Legislature(2017 - 2018)HOUSE FINANCE 519

03/15/2017 01:30 PM FINANCE

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04:26:21 PM Start
04:27:02 PM Amendments
05:46:35 PM Adjourn
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
-- Delayed to a Call of Chair approx. 4:00 PM --
+ Bills Previously Heard/Scheduled TELECONFERENCED
Heard & Held
Heard & Held
<Bill Hearing Canceled>
                  HOUSE FINANCE COMMITTEE                                                                                       
                      March 15, 2017                                                                                            
                         4:26 p.m.                                                                                              
4:26:21 PM                                                                                                                    
CALL TO ORDER                                                                                                                 
Co-Chair Foster called the House Finance Committee meeting                                                                      
to order at 4:26 p.m.                                                                                                           
MEMBERS PRESENT                                                                                                               
Representative Neal Foster, Co-Chair                                                                                            
Representative Paul Seaton, Co-Chair                                                                                            
Representative Les Gara, Vice-Chair                                                                                             
Representative Jason Grenn                                                                                                      
Representative David Guttenberg                                                                                                 
Representative Scott Kawasaki                                                                                                   
Representative Dan Ortiz                                                                                                        
Representative Lance Pruitt                                                                                                     
Representative Steve Thompson                                                                                                   
Representative Cathy Tilton                                                                                                     
Representative Tammie Wilson                                                                                                    
MEMBERS ABSENT                                                                                                                
ALSO PRESENT                                                                                                                  
Randall Hoffbeck, Commissioner, Department of Revenue; Rob                                                                      
Carpenter, Analyst, Legislative Finance Division; Alexei                                                                        
Painter, Analyst, Legislative Finance Division.                                                                                 
HB 31     SEXUAL ASSAULT EXAMINATION KITS                                                                                       
          HB 31 was SCHEDULED but not HEARD.                                                                                    
HB 115    INCOME TAX; PFD CREDIT; PERM FUND INCOME                                                                              
          HB 115 was HEARD and HELD in committee for                                                                            
          further consideration.                                                                                                
Co-Chair Foster addressed the meeting agenda.                                                                                   
HOUSE BILL NO. 115                                                                                                            
     "An  Act  relating  to  the  permanent  fund  dividend;                                                                    
     relating  to the  appropriation of  certain amounts  of                                                                    
     the earnings reserve account;  relating to the taxation                                                                    
     of  income  of  individuals;   relating  to  a  payment                                                                    
     against the  individual income  tax from  the permanent                                                                    
     fund  dividend  disbursement;   repealing  tax  credits                                                                    
     applied  against  the  tax  on  individuals  under  the                                                                    
     Alaska  Net  Income  Tax  Act;  and  providing  for  an                                                                    
     effective date."                                                                                                           
4:27:02 PM                                                                                                                    
Co-Chair Foster asked for verification that Representative                                                                      
Thompson wanted to move Amendment 12 to the bottom of the                                                                       
Representative Thompson replied in the affirmative.                                                                             
Representative Thompson MOVED to ADOPT Amendment 13, 30-                                                                        
LS0125\E.25 (Nauman, 3/10/17):                                                                                                  
     Page 2, line 9:                                                                                                            
     Delete "a new subsection"                                                                                                  
     Insert "new subsections"                                                                                                   
     Page 2, following line 18:                                                                                                 
     Insert a new subsection to read:                                                                                           
     '(c)  In   accordance  with  AS   37.13.145(b)(1),  and                                                                    
     subject  to appropriation,  33  percent  of the  amount                                                                    
     available for  distribution under  (b) of  this section                                                                    
     shall be  reserved for dividends. The  remainder of the                                                                    
     amount  calculated  to  be available  for  distribution                                                                    
     under  (b) of  this  section shall  be  reduced by  the                                                                    
     difference between  the amount calculated under  (1) of                                                                    
     this  subsection  and  the amount  under  (2)  of  this                                                                    
     subsection if  the amount calculated under  (1) of this                                                                    
     subsection  exceeds  the  amount   under  (2)  of  this                                                                    
     (1) the  total amount of  oil and gas  production taxes                                                                    
     under AS 43.55.011 -  43.55.180, mineral lease rentals,                                                                    
     royalties,  royalty sale  proceeds,  net profit  shares                                                                    
     under  AS 38.05.180(f)  and  (g),  and federal  mineral                                                                    
     revenue sharing  payments and  bonuses received  by the                                                                    
     state from  mineral leases that are  deposited into the                                                                    
     general fund  in the current  fiscal year; (2)  the sum                                                                    
     of $1,200,000,000."                                                                                                        
Co-Chair Seaton OBJECTED for discussion.                                                                                        
Representative   Thompson   explained  the   amendment.   He                                                                    
indicated that the amendment set  a draw limit in the amount                                                                    
of  $1.2 billion  and  once triggered  the  Point of  Market                                                                    
Value (POMV)  would be  reduced by  $1 for  every $1  of oil                                                                    
production  tax and  royalties that  exceeded $1.2  billion.                                                                    
The limit  reduced Permanent  Fund (PF)  expenditures during                                                                    
times  of higher  oil revenues.  He continued  that "without                                                                    
the provision  there would  be no guidance  on how  to spend                                                                    
money during times of flush  oil revenues." The bill allowed                                                                    
the legislature to take the  full POMV draw "even though oil                                                                    
revenues were  sufficient to cover state  spending." Leaving                                                                    
the  excess PF  revenues in  the  fund allowed  the fund  to                                                                    
yield higher  earnings, "which translated into  a larger PF,                                                                    
larger POMV, and larger Permanent  Fund Dividends (PFD)." He                                                                    
emphasized the amendment directed  the state to refrain from                                                                    
spending savings and protected the investment fund.                                                                             
Representative Kawasaki referred to  a graph provided by the                                                                    
Legislative  Finance  Division  titled  "LFD  Fiscal  Model"                                                                    
dated 3/15/17 (copy on file).  He deduced that the amendment                                                                    
limited  the payout  limit until  the price  of oil  reached                                                                    
$105/bbl.,  at that  point increased  revenue was  available                                                                    
for  expenses. Representative  Thompson  discerned that  the                                                                    
statement was  correct. He supported  capping the  draw when                                                                    
not all  of the funds  were needed for  government spending.                                                                    
He wanted to  "slow down growing government  more and more."                                                                    
Representative Kawasaki  spoke to  budget items tied  to the                                                                    
increased price of oil; a  volatile commodity. He remembered                                                                    
that  the  legislature  established fuel  triggers  for  the                                                                    
marine highway  system, reduced the  motor fuel tax  to zero                                                                    
for  a tax  holiday, former  Governor Sarah  Palin increased                                                                    
the PFD  by $1 thousand,  and funding increased for  the Low                                                                    
Income Home  Energy Assistance Program (LIHEAP)  program. He                                                                    
felt  that  the  policy  calls were  either  "good  or  bad"                                                                    
depending  on one's  point of  view but  the decisions  were                                                                    
made in  support of  the spending at  the time.  He believed                                                                    
that  the  policy  calls  on  spending  levels  were  up  to                                                                    
legislatures of the future to decide.                                                                                           
4:31:42 PM                                                                                                                    
Representative  Thompson  deferred   to  the  Department  of                                                                    
Revenue for a comment.                                                                                                          
RANDALL  HOFFBECK,  COMMISSIONER,   DEPARTMENT  OF  REVENUE,                                                                    
answered that the provision to  limit the draw as oil prices                                                                    
increase  was  "imbedded in  the  governor's  plan from  day                                                                    
one." He expounded  that there were many demands  on the use                                                                    
of  the  PF making  it  essential  to reduce  volatility  in                                                                    
spending; as spending grew it  was difficult to reduce w. He                                                                    
thought  that  the  amendment created  a  shutoff  valve  on                                                                    
spending and as oil prices recovered  the draw on the PF was                                                                    
when necessary.  He added  that the  limit enabled  the 5.25                                                                    
percent POMV  draw from the  Earnings Reserve  Account (ERA)                                                                    
to  be sustainable  overtime and  allowed  for larger  draws                                                                    
during low revenue years.                                                                                                       
Vice-Chair Gara requested to see  a different chart than the                                                                    
one on the screen and  in the member's packets. He requested                                                                    
a  chart  modeling  POMV  only  data.  [Legislative  Finance                                                                    
Division  Models  were  interactive] He  asked  whether  the                                                                    
limit "kicked in" at  $80/bbl. Commissioner Hoffbeck replied                                                                    
that the  limit was  set at  $75/bbl. Vice-Chair  Gara asked                                                                    
when the  oil price was  predicted to  reach $75 or  $80 per                                                                    
barrel. Commissioner  Hoffbeck answered that it  was between                                                                    
four and six  years - he had to consult  the forecast. Vice-                                                                    
Chair  Gara  thought that  the  forecasted  time period  was                                                                    
longer.  He asked  why the  deficit lasted  longer with  the                                                                    
payout   limit   (until    $100/bbl.)   than   without   it.                                                                    
Commissioner Hoffbeck answered  that the Legislative Finance                                                                    
Division (LFD) model data showed  that with the $1.2 billion                                                                    
draw limit  the budget was  not fully balanced  without some                                                                    
additional   revenue  sources.   He  indicated   that  DOR's                                                                    
modeling did  not find  as large  a gap  as LFD's  model. He                                                                    
informed   the    committee   that   DOR's    modeling   was                                                                    
probabilistic  and LFD's  modeling was  deterministic, which                                                                    
accounted for any discrepancies between the two models.                                                                         
4:36:12 PM                                                                                                                    
Vice-Chair Gara  remarked that the amendment  was predicated                                                                    
on  oil  prices  projected  five to  eight  years  out  that                                                                    
extended the  deficit. He discerned that  the limit dictated                                                                    
to  future legislatures  that they  had to  restrict capital                                                                    
budget expenditures leaving  insufficient funds for deferred                                                                    
maintenance. He  understood that the University  of Alaska's                                                                    
deferred  maintenance alone  was  roughly  $500 million.  He                                                                    
commented on  differing views amongst  legislators regarding                                                                    
increasing budget  cuts. He did not  believe the legislature                                                                    
should constrict  future legislatures from making  their own                                                                    
decisions appropriate to their circumstances.                                                                                   
Co-Chair Seaton  looked at a  chart on the left  that showed                                                                    
"UGF  Revenue without  Payout  Limit."  The model  predicted                                                                    
that if  the budget  remained flat deficits  were eliminated                                                                    
at  oil prices  between $80/bbl.  and $85/bbl.  assuming the                                                                    
same budget level eight years  in the future or whenever oil                                                                    
prices reached $85  per barrel. He referred to  the chart on                                                                    
the  right  titled  "UGF Revenue  with  Payout  Limit"  that                                                                    
maintained  a deficit  at $100/bbl.  He  asked for  clarity.                                                                    
Commissioner Hoffbeck  answered that  the model was  a "snap                                                                    
shot in  time" based  on FY  18 production  and not  a "time                                                                    
series"  on production  or revenue.  He  clarified that  the                                                                    
model showed  a deficit at  FY 2018 production at  a certain                                                                    
oil price and at $75/bbl.  the payout limit offset the draw.                                                                    
The chart  was a snapshot  of a  single point in  time using                                                                    
the  FY  18  budget.  Co-Chair Seaton  wanted  more  clarity                                                                    
regarding  the deficit.  He surmised  that  the state  would                                                                    
still  carry a  deficit at  $100  per barrel  with the  $1.2                                                                    
billion   limit.   Commissioner    Hoffbeck   affirmed   the                                                                    
4:40:11 PM                                                                                                                    
Representative  Guttenberg remarked  that the  chart assumed                                                                    
numerous    things   were    static;   revenue,    timeline,                                                                    
undesignated general funds (UGF),  and the Percent of Market                                                                    
Value (POMV) payout. He  asked if "intermediary" charts were                                                                    
included in the model  that showed incremental changes based                                                                    
on  the percent  change of  $1. Commissioner  Hoffbeck asked                                                                    
for  clarification.  Representative Guttenberg  wondered  if                                                                    
other  variables affected  the  model  or would  predictable                                                                    
change result in  predictable results. Commissioner Hoffbeck                                                                    
answered that  the model "should simply  adjust" any changes                                                                    
downward  or upward.  He reminded  the committee  the charts                                                                    
represented  a snapshot  in time.  Representative Guttenberg                                                                    
surmised that the charts did  not take inflation, population                                                                    
shifts, or other  factors into effect. He  spoke to concerns                                                                    
about  the  limit;  specifically, the  ability  to  increase                                                                    
capital budget  expenditures. He wondered whether  the limit                                                                    
would be constricting future  legislatures. He remarked that                                                                    
the legislature  did not always  spend surplus  revenues and                                                                    
he  believed  the  premise  that  it  did  was  the  implied                                                                    
assumption of the amendment.                                                                                                    
4:43:09 PM                                                                                                                    
Representative Pruitt commented that  the committee was only                                                                    
looking at FY 18 predicated  on the fall forecast. He voiced                                                                    
that production  was also  "a piece  of the  discussion." He                                                                    
declared  that  future  production  would  impact  the  $1.2                                                                    
billion limit. In addition, if  revenues triggered the limit                                                                    
in the  near future,  the result would  impact the  fund. He                                                                    
underscored  that looking  at a  snapshot  was difficult  to                                                                    
determine the  role the  limit played  with balances  in the                                                                    
future. He believed that the  amendment was "one of the most                                                                    
important things  the legislature  could do."  He questioned                                                                    
what would  happen when oil  prices dropped again  in future                                                                    
years and felt  that embracing the limit  was imperative for                                                                    
budgetary  protection  in  future   low  revenue  years.  He                                                                    
declared  that  the state  would  increase  spending if  oil                                                                    
prices  went up.  He implored  the legislature  to implement                                                                    
the  limit  to  effectively  limit  spending.  He  suggested                                                                    
expanding the model  to include future years  in addition to                                                                    
FY 18.                                                                                                                          
4:46:44 PM                                                                                                                    
Representative Kawasaki echoed some  of the comments made by                                                                    
Representative  Pruitt. He  voiced that  a snapshot  in time                                                                    
made it  difficult to determine  what the budget  would look                                                                    
like  in  future  years. He  also  requested  expanding  the                                                                    
ROB  CARPENTER,   ANALYST,  LEGISLATIVE   FINANCE  DIVISION,                                                                    
acknowledged  that the  model  was a  snapshot  in time.  He                                                                    
explained that LFD had not been  able to "figure out" how to                                                                    
model a  time series given  that there were so  many unknown                                                                    
variables.  He referred  to the  charts  and clarified  they                                                                    
were  only for  FY 18.  The left  chart reflected  no payout                                                                    
limit  and the  right chart  represented including  a payout                                                                    
limit.  The   bottom  portion  of  the   graphs  showed  the                                                                    
nonvolatile  UGF  revenue  stream  that  included  corporate                                                                    
income  tax  and  other revenue.  Additionally,  the  bottom                                                                    
graphs represented the POMV payout  that assumed it would be                                                                    
the same with  the limit. He cited the blue  bars on the top                                                                    
left chart  that signified volatile revenue;  production tax                                                                    
and  royalty, which  grew significantly  with  the price  of                                                                    
oil. He  reported that  the model  demonstrated that  at the                                                                    
projected $4.3  billion budget a fiscal  deficit resulted at                                                                    
$20/bbl.  and  began  to close  at  $75/bbl.  with  "extreme                                                                    
surpluses" as prices increased.  He referred to "this side,"                                                                    
which was  the right chart  and noted that with  the revenue                                                                    
limit that was implemented at  $75/bbl. or $80/bbl. the POMV                                                                    
payment  began  to drop  dollar  for  dollar over  the  $1.2                                                                    
billion. He related that the  limit amount was determined in                                                                    
SB  26 (Approp  Limit &  Per Fund:  Dividend; Earnings).  He                                                                    
furthered  that as  the dollar  for  dollar kicked  in at  a                                                                    
price  of $100/bbl.  the  POMV payout  was  zero. Under  the                                                                    
scenario,  a fiscal  deficit still  existed at  $100/bbl. He                                                                    
maintained  that   the  limit   and  deficit   at  $100/bbl.                                                                    
supported the argument  for further budget cuts  or the need                                                                    
for other revenue sources depending on the point of view.                                                                       
4:50:30 PM                                                                                                                    
Commissioner Hoffbeck  stressed that  the limit  concept was                                                                    
only a portion  of the governor's fiscal plan  and was never                                                                    
intended to close the fiscal  gap. He reminded the committee                                                                    
that  under the  governor's fiscal  plan, either  additional                                                                    
reductions  in spending,  additional revenue  sources, or  a                                                                    
combination  of both  were necessary  to  complete a  fiscal                                                                    
Representative Grenn  asked Mr. Carpenter to  scroll down to                                                                    
show actual  numbers [note -  model was interactive  and not                                                                    
available  on  hardcopy].  He  asked  whether  there  was  a                                                                    
deficit column.  Mr. Carpenter showed a  column with deficit                                                                    
information [not on file].                                                                                                      
4:52:21 PM                                                                                                                    
Representative Ortiz addressed a  question to the sponsor of                                                                    
the amendment.  He asked whether  the proposal  impacted the                                                                    
"ability in any way"  or potential to significantly increase                                                                    
capital  budget expenditures  in the  future. Representative                                                                    
Thompson  believed  the   issue  needed  addressing  through                                                                    
separate legislation  "with possibly a look  at something in                                                                    
addition." His  current concern was trying  to impact future                                                                    
legislatures and  restrict them  from growing the  budget in                                                                    
years of  "excess funds." He  wanted to maintain  the amount                                                                    
in the PF and the  Earnings Reserve Account (ERA). He agreed                                                                    
that oil prices were volatile,  but thought it was necessary                                                                    
to establish  something that the  state "could depend  on if                                                                    
the prices  go crazy" and revenues  increased significantly.                                                                    
He  noted  that the  state  was  currently producing  50,000                                                                    
barrels per  day more than  projected. He believed  that the                                                                    
more money maintained in the  PF benefitted the state in the                                                                    
Representative Thompson  inquired what  would happen  to the                                                                    
size of the  Permanent Fund over time with a  draw limit and                                                                    
without one. He wondered  which option preserved the state's                                                                    
funds over the long-term.                                                                                                       
4:55:07 PM                                                                                                                    
ALEXEI  PAINTER,  ANALYST,   LEGISLATIVE  FINANCE  DIVISION,                                                                    
replied that  they could adjust  the model  to significantly                                                                    
increase the  oil price for a  year to see how  the scenario                                                                    
impacted the model with the  limit versus no limit. He moved                                                                    
to another tab  on an Excel chart [interactive  model - copy                                                                    
not on file]  that showed data for the price  of $90/bbl. in                                                                    
FY 2018 and then returning  to the fall forecast prediction.                                                                    
He reported  that the impact  was a  spike in FY  18 because                                                                    
"not all  of the revenue would  go away," but the  POMV draw                                                                    
was "significantly"  less. He assumed that  the remainder of                                                                    
the  spike  would  be  appropriated  to  the  Constitutional                                                                    
Budget Reserve (CBR) rather than  spent and the remainder of                                                                    
that amount would remain in  the ERA. He delineated that due                                                                    
to the four times draw provision,  a good deal of the amount                                                                    
would  be  deposited into  the  PF  principal for  inflation                                                                    
proofing. The  value of  the Permanent Fund  in FY  2026 was                                                                    
103 percent  of real  value without the  draw limit.  If the                                                                    
draw limit was  implemented, the revenue spike in  FY 18 was                                                                    
decreased and  the real  value in  FY 26  was higher  at 105                                                                    
percent. The  draw limit resulted  in a higher value  in the                                                                    
Permanent Fund, but a lower CBR balance in future years.                                                                        
Vice-Chair Gara  stated that governing for  seven years into                                                                    
the future  with a restrictive  formula prohibited  a future                                                                    
legislature from raising the dividend.  He announced that at                                                                    
some point he  wanted a spending increase for  pre-K and the                                                                    
University  and  did not  see  how  the limit  achieved  his                                                                    
goals. He  believed the limit  scenario was well out  in the                                                                    
future.  He  offered  that  a  price  of  $78/bbl.  was  not                                                                    
forecasted  until 2024.  He suspected  they would  not reach                                                                    
the draw limit until well  above $80 per barrel factoring in                                                                    
future   production   levels.   He  asked   whether   future                                                                    
production predictions  could be included in  the model. Mr.                                                                    
Painter  replied  LFD  did  not   include  production  as  a                                                                    
variable  in the  model. Vice-Chair  Gara asked  whether the                                                                    
price  when  the   limit  kicked  in  was   much  higher  if                                                                    
production   decreased  as   the  forecast   predicted.  Mr.                                                                    
Carpenter  answered  in  the  affirmative.  Vice-Chair  Gara                                                                    
guessed  that  the  payout limit  might  not  be  applicable                                                                    
through  the next  7  to  12 years.  He  believed they  were                                                                    
spending time  on a "mythical"  provision that did  not meet                                                                    
his "principles."                                                                                                               
Co-Chair Seaton referred to a  prior tab showing HB 115 with                                                                    
an income  tax. He asked  what the scenario would  look like                                                                    
without the income tax. [The model was changed.]                                                                                
5:00:33 PM                                                                                                                    
Co-Chair  Seaton   consulted  the  Excel   presentation  and                                                                    
surmised  that without  additional revenues  there would  be                                                                    
significant deficits  and declining reserves over  time with                                                                    
the  payout  limit. He  believed  the  result was  what  the                                                                    
legislature was trying  to avoid in the fiscal  plan. He was                                                                    
concerned  that  looking  at  a snapshot  in  time  even  at                                                                    
$95/bbl.  per barrel  there would  still  be a  considerable                                                                    
deficit necessitating  significant other  revenue or  ad hoc                                                                    
draws from the  ERA. He believed the  amendment would likely                                                                    
"force" the legislature  to take ad hoc draws  or money from                                                                    
the  CBR.  He  was  uncertain  about a  plan  that  did  not                                                                    
accomplish a balanced  budget. He stated the  reason for the                                                                    
income tax  was to  contribute to  solving the  deficit. The                                                                    
amendment  would mean  insufficient funds  and inability  to                                                                    
achieve a balanced budget. He  asked whether his assumptions                                                                    
were  correct. Mr.  Painter emphasized  that  the model  was                                                                    
just showing one year. He  altered the model to show revenue                                                                    
flat  at $90/bbl.  per year  without any  other adjustments,                                                                    
which resulted  in very little  deficit the first  two years                                                                    
but would  appear again under  the Office of  Management and                                                                    
Budget (OMB) 10 year plan that grew the budget.                                                                                 
Commissioner  Hoffbeck  reminded   the  committee  that  the                                                                    
models were only  projected for the FY 18 and  FY 19 budget.                                                                    
He noted  that the draw limit  could occur at some  point in                                                                    
the future. If  the draw limit was  eliminated, the question                                                                    
was  whether a  5.25  percent draw  was  sustainable over  a                                                                    
significant  period. Without  the limit  and the  ability to                                                                    
take a 5.25 percent draw;  a reduced draw would increase the                                                                    
gap in  the short-term;  it may  close the  gap in  seven or                                                                    
eight  years, but  eliminating the  limit  made the  problem                                                                    
worse over the next few years.                                                                                                  
Co-Chair  Seaton asked  for verification  that the  scenario                                                                    
would be  the case  if there was  no additional  revenue. He                                                                    
countered that if the goal  was to have diversified options,                                                                    
a  5  percent  draw  was more  sustainable  with  additional                                                                    
revenue.  He  asked  for the  accuracy  of  his  statements.                                                                    
Commissioner Hoffbeck answered in the affirmative.                                                                              
5:05:45 PM                                                                                                                    
Representative Wilson  asked where  "the increase  in volume                                                                    
came in."  Mr. Carpenter answered  that the model  was based                                                                    
on the fall  production forecast. The model  did not include                                                                    
production variables. The model  showed a one-year snapshot;                                                                    
therefore,  adjusting  production  was  not  realistic,  but                                                                    
price variability was.  Representative Wilson countered that                                                                    
if  the volume  increased  "it wouldn't  just  be about  the                                                                    
price." She thought  that the model showed just  "one day in                                                                    
2018 what  the budget  would look  like." She  referenced an                                                                    
earlier  comment  about  the   dividend  payout.  She  asked                                                                    
whether  the dividend  could increase  if the  amendment was                                                                    
adopted  and  production  increased. Mr.  Carpenter  replied                                                                    
that the dividend calculation occurred  first and added that                                                                    
the   dividend  was   excluded  from   the  revenue   limit.                                                                    
Subsequently,  the 70  percent  remainder for  the POMV  was                                                                    
subject  to  the  limit. He  interpreted  Vice-Chair  Gara's                                                                    
comments to mean  that if an increased  dividend was desired                                                                    
the amendment  would theoretically limit the  amount because                                                                    
the limit reduced  the POMV payout. However,  he argued that                                                                    
the  dividend  was subject  to  appropriation  and a  future                                                                    
legislature could do whatever it chose.                                                                                         
5:08:12 PM                                                                                                                    
Representative  Wilson asked  whether the  payout limit  was                                                                    
included  in  the  governor's  bill.  Commissioner  Hoffbeck                                                                    
answered in  the affirmative [SB 26].  Representative Wilson                                                                    
asked for  more detail on  why the amendment was  "the right                                                                    
way  to   go."  She   wondered  what  the   amendment  would                                                                    
accomplish  that could  not occur  without an  amendment and                                                                    
why the  payout limit  was important to  the administration.                                                                    
Commissioner  Hoffbeck replied  there  were several  reasons                                                                    
why the administration favored the  limit. He explained that                                                                    
high  oil  prices  and  a full  POMV  draw  could  "overheat                                                                    
spending." The  second reason was  related to  volatility in                                                                    
the price  of oil. The  payout limit provided  stability and                                                                    
tended to smooth the peaks  and valleys of volatile revenue.                                                                    
For  instance,  a one-year  spike  might  fuel increases  in                                                                    
capital  expenditures,  but  if   Pre-K  was  increased  and                                                                    
revenue   dropped  the   following  year,   maintaining  the                                                                    
increased  level  of  Pre-K   funding  might  be  difficult.                                                                    
Finally,  the impending  limit  allowed  for higher  initial                                                                    
draws  on   the  ERA.  Representative  Wilson   asked  where                                                                    
spending cuts  came into play. She  remarked that reductions                                                                    
were not  included in  the model. She  wondered how  flat or                                                                    
slightly  decreased spending  would  come into  play in  the                                                                    
model or simply how spending affected the model.                                                                                
5:11:13 PM                                                                                                                    
Mr.  Carpenter  restated that  the  model  showed an  FY  18                                                                    
assumed  budget,   and  with  the  limit   the  deficit  was                                                                    
maintained in the  higher priced years. He  deduced that the                                                                    
deficit implied a pressure to  reduce the budget or generate                                                                    
additional new revenue. He related  that by FY 2023 the fall                                                                    
forecast predicted oil at $75  per barrel but production was                                                                    
expected to  decrease to 391  thousand barrels per  day from                                                                    
470  thousand  barrels per  day.  He  noted that  production                                                                    
could increase or decrease by  then. He referred UGF revenue                                                                    
with  a   payout  limit  and   pointed  to  the   blue  bars                                                                    
representing  volatile revenue.  He hypothesized  a scenario                                                                    
of  declining production  several years  out; the  blue bars                                                                    
were lower due  to lower revenue, but the  POMV payout would                                                                    
not be reduced  as much relative to the  revenue decline due                                                                    
to  the $1.2  billion limit.  He offered  a scenario  with a                                                                    
higher  payout limit;  the deficit  would be  eliminated. He                                                                    
then adjusted the  dollar for dollar provision  to $0.80 and                                                                    
$0.80  and  relayed  that the  change  also  eliminated  the                                                                    
deficit "within  the range of  prices where the  deficit was                                                                    
Co-Chair  Seaton  wanted  to contemplate  the  payout  limit                                                                    
concept longer to determine all  the ramifications. He asked                                                                    
what effect the  income tax under HB 115 had  on the models.                                                                    
Mr. Carpenter  showed a  chart [interactive  - not  on file]                                                                    
that indicated  the scenarios with  an income  tax. Co-Chair                                                                    
Seaton referred to the models  with the payout and no payout                                                                    
limit.  He deduced  that  the deficit  with  or without  the                                                                    
limit  was  eliminated at  around  $65/bbl.  or $75/bbl.  He                                                                    
asked where the income tax  revenue was shown on the charts.                                                                    
Mr. Carpenter  answered that the income  tax was represented                                                                    
as non-volatile revenue in red  [on the charts]. The deficit                                                                    
was depicted in orange and was eliminated.                                                                                      
Commissioner  Hoffbeck added  that the  deficit was  reduced                                                                    
before the payout  limit went into effect in  the income tax                                                                    
scenario, which  was the reason  the deficit  was eliminated                                                                    
at the same time with or without the limit.                                                                                     
5:16:17 PM                                                                                                                    
Representative Guttenberg  asked what  value the  income tax                                                                    
input was  based on.  Mr. Painter  indicated that  the model                                                                    
included the  HB 115  value and only  reflected half  of the                                                                    
year's  value, due  to  the first  tax  collection half  way                                                                    
through the fiscal year (FY 18).                                                                                                
Vice-Chair Gara  did not support  the amendment  at present.                                                                    
He  requested a  model  that included  FY 2024's  forecasted                                                                    
production;  the  year the  oil  prices  were forecasted  at                                                                    
approximately $80 per barrel.  He suspected the payout limit                                                                    
would  be moved  well  into the  future.  He reiterated  his                                                                    
concerns  about  the payout  limit  and  the constraints  on                                                                    
education and university  spending, increasing the dividend,                                                                    
and fixing state infrastructure.                                                                                                
Representative  Grenn referred  to  the  graph with  capital                                                                    
budget projections from  FY 19 through FY 26  [not on file].                                                                    
He asked what  the projected capital budget  average was and                                                                    
guessed the  spending level was approximately  $180 million.                                                                    
Mr. Carpenter  concurred that spending  was assumed  flat at                                                                    
$180 million  based on match  money and a  reasonable amount                                                                    
for deferred  maintenance needs.  He voiced that  the amount                                                                    
was "completely arbitrary."                                                                                                     
Representative  Thompson   realized  the  charts   showed  a                                                                    
snapshot for  FY 18. He surmised  that since there was  a 5-                                                                    
year lag  for the POMV average,  the more money left  in the                                                                    
PF  the  larger  the  POMV and  the  smaller  the  potential                                                                    
deficit.  He wondered  whether  his  statement was  correct.                                                                    
Commissioner Hoffbeck answered in  the affirmative. He added                                                                    
that the more the PF grew  the larger the POMV draw and more                                                                    
money  would be  available for  government services  and the                                                                    
Co-Chair  Seaton  noted that  a  draw  limit under  $95/bbl.                                                                    
would not  grow the  draw limit; the  limit would  produce a                                                                    
smaller draw.  He believed committee  members would  need to                                                                    
think  about the  issue further.  He  requested tabling  the                                                                    
amendment  until a  later  time  for further  consideration.                                                                    
Commissioner  Hoffbeck pointed  out  that  the dividend  was                                                                    
calculated before a draw limit  was factored in. He reported                                                                    
that the dividend  would always be paid  against the maximum                                                                    
Co-Chair Seaton MOVED to table the amendment.                                                                                   
Representative Pruitt asked whether there was a reason for                                                                      
tabling the amendment versus holding the amendment until a                                                                      
later time.                                                                                                                     
Co-Chair Foster stated the amendment would be rolled to the                                                                     
bottom of the amendment packet.                                                                                                 
5:22:12 PM                                                                                                                    
Representative   Thompson   WITHDREW   Amendment   14,   30-                                                                    
LS0125\E.29 (Nauman, 3/10/17) and Amendment 15, 30-                                                                             
LS0125\E.30 (Nauman, 3/12/17) (copy on file).                                                                                   
Representative Wilson MOVED to ADOPT Amendment 16, 30-                                                                          
LS0125\E.23 (Nauman, 3/12/17) (copy on file):                                                                                   
     Page 1, line 5, following "Act;':                                                                                          
     Insert  "authorizing   an  advisory  vote   to  approve                                                                    
     legislative  action that  appropriates  money from  the                                                                    
     earnings  reserve account  for a  purpose other  than a                                                                    
     payment  of a  permanent fund  dividend and  making the                                                                    
     legislative  action  contingent  on the  advisory  vote                                                                    
     receiving an affirmative majority vote;"                                                                                   
     Page 10, following line 24:                                                                                                
     Insert new bill sections to read:                                                                                          
     "Sec. 16. The uncodified law  of the State of Alaska is                                                                    
     amended  by  adding a  new  section  to read:  ADVISORY                                                                    
     VOTE. At a  special election to be  held in substantial                                                                    
     compliance  with  the  election   laws  of  the  state,                                                                    
     including   absentee   voting  and   the   preparation,                                                                    
     publication, and mailing of  an election pamphlet under                                                                    
     AS 15.58,  the lieutenant  governor shall  place before                                                                    
     the qualified  voters of the state  a question advisory                                                                    
     to  the  legislature  and the  governor.  The  election                                                                    
     pamphlet for  the special election must  comply with AS                                                                    
     15.58.020(a)(6),  including  the  requirement  that  it                                                                    
     contain  statements  that  advocate voter  approval  or                                                                    
     rejection   of   the   question.   Notwithstanding   AS                                                                    
     15.80.005  and other  laws relating  to preparation  of                                                                    
     the ballot  proposition, the  question shall  appear on                                                                    
     the ballot in the following form:                                                                                          
     Do  you approve  of  the passage  by  the Alaska  State                                                                    
     Legislature of  a bill that  allows the  legislature to                                                                    
     appropriate  money from  the  earnings reserve  account                                                                    
     for a purpose other than  a payment of a permanent fund                                                                    
     Yes[ ] No[ ]                                                                                                               
     Sec. 17. The  uncodified law of the State  of Alaska is                                                                    
     amended by adding a new section to read:                                                                                   
     NOTICE  TO THE  REVISOR  OF STATUTES.  The director  of                                                                    
     elections  shall notify  the revisor  of statutes  when                                                                    
     the results  of the election have  been certified under                                                                    
     AS 15.15.450  if the advisory  vote authorized  in sec.                                                                    
     16 of this Act receives an affirmative majority vote.                                                                      
     Sec. 18. The  uncodified law of the State  of Alaska is                                                                    
     amended by adding a new section to read:                                                                                   
     CONDITIONAL EFFECT. Sections  4 and 6 of  this Act take                                                                    
     effect only  if the director of  elections notifies the                                                                    
     revisor of statutes under sec.  17 of this Act that the                                                                    
     question in  the advisory  vote under  sec. 16  of this                                                                    
     Act received an affirmative majority vote.                                                                                 
     Sec. 19. If,  under sec. 18 of this Act,  secs. 4 and 6                                                                    
     of this Act take effect, they  take effect on July 1 of                                                                    
     the  year following  the year  in which  the notice  is                                                                    
     given under sec. 18 of this Act.                                                                                           
     Renumber the following bill sections accordingly.                                                                          
     Page 10, line 29:                                                                                                          
     Delete '16"                                                                                                                
     Page 10, line 31:                                                                                                          
     Delete "sec. 17"                                                                                                           
     Insert 'sec. 21"                                                                                                           
Representative Guttenberg OBJECTED.                                                                                             
Representative  Wilson  MOVED  Conceptual Amendment  1.  The                                                                    
amendment  to  Amendment  16   would  delete  the  following                                                                    
language  on page  1,  lines  4 through  5  "and making  the                                                                    
legislative   action  contingent   on   the  advisory   vote                                                                    
receiving an affirmative majority vote."                                                                                        
There being NO OBJECTION, Conceptual Amendment 1 to                                                                             
Amendment 16 was ADOPTED.                                                                                                       
Representative Wilson  spoke to the reason  for removing the                                                                    
language.  She reported  that she  received a  legal opinion                                                                    
stating that the  contingency language was unconstitutional.                                                                    
She spoke to  Amendment 16. She felt that  the provisions in                                                                    
HB 115 affected  all of Alaskans and  contained "big" issues                                                                    
that were new  to Alaskans. She had  heard from constituents                                                                    
that felt  they wanted to  "weigh in" on the  decisions. She                                                                    
acknowledged  that  the  advisory  vote did  not  force  the                                                                    
legislature the "abide"  by the results; but  hoped to start                                                                    
a dialogue regarding the issues.                                                                                                
Co-Chair  Seaton was  opposed  to the  amendment. He  stated                                                                    
that the  bill was trying to  address and fix a  problem. He                                                                    
believed they would  not be able to move  forward during the                                                                    
current  30th   Legislature  unless  there  was   a  special                                                                    
election.  He did  not favor  waiting until  after the  next                                                                    
general election.  He indicated that the  delay would impose                                                                    
the status quo and worried that  the delay would "eat up the                                                                    
remaining  funds   in  the  CBR."  He   concluded  that  the                                                                    
amendment  would  suspend  legislative   work  and  delay  a                                                                    
decision by the legislature on a fiscal plan.                                                                                   
5:26:17 PM                                                                                                                    
Co-Chair Foster  mentioned that the committee  would need to                                                                    
address  a technical  amendment on  page 2,  line 8  through                                                                    
line  10  of  the  bill regarding  the  "conditional  affect                                                                    
language."  He requested  that someone  from Legal  Services                                                                    
address the technical issue.                                                                                                    
Representative   Wilson   discerned   that   the   technical                                                                    
correction  corresponded to  her  conceptual amendment  that                                                                    
removed  language from  the  title  and removed  conditional                                                                    
language  within  the  bill.  She  wanted  to  withdraw  her                                                                    
previous  conceptual Amendment  1  [Note:  the amendment  to                                                                    
Amendment  16  had  previously  been  adopted  and  was  not                                                                    
withdrawn. A subsequent conceptual  amendment was offered to                                                                    
fix the issue].                                                                                                                 
5:27:26 PM                                                                                                                    
AT EASE                                                                                                                         
5:28:25 PM                                                                                                                    
Representative  Wilson  MOVED   Conceptual  Amendment  2  to                                                                    
Amendment 16.                                                                                                                   
Vice-Chair Gara OBJECTED for discussion.                                                                                        
Representative  Wilson explained  the amendment  would apply                                                                    
to page  2, lines 6 through  10 of Amendment 16.  The intent                                                                    
was to  remove language  to ensure  the legislation  was not                                                                    
contingent  on  a vote.  She  clarified  that the  amendment                                                                    
called for an advisory vote.                                                                                                    
Co-Chair  Seaton observed  that Section  19 of  Amendment 16                                                                    
read "If, under sec. 18 of  this Act..." He reasoned that if                                                                    
Section 18  was removed he did  not know if the  rest of the                                                                    
amendment was accurate.                                                                                                         
Representative  Wilson  asked  whether  the  Co-Chairs  were                                                                    
planning  on  passing  any  of  the  amendments  during  the                                                                    
current meeting.  She wanted  to roll  the amendment  to the                                                                    
bottom and asked  for more time to  consult with Legislative                                                                    
Legal Services to draft a correct amendment.                                                                                    
Representative  Pruitt  asked  about  the  special  election                                                                    
portion of  the amendment. He  inquired about the cost  of a                                                                    
special election.  He suspected  that a referendum  might he                                                                    
offered  on the  issue. He  presented a  scenario where  the                                                                    
amendment  question was  on the  ballot  during the  general                                                                    
election along with the plebiscite.  He wondered whether the                                                                    
two ballot questions would conflict with each other.                                                                            
5:31:24 PM                                                                                                                    
Vice-Chair Gara  believed the  amendment sponsor  was trying                                                                    
to  address  a  legislative   legal  memo  that  stated  the                                                                    
conditional  language  that made  HB  115  contingent on  an                                                                    
advisory  vote was  unconstitutional.  He  suggested that  a                                                                    
broad  conceptual  amendment  that removed  all  contingency                                                                    
language  from the  amendment was  sufficient. He  requested                                                                    
the sponsor  make a broad  conceptual amendment in  order to                                                                    
move the discussion on Amendment 16 forward.                                                                                    
Representative  Wilson  believed  some good  questions  were                                                                    
raised  and she  wanted  to ensure  that  the amendment  was                                                                    
correct. She  believed that if  the citizens of  Alaska felt                                                                    
the need  for a referendum  she "did not want  the amendment                                                                    
to get in the way." She wanted  to get the issue right - she                                                                    
did  not want  her  amendments to  cause  problems with  the                                                                    
bill.  She believed  people  had  the right  to  a voice  in                                                                    
decisions  regarding  "major"  policy shifts.  She  declared                                                                    
that the  bill could pass  in the  current year and  did not                                                                    
stop  any   progress  on  addressing  a   fiscal  plan.  She                                                                    
reiterated  that the  nature  of an  advisory  vote did  not                                                                    
commit the  legislature to the  outcome. She  concluded that                                                                    
the advisory vote was an  "extra step" and "forced" a larger                                                                    
discussion.  She wanted  to ensure  the  citizens of  Alaska                                                                    
were part  of the conversation.  She restated her  desire to                                                                    
rewrite the amendment and offer it at a later date.                                                                             
5:33:26 PM                                                                                                                    
Representative  Kawasaki remarked  that  the committee  kept                                                                    
rolling  down  amendments.  He   wanted  to  deal  with  the                                                                    
amendments during the meeting.                                                                                                  
5:34:17 PM                                                                                                                    
Representative Wilson wanted to  hear from Legislative Legal                                                                    
Services. She  emphasized her wish to  not include something                                                                    
problematic  in  the  bill  that   would  interfere  with  a                                                                    
Representative  Pruitt was  uncertain of  the timeframe  for                                                                    
the  bill's movement  through the  process. He  stressed his                                                                    
support  for the  sponsor to  have  the time  to propose  an                                                                    
amendment that she felt secure offering.                                                                                        
5:35:50 PM                                                                                                                    
Co-Chair  Seaton was  opposed to  the basic  premise of  the                                                                    
Amendment 16.  He did  not want  to either  delay work  on a                                                                    
fiscal plan or  make it irrelevant due to the  outcome of an                                                                    
advisory  vote.  He thought  the  legislature's  job was  to                                                                    
create a fiscal plan. He opined  that if the public wanted a                                                                    
plebiscite on the  fiscal plan that was  a "separate" result                                                                    
and did not detract from the  current work on a plan. He was                                                                    
opposed to  the basic  part of the  amendment asking  for an                                                                    
advisory  vote.  He  opined  that there  was  no  use  going                                                                    
through  all   the  committee  work  if   an  advisory  vote                                                                    
nullified  the use  of the  ERA.  He favored  voting on  the                                                                    
amendment in the immediate future.                                                                                              
5:37:58 PM                                                                                                                    
Vice-Chair  Gara commented  that  he wanted  to respect  the                                                                    
amendment sponsor's ability to  make her amendment. However,                                                                    
he stressed  that the  legislature was  running out  of time                                                                    
during its  90-day session and  felt that all of  the delays                                                                    
halted progress.                                                                                                                
Representative  Pruitt wanted  to  focus on  the concept  of                                                                    
giving  the amendment  sponsor more  time.  He thought  that                                                                    
substantial  concerns  over  Amendment  16  were  discovered                                                                    
during the meeting.  He noted that he had  been provided the                                                                    
Legislative   Legal  Services   Memo   [Voter  Approval   of                                                                    
Legislation HB  115 30-LS0125\E]  (copy on file)  during the                                                                    
meeting.  He  understood  the bill's  time  sensitivity  but                                                                    
emphasized that he  was arguing for the ability  of a member                                                                    
to ensure she was providing  an amendment she had confidence                                                                    
offering.  He  thought  that   there  were  other  committee                                                                    
members who supported Amendment 16.                                                                                             
5:40:56 PM                                                                                                                    
Co-Chair  Foster   wanted  to  ensure  that   the  committee                                                                    
understood the substance  of the amendment in  order to move                                                                    
Representative Grenn  had been comfortable with  the initial                                                                    
conceptual amendment  before he received the  legal memo. He                                                                    
would like to  see the maker of the amendment  be given time                                                                    
to  bring  forward  an amendment  she  was  confident  would                                                                    
accomplish her objective.                                                                                                       
Representative Tilton  voiced support for allowing  time for                                                                    
the amendment  sponsor to  address the  issues. She  did not                                                                    
believe it would add much more time to the schedule.                                                                            
Representative Wilson apologized that  she had never thought                                                                    
about   the   possibility    of   a   referendum   happening                                                                    
simultaneously with  her ballot question. She  stressed that                                                                    
it was  not her intent to  slow down the bill's  progress or                                                                    
reverse  anything. Her  largest concern  that she  could not                                                                    
presently  answer   was  how   her  ballot   question  would                                                                    
interfere with  a simultaneous  plebiscite on  the question.                                                                    
She voiced  that the whole  purpose of the amendment  was to                                                                    
give the public an opportunity to weigh in.                                                                                     
5:44:17 PM                                                                                                                    
Co-Chair Foster allowed the amendment  sponsor time to clear                                                                    
the  issues  up. He  asked  if  the  same issue  applied  to                                                                    
Amendment   17.  Representative   Wilson  answered   in  the                                                                    
Representative Thompson asked to hear Amendment 12 the next                                                                     
time the bill was heard.                                                                                                        
HB 115 was HEARD and HELD in committee for further                                                                              
Co-Chair Foster announced the schedule for the following                                                                        
5:46:35 PM                                                                                                                    
The meeting was adjourned at 5:46 p.m.                                                                                          

Document Name Date/Time Subjects
HB 115 3-14 amendments, OMB budget.pdf HFIN 3/15/2017 1:30:00 PM
HB 115
HB 115 3-14 amendments, flat budget.pdf HFIN 3/15/2017 1:30:00 PM
HB 115
HB 115 Modeling Revenue Limit Static.pdf HFIN 3/15/2017 1:30:00 PM
HB 115
HB 115 Legal Opinion to Amendments 16-17.pdf HFIN 3/15/2017 1:30:00 PM
HB 115
HB 115 DOR Response Letter to House Finance Committee - 3.23.17.pdf HFIN 3/15/2017 1:30:00 PM
HB 115