was therefore, intergenerational.                                                                                
2:54:44 PM                                                                                                                    
Representative Wilson referred  to the HB 224's  POMV of 4.5                                                                    
percent and  deduced that in  the future the  dividend would                                                                    
come back or  grow larger due to the growth  of the ERA. Mr.                                                                    
Teal agreed. He  recapped that the growth in the  ERA due to                                                                    
a lower  payout would  eventually spill into  dividends. The                                                                    
dividends  would not  grow until  deficits  were filled  and                                                                    
overflow  was  distributed  into   the  CBR  to  pay  higher                                                                    
Representative Gara believed  that under HB 224  it was very                                                                    
difficult  to  achieve  enough   overflow  to  deposit  into                                                                    
dividends. Mr. Teal agreed with the statement.                                                                                  
2:57:06 PM                                                                                                                    
Representative Edgmon pointed out that  an arrow on slide 15                                                                    
could be placed from the CBR  to the dividend box, since the                                                                    
money  could be  used to  pay a  higher dividend  amount. He                                                                    
noted that  the model required  $1 billion in  reductions in                                                                    
order to  work. He  asked whether an  alternative to  any of                                                                    
the three  plans existed in  order to achieve  a sustainable                                                                    
budget. Mr. Teal stated that  when LFD modeled it could only                                                                    
model rules. Many variables existed  including using the CBR                                                                    
to enhance dividends.  He remarked that the  clear intent of                                                                    
HB  224   was  designed  to  prioritize   filling  deficits.                                                                    
Representative Edgmon  wanted to know what  the "opportunity                                                                    
costs"  were  between all  three  of  the models  if  budget                                                                    
action  was not  taken  by the  legislature  in the  current                                                                    
year. Mr.  Teal remarked  that the  model indicated  that HB
224  worked  without  reductions   as  large  as  stated  by                                                                    
Representative  Edgmon.   Representative  Edgmon  understood                                                                    
that if the  legislature did not adopt a fiscal  plan in the                                                                    
current  fiscal  year, up  to  $150  million in  investments                                                                    
would  be lost.  He  wondered what  the "opportunity  costs"                                                                    
would be  for the other  plans if the legislature  failed to                                                                    
act. Mr. Teal  affirmed that an opportunity  cost applied to                                                                    
any  of the  fiscal  plans if  no action  was  taken in  the                                                                    
current  fiscal  year and  was  similar  for all  plans.  He                                                                    
ascertained  that  the  PFPA was  expected  to  gain  larger                                                                    
returns  due to  the consolidation  of reserve  accounts. He                                                                    
suggested  investing  the  CBR  at  higher  rates  than  the                                                                    
current  1  percent,  assuming that  the  legislature  would                                                                    
adopt any one  of the fiscal plans avoiding  reliance on the                                                                    
CBR to  fill the deficit.  Adoption of a  plan significantly                                                                    
reduced  the draw  on the  CBR  and allowed  the balance  to                                                                    
accrue  more earnings  over years.  He  delineated that  the                                                                    
long-term investment  portion of the CBR  was eliminated due                                                                    
to  the   anticipated  reliance  on  the   reserve  to  fill                                                                    
budgetary needs.                                                                                                                
3:03:44 PM                                                                                                                    
Vice-Chair  Saddler deduced  that  there "were  a couple  of                                                                    
places"  where the  governor's  plans contained  opportunity                                                                    
costs. The  governor assumed that  if a fiscal plan  was not                                                                    
adopted  and the  CBR  used for  the  budget the  investment                                                                    
earnings would  be lost. He  thought that the  second factor                                                                    
was   the   lost   "investment  horizon"   with   short-term                                                                    
investing. He  wondered whether  the opportunity  cost would                                                                    
be the same for all  plans that maintained CBR investment in                                                                    
the short-term. Mr. Teal replied in the affirmative.                                                                            
Representative Gara  announced that the  provision regarding                                                                    
elimination of  the dividend with  the implementation  of an                                                                    
income  tax  was  found  on  page 4  of  HB  224.  Mr.  Teal                                                                    
explained that  HB 224 clearly  established the  notion that                                                                    
the  dividend was  a  government  expenditure that  competed                                                                    
with  other   government  expenditures.  In   addition,  all                                                                    
windfall  revenue  would  be   available  for  spending.  It                                                                    
appeared  that the  POMV payout  acted as  a spending  limit                                                                    
because the payout was limited  to the amount of the deficit                                                                    
but the legislature  could spend more. The  lack of spending                                                                    
constraints  inherent  in  the bill  currently  existed.  He                                                                    
emphasized that any  rules that limited spending  for any of                                                                    
the  plans cannot  "truly  control  spending." He  contended                                                                    
that the  lack of spending  constraint was therefore,  not a                                                                    
"weakness" in the plan. The  plan was more volatile than the                                                                    
PFPA and  SB 114/HB  303 due  to the  fact that  all revenue                                                                    
continued  to  flow  into  the general  fund.  Lack  of  oil                                                                    
revenue was  first absorbed by  reduction or  elimination of                                                                    
dividends in HB  224 and then employing  reserves, which was                                                                    
common in all  plans. He summarized that HB  224 was similar                                                                    
to SB 114/HB  303 in the manner GF revenue  was enhanced via                                                                    
a payout  from earnings  but did  not shift  volatility. The                                                                    
major differences were not  prioritizing dividend payout and                                                                    
varied  the  dividends amount  on  the  long-term health  of                                                                    
reserves  rather than  royalty  revenue  in the  short-term.                                                                    
Dividends would not increase if oil prices spiked.                                                                              
3:09:13 PM                                                                                                                    
Representative  Guttenberg   wanted  to   see  all   of  the                                                                    
mechanisms embedded in the plans in the models.                                                                                 
Vice-Chair Saddler  believed that HB 224  "rationalized cash                                                                    
flow"  by  making the  dividend  a  "regular part  of  state                                                                    
spending" and  linked the dividend  to spending.  He thought                                                                    
the  plan   made  more  "net   sense"  from   an  accounting                                                                    
3:11:09 PM                                                                                                                    
Co-Chair Neuman asked  whether the public could  weigh in on                                                                    
how  the  legislature  spent  money. He  felt  that  if  the                                                                    
legislature had to  use dividends to pay  for government the                                                                    
public should  have an "opportunity" to  determine how their                                                                    
dividend  was  spent.  He  thought  that  departments  could                                                                    
adjust its budgets  to accommodate the plan.  He was looking                                                                    
for new  options to help  persuade public opinion.  Mr. Teal                                                                    
thought HB 224  was a good option and  clearly connected the                                                                    
dividend  to the  budget process.  He voiced  that currently                                                                    
"money  appeared to  fall  out of  the  sky" eventhough  the                                                                    
dividend  was appropriated.  The dividend  was a  government                                                                    
check similar  to any other  government check.  The dividend                                                                    
competed with  every GF expenditure. He  discerned that once                                                                    
the public understood  the connection they will  weigh in on                                                                    
budgetary items.  He cautioned to  "be careful what  you ask                                                                    
3:15:24 PM                                                                                                                    
Co-Chair  Neuman declared  that  none of  the plans  created                                                                    
"new money."  He was  thinking of a  program similar  to the                                                                    
PFD  "Pick, Click,  and Give"  program except  that citizens                                                                    
would choose  the state agency  and dedicate  their dividend                                                                    
amount to  fund a program  such as K-12 education.  Mr. Teal                                                                    
responded that "he  was thinking in more  general terms" and                                                                    
thought something like that" was possible.                                                                                      
3:16:59 PM                                                                                                                    
Mr.  Teal   pointed  to  slide  16:   "Decision  Point."  He                                                                    
explained  that  the   diagram  included  production  taxes,                                                                    
royalties, and less  volatile taxes in boxes.  He pointed to                                                                    
the first  decision whether the revenue  should be deposited                                                                    
into the ERA  or GF, which represented a  choice between the                                                                    
stability  of a  fixed draw  or  less stable  POMV draw.  He                                                                    
noted that both  plans made the choice. The  PFPA placed the                                                                    
money  in  the ERA  versus  the  POMV plans  that  deposited                                                                    
revenues  into  the  GF.  He moved  to  the  second  choice:                                                                    
whether  to  place  royalties  into  the  PF  principle.  He                                                                    
reminded  the committee  that  a minimum  of  25 percent  of                                                                    
royalties was  deposited into the  GF via mandate.  The real                                                                    
question  was  whether the  legislature  chose  to save  and                                                                    
harvest simultaneously. He indicated  that the costs were in                                                                    
the  tens of  millions of  dollars. He  emphasized that  the                                                                    
next  decision  of  payout  was   the  first  very  critical                                                                    
decision.  He  indicated  that   the  tradeoff  was  between                                                                    
favoring a  "forward looking  manually adjusting  fixed draw                                                                    
that  promised greater  stability"  or  "a backward  looking                                                                    
self-adjusting  draw" offering  decreased  stability. A  key                                                                    
element of the PFPA was  a spending restraint under high oil                                                                    
prices.  The  POMV's  weakness in  spending  restraints  was                                                                    
overcome by placing  a limit on the draw.  The variable POMV                                                                    
payout rate  could be adjusted  (lower payout) to  favor the                                                                    
long-term. However, in order  to address short-term deficits                                                                    
decisions  regarding how  to fill  the  gap through  reduced                                                                    
spending, revenue  generation, or reliance on  reserves were                                                                    
necessary.  The longer  the legislature  waited  to act  the                                                                    
lower the  reserves and the  higher the risk of  failure. He                                                                    
added that inaction drained  reserve balances and diminished                                                                    
the choices on "the amount  of payout" necessary to fill the                                                                    
deficit.  He spoke  of another  critical choice:  the amount                                                                    
and source of  dividends. He noted that  the interest earned                                                                    
on  inflation   proofing  was  spendable.   However,  higher                                                                    
dividends  lead  to lower  reserves  and  a higher  risk  of                                                                    
"unfillable" deficits. Money spent  on dividends was "gone."                                                                    
He  notified the  committee that  higher dividends  were the                                                                    
"critical element  in determining  what the  reserve levels"                                                                    
were and the reserve level  determined the risk of the plan.                                                                    
He communicated that another trade  off related to dividends                                                                    
was the  amount of  the dividend and  its connection  to the                                                                    
economy. He  cautioned that lower  dividends was  better for                                                                    
the state treasury  but not necessarily for  the economy. He                                                                    
suggested a plan  that did both; issue dividends  based on a                                                                    
certain  percentage of  royalties reflecting  the short-term                                                                    
and included  a provision that increased  dividends based on                                                                    
the  long-term  health of  the  treasury.  He stressed  that                                                                    
every decision  had a "trade-off  and every trade-off  had a                                                                    
sweet spot."  He stated that  "deciding what to do  with the                                                                    
money that remained  after the deficit was  filled and after                                                                    
dividends were  paid was probably not  worth talking about."                                                                    
He suggested  that the legislature establish  rules or leave                                                                    
the decisions to future legislatures.                                                                                           
3:24:23 PM                                                                                                                    
Mr. Teal referred to his  excel spreadsheet model [The model                                                                    
was  a real  time interactive  computer projected  model and                                                                    
was not distributed  as backup]. He reported  that the model                                                                    
used the  official revenue forecast data.  He explained that                                                                    
the  model  assumed that  any  remaining  deficit was  first                                                                    
filled through  the CBR and  then the ERA because  the money                                                                    
had to be  produced from "somewhere" if it  was budgeted. He                                                                    
noted that  unplanned draws were  shown in red. The  base of                                                                    
the model  was the current  budgeting system or  status quo.                                                                    
He pointed to the unplanned draws  from the ERA in the model                                                                    
that  occurred in  FY 19  after the  CBR was  exhausted. The                                                                    
deficit was then filled with  expenditures for the ERA until                                                                    
it vanished  in FY 21 or  FY 22. Earnings would  continue to                                                                    
be  spent but  were not  enough to  cover expenditures.  The                                                                    
only  option would  be to  cut the  budget, which  currently                                                                    
amounted to $2.5 billion.                                                                                                       
Co-Chair Thompson  guessed that  there would be  no dividend                                                                    
distribution  at  the  point he  just  described.  Mr.  Teal                                                                    
answered in the affirmative  because the system "was broken"                                                                    
at that  point. Mr. Teal  continued that there  were several                                                                    
options  including cutting  inflation  proofing that  filled                                                                    
the gap until 2025. He  modeled cutting dividends instead of                                                                    
inflation proofing  when the ERA  draws began.  The scenario                                                                    
resulted  in rapidly  drawing down  reserves and  the system                                                                    
broke down  again within two  or three years. He  noted that                                                                    
the scenarios  he modeled were based  on a price of  $50 per                                                                    
barrel of  oil. He changed  the model  to $30 per  barrel of                                                                    
oil. He  showed that  the reserves  would be  exhausted, the                                                                    
dividends and  inflation proofing  would be  eliminated, and                                                                    
the plan  would be  broken by 2030.  He summarized  that the                                                                    
scenarios  were the  status quo  options. He  mentioned that                                                                    
many variables and choices existed  with the status quo, but                                                                    
continuing with the status quo wasn't considered a plan.                                                                        
3:31:42 PM                                                                                                                    
Mr. Teal  discussed the  model for  the governor's  plan. He                                                                    
illustrated  what  dividends  were  set  at  50  percent  of                                                                    
royalties, which  amounted to  a range of  $700 to  $900. He                                                                    
pointed out  that under the  PFPA revenues fell  because the                                                                    
plan diverted  royalties and production  tax from the  GF to                                                                    
the ERA  and produced the Sustainable  Draw. He demonstrated                                                                    
that  the draws  from reserves  were necessary  to fill  the                                                                    
budget deficit  that still remained. After  the CBR vanished                                                                    
unplanned  draws from  the ERA  were necessary  to fill  the                                                                    
gap. He  pointed to  the red  bars signifying  the unplanned                                                                    
draws.  He  stated  that  the red  bars  did  not  designate                                                                    
failure it  indicated that the  rules were being  broken. He                                                                    
deduced that  the plan failed  the "real value" test  due to                                                                    
the  unplanned  draws  from the  ERA.  The  unplanned  draws                                                                    
resulted in the  PF balance not growing fast  enough to keep                                                                    
pace with inflation.  He noted that the  governor wanted the                                                                    
plan to keep  pace with inflation and the  model showed that                                                                    
it  failed and  therefore, failed  the real  value test.  He                                                                    
showed that reducing  the draw did not help  and resulted in                                                                    
a larger unplanned draw.                                                                                                        
Co-Chair  Thompson indicated  that the  committee needed  to                                                                    
wrap up and would continue at a later date.                                                                                     
Mr. Teal  invited members and  other legislators to  come to                                                                    
his office to further discuss the model.                                                                                        
HB  224  was  HEARD  and   HELD  in  committee  for  further                                                                    
HB  245  was  HEARD  and   HELD  in  committee  for  further                                                                    
HB  303  was  HEARD  and   HELD  in  committee  for  further                                                                    
Co-Chair Thompson //.                                                                                                           

Document Name Date/Time Subjects
2 22 16 HFC Comparison of Re-Plumbing Plans.pdf HFIN 2/22/2016 1:30:00 PM
Cost of Delay narrative (3.4.16).pdf HFIN 2/22/2016 1:30:00 PM
HB 245