Legislature(2017 - 2018)HOUSE FINANCE 519

05/01/2017 01:30 PM House FINANCE

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Audio Topic
01:34:39 PM Start
01:35:49 PM Presentations: the Economy and Fiscal Policy Overview
03:55:00 PM SB6
04:16:26 PM Adjourn
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ Overview: The Economy & Fiscal Policy TELECONFERENCED
- David Teal, Director, Legislative Finance Div.
- Carl Davis, Institute of Taxation & Economic
Policy (ITEP)
+ SB 6 INDUSTRIAL HEMP PRODUCTION TELECONFERENCED
Heard & Held
+ HB 172 INDUSTRIAL HEMP PRODUCTION LICENSES TELECONFERENCED
<Bill Hearing Canceled>
+ Bills Previously Heard/Scheduled TELECONFERENCED
                  HOUSE FINANCE COMMITTEE                                                                                       
                        May 1, 2017                                                                                             
                         1:34 p.m.                                                                                              
                                                                                                                                
                                                                                                                                
1:34:39 PM                                                                                                                    
                                                                                                                                
CALL TO ORDER                                                                                                                 
                                                                                                                                
Co-Chair Seaton  called the House Finance  Committee meeting                                                                    
to order at 1:34 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                                                                                                                
                                                                                                                                
None                                                                                                                            
                                                                                                                                
ALSO PRESENT                                                                                                                  
                                                                                                                                
David  Teal,  Director,  Legislative Finance  Division;  Rob                                                                    
Carpenter,  Analyst,  Legislative Finance  Division;  Alexei                                                                    
Painter,  Analyst,  Legislative  Finance  Division;  Senator                                                                    
Shelley  Hughes,   Sponsor;  Buddy  Whitt,   Staff,  Senator                                                                    
Shelley Hughes; Representative  Bryce Edgmon; Representative                                                                    
Dan Saddler.                                                                                                                    
                                                                                                                                
PRESENT VIA TELECONFERENCE                                                                                                    
                                                                                                                                
Carl  Davis,  Institute  on  Taxation  and  Economic  Policy                                                                    
(ITEP),  Washington  D.C.;  Rob  Carter,  Agronomist,  Plant                                                                    
Materials  Center, Division  of  Agriculture, Department  of                                                                    
Natural Resources.                                                                                                              
                                                                                                                                
SUMMARY                                                                                                                       
                                                                                                                                
CSSB 6(JUD)                                                                                                                     
     INDUSTRIAL HEMP PRODUCTION                                                                                                 
                                                                                                                                
     CSSB  6(JUD)  was  HEARD  and  HELD  in  committee  for                                                                    
     further consideration.                                                                                                     
                                                                                                                                
PRESENTATIONS: THE ECONOMY AND FISCAL POLICY OVERVIEW                                                                           
                                                                                                                                
    DAVID TEAL, DIRECTOR, LEGISLATIVE FINANCE DIVISION                                                                          
     CARL DAVIS, INSTITUTE OF TAXATION AND ECONOMIC POLICY                                                                      
                                                                                                                                
Co-Chair Seaton reviewed the meeting agenda.                                                                                    
                                                                                                                                
^PRESENTATIONS: THE ECONOMY AND FISCAL POLICY OVERVIEW                                                                        
                                                                                                                                
1:35:49 PM                                                                                                                    
                                                                                                                                
Co-Chair  Seaton acknowledged  Representatives Bryce  Edgmon                                                                    
and Dan Saddler  in the audience. He relayed that  SB 26, HB
115, and HB  111 had always been envisioned by  the House as                                                                    
a comprehensive fiscal plan, which  was the reason SB 26 and                                                                    
HB 115 had initially been  combined. He stated that cuts had                                                                    
as much or  more of an impact on the  economy than taxes. He                                                                    
furthered that  presentations from  Institute of  Social and                                                                    
Economic   Research  (ISER)   and  Northern   Economics  had                                                                    
demonstrated that fact. The goal  was to have an Alaska that                                                                    
people  wanted  to live  in,  with  stable services,  strong                                                                    
education,  and functioning  facilities. He  explained there                                                                    
were different  ways to balance  a budget, both  plans under                                                                    
consideration  would get  the state  away from  an immediate                                                                    
crisis, but  they had different  visions of  policy changes.                                                                    
He read from a statement:                                                                                                       
                                                                                                                                
     The  House Majority  coalition  believes  that to  help                                                                    
     protect  the   economy  and  not  further   deepen  the                                                                    
     recession  we  are currently  in,  we  need to  provide                                                                    
     certainty by  eliminating volatility in  state budgets,                                                                    
     protect  key services  that are  essential to  Alaskans                                                                    
     and their  business, and have  a modest  capital budget                                                                    
     that addresses  our deferred maintenance and  keeps the                                                                    
     construction  industry engaged.  We want  to understand                                                                    
     the model  assumptions and the  levers that  are policy                                                                    
     choices  and the  assumptions  that  we cannot  control                                                                    
     that we need to be aware of.                                                                                               
                                                                                                                                
1:38:02 PM                                                                                                                    
                                                                                                                                
DAVID   TEAL,   DIRECTOR,  LEGISLATIVE   FINANCE   DIVISION,                                                                    
addressed  a presentation  titled "HCS  SB 26/HB  115/HB 111                                                                    
Fiscal Plan" dated  May 1, 2017 (copy on  file). He detailed                                                                    
that  the  co-chairs  had   asked  the  Legislative  Finance                                                                    
Division  (LFD) to  talk to  the committee  about the  House                                                                    
version  of a  fiscal  plan.  The plan  included  HCS SB  26                                                                    
[related to  the Permanent Fund],  HB 115 related  to income                                                                    
tax/education  tax,  and HB  111  that  dealt with  oil  tax                                                                    
credit  reform  and  other  oil tax  issues.  In  the  House                                                                    
version all  of the  items had  been rolled  into SB  26. He                                                                    
intended  to  address  the  entire  package  as  SB  26  for                                                                    
simplicity. He  stated the bill  touched every  Alaskan, not                                                                    
just because it impacted  the Permanent Fund Dividend (PFD),                                                                    
but because it  impacted the way government  would be funded                                                                    
and the levels of service  that government could provide. He                                                                    
intended  to  address  why  a fiscal  plan  was  needed  and                                                                    
whether the  House version  of SB 26  offered a  solution to                                                                    
the fiscal problem.                                                                                                             
                                                                                                                                
Mr. Teal turned  to slide 2 titled  "Budget Reductions Since                                                                    
FY13."  A bar  chart on  the slide  demonstrated the  fiscal                                                                    
problem  facing   the  state.  The  black   horizontal  line                                                                    
represented revenue,  which had declined  substantially from                                                                    
its $7  billion peak [in FY  13] to less than  $2 billion at                                                                    
present.  During the  same period  the state's  expenditures                                                                    
had fallen from  $7.8 billion to $4.4  billion. He specified                                                                    
that  the traditional  revenue source  -  oil -  used to  be                                                                    
sufficient to  cover the state's expenditures,  but since FY                                                                    
13 it had  not been. The state faced a  $2.5 billion deficit                                                                    
in FY 18.  He furthered that in the past  the state had been                                                                    
able to absorb  deficits of that size, but it  was the sixth                                                                    
consecutive year of deficits.                                                                                                   
                                                                                                                                
1:40:33 PM                                                                                                                    
                                                                                                                                
Mr.  Teal turned  to slide  3 and  addressed a  chart titled                                                                    
"End-of-Year Budget Reserve  Balances, FY07-FY18." The chart                                                                    
showed that  the state's reserves (Statutory  Budget Reserve                                                                    
(SBR)  and Constitutional  Budget  Reserve  (CBR)) had  gone                                                                    
from  a peak  of slightly  over $16  billion [in  FY 13]  to                                                                    
about $2.5  billion at present.  There was one  year's worth                                                                    
of  reserves  left   after  FY  18.  The   outlook  was  for                                                                    
continuing deficits.  For LFD, anything the  legislature may                                                                    
do in the face of  continuing deficits with no reserves, was                                                                    
speculation. He  explained that the model  broke under those                                                                    
conditions. The presentation looked  at scenarios that had a                                                                    
budget that  could be  funded. He pointed  out that  the CBR                                                                    
served not  only as  a shock  absorber for  budget deficits,                                                                    
but  as  a   cash  flow  management  tool.   The  Office  of                                                                    
Management and Budget  (OMB) said that even  during years of                                                                    
a  surplus,  there was  typically  a  significant amount  of                                                                    
money flowing  out at the  beginning of a year  before money                                                                    
flowed in; OMB  believed the state needed a  cash balance of                                                                    
about  $2.5  billion  in  the  CBR in  order  to  meet  cash                                                                    
management   needs.  He   elaborated   the  scenario   meant                                                                    
borrowing in  the short-term  from the  CBR and  paying back                                                                    
the amount during the year.                                                                                                     
                                                                                                                                
Representative  Grenn  asked Mr.  Teal  to  repeat the  $2.5                                                                    
billion deficit information.                                                                                                    
                                                                                                                                
Mr.  Teal explained  that even  in  the best  of times,  the                                                                    
legislature had  to use  CBR draws  that were  repaid during                                                                    
the  year the  money had  been drawn.  He detailed  that the                                                                    
state's revenue did  not appear on July 1  [the beginning of                                                                    
the fiscal  year], but there  were significant  cash outlays                                                                    
early in the  year. The legislature had always  used the CBR                                                                    
as a source  for cash management, which did  not include the                                                                    
shock absorber impact.                                                                                                          
                                                                                                                                
1:43:33 PM                                                                                                                    
                                                                                                                                
Representative Wilson  thought the  committee had  been told                                                                    
there was $4 billion in the CBR at an earlier hearing.                                                                          
                                                                                                                                
Mr.  Teal   answered  by  pointing   to  a   note  including                                                                    
assumptions used on slide 3.  He detailed the information on                                                                    
the slide  assumed traditional withdrawals  from the  CBR in                                                                    
FY 17 and FY 18. In FY 17  there had been over $4 billion in                                                                    
the CBR. The  slide indicated $2.2 billion at the  end of FY                                                                    
18 assuming the entire deficit was drawn from the CBR.                                                                          
                                                                                                                                
Representative Wilson asked  for verification that currently                                                                    
there was  $4 billion in the  CBR. Mr. Teal answered  it was                                                                    
about $4.5 billion.                                                                                                             
                                                                                                                                
Vice-Chair Gara asked about the  ramifications of going to a                                                                    
$2 billion CBR instead of a $4.2 billion CBR.                                                                                   
                                                                                                                                
Mr. Teal replied that $2  billion may be sufficient for cash                                                                    
management  needs, but  the legislature  may be  put in  the                                                                    
position of  issuing revenue anticipation notes.  It was not                                                                    
something the  state had  done in the  past, but  every year                                                                    
the budget  contained an appropriation for  that purpose, so                                                                    
it was  possible the state would  issue revenue anticipation                                                                    
notes for the  same kind of thing. The notes  had to be paid                                                                    
during   the  year   -  it   was  short-term   borrowing  in                                                                    
anticipation of revenue.                                                                                                        
                                                                                                                                
Vice-Chair Gara would personally  be more comfortable with a                                                                    
savings account  over $4  billion. He asked  if it  would be                                                                    
wiser to maintain over $4 billion in the CBR.                                                                                   
                                                                                                                                
Mr. Teal replied  that in his opinion $5  billion was better                                                                    
than  $4 billion;  however, that  was only  his opinion.  He                                                                    
reminded the committee that when  there was $4 billion or $5                                                                    
billion cash  in the CBR, the  state still owed the  CBR its                                                                    
full  balance.  It  had  been   up  to  about  $13  billion;                                                                    
therefore, if the balance was  down to $2 billion, the state                                                                    
owed  $11   billion  to   the  CBR   as  specified   by  the                                                                    
constitution. The chart indicated  the cash balance, not the                                                                    
accounting balance of $13 billion.                                                                                              
                                                                                                                                
1:47:53 PM                                                                                                                    
                                                                                                                                
Representative   Ortiz    asked   when   the    draw   would                                                                    
traditionally  take place  to bring  the fund  down to  $2.2                                                                    
billion.                                                                                                                        
                                                                                                                                
Mr. Teal  answered there was no  particular date - it  was a                                                                    
year-end  balance. He  detailed  that  typically there  were                                                                    
large outflows, especially for K-12,  early in the year. The                                                                    
money was  provided to school districts,  which depleted the                                                                    
balance. Any  time there  was a deficit,  it cost  the state                                                                    
"x"  million   dollars  per  day   in  losses.   The  losses                                                                    
accumulated and the  projected balance at year  end was $2.2                                                                    
billion. He guessed the draw would be June 30.                                                                                  
                                                                                                                                
Representative  Guttenberg referred  to the  topic of  where                                                                    
the  lowest point  the CBR  cash balance  should be.  He was                                                                    
concerned about Mr.  Teal's statement that it  could be kept                                                                    
at $2  billion or less. He  asked about the cost  of revenue                                                                    
anticipation notes. He asked for detail.                                                                                        
                                                                                                                                
Mr.  Teal  replied   it  was  a  better   question  for  the                                                                    
Department of Revenue  (DOR). He added it would  be a higher                                                                    
interest rate than the state  would lose from the CBR, which                                                                    
was slightly  under 3 percent.  There would also be  cost to                                                                    
issuing  the notes.  He  summarized that  it  would be  more                                                                    
expensive  to issue  notes than  it was  to borrow  from the                                                                    
CBR.                                                                                                                            
                                                                                                                                
Co-Chair  Seaton  spoke   to  the  constitutional  provision                                                                    
related to borrowing  from the CBR (he pointed  to slide 3).                                                                    
He noted  the CBR had  been $13  billion and at  present the                                                                    
balance  was  $2.2   billion.  He  asked  if   there  was  a                                                                    
designated timeframe for the repayment of funds.                                                                                
                                                                                                                                
Mr.  Teal answered  there was  no associated  timeframe. Any                                                                    
time the  state had a  liability to the  CBR, at the  end of                                                                    
the  year the  General Fund  and other  accounts were  swept                                                                    
into the  CBR for repayment.  Until the CBR was  repaid, any                                                                    
unspent general  funds would  be swept  into the  CBR. There                                                                    
was typically  a provision  referred to  as a  reverse sweep                                                                    
that put the money back into the accounts it had come from.                                                                     
                                                                                                                                
1:51:49 PM                                                                                                                    
                                                                                                                                
Mr.  Teal turned  to slide  4 titled  "What Does  a Solution                                                                    
Look Like?"  The slide contained numerous  questions related                                                                    
to the  meaning of healthy  reserves. He explained  he could                                                                    
not specify what healthy reserves  looked like and could not                                                                    
tell  the  legislature what  to  do.  He questioned  whether                                                                    
healthy  reserves   meant  the  $2.5  billion   minimum  the                                                                    
legislature  wanted for  cash flow  purposes. Alternatively,                                                                    
he  questioned  whether  it meant  growing  and  stabilizing                                                                    
reserves and working  to get back to a  $16 billion balance.                                                                    
There were  a number of  ways to look  at the issue  and the                                                                    
answer  would be  different for  everyone.  Some may  merely                                                                    
want  a   sustainable  and  balanced  budget   and  may  not                                                                    
particularly  care how  the solution  looked.  He had  heard                                                                    
that  sentiment  from members  of  the  public. However,  to                                                                    
others  the  path  forward  was just  as  important  as  the                                                                    
destination. He  continued that  those questions  brought up                                                                    
questions about  how big dividends  would be, the  amount of                                                                    
government that  was desired, how much  residents would have                                                                    
to  pay out  of their  pocket  for the  government, and  how                                                                    
actions would impact the economy.  He stated that all of the                                                                    
questions  had major  policy implications  and he  could not                                                                    
tell the committee the answers to any of the questions.                                                                         
                                                                                                                                
Mr. Teal  continued to address  slide 4 and stated  that the                                                                    
points  overlapped some.  He had  seen point  1 [1.  Healthy                                                                    
Reserve Balances?]  as a direct  response to the  problem of                                                                    
vanishing reserves  and points 2 [2.  A Sustainable Budget?]                                                                    
and  3  [3.  A  Healthier  Economy?]  as  a  better  way  to                                                                    
emphasize the  paths rather than  the destination  alone. He                                                                    
asked how  fast the  balanced budget  should be  obtained if                                                                    
that was the  goal. He questioned whether  the budget should                                                                    
be  balanced  immediately  or  whether   a  glide  path  was                                                                    
acceptable or even preferable to  some. He reasoned that the                                                                    
budget could be  balanced at any level as long  as the state                                                                    
had  the  revenue to  support  that  level of  expenditures.                                                                    
Merely  saying  the  goal  was a  balanced  budget  did  not                                                                    
provide  answers towards  reaching  the  goal. He  addressed                                                                    
point  3 and  believed everyone  was aiming  at a  healthier                                                                    
economy; however, he questioned  whether an income tax would                                                                    
hurt  or help  the goal.  The traditional  view was  that an                                                                    
income  tax took  money  out of  the  economy and  therefore                                                                    
slowed it down or hurt it.  However, it could also be argued                                                                    
that a state  tax went right back into the  economy. The way                                                                    
the tax  in Alaska would probably  work was it would  add $1                                                                    
for  every $0.80  removed from  the economy.  He noted  that                                                                    
$0.20  of  the  income  tax would  come  from  nonresidents.                                                                    
Choosing  the path  involved numerous  policy decisions  and                                                                    
some of those were addressed by SB 26.                                                                                          
                                                                                                                                
1:55:47 PM                                                                                                                    
                                                                                                                                
Mr. Teal  advanced to slide  5 titled  "What Does HCS  SB 26                                                                    
Do?" The most significant policy  change under HCS SB 26 was                                                                    
a payout from the  [Permanent Fund] Earnings Reserve Account                                                                    
(ERA) to the General Fund.  The payout that 5.25 percent for                                                                    
a  couple of  years and  dropped to  5 percent  further out,                                                                    
greatly reduced  volatility in  the state's  revenue stream.                                                                    
He elaborated  that the reduction  in volatility  made sense                                                                    
when recognizing that  the payout was as large  as or larger                                                                    
than  the   state's  traditional  oil  revenue   source.  He                                                                    
furthered that the payout would  reduce the deficit by about                                                                    
$1.7 billion to $2 billion per year.                                                                                            
                                                                                                                                
Mr. Teal  addressed the second  provision in HCS SB  26 that                                                                    
would mean  a payout from  the ERA for dividends.  Under the                                                                    
bill the payout was 33  percent, which gave annual dividends                                                                    
of about  $1,250 in the  beginning. He furthered  that under                                                                    
the  baseline assumptions  the  dividends  were expected  to                                                                    
increase towards  $1,400 per  year. He  noted that  some may                                                                    
wonder  how  the dividend  amount  impacted  the problem  of                                                                    
vanishing reserves.  He detailed  that the  relationship was                                                                    
fairly straight forward. As dividends  increase it cost more                                                                    
money. Since  there was  a 5.25  percent total  payout, more                                                                    
money to  dividends meant  less money  to the  General Fund.                                                                    
Less  money  to  the  General   Fund  meant  deficits  would                                                                    
increase and reserves would decline.                                                                                            
                                                                                                                                
Mr.  Teal addressed  the  payout  (revenue) limit  provision                                                                    
included  in  the bill  (slide  5).  He explained  that  the                                                                    
revenue  limit   kicked  in  only  at   revenues  above  any                                                                    
scenarios facing  the state. He  elaborated that it  did not                                                                    
mean  the limit  was ineffective;  it was  designed to  work                                                                    
only  when  revenue  was  unexpectedly   high.  He  had  not                                                                    
included modeling those scenarios,  because too much revenue                                                                    
would not be  seen as a problem. The bill  would also divert                                                                    
some royalties from the Permanent  Fund to the General Fund.                                                                    
He specified  that the constitution  mandated 25  percent of                                                                    
royalties to go to the  Permanent Fund. Statutes mandated an                                                                    
additional  25 percent  from new  fields. The  additional 25                                                                    
percent  was  diverted to  the  General  Fund under  SB  26.                                                                    
Lastly,  the bill  contained conditional  links to  a broad-                                                                    
based tax and to oil tax/credit reform.                                                                                         
                                                                                                                                
Mr. Teal turned to slide 6  titled "Baseline HCS SB 26." The                                                                    
slide  showed screenshots,  which  fell  under the  baseline                                                                    
assumptions; the  assumptions were an OMB  growth forecast -                                                                    
of about  $1 billion between FY  17 and FY 26.  He furthered                                                                    
that the budget  forecast was flat for FY 19  and grew about                                                                    
2.5 percent per year after  FY 20. The OMB forecast included                                                                    
retirement   assistance  at   the   most  recent   acutarial                                                                    
valuation dated  June 2016. The spring  revenue forecast had                                                                    
been  used for  price and  a "P10"  production forecast  had                                                                    
been used. He knew the  committee had some issues with DOR's                                                                    
production  forecast and  LFD believed  that  using the  P10                                                                    
forecast addressed the  issue of the 12  percent decline. He                                                                    
elaborated  it  provided  a revenue  number  that  was  very                                                                    
similar  to the  number released  by DOR  late the  previous                                                                    
week. He stated that  unfortunately the information included                                                                    
a number  at a particular  price, which was  insufficient to                                                                    
update the  LFD model. He  hoped to build the  forecast into                                                                    
the  model later  in  the  week once  DOR  had provided  the                                                                    
numbers.                                                                                                                        
                                                                                                                                
2:01:09 PM                                                                                                                    
                                                                                                                                
Mr.  Teal  continued  that  the   model  used  6.95  percent                                                                    
Permanent  Fund investment  returns. He  cautioned that  the                                                                    
model showed projections only; the  future was uncertain and                                                                    
LFD  expected legislators  to understand  that their  policy                                                                    
decisions have  to address the  uncertainty inherent  in any                                                                    
model and in  the future in general. The  base scenario used                                                                    
fairly stable earnings and oil  prices despite the fact that                                                                    
both  items would  most likely  be  volatile. He  emphasized                                                                    
that the precision  was not high and LFD  believed the model                                                                    
was within  a couple hundred  million dollars for FY  18 and                                                                    
hopefully  within $1  billion  by 2026.  He  noted that  the                                                                    
legislature would not witness  the limit being exercised and                                                                    
he cautioned that  the plans should always  be stress tested                                                                    
to see what would occur under less favorable assumptions.                                                                       
                                                                                                                                
Mr.  Teal addressed  takeaways from  the chart  on slide  6.                                                                    
First,  the Permanent  Fund reached  $70 billion,  which was                                                                    
about 105  percent of  the FY 17  real value.  The Permanent                                                                    
Fund  was protected,  dividends  began at  about $1,250  and                                                                    
increased to  about $1,400  under the  baseline assumptions.                                                                    
The CBR  was not empty as  had been implied on  slide 3 that                                                                    
showed reserves  of about $2.5  billion remaining in  FY 18.                                                                    
He expounded  that one more  year of a $2.5  billion deficit                                                                    
would  have emptied  the CBR.  The  bill did  not have  that                                                                    
effect -  the decline  was more gradual.  He noted  that the                                                                    
gradual  decline  was  not a  complete  solution  and  would                                                                    
require coming back in a few  years to look at reductions or                                                                    
revenue  enhancements.  The  second screenshot  on  slide  6                                                                    
showed increasing  the capital  budget from $180  million to                                                                    
$250  million. The  committee substitute  (HCS  SB 26)  also                                                                    
added the House  version of the income tax (HB  115) and the                                                                    
House  version of  the oil  tax bill  (HB 111).  Under those                                                                    
assumptions the CBR began to  grow, deficits were eliminated                                                                    
and surpluses were projected in the early 2020s.                                                                                
                                                                                                                                
2:04:33 PM                                                                                                                    
                                                                                                                                
Representative Guttenberg  urged the co-chairs to  reach out                                                                    
IT  Committee  and  Legislative Council  and  volunteer  the                                                                    
House  Finance Committee  to  access  technology that  would                                                                    
allow  the members  to  read everything  on  the charts.  He                                                                    
thought it would be beneficial.                                                                                                 
                                                                                                                                
Vice-Chair  Gara referred  to slide  6 and  asked about  the                                                                    
capital budget assumption. Mr. Teal replied $480 million.                                                                       
                                                                                                                                
Vice-Chair  Gara did  not imagine  getting  back to  capital                                                                    
budgets  of  the past.  He  detailed  that the  construction                                                                    
industry  had  communicated  that  the  constrained  capital                                                                    
budget had been  part of the reason for  the constrained job                                                                    
market. He  believed some  capital budgets  had been  in the                                                                    
$600 million to $800 million  range over the ten years prior                                                                    
to  2014. He  surmised  that  on the  one  hand the  budgets                                                                    
seemed much  larger than the  state could  currently afford.                                                                    
He gathered that a $300  million capital budget or closer to                                                                    
those  of   past  years  would  make   the  state's  savings                                                                    
disappear much more quickly if  the plan only used Permanent                                                                    
Fund earnings.                                                                                                                  
                                                                                                                                
Mr. Teal  answered that three  slides had not  been included                                                                    
because they  did not relate  directly to  SB 26, but  a few                                                                    
slides  had  been  included   on  capital  budget,  deferred                                                                    
maintenance,  and  other. He  deferred  to  a colleague  for                                                                    
detail.                                                                                                                         
                                                                                                                                
ROB  CARPENTER,   ANALYST,  LEGISLATIVE   FINANCE  DIVISION,                                                                    
confirmed  that any  increase to  the  capital budget  would                                                                    
drain  reserves quicker.  He provided  a  chart titled  "UGF                                                                    
Capital  Budget vs  ANS Average  $/bbl" (copy  not on  file)                                                                    
that  showed the  unrestricted  general  fund (UGF)  capital                                                                    
budget from FY  00 to FY 18. The chart  included the size of                                                                    
the capital  budget and  the price of  oil. He  relayed that                                                                    
between  FY 00  and FY  17 capital  budget average  was $600                                                                    
million. From  FY 00  to FY  05 the  average had  been about                                                                    
$160  million. He  elaborated that  during the  "boom years"                                                                    
the average had been about $1  billion. He did not know what                                                                    
the "sweet  spot" was in  terms of the capital  budget size.                                                                    
The $180 million  in the LFD model was based  on an educated                                                                    
assumption  the state  would need  roughly  $50 million  per                                                                    
year  for deferred  maintenance (based  on OMB's  projection                                                                    
for $70 million  to $90 million for  deferred maintenance in                                                                    
its 10-year  plan, including  schools) for  state facilities                                                                    
and  another  $30  million   for  deferred  maintenance  for                                                                    
schools, $80  million in federal  matching funds  (which had                                                                    
averaged  about  $60  million  annually)  for  highways  and                                                                    
aviation, $10 million for grants,  and $10 million for other                                                                    
state capital. He noted that  there was plenty of demand for                                                                    
capital  funding  and  the  funding amount  was  up  to  the                                                                    
legislature.                                                                                                                    
                                                                                                                                
2:10:23 PM                                                                                                                    
                                                                                                                                
Representative  Ortiz spoke  to the  decline in  the capital                                                                    
budget and  projections it would  remain relatively  flat in                                                                    
the future.  He asked if  there was  a way to  estimate what                                                                    
the long-term costs of deferred  maintenance would be if the                                                                    
capital budget was not addressed in a more robust way.                                                                          
                                                                                                                                
Mr.   Carpenter   referenced   a  chart   titled   "Deferred                                                                    
Maintenance by  Agency (millions)"  (copy not on  file) that                                                                    
showed the actual deferred maintenance  backlog since FY 12.                                                                    
The backlog had started at  $2.3 billion and had declined to                                                                    
about $1.6  billion as  of January 2017.  The decline  was a                                                                    
result of an initiative implemented  by the governor and the                                                                    
legislature - beginning in FY  11, $100 million per year had                                                                    
gone towards  addressing deferred maintenance.  The payments                                                                    
had a significant impact on  the backlog. He elaborated that                                                                    
as  maintenance continued  to be  deferred  the costs  would                                                                    
increase.  He   detailed  that  buildings  fell   into  more                                                                    
disrepair as time went on  and there was an inflation factor                                                                    
on the general building materials and cost of labor.                                                                            
                                                                                                                                
Co-Chair Seaton  noted it would  be possible to put  in some                                                                    
of the variables when the committee viewed the LFD model.                                                                       
                                                                                                                                
Representative  Wilson  spoke  to   Mr.  Teal's  mention  of                                                                    
utilizing SB 26 alone without  other pieces. She wondered if                                                                    
the LFD modeling included Senate  components such as cuts of                                                                    
$750 million  in the  next three years.  She stated  she was                                                                    
fairly  certain "they"  were  not looking  at  a $1  billion                                                                    
increase  between  "then  and   2026."  She  also  mentioned                                                                    
legislation the  Senate put in  place like a  Medicaid bill,                                                                    
crime bill, and an education package that was forthcoming.                                                                      
                                                                                                                                
Mr.  Teal answered  that  LFD was  using  the same  baseline                                                                    
scenario  for  the  House and  Senate,  including  the  same                                                                    
earnings assumptions, forecast,  and expenditure. The Senate                                                                    
had requested  a reduction  in expenditures  as part  of its                                                                    
plan.  Whereas  a  House  committee  chair  had  elected  to                                                                    
increase  the  capital  budget from  $180  million  to  $250                                                                    
million as  part of  the House plan.  He explained  that the                                                                    
LFD model would  allow a comparison of a  Senate scenario to                                                                    
the House scenario. The model  could also demonstrate what a                                                                    
reduction to  the budget  would look like  in the  House and                                                                    
Senate versions.                                                                                                                
                                                                                                                                
2:13:51 PM                                                                                                                    
                                                                                                                                
Representative Wilson  spoke to the importance  of including                                                                    
all components  of a piece  of legislation when  viewing the                                                                    
LFD model.                                                                                                                      
                                                                                                                                
Co-Chair Seaton clarified  that slides with the  title SB 26                                                                    
House [HCS  SB 26]  indicated it was  the bill  version that                                                                    
passed  the  House.  Likewise, if  the  slide  title  showed                                                                    
Senate, it was the Senate's base version.                                                                                       
                                                                                                                                
Mr. Teal  noted that the  chart was titled "Baseline  HCS SB
26."                                                                                                                            
                                                                                                                                
Representative  Wilson underscored  that the  slides' titles                                                                    
did not  reflect what  had been  stated during  the meeting.                                                                    
She explained that  there had been discussion  about what it                                                                    
would look  like if  the Senate bill  alone was  passed. She                                                                    
asked  for clarification.  She  wondered  if that  statement                                                                    
meant they  were talking  about the House  version of  SB 26                                                                    
without other added components. She  wanted the public to be                                                                    
clear on what bill version  and components the committee was                                                                    
talking about.                                                                                                                  
                                                                                                                                
Co-Chair  Seaton  clarified  that  the  top  of  the  slides                                                                    
indicated  what bill  version  the  scenario was  addressing                                                                    
(e.g. HCS SB 26).                                                                                                               
                                                                                                                                
Mr. Teal clarified that there  were many assumptions driving                                                                    
the LFD  model - some  could not  be controlled such  as oil                                                                    
prices and Permanent Fund earnings.  There were other things                                                                    
that could be controlled, including  the size of the capital                                                                    
and  operating  budgets.  Policy choices  pertained  to  the                                                                    
controllable   variables  and   the   model's  stress   test                                                                    
pertained  to uncontrollable  variables.  He furthered  that                                                                    
the committee may want to see  what the model looked like if                                                                    
there were  lower Permanent Fund  earnings or a  lower price                                                                    
or production  forecast. He explained that  the scenarios in                                                                    
the  model were  driven by  the  assumption -  there was  no                                                                    
guarantee  any of  the model's  projections would  occur. He                                                                    
referred to  a scenario  that showed declining  reserves. He                                                                    
provided  examples where  the change  from  one scenario  to                                                                    
another was the  addition of about $200 million  per year in                                                                    
income tax  and about $100  million in capital  budget. When                                                                    
the expenditures were added, there  were also taxes added to                                                                    
pay for  the expenditures. He  reiterated that there  was no                                                                    
guarantee the  model's projections  would come  to fruition.                                                                    
The actual scenario could be worse or better.                                                                                   
                                                                                                                                
2:19:14 PM                                                                                                                    
                                                                                                                                
Representative Guttenberg noted that  the committee had seen                                                                    
a  slide pertaining  to  SB 26  compared  with the  baseline                                                                    
House  version of  the bill.  Another slide  included SB  26                                                                    
with the  other two House  bills added in. He  believed some                                                                    
of the concerns were  about whether comparisons were apples-                                                                    
to-oranges or other.                                                                                                            
                                                                                                                                
Co-Chair Seaton  clarified that the  Senate version  was not                                                                    
being discussed.  The committee was addressing  two versions                                                                    
- a baseline of  HCS SB 26 without taxes built  in and a HCS                                                                    
SB 26 with  a $250 million capital budget and  HB 115 and HB
111, which  were tied to the  House's version of SB  26. Any                                                                    
slides labeled  House pertained to  all of  the fundamentals                                                                    
of the House  bill and if the slide had  Senate it pertained                                                                    
to the Senate version with its cuts and other.                                                                                  
                                                                                                                                
Representative  Thompson remarked  that into  the future  it                                                                    
appeared the state  would be more and more  dependent on the                                                                    
ERA.  He found  it worrisome  that the  legislature had  not                                                                    
inflation proofed  the Permanent Fund principal  in the past                                                                    
two years  and the  royalties that  went into  the principal                                                                    
had been reduced by 50  percent. He emphasized that the more                                                                    
the principal  could be  grown, the  more money  there would                                                                    
be.  He furthered  that  the  legislature was  contemplating                                                                    
changing the draw limit  from $1.2 billion dollar-for-dollar                                                                    
to $1.4  billion $0.80, plus  inflation proofing.  He stated                                                                    
that they would never reach a  draw limit under that type of                                                                    
scenario.  He   stressed  the  importance  of   growing  the                                                                    
principal of the  Permanent Fund because it  would be needed                                                                    
for  the state's  functioning into  the future  unless there                                                                    
were some  large unforeseen changes.  He was  also concerned                                                                    
how the proposals may hurt PFDs.                                                                                                
                                                                                                                                
2:22:53 PM                                                                                                                    
                                                                                                                                
Mr. Teal  answered that  the concern  was valid.  To address                                                                    
those types of concerns he  recommended looking at the model                                                                    
with  a lower  interest rate  on the  Permanent Fund  and to                                                                    
change the inflation proofing  assumptions for the Permanent                                                                    
Fund. A higher  fund balance meant higher PFDs  and a higher                                                                    
payout  to the  General Fund  -  the higher  the payout  the                                                                    
better  the state  would  be  in terms  of  the deficit.  He                                                                    
detailed  that   everything  was  related,  which   was  the                                                                    
reasoning for  using a  model to  generate graphs.  He hoped                                                                    
everyone  understood the  relationships. He  offered to  sit                                                                    
down individually  with members  if they did  not understand                                                                    
what  went into  the model  and what  the impact  of changes                                                                    
would be.                                                                                                                       
                                                                                                                                
Co-Chair  Seaton asked  Mr. Teal  to address  the model.  He                                                                    
reminded members  that HB 111  was the House version  and if                                                                    
it appeared in the model it  did not reflect changes made in                                                                    
the Senate. He noted that  members all recognized there were                                                                    
two  different ways  to  balance the  budget  and that  both                                                                    
plans would move the state  away from the deficit crisis. He                                                                    
requested  to look  at price  scenarios  at the  top of  the                                                                    
model [shown  on a dynamic Excel  spreadsheet]. He explained                                                                    
the scenario  used the  spring forecast and  went to  $88 in                                                                    
the final year on the chart.  He requested to look at a more                                                                    
conservative price  range of  $50 to $70  and asked  what it                                                                    
did to the plan.                                                                                                                
                                                                                                                                
2:25:47 PM                                                                                                                    
                                                                                                                                
ALEXEI  PAINTER,  ANALYST,   LEGISLATIVE  FINANCE  DIVISION,                                                                    
referred   to  the   model   and   demonstrated  the   price                                                                    
difference. He explained components of  the model shown on a                                                                    
projector  screen.  The  P60   scenario  was  slightly  more                                                                    
conservative  than the  spring forecast  and started  out $4                                                                    
lower and was $9 lower by FY 26.                                                                                                
                                                                                                                                
Representative Wilson asked if the  model was showing a 7 to                                                                    
9 percent decrease in oil.  Alternatively, because an uptick                                                                    
in  production  had occurred  in  the  past two  years,  she                                                                    
wondered  if the  model showed  a flat  rate. She  asked how                                                                    
many barrels of oil they were talking about.                                                                                    
                                                                                                                                
Mr.  Painter  answered  that  the LFD  model  used  the  P10                                                                    
forecast,  which was  the Department  of Natural  Resources'                                                                    
(DNR) high  forecast. He pointed  out there was a  9 percent                                                                    
decrease in  the first year  and somewhat  smaller decreases                                                                    
in future years. He detailed  that DOR had recently released                                                                    
an  alternate revenue  forecast  using a  4 percent  decline                                                                    
curve - it was not built  into the model, but was listed for                                                                    
reference. He furthered  that the change really  only made a                                                                    
difference in  the first few years  - by FY 22  it was close                                                                    
to the P10  curve. In FY 18 the forecast  would be about $70                                                                    
million more in revenue.                                                                                                        
                                                                                                                                
Co-Chair  Seaton spoke  to the  stress test  looking at  oil                                                                    
prices going to $70 in the  outer years and noted it did not                                                                    
substantially change the  look of things. He  asked if there                                                                    
were any changes  that were not obvious. He  asked where the                                                                    
balanced budget would occur.                                                                                                    
                                                                                                                                
2:28:15 PM                                                                                                                    
                                                                                                                                
Mr. Painter replied roughly FY 24  or FY 25 depending on the                                                                    
model's accuracy.                                                                                                               
                                                                                                                                
Co-Chair Seaton  observed "before  that we're at  95 percent                                                                    
by FY 23, is that right?"                                                                                                       
                                                                                                                                
Mr. Painter returned  to the spring forecast  and pointed to                                                                    
the difference  in several years  of when the  deficit would                                                                    
be closed.                                                                                                                      
                                                                                                                                
Co-Chair Seaton  asked what happened  if the  capital budget                                                                    
was increased to $360 million  (double the $180 in the model                                                                    
at present). He surmised that  under the scenario the budget                                                                    
would still be balanced in FY  24 and it would be 97 percent                                                                    
balanced in  FY 22 and  the CBR  would still be  growing. He                                                                    
asked  about the  growth  in the  Permanent  Fund under  the                                                                    
scenario. He stated  the Permanent Fund was  105 percent its                                                                    
current value.  He asked if  the 105 percent meant  the fund                                                                    
was  growing  with inflation  and  had  increased more  than                                                                    
inflation.                                                                                                                      
                                                                                                                                
2:30:23 PM                                                                                                                    
                                                                                                                                
Mr. Painter replied in the affirmative.                                                                                         
                                                                                                                                
Co-Chair Seaton  clarified that 100  percent meant  the fund                                                                    
had  kept up  with inflation  and 105  percent meant  it had                                                                    
exceeded inflation.  The Permanent  Fund would be  5 percent                                                                    
greater than it would be in FY  26 if it had just grown with                                                                    
inflation.                                                                                                                      
                                                                                                                                
Mr. Painter answered in the affirmative.                                                                                        
                                                                                                                                
Co-Chair Seaton asked if other  members had questions on the                                                                    
scenario. He addressed a statutory  repayment of the oil tax                                                                    
credit and  discussed production tax received  by the state.                                                                    
He asked about  a faster repayment of the  credits and asked                                                                    
for an explanation of level.                                                                                                    
                                                                                                                                
Mr.  Painter explained  that the  scenario took  the current                                                                    
and expected  earned balance  of the tax  credits -  with HB
111 (House  version) there  would be  very little  earned in                                                                    
future  years. It  was primarily  the  existing balance  and                                                                    
spread the payments over the  next nine years so there would                                                                    
be a  level amount of about  $150 million per year  (up from                                                                    
$70 million  or so  under the statutory  calculation), which                                                                    
would leave  no outstanding tax  credits to be  purchased in                                                                    
FY 26.                                                                                                                          
                                                                                                                                
Co-Chair Seaton asked  for verification that all  of the tax                                                                    
credits  would  have  been  repaid by  FY  26.  Mr.  Painter                                                                    
answered in the affirmative.                                                                                                    
                                                                                                                                
Co-Chair Seaton  asked what the  budget looked like  and for                                                                    
verification  that  the 95  percent  meant  the state  would                                                                    
anticipate that  revenues received were 95  percent equal to                                                                    
payments.                                                                                                                       
                                                                                                                                
Mr.  Painter  believed  it represented  the  amount  of  the                                                                    
current  deficit.  If nothing  was  done  it would  be  zero                                                                    
percent, but  it filled  up as  various policy  changes were                                                                    
added.                                                                                                                          
                                                                                                                                
2:33:45 PM                                                                                                                    
                                                                                                                                
Co-Chair   Seaton  referred   to   FY  25   and  asked   for                                                                    
verification  there would  be $52  million  surplus at  that                                                                    
time. He  surmised they were  talking about  rounding errors                                                                    
in the  formula because he  believed Mr. Painter  had stated                                                                    
there was a  gap of about $100 million or  so in the earlier                                                                    
years.                                                                                                                          
                                                                                                                                
Mr.  Painter  answered that  by  FY  26  the model  was  not                                                                    
accurate within $100 million. He  detailed that the price of                                                                    
oil  may be  significantly different  and production  may be                                                                    
significantly different -  by that time the  model was lucky                                                                    
to be within $1 billion.                                                                                                        
                                                                                                                                
Vice-Chair Gara wanted to see  the Senate plan of the $1,000                                                                    
dividend  and no  other revenue.  He  wanted to  see a  jobs                                                                    
program. He  elaborated that the  state had lost  7,000 jobs                                                                    
in the  past year.  He did  not see  how an  "only Permanent                                                                    
Fund plan" would do that.                                                                                                       
                                                                                                                                
Co-Chair  Seaton  agreed,  but  wanted to  get  through  the                                                                    
stress  test on  the House  plan first.  He noted  that even                                                                    
with a  $360 million capital  budget, if the  discussion was                                                                    
about  a jobs  program,  it  was twice  as  much  as a  $180                                                                    
million  projected  capital  budget.  The  House  plan  also                                                                    
included a  $1,200 dividend compared  to a  $1,000 dividend.                                                                    
The comparisons would have to  be shown sequentially instead                                                                    
of side-by-side.                                                                                                                
                                                                                                                                
Representative Wilson asked for  clarification on the budget                                                                    
portion. She  asked if the  model showed the  actual budgets                                                                    
passed in  FY 16, the  budgeted numbers  for FY 17,  and the                                                                    
House numbers for FY 18.                                                                                                        
                                                                                                                                
Mr. Painter  agreed that the  FY 16  and FY 17  numbers were                                                                    
the  current  adopted  numbers  with  the  addition  of  the                                                                    
governor's  proposed  supplemental  budget for  FY  17.  The                                                                    
baseline OMB  10-year plan scenario  was used for FY  18 and                                                                    
beyond  (roughly the  governor's budget).  The House  budget                                                                    
was close and there was not a significant difference.                                                                           
                                                                                                                                
Representative Wilson  surmised that the FY  16 numbers were                                                                    
actuals. She asked  for verification that the  FY 17 figures                                                                    
were  actual plus  the proposed  supplemental. She  wondered                                                                    
why the model was not  using the current House budget versus                                                                    
the governor's budget for all of the items.                                                                                     
                                                                                                                                
Mr. Painter  replied there was  no House baseline  beyond FY                                                                    
18.  He was  not  sure  how different  the  number ended  up                                                                    
being.                                                                                                                          
                                                                                                                                
Co-Chair Seaton stated $7 million.                                                                                              
                                                                                                                                
Mr. Painter stated they could add  the $7 million in, but it                                                                    
would not be seen on the chart.                                                                                                 
                                                                                                                                
2:37:44 PM                                                                                                                    
                                                                                                                                
Representative Wilson assumed  that the bump up  shown in FY                                                                    
19 was OMB's projection for the budget.                                                                                         
                                                                                                                                
Mr. Painter answered that the  primary reason was due to the                                                                    
increase in  retirement assistance.  He elaborated  that LFD                                                                    
had recently  received information from  consultants showing                                                                    
that  state assistance  for retirement  would increase  from                                                                    
the current number  of $134 million to  $353 million. Agency                                                                    
operations were  actually slightly lower in  the OMB 10-year                                                                    
plan.                                                                                                                           
                                                                                                                                
Representative  Wilson wanted  to  hear the  reason for  the                                                                    
large bump [in retirement costs].                                                                                               
                                                                                                                                
Co-Chair  Seaton replied  that the  committee could  look at                                                                    
actuarial analysis  at some  point; he  did not  believe the                                                                    
committee would have the ability to change them.                                                                                
                                                                                                                                
Representative  Wilson countered  that the  committee needed                                                                    
to understand the increase.                                                                                                     
                                                                                                                                
Co-Chair  Seaton returned  to the  model and  asked about  a                                                                    
stress  test   in  terms  of  Permanent   Fund  returns.  He                                                                    
requested  to   leave  the  level   amount  of   tax  credit                                                                    
repayments and the capital budget.                                                                                              
                                                                                                                                
Mr.  Painter addressed  an Excel  tab that  used the  actual                                                                    
Permanent Fund investment  returns from the period  of FY 07                                                                    
through  FY 15,  which  included the  great recession  years                                                                    
where  there  had been  a  large  drop and  then  subsequent                                                                    
recoveries. The  other scenario  was for  the same  years in                                                                    
reverse.  He  explained  that  the  actual  mean  investment                                                                    
return over the  period had been 6.5 percent,  which was not                                                                    
very different. He explained that  the sequencing of returns                                                                    
made a large difference.                                                                                                        
                                                                                                                                
2:40:43 PM                                                                                                                    
                                                                                                                                
Co-Chair Seaton noted that in  the scenario even though they                                                                    
were  looking at  the  last nine  years'  return rates,  the                                                                    
model indicated  the CBR would  increase slightly  and money                                                                    
would be  retained in the  ERA at the  end of each  year. He                                                                    
asked if there would be about  $500 million to $1 billion in                                                                    
the reserve under the scenario.                                                                                                 
                                                                                                                                
Mr. Painter  replied that  it was roughly  $1 billion  in FY                                                                    
23, which was the lowest year.                                                                                                  
                                                                                                                                
Representative  Guttenberg asked  what the  model was  using                                                                    
for production and price of  oil. Mr. Painter responded they                                                                    
were  using  the  P10 production  forecast  and  the  spring                                                                    
forecast for price.                                                                                                             
                                                                                                                                
Representative Guttenberg  asked for verification  the items                                                                    
were  built into  the assumptions.  Mr.  Painter agreed.  He                                                                    
noted those items  were not varied in  the current scenario.                                                                    
The only item being altered was the Permanent Fund returns.                                                                     
                                                                                                                                
Co-Chair  Seaton   observed  that  the  dividend   had  been                                                                    
decreasing  slightly  in  the graph  due  to  a  substantial                                                                    
correction and loss in the  Permanent Fund. He asked for the                                                                    
reason and  if it was  related to losses  in the fund  in FY                                                                    
09.                                                                                                                             
                                                                                                                                
Mr. Painter  replied that in  FY 09 the Permanent  Fund loss                                                                    
had  been  minus  18 percent.  The  information  showed  the                                                                    
impact of the loss carried through the average.                                                                                 
                                                                                                                                
Vice-Chair Gara asked to compare  the difference between the                                                                    
capital budget  from last  couple of  years, the  model, and                                                                    
the average.                                                                                                                    
                                                                                                                                
2:43:43 PM                                                                                                                    
                                                                                                                                
Mr. Carpenter answered that the  capital budget had been $96                                                                    
million  the  preceding  year  and  the  governor's  current                                                                    
proposed budget was $115 million.                                                                                               
                                                                                                                                
Vice-Chair Gara  restated the second  part of  his question.                                                                    
He  noted  the  model  assumed  a  capital  budget  of  $360                                                                    
million. He  asked for the  average capital budget  over the                                                                    
past 10 years.                                                                                                                  
                                                                                                                                
Mr. Carpenter agreed that the  model showed a capital budget                                                                    
of  $360  million.  He  detailed that  chart  he  had  shown                                                                    
earlier  in the  meeting had  shown a  $600 million  average                                                                    
from FY 00 to FY 17.                                                                                                            
                                                                                                                                
Vice-Chair Gara  did not  see the ability  to afford  a $600                                                                    
million  capital budget.  He wanted  to see  some growth  in                                                                    
construction  jobs. He  spoke to  the  $360 million  capital                                                                    
budget  under  the  plan.  He asked  if  CBR  earnings  were                                                                    
growing or remained flat.                                                                                                       
                                                                                                                                
Mr. Carpenter  pointed to an  Excel scenario that  assumed a                                                                    
dire financial market - in  the scenario the CBR balance was                                                                    
still maintained and the ERA was recovering and growing.                                                                        
                                                                                                                                
Vice-Chair Gara asked to view  the best forecast projection.                                                                    
He surmised the  state could afford to  increase the capital                                                                    
budget  slightly while  maintaining  a  growing CBR  balance                                                                    
under the average forecast.                                                                                                     
                                                                                                                                
Mr.  Carpenter answered  in  the  affirmative. He  specified                                                                    
that the  scenario on the  screen included a  capital budget                                                                    
of $360  million per year. He  pointed to the upturn  in the                                                                    
CBR and growth in the ERA.                                                                                                      
                                                                                                                                
Co-Chair  Seaton pointed  to the  reserves  growth of  about                                                                    
$700 million to  $800 million per year between FY  25 and FY                                                                    
26.                                                                                                                             
                                                                                                                                
2:46:52 PM                                                                                                                    
                                                                                                                                
Mr. Teal  reminded the members  inflation proofing  had been                                                                    
built into the bill. Any time  the ERA balance was more than                                                                    
four times  the amount of  the payout, there was  a transfer                                                                    
from the  ERA to the corpus  of the fund. He  continued that                                                                    
it kept the ERA balance at  roughly four times the payout so                                                                    
it  appeared  that  reserves  were   flat.  He  detailed  it                                                                    
actually indicated that the corpus  of the fund was growing,                                                                    
which would  be reflected  on the  Permanent Fund  graph. He                                                                    
pointed to  an Excel chart  and noted  the fund grew  to $70                                                                    
billion. He noted that under  any scenario at a 6.95 percent                                                                    
payout  - the  bill specified  that was  what it  would look                                                                    
like. When  reverting to the  stress test, it  indicated the                                                                    
Permanent Fund would fall substantially and then recover.                                                                       
                                                                                                                                
Vice-Chair Gara  believed it was  necessary to see  a return                                                                    
of  construction  jobs to  help  reverse  the recession.  He                                                                    
asked  if a  $360 million  capital budget,  which was  lower                                                                    
than  average but  higher than  the  preceding year,  seemed                                                                    
like a responsible amount. He  noted that the capital budget                                                                    
had not yet been written.                                                                                                       
                                                                                                                                
Mr. Carpenter replied that it was a policy call.                                                                                
                                                                                                                                
2:49:17 PM                                                                                                                    
                                                                                                                                
Co-Chair Seaton asked to see the model pertaining to SB 26.                                                                     
                                                                                                                                
Mr. Painter complied and noted  the Excel model showed SB 26                                                                    
with  no other  changes other  than $185  million in  budget                                                                    
cuts.  He  noted  the Senate's  operating  budget  was  $185                                                                    
million lower than  the governor's budget (but  not below FY                                                                    
17 - the baseline for  the model was the governor's proposed                                                                    
budget).                                                                                                                        
                                                                                                                                
Co-Chair Seaton  asked to see  the bottom left graph  on the                                                                    
screen.  He referred  to a  $300  million deficit  in FY  26                                                                    
indicated  on  the screen.  He  noted  the bill  included  a                                                                    
$1,000  dividend ($1,000  was also  the dividend  floor). He                                                                    
requested a  stress test on the  price at P60. He  stated if                                                                    
the price  was running in the  $50 to $79 range  the CBR was                                                                    
continuing  to  decline and  there  would  be a  deficit  of                                                                    
approximately $485 million in FY 26.  He asked to see a $360                                                                    
million capital budget.                                                                                                         
                                                                                                                                
Mr. Painter asked if Co-Chair  Seaton wanted the scenario to                                                                    
maintain the P60.                                                                                                               
                                                                                                                                
Co-Chair  Seaton answered  in the  affirmative. He  observed                                                                    
that  the  CBR  would  almost  disappear in  FY  26  if  the                                                                    
specific scenario was maintained.                                                                                               
                                                                                                                                
2:52:49 PM                                                                                                                    
                                                                                                                                
Representative  Ortiz  spoke  to a  scenario  that  included                                                                    
approximately $180 million  in budget cuts. He  asked if the                                                                    
reductions continued out in the  model to the projected $750                                                                    
[million] over the next three years.                                                                                            
                                                                                                                                
Mr. Painter answered in the  negative. He offered to include                                                                    
larger cuts  in the  scenario if  desired. The  scenario had                                                                    
started with cuts of $185 million.                                                                                              
                                                                                                                                
Representative Ortiz  asked for  verification that  the $185                                                                    
million in  cuts was assumed  year after year in  the model.                                                                    
Mr. Painter clarified that the  model included a shifting of                                                                    
the OMB line down by $185 million on a one-time basis.                                                                          
                                                                                                                                
Vice-Chair Gara  referred to a  bar chart in the  model that                                                                    
assumed the  Senate's education and university  cuts, but it                                                                    
did   not  assume   ever  returning   the  funds   to  those                                                                    
allocations. He  surmised the chart  assumed the  cuts would                                                                    
take place  in the  current budget  and would  be maintained                                                                    
into  the  future.   He  asked  for  the   accuracy  of  his                                                                    
statements.                                                                                                                     
                                                                                                                                
Mr. Painter  replied that  the OMB  baseline scenario  had a                                                                    
flat operating  budget for FY 18  through FY 20 and  grew at                                                                    
2.5 percent  (slightly more  than inflation),  meaning there                                                                    
could be  some increase.  The OMB  plan did  not distinguish                                                                    
between the various parts of agency operations.                                                                                 
                                                                                                                                
Co-Chair Seaton asked  to return to the  spring forecast. He                                                                    
asked  about  the $185  million  that  included cuts,  which                                                                    
would require  a supplemental of slightly  over $20 million.                                                                    
He asked  to reduce  the cuts to  $150 million.  He observed                                                                    
the CBR  was declining in  the scenario and the  deficit was                                                                    
$424 million  in FY 26.  He requested  a stress test  on the                                                                    
data. He observed that with the  reverse the ERA was used up                                                                    
for two years and the CBR was still declining.                                                                                  
                                                                                                                                
2:56:25 PM                                                                                                                    
                                                                                                                                
Representative Wilson  asked to  return to the  $180 million                                                                    
capital budget in the model.  She did not believe the Senate                                                                    
was  proposing to  take  $180 million  off  of the  proposed                                                                    
increase, but taking  $180 million off of  the actual budget                                                                    
in the  current year.  She clarified  there were  bills that                                                                    
had  been passed  by the  legislature  related to  Medicaid,                                                                    
crime,  and education  reform. She  did not  believe it  was                                                                    
possible to  specify the  funds would  come from  a specific                                                                    
area. She asked for verification  there was no way the chart                                                                    
could include  anything different than a  9 percent decrease                                                                    
related to oil.                                                                                                                 
                                                                                                                                
Mr. Painter  replied that  LFD did  not have  the additional                                                                    
data from DOR,  but the hope was to receive  the data by the                                                                    
end of the week.                                                                                                                
                                                                                                                                
Representative Wilson  pointed to  the data and  surmised it                                                                    
was  DOR's   actual  spring  forecast.  She   wondered  what                                                                    
happened with the scenario.                                                                                                     
                                                                                                                                
Mr.   Painter  asked   for   clarification.   He  asked   if                                                                    
Representative Wilson wanted the model  to use a cut of $185                                                                    
million.                                                                                                                        
                                                                                                                                
Representative Wilson asked if  $185 million was the current                                                                    
cut in the governor's proposed capital budget.                                                                                  
                                                                                                                                
Mr.  Teal  answered  there  was  another  way  to  show  the                                                                    
information.  He  explained  that instead  of  shifting  the                                                                    
entire  curve parallel,  it could  be changed  to grow  at a                                                                    
rate lower than 2.5 percent.  He reminded the committee that                                                                    
it was  a policy  decision and any  number desired  could be                                                                    
used. For  example, if the  legislature believed  the budget                                                                    
could be  held flat it  could put a  flat budget in  or some                                                                    
growth rate that was less than inflation.                                                                                       
                                                                                                                                
Representative  Wilson  clarified  she was  only  trying  to                                                                    
understand the  Senate's plan. She thought  it was important                                                                    
to understand whether there would  be a $485 million deficit                                                                    
by FY  24. She asked if  the governor had included  the $180                                                                    
million in his proposed capital budget.                                                                                         
                                                                                                                                
Mr. Teal answered  that the Senate had asked  LFD to include                                                                    
the $185 million decrement as its baseline.                                                                                     
                                                                                                                                
Representative Wilson  asked how  far out the  deficit would                                                                    
continue  under  the   scenarios  currently  presented.  She                                                                    
remarked it would  be helpful to have  personal computers to                                                                    
view the information presented on the screens.                                                                                  
                                                                                                                                
Co-Chair Seaton  replied that  the scenarios  maintained the                                                                    
deficit through  FY 26 - the  deficit in FY 26  was slightly                                                                    
over $200  million. He requested  a change to  the statutory                                                                    
[oil credit] payout to a  higher level payout in the current                                                                    
scenario. He  noted the committee  had seen stress  tests on                                                                    
both projects,  but LFD could  only help so far  because the                                                                    
remainder  was  based  on policy  calls  (e.g.  whether  the                                                                    
legislature wanted  to see cuts  and job cuts or  other). He                                                                    
remarked that  the scenario included the  Senate's 5 percent                                                                    
education cut. He  stated the cut could  be characterized in                                                                    
numerous ways including a cut  to the Alaska Pioneer's Homes                                                                    
or  other places  in  the Department  of  Health and  Social                                                                    
Services. Alternatively,  there was  the House's  version of                                                                    
the budget  that increased  funds to take  care of  a robust                                                                    
economy.                                                                                                                        
                                                                                                                                
3:02:47 PM                                                                                                                    
                                                                                                                                
Vice-Chair Gara saw  the [Senate's] plan as  a "people leave                                                                    
Alaska plan." He  asked how fast the CBR  would disappear in                                                                    
the  Senate's plan  if  its $70  million  education cut  and                                                                    
university  cut  was  restored  and  the  construction  jobs                                                                    
budget was increased to $360 million.                                                                                           
                                                                                                                                
Mr. Painter  asked for clarification  on the  cut Vice-Chair                                                                    
Gara wanted to see in the model.                                                                                                
                                                                                                                                
Vice-Chair  Gara stated  the Senate's  education cut  of $70                                                                    
million for K-12  and university cut of  roughly $21 million                                                                    
were restored. He repeated including  a $360 million capital                                                                    
budget. He did not believe the plan would work.                                                                                 
                                                                                                                                
Mr. Painter answered  that he had been  presenting the level                                                                    
tax  credit payments.  He mentioned  returning the  model to                                                                    
the statutory payment.                                                                                                          
                                                                                                                                
3:04:47 PM                                                                                                                    
AT EASE                                                                                                                         
                                                                                                                                
3:11:27 PM                                                                                                                    
RECONVENED                                                                                                                      
                                                                                                                                
CARL  DAVIS,  INSTITUTE  ON  TAXATION  AND  ECONOMIC  POLICY                                                                    
(ITEP),  WASHINGTON D.C.  (via  teleconference), provided  a                                                                    
PowerPoint     presentation     titled    "Comparing     the                                                                    
Distributional Impact  of Revenue  Options in  Alaska" dated                                                                    
May 1,  2017 (copy on  file). He referred to  a presentation                                                                    
overview on  slide 1,  which pertained to  a study  ITEP had                                                                    
released the prior week using  its microsimulation tax model                                                                    
to  evaluate the  distributional  consequences of  different                                                                    
revenue options for Alaska:                                                                                                     
                                                                                                                                
   · The ITEP Microsimulation Model                                                                                             
   · Five Revenue Options in Alaska                                                                                             
        o Personal Income Tax                                                                                                   
        o Permanent Fund Dividend (PFD) reduction                                                                               
        o Sales Tax                                                                                                             
        o Payroll Tax                                                                                                           
        o Payroll Tax + Investment Income Tax                                                                                   
   · Comparisons Across Options                                                                                                 
   · Additional Tax Incidence Research                                                                                          
   · Questions?                                                                                                                 
                                                                                                                                
Mr.  Davis explained  that the  options considered  had been                                                                    
compared across families.  He moved to slide  2 and provided                                                                    
an introduction to ITEP:                                                                                                        
                                                                                                                                
     The Institute  on Taxation  and Economic  Policy (ITEP)                                                                    
     is  a  nonprofit,  non-partisan  research  organization                                                                    
     that  works on  federal,  state, and  local tax  policy                                                                    
     issues.  ITEP's  mission  is  to  ensure  that  elected                                                                    
     officials,  the  media,  and the  general  public  have                                                                    
     access   to  accurate,   timely,  and   straightforward                                                                    
     information that allows them  to understand the effects                                                                    
     of current and proposed tax policies.                                                                                      
                                                                                                                                
Mr. Davis turned to slide  3 titled "ITEP Model Background."                                                                    
He detailed  that the model  was the company's  primary tool                                                                    
it used to  do its work, which a team  of economists kept up                                                                    
to date. He provided detail from the slide:                                                                                     
                                                                                                                                
   · Built in 1994-1996, but still evolving in 2017                                                                             
   · Designed to:                                                                                                               
        o Predict the distributional effect of proposed tax                                                                     
          changes on taxpayers at different income levels                                                                       
        o Predict the revenue gain (loss) from proposed tax                                                                     
          changes                                                                                                               
        o Estimate the impact of current state and local                                                                        
          taxes in all 50 states                                                                                                
        o Measure the interaction between state and federal                                                                     
          tax changes                                                                                                           
   · Employs the same technology used by the US Treasury,                                                                       
     Congressional    Joint     Committee    on    Taxation,                                                                    
     Congressional   Budget    Office,   and    some   state                                                                    
     departments of revenue (e.g. TX, MN, ME)                                                                                   
   · Consists of four basic modules: personal income tax,                                                                       
     property tax, consumption tax, and business tax                                                                            
                                                                                                                                
Mr.  Davis elaborated  on slide  3. He  explained that  many                                                                    
state   departments  had   similar   models.  For   example,                                                                    
Minnesota had  a robust model  that was used  frequently. He                                                                    
noted that Colorado had recently  begun using similar models                                                                    
as well. He relayed that  the model allowed ITEP to estimate                                                                    
the  impact of  many types  of taxes  [listed on  slide]. He                                                                    
noted that the company  did not typically consider severance                                                                    
or oil taxes and royalties.                                                                                                     
                                                                                                                                
3:15:58 PM                                                                                                                    
                                                                                                                                
Mr.  Davis  turned  to  slide  4  titled  "ITEP  Model  Data                                                                    
Sources."  The  model's  foundation   was  tax  return  data                                                                    
reported by  the IRS [Internal  Revenue Service],  which was                                                                    
helpful for  analytical purposes  because there was  data on                                                                    
capital   gains,  dividends,   interest,  salaries,   wages,                                                                    
business  income,  farming, unemployment,  social  security,                                                                    
and other. He  detailed that IRS data  was supplemented with                                                                    
census data,  the Joint Committee on  Tax, the Congressional                                                                    
Budget  Office,  state  specific data  sources,  and  other.                                                                    
Compiling  the  information created  a  profile  of the  tax                                                                    
paying population in order to  have records representing low                                                                    
income  households,  middle   income  households,  and  high                                                                    
income   households.   He   explained  it   was   called   a                                                                    
microsimulation model because it  started from the ground up                                                                    
-  it  began  with  the  individual  tax  payer  and  a  tax                                                                    
calculation was  applied. The  model could  be run  based on                                                                    
taxpayers   in  a   specific   state   or  nationwide.   The                                                                    
calculations were summed up into  tables he would show later                                                                    
in the presentation.                                                                                                            
                                                                                                                                
3:18:12 PM                                                                                                                    
                                                                                                                                
Mr. Davis advanced to slide 5 titled "Research Design":                                                                         
                                                                                                                                
   · Five revenue options, each raising $500 Million per                                                                        
     year                                                                                                                       
        o Revenue amount ($500m) chosen only to allow for                                                                       
          comparisons.                                                                                                          
        o Options are not mutually exclusive. In the real                                                                       
          world, the discussion centers around striking the                                                                     
          right balance, not picking the "best" single                                                                          
          option.                                                                                                               
   · Distributional impact on Alaska residents, grouped by                                                                      
     each tax unit's income level. For example:                                                                                 
        o Lowest 20 percent = Total income below $25,000                                                                        
        o Middle 20 percent = Total income between $40,000                                                                      
          and $73,000                                                                                                           
        o Fourth 20 percent = Total income between $73,000                                                                      
          and $115,000                                                                                                          
       o Top 5 percent = Total income above $228,000                                                                            
             ƒAverage income for this group = $502,000 per                                                                     
               year                                                                                                             
   · Non-resident impact is considered                                                                                          
        o More revenue from non-residents means lower                                                                           
          payments required from Alaskans.                                                                                      
                                                                                                                                
Mr.  Davis expounded  on slide  5. He  underscored that  the                                                                    
$500 million  figure had  only been used  as an  example. He                                                                    
noted that just  because the model looked at  options one at                                                                    
a time, it  was not an effort to encourage  anyone to pick a                                                                    
favorite and run with it.  He was aware the conversation was                                                                    
about  striking the  appropriate balance  and about  putting                                                                    
together a fiscal package. He  explained that his references                                                                    
to  low  income families  included  the  bottom quintile  in                                                                    
Alaska [indicated on slide 5].                                                                                                  
                                                                                                                                
Mr. Davis  moved to slide  6 that showed a  chart pertaining                                                                    
to personal income  tax similar to HB 115  (rates reduced by                                                                    
27.75  percent  to  conform  to  $500  million  target).  He                                                                    
specified that because the example  aimed for a $500 million                                                                    
comparison point,  it was  necessary to  scale back  the tax                                                                    
rates  in  order   to  hit  the  target.   The  example  was                                                                    
progressive  throughout the  income  distribution. Many  low                                                                    
income families  would be  exempt from  an income  tax (ones                                                                    
that were  not would  pay relatively  small amounts)  and in                                                                    
the middle,  things like  the zero  percent bracket  and the                                                                    
$4,000 personal exemption  benefitted middle income families                                                                    
significantly - some middle income  families would pay under                                                                    
1 percent of  their income. The income tax would  top out at                                                                    
about  2.8 percent  for high  income earners.  The statutory                                                                    
rate ITEP  modeled for the  tax was  just over 5  percent at                                                                    
the  top,  but  in  practice very  few  families  would  pay                                                                    
anything  close to  that amount  due to  the graduated  rate                                                                    
structure and  benefit of the  lower rates on  early dollars                                                                    
and income.                                                                                                                     
                                                                                                                                
3:22:00 PM                                                                                                                    
                                                                                                                                
Mr.  Davis  moved  to  a  chart on  slide  7  related  to  a                                                                    
reduction of  Permanent Fund Dividends  by $784  per person,                                                                    
which would raise the same  amount - the action should raise                                                                    
about $500  million in savings  overall. The slide  showed a                                                                    
starkly different  distributional effect,  with a  very high                                                                    
impact at  the lowest income  level. The $784  represented a                                                                    
larger fraction of a low  income household's budget compared                                                                    
to high income  earning households. He pointed  out that the                                                                    
bars on the chart were quite  a bit higher than those in the                                                                    
chart  related to  personal income  taxes. He  detailed that                                                                    
there was less  income at the bottom  overall, therefore the                                                                    
7.2 percent impact at the  bottom would not raise nearly the                                                                    
same  amount that  7.2 percent  of income  at the  top would                                                                    
raise.                                                                                                                          
                                                                                                                                
Mr. Davis advanced to a chart  on slide 8 related to a sales                                                                    
tax of  3 percent  on most goods  and services  (exempt were                                                                    
groceries, health  care, shelter, child care).  He discussed                                                                    
that even though  the current debate was  largely focused on                                                                    
income taxes,  PFDs, gasoline  tax, ITEP  wanted to  look at                                                                    
some  other broad-based  taxes as  well.  He discussed  that                                                                    
sales  taxes  were generally  regressive  for  a variety  of                                                                    
reasons,  even when  exemptions for  basic necessities  were                                                                    
offered.  He specified  it was  partly  because every  state                                                                    
with  a sales  tax ended  up taxing  a significant  share of                                                                    
business purchases -  it was clear that sales  taxes paid by                                                                    
businesses   ultimately  were   passed   to  consumers.   He                                                                    
furthered  that even  when  a state  tried  to exempt  basic                                                                    
necessities such as groceries and  shelter, if items used by                                                                    
a  grocery store  were taxed,  the costs  were passed  on to                                                                    
consumers.                                                                                                                      
                                                                                                                                
Mr. Davis  moved to slide 9  and addressed a payroll  tax of                                                                    
2.43 percent on salaries,  wages, and self-employment income                                                                    
(the 2.43  percent was  estimated by  ITEP to  generate $500                                                                    
million per year).  He detailed the tax  was relatively flat                                                                    
across the income  distribution because it was  a flat rate.                                                                    
The tax trailed off at  the top because high income families                                                                    
tended  to earn  a significant  share of  their income  from                                                                    
investments, which would be exempt under a payroll tax.                                                                         
                                                                                                                                
3:25:09 PM                                                                                                                    
                                                                                                                                
Mr. Davis referred  to an income option of a  payroll tax of                                                                    
2.1 percent  on salaries, wages, and  self-employment paired                                                                    
with a  [6 percent]  tax on investment  income on  slide 10.                                                                    
The idea  was to remedy  how a standalone payroll  tax would                                                                    
exempt investment income. He concluded  it would result in a                                                                    
more  proportional  distribution  throughout.  He  moved  to                                                                    
slide 11 and  addressed the impact the bottom  20 percent of                                                                    
Alaskans would  experience under different  revenue options.                                                                    
He pointed to the 7.2 percent  impact from a PFD cut and the                                                                    
0.1  percent  impact  from  a   personal  income  tax  (many                                                                    
families would  be entirely exempt).  He added  that payroll                                                                    
and sales taxes fell in between the two [percentage wise].                                                                      
                                                                                                                                
Mr. Davis  turned to  slide 11  and spoke  to the  impact on                                                                    
middle  20  percent  of  Alaskans. He  pointed  to  the  2.5                                                                    
percent impact  from a  PFD cut and  the 0.7  percent impact                                                                    
from a  personal income  tax - he  noted the  difference was                                                                    
about threefold and was fairly substantial.                                                                                     
                                                                                                                                
3:26:54 PM                                                                                                                    
                                                                                                                                
Mr.  Davis  turned to  slide  12  and addressed  impacts  on                                                                    
upper-middle  income Alaskans.  No  matter  the option,  the                                                                    
impact tended to  be fairly consistent. An  income tax would                                                                    
amount to  about 1.2 percent  of income for an  upper middle                                                                    
income tax payer  and a PFD cut would be  somewhat larger at                                                                    
1.6 percent of  income. He noted it had to  be considered on                                                                    
a case-by-case basis  and it would depend  heavily on family                                                                    
size. He  detailed that for  an upper middle  income Alaskan                                                                    
with a family of  four or five a PFD cut  would be much more                                                                    
significant  than  a personal  income  tax.  Also, a  single                                                                    
taxpayer may actually  pay less under a  personal income tax                                                                    
than through a PFD reduction.                                                                                                   
                                                                                                                                
Mr. Davis to slide  13 and spoke to the impact  on the top 5                                                                    
percent  of Alaskans  (income  over  $228,000). He  detailed                                                                    
that the group  tended to have larger incomes  and would pay                                                                    
higher income tax. He moved  to slide 14 that included other                                                                    
resources he encouraged committee members to review:                                                                            
                                                                                                                                
   · Gunnar Knapp, Matthew Berman, and Mouhcine Guettabi                                                                        
     (ISER)                                                                                                                     
        o "Short-Run Economic Impacts of Alaska Fiscal                                                                          
          Options" (March 2016)                                                                                                 
   · Berman, Matthew and Random Reamey (ISER)                                                                                   
        o "Effect of Alaska Fiscal Options on Children and                                                                      
          Families" (February 2017)                                                                                             
   · Minnesota Department of Revenue                                                                                            
        o "2017 Tax Incidence Study" (March 2017)                                                                               
   · Texas Comptroller of Public Accounts                                                                                       
        o "Tax Exemptions & Tax Incidence" (February 2017)                                                                      
   · Colorado Department of Revenue                                                                                             
        o "Tax Profile & Expenditure Report, 2016" (January                                                                     
          2017)                                                                                                                 
                                                                                                                                
Mr.  Davis remarked  that  he  did not  believe  any of  the                                                                    
findings shown  in the  presentation should  be tremendously                                                                    
controversial.  He  moved  to   slide  15  and  spoke  about                                                                    
research economists at  ISER had done over the  past year or                                                                    
so.  An ISER  chart  indicated that  economists had  reached                                                                    
very similar  conclusions in regard  to income  taxes, sales                                                                    
taxes,  and PFD  reductions. He  noted  that the  PFD was  a                                                                    
unique   feature  in   Alaska;   therefore   there  was   no                                                                    
comparative data  from other states. He  continued that many                                                                    
state governments  had studies on existing  income and sales                                                                    
taxes.  For  example,  Minnesota  had a  very  detailed  tax                                                                    
report  that showed  how the  impacts  varied. He  mentioned                                                                    
other states such  as Texas and Colorado. He  pointed to the                                                                    
gold bar on the chart that  indicated a reduction in the PFD                                                                    
- it  showed a representing  a large fraction of  income for                                                                    
low income  families. The  red lines  [flat rate  income tax                                                                    
and progressive income  tax] were the lowest  impact for low                                                                    
income  families.  The  chart reflected  that  income  taxes                                                                    
would generally  be lower  per dollar  (ISER's study  used a                                                                    
$100  million  annual impact  instead  of  the $500  million                                                                    
impact).  He elaborated  that the  income tax  lines in  red                                                                    
were  below  the  PFD  line  in gold;  the  income  tax  was                                                                    
generally cheaper  for middle income  and some  upper income                                                                    
families (the impact depended on family size).                                                                                  
                                                                                                                                
3:30:54 PM                                                                                                                    
                                                                                                                                
Mr.   Davis  relayed   the  full   study   was  located   at                                                                    
www.itep.org.                                                                                                                   
                                                                                                                                
Vice-Chair  Gara  spoke to  payroll  taxes.  He asked  if  a                                                                    
partnership  distribution at  the  end of  a  year would  be                                                                    
captured by a payroll tax.                                                                                                      
                                                                                                                                
Mr. Davis  answered that a distribution  should be captured.                                                                    
He detailed that the bulk  of payroll tax revenue would come                                                                    
from wages  and salaries,  but it  was necessary  to include                                                                    
some  amount of  self-employment and  business income  under                                                                    
the tax  because if there  were large  discrepancies between                                                                    
the  tax treatment  of wages  and  salaries versus  business                                                                    
income,  it created  opportunities  for  tax avoidance.  The                                                                    
scenario had occurred in the  past, especially most recently                                                                    
in states like Kansas.                                                                                                          
                                                                                                                                
Vice-Chair  Gara  asked whether  it  would  be possible  for                                                                    
higher income  business owners to  get around a  payroll tax                                                                    
by paying bonuses or shares to a shareholder.                                                                                   
                                                                                                                                
Mr.  Davis answered  there had  to be  some policing  of the                                                                    
distinction.  He  noted  the  topic  was  not  his  area  of                                                                    
expertise. The  line between different categories  of income                                                                    
could often be somewhat fuzzy.                                                                                                  
                                                                                                                                
3:33:18 PM                                                                                                                    
                                                                                                                                
Representative Guttenberg  spoke to distribution  impacts on                                                                    
revenue options. He  asked about other locations  that had a                                                                    
tax increase  or decrease and  noted there was  typically an                                                                    
existing  sales  tax or  income  tax.  Alaska did  not  have                                                                    
either.  He  asked how  that  changed  the dynamics  of  the                                                                    
situation facing Alaska.                                                                                                        
                                                                                                                                
Mr. Davis replied  that it created a  somewhat larger margin                                                                    
of  uncertainty   in  forecasting  the  revenue   impact  of                                                                    
different  options.  He  explained  that  when  states  with                                                                    
existing taxes  were seeking to do  revenue projections they                                                                    
began  with  what  they  had  already  collected  under  the                                                                    
specific  tax;  it  allowed the  state's  to  determine  how                                                                    
things had  changed since  the collections  had come  in. He                                                                    
relayed  that revenue  forecasting  tended  to improve  over                                                                    
time.  Revenue  estimates  were   likely  to  be  the  least                                                                    
accurate at the  point when a new tax  was established. Over                                                                    
time many types of taxes  - including sales and income taxes                                                                    
-  tended to  become more  complicated. It  was possible  to                                                                    
think through a relatively simple  tax carefully when it was                                                                    
being established.  For example,  many sales taxes  were set                                                                    
up  close to  100 years  ago  when the  economy looked  very                                                                    
different - many  personal services were not  taxed, but the                                                                    
service  sector  had  grown enormously  over  the  past  few                                                                    
decades.  He cited  streaming video,  Airbnb.com, and  other                                                                    
items that  were relatively new.  He referred  to historical                                                                    
mistakes  that could  limit  the  effectiveness of  existing                                                                    
taxes.                                                                                                                          
                                                                                                                                
3:36:28 PM                                                                                                                    
                                                                                                                                
Representative Guttenberg  spoke to the study  of sales tax.                                                                    
He   asked  if   there  had   been  a   study  on   how  the                                                                    
implementation  of  a  sales  tax  impacted  the  amount  of                                                                    
internet sales the local economy.                                                                                               
                                                                                                                                
Mr.   Davis   asked   for   clarification.   He   asked   if                                                                    
Representative  Guttenberg was  referring  to the  inability                                                                    
for states to  tax sales coming into the  state from outside                                                                    
the state.                                                                                                                      
                                                                                                                                
Representative Guttenberg replied that  he was interested in                                                                    
a general basis answer.                                                                                                         
                                                                                                                                
Mr. Davis  spoke to the complexity  of a sales tax  - it had                                                                    
been extremely slow going to  see the reality of state sales                                                                    
tax laws catch  up with changes in the economy.  He cited e-                                                                    
commerce as an example. In  the last two months the nation's                                                                    
largest  electronic  retailer  -   Amazon.com  -  had  begun                                                                    
collecting  sales tax  in every  state, but  only on  direct                                                                    
sales.  There were  still  a large  number  of sales  Amazon                                                                    
facilitated on  behalf of third-party smaller  sellers where                                                                    
sales tax was not being  collected. There were large gaps in                                                                    
state sales  tax enforcement  pertaining to  e-retail. There                                                                    
were a small number of  states that taxed personal services.                                                                    
Many states arguably overtaxed  the purchases by businesses.                                                                    
He concluded there  was currently no ideal sales  tax at the                                                                    
state  level -  they all  had fairly  fundamental structural                                                                    
problems.                                                                                                                       
                                                                                                                                
3:38:50 PM                                                                                                                    
                                                                                                                                
Representative  Ortiz  asked  if  a receipts  tax  was  most                                                                    
similar to a  sales tax or other. He asked  if it would have                                                                    
more or less impact than a sales tax across the board.                                                                          
                                                                                                                                
Mr.  Davis  replied that  the  concept  was currently  under                                                                    
discussion in states such as  Louisiana and Oregon. Receipts                                                                    
taxes  were   often  viewed  as  business   taxes  and  were                                                                    
sometimes  viewed as  being  interchangeable with  corporate                                                                    
income tax.  He continued  that literature  showed a  tax on                                                                    
corporate profits -  due to the cost structure  - would tend                                                                    
to be  passed through to corporation  shareholders. Whereas,                                                                    
a  gross receipts  tax was  much  more likely  to be  passed                                                                    
through to  consumers due  to the  way it  impacted business                                                                    
cost structures.  In general, receipts taxes  tended to look                                                                    
much like sales  taxes in their overall  distribution - they                                                                    
often generated  large amounts of revenue  at relatively low                                                                    
rates because they tended to  be prone to tax pyramiding. He                                                                    
explained  that  the  same purchase  was  taxed  many  times                                                                    
throughout the production  stream - even though  it may have                                                                    
been  taxed at  a low  rate each  time, it  could ultimately                                                                    
amount to  fairly high effective  tax rates. He  detailed it                                                                    
lead   to  fairness   problems  across   businesses  because                                                                    
businesses  that tended  to  be  vertically integrated  were                                                                    
able  to  avoid  paying  the  gross  receipts  tax,  whereas                                                                    
businesses relying  on sales and purchases  found themselves                                                                    
subject to the tax.                                                                                                             
                                                                                                                                
3:41:14 PM                                                                                                                    
                                                                                                                                
Representative  Pruitt  asked  if   ITEP  did  any  economic                                                                    
modeling.                                                                                                                       
                                                                                                                                
Mr.  Davis   responded  that   the  data   contained  static                                                                    
distributional estimates.  He detailed that ITEP  did not do                                                                    
dynamic economic  modeling. The literature on  the impact of                                                                    
state level taxes  on state economies tended  to show fairly                                                                    
small effects. He continued that  some studies were not even                                                                    
able to determine the direction  of the effect. For example,                                                                    
if  an increase  to a  gas  tax lead  to significantly  more                                                                    
revenue  available  for  construction and  the  creation  of                                                                    
construction jobs. Teasing out  the economic effect of state                                                                    
level tax changes was very  challenging. They had found that                                                                    
the  study was  rarely done  at the  state level  because it                                                                    
tended  to   be  more  speculative  and   a  more  long-term                                                                    
phenomenon.  He furthered  that when  states were  trying to                                                                    
balance  their  budgets on  a  one  or two-year  cycle,  the                                                                    
effects would generally not show  up in that short amount of                                                                    
time.                                                                                                                           
                                                                                                                                
Representative Pruitt  noted that the ISER  presentation had                                                                    
included  the  consideration  of nonresidents.  He  believed                                                                    
that in the past ISER  had told the committee about specific                                                                    
methods of taxation that would  bring more from nonresidents                                                                    
than others. He  wondered if ITEP had  identified a category                                                                    
that would have a larger impact from outside of the state.                                                                      
                                                                                                                                
Mr.   Davis  answered   that   the   modeling  did   include                                                                    
nonresident  impacts, but  the information  did not  show up                                                                    
visibly in  the tables.  He noted  that in  the presentation                                                                    
the sales tax bars were quite  a bit lower because the sales                                                                    
taxes raised a much more  significant amount of revenue from                                                                    
nonresidents than the  PFD reduction would. He  did not have                                                                    
the data  on hand,  but he  believed in  the ITEP  model the                                                                    
sales  tax  was  one  of  the  more  effective  measures  at                                                                    
generating revenue  from outside  the state. The  income tax                                                                    
would  generate a  smaller share  directly from  nonresident                                                                    
workers, but it would tend  to generate the largest tax cuts                                                                    
for wealthier Alaskans in the  form of a write-off for state                                                                    
and local taxes  at the federal level. The PFD  was shown as                                                                    
the least  effective option in terms  of nonresident revenue                                                                    
generation.                                                                                                                     
                                                                                                                                
3:44:57 PM                                                                                                                    
                                                                                                                                
Representative  Wilson  asked  why  the top  20  percent  of                                                                    
earners had been split into three categories.                                                                                   
                                                                                                                                
Mr. Davis answered  that the method was used  because a very                                                                    
large fraction of income was held  by the top 20 percent [of                                                                    
earners];  therefore, it  was  valuable to  do  a more  fine                                                                    
grained analysis. He  elaborated that the top  20 percent in                                                                    
Alaska included everyone  from a couple with  two incomes of                                                                    
$60,000 to a  family earning up to $10 million  per year. He                                                                    
explained  that  the  two  families  were  clearly  in  very                                                                    
different financial  circumstances and ITEP believed  it was                                                                    
valuable  to  break  out  the groups.  He  referred  to  the                                                                    
Appendix A  on page 15  of the study [titled  "Comparing the                                                                    
Distributional Impact  of Revenue  Options in  Alaska" dated                                                                    
April 2017 (copy  on file)] that included a  column with the                                                                    
information.                                                                                                                    
                                                                                                                                
Representative  Wilson   asked  for  clarification   on  the                                                                    
document.  Mr. Davis  replied that  the  information was  in                                                                    
Appendix A of the ITEP study.                                                                                                   
                                                                                                                                
Co-Chair Seaton  noted the document  was in  members' backup                                                                    
material.                                                                                                                       
                                                                                                                                
Representative Wilson wondered how  family size was factored                                                                    
in across the income board.                                                                                                     
                                                                                                                                
Mr.  Davis  responded  that  he did  not  believe  the  ITEP                                                                    
distributional charts as  the only tool that  should be used                                                                    
in evaluating  the distributional impact of  the options. He                                                                    
believed there  was also significant value  in supplementing                                                                    
the  wider  analyses  with more  fine  grain  representative                                                                    
taxpayer analysis.  He believed Co-Chair Seaton's  staff may                                                                    
have prepared  some of the  information looking  at specific                                                                    
taxpayers.  He  explained  it  allowed  the  creation  of  a                                                                    
hypothetical  of   a  single   mother  earning   $30,000  to                                                                    
determine what  she would owe  under the income tax  and how                                                                    
the PFD  cut would impact  her. He referenced an  ISER study                                                                    
conducted by  Matthew Berman and  Random Reamey  in February                                                                    
[2017] titled "The Effect of  Alaska State Fiscal Options on                                                                    
Children  and Families."  The  study  broke the  information                                                                    
down  by   family  type.  He   believed  the   research  was                                                                    
interesting and helpful.                                                                                                        
                                                                                                                                
Representative Wilson discussed  that some municipalities in                                                                    
Alaska  charged  property taxes,  some  had  sales taxes  or                                                                    
sales taxes only, and other  areas had neither. She wondered                                                                    
how to  take the  ITEP information and  apply it  across the                                                                    
state that contained areas with different tax levels.                                                                           
                                                                                                                                
3:49:50 PM                                                                                                                    
                                                                                                                                
Mr. Davis  replied that  it was  a very  important question,                                                                    
especially in Alaska where the  variation could be wide. The                                                                    
ITEP information  included a  statewide average  of how  a 3                                                                    
percent  sales  tax  would   impact  families  at  different                                                                    
levels,  but if  the clothing  or car  repairs or  any other                                                                    
taxable service  or good was  more expensive, the  sales tax                                                                    
would   be  more   expensive  as   well.  He   relayed  that                                                                    
unfortunately,  ITEP did  not have  local-level data  in its                                                                    
model; it did not have a unique value-add in the area.                                                                          
                                                                                                                                
Representative  Wilson appreciated  the  breakdown, but  she                                                                    
surmised that  in reality,  the data  would not  really show                                                                    
the true effects of adding any  of the taxes into Alaska due                                                                    
to  the vastly  different communities  and taxes  throughout                                                                    
the state.                                                                                                                      
                                                                                                                                
Mr. Davis answered that of  the options the organization had                                                                    
examined, the sales tax had  varied the most by locality due                                                                    
to the  difference in  prices. Under  the income  tax, every                                                                    
Alaskan  would  be subject  to  the  same income  tax  pools                                                                    
regardless  of  their  location.  It  may  be  that  certain                                                                    
localities  had   a  higher  concentration  of   low  income                                                                    
families and were finding that  the bottom 80 percent of the                                                                    
income distribution would pay less  under an income tax than                                                                    
a PFD reduction.  He added that certain low  income areas in                                                                    
Alaska may actually  be higher than that.  He explained that                                                                    
if  there were  very few  high income  taxpayers in  a given                                                                    
locality, there  may be very  few people that would  be more                                                                    
impacted  by an  income  tax than  they would  be  by a  PFD                                                                    
reduction. The  overall chart used a  statewide average, but                                                                    
by  locality it  would  depend  on the  price  of goods  and                                                                    
services and on the levels of income.                                                                                           
                                                                                                                                
Co-Chair Seaton  thanked Mr. Davis for  his presentation. He                                                                    
pointed out  that the Juneau  Empire had  recently published                                                                    
the  average  salary of  every  district  in the  state  per                                                                    
capita.  He  noted  that  the  average  salary  in  a  given                                                                    
community  was  not  available  or  it  had  not  been  made                                                                    
available.                                                                                                                      
                                                                                                                                
3:53:31 PM                                                                                                                    
                                                                                                                                
Representative  Wilson  stated  it  was possible  to  go  by                                                                    
income in each  district; however, it was  necessary to look                                                                    
at other existing  tax obligations in each  community and at                                                                    
other things like the cost of goods and other.                                                                                  
                                                                                                                                
CS FOR SENATE BILL NO. 6(JUD)                                                                                                 
                                                                                                                                
     "An Act  relating to the  regulation and  production of                                                                    
     industrial  hemp;  relating  to industrial  hemp  pilot                                                                    
     programs;  providing   that  industrial  hemp   is  not                                                                    
     included   in  the   definition  of   'marijuana';  and                                                                    
     clarifying  that adding  industrial hemp  to food  does                                                                    
     not create an adulterated food product."                                                                                   
                                                                                                                                
3:55:00 PM                                                                                                                    
                                                                                                                                
SENATOR SHELLEY HUGHES, SPONSOR,  relayed that the preceding                                                                    
year,  former Senator  Johnny Ellis  had  introduced a  bill                                                                    
about  hemp. She  recalled  receiving a  phone  call from  a                                                                    
farmer who  had been very  interested in the bill.  The bill                                                                    
had  been  introduced  at  the  tail  end  of  the  previous                                                                    
session; therefore, she had committed  to introducing a bill                                                                    
in  the  current  session.  She  noted  that  when  she  had                                                                    
initially introduced the  bill it had been quite  short - it                                                                    
had  been   simply  to  remove   hemp  from   the  marijuana                                                                    
definition  section  in  statute  and  place  it  under  the                                                                    
Division of Agriculture defined  as an agricultural product.                                                                    
The current  bill was slightly  different in order to  be in                                                                    
compliance with  federal law. She  was still  confident that                                                                    
the Division  of Agriculture  and individuals  interested in                                                                    
farming hemp were comfortable with the bill.                                                                                    
                                                                                                                                
Senator Hughes  relayed that she  had worked on a  number of                                                                    
policies to  help bring the  state into the 21st  century in                                                                    
terms of technology  and other. She remarked  that the state                                                                    
had  basically gone  silent on  the  topic for  a number  of                                                                    
years and it  was now going back to catch  up. She continued                                                                    
that  in the  1600s,  hemp had  been a  stable  crop in  the                                                                    
United  States. She  elaborated that  the sails  of European                                                                    
ships  traveling   to  America   had  been  made   of  hemp.                                                                    
Additionally,  some  early  drafts  of  the  Declaration  of                                                                    
Independence  had been  drafted  on hemp  paper and  covered                                                                    
wagon canvas had been made of  hemp. In 1937 the product had                                                                    
been  made  illegal  nationwide; therefore  there  had  been                                                                    
little usage  until the  product had  been redefined  at the                                                                    
federal level  by the 2014  Farm Bill [the  Agricultural Act                                                                    
of  2014].   She  elaborated  that  30   states  had  passed                                                                    
legislation -  there were 17  states that were  conducting a                                                                    
pilot act.  There were  tens of  thousands of  products that                                                                    
could be made from hemp.                                                                                                        
                                                                                                                                
Senator Hughes  continued that  a meat  plant in  Palmer was                                                                    
currently being  privatized. She elaborated that  hemp was a                                                                    
nutritional  forage for  livestock -  in order  to make  the                                                                    
meat plant work, the farmers  needed to grow their livestock                                                                    
herds. Hemp  grew easily in  Alaska, it was  nutritious, and                                                                    
was  good  for   the  soils.  She  had   heard  from  others                                                                    
throughout the  state interested  in using the  product. She                                                                    
referred to a  person interested in using  hemp for building                                                                    
insulation and another  person using hemp to  make soaps and                                                                    
body products.  She highlighted  that the  sponsor statement                                                                    
in members' packets was printed on hemp paper.                                                                                  
                                                                                                                                
Senator Hughes explained that SB  6 defined hemp as cannabis                                                                    
with  a  THC content  of  0.3  percent.  She shared  that  1                                                                    
percent  was the  threshold  of  intoxication. When  growers                                                                    
were trying  to produce  marijuana they aimed  for 20  to 30                                                                    
percent  THC.  The  bill  would   also  define  hemp  as  an                                                                    
agricultural  product and  would remove  it from  controlled                                                                    
substances  statutes.  She  furthered that  the  bill  would                                                                    
create  a  pilot program,  which  was  part of  the  federal                                                                    
requirement,  and would  allow  registrants to  participate.                                                                    
The  Division  of  Agriculture  would  have  the  regulatory                                                                    
authority  and would  create  a fee  structure  to have  the                                                                    
program be self-sustaining. The  bill also removed CBD oils.                                                                    
She noted  her staff and  others were available to  speak to                                                                    
the  bill. She  remarked that  her office  had been  working                                                                    
with  an attorney  at Hemp  Law  LLC who  had worked  across                                                                    
states and  helped her office understand  legal requirements                                                                    
in terms  of compliance  with federal  law. She  thanked the                                                                    
committee for  its time  and noted the  next day  was Alaska                                                                    
Agriculture  Day.   She  believed   hemp  was   an  economic                                                                    
opportunity the state should promote.                                                                                           
                                                                                                                                
4:02:11 PM                                                                                                                    
                                                                                                                                
Representative Guttenberg  was supportive  of the  bill, but                                                                    
he had  concern with  the conflict between  hemp and  pot in                                                                    
outdoor growing fields. He mentioned  pollen as an issue. He                                                                    
thought there  needed to be  an understanding about  the two                                                                    
crops. He  wondered if  the Division  of Agriculture  or the                                                                    
bill sponsor had been approached about the issue.                                                                               
                                                                                                                                
Senator Hughes deferred to her staff for detail.                                                                                
                                                                                                                                
BUDDY  WHITT, STAFF,  SENATOR SHELLEY  HUGHES, relayed  that                                                                    
the sponsor's  office had been approached  with the concern.                                                                    
He directed  attention to page 3,  lines 4 through 7  of the                                                                    
bill  and explained  that the  provision had  been added  to                                                                    
address  the  concern  -  it  fell  under  the  Division  of                                                                    
Agriculture's  responsibility to  adopt regulations  related                                                                    
to industrial  hemp. The provision  stated the  division was                                                                    
required   to   establish   isolation  distances   for   the                                                                    
production  of  industrial  hemp.   The  reason  a  specific                                                                    
distance had  not been identified  was to give  the division                                                                    
the  leniency to  decide what  the distance  should be.  The                                                                    
sponsor's office had  determined it would be  better for the                                                                    
division  to  establish   the  distance  through  regulation                                                                    
rather than the legislature  including a distance in statute                                                                    
that  may not  be  workable  or ideal.  He  deferred to  the                                                                    
department for further detail.                                                                                                  
                                                                                                                                
4:04:48 PM                                                                                                                    
                                                                                                                                
Representative  Guttenberg  stated  it  was  his  impression                                                                    
there  were  a  limited  number of  outdoor  facilities  and                                                                    
farmers -  most were  located in controlled  greenhouses. He                                                                    
shared that he  had been asked to visit a  garden that had a                                                                    
strain growing outside. He surmised  the issue may not apply                                                                    
to greenhouses or inside commercial growers.                                                                                    
                                                                                                                                
ROB CARTER, AGRONOMIST, PLANT  MATERIALS CENTER, DIVISION OF                                                                    
AGRICULTURE,   DEPARTMENT   OF    NATURAL   RESOURCES   (via                                                                    
teleconference),   referred  to   isolation  distances   and                                                                    
relayed they were a minimum  separation required between two                                                                    
or  more   varieties  of  the  same   species.  The  current                                                                    
discussion pertained to cannabis  sativa industrial hemp and                                                                    
cannabis sativa  recreational marijuana. The purpose  of the                                                                    
isolation distance was to keep  seeds pure in the production                                                                    
process.   Additionally,  in   the   case  of   recreational                                                                    
marijuana, the purpose  was to keep female  crops from being                                                                    
seed-free in  order to  have a viable  product to  sell. The                                                                    
isolation distances were set for  a multitude of other crops                                                                    
(e.g. alfalfa, barley, oats, wheat,  and other) that met the                                                                    
federal certified seed standards;  the distances were set in                                                                    
accordance  with documented  global scientific  research. He                                                                    
spoke  specifically  to  the   bill  and  relayed  that  the                                                                    
Division of  Agriculture would conduct its  due diligence to                                                                    
ensure  it had  explored  other  opportunity from  Colorado,                                                                    
Manitoba,  Saskatchewan,  Canada,  and  the  European  Union                                                                    
(that  had been  growing industrial  hemp for  a significant                                                                    
amount of time),  to make sure the  isolation distances were                                                                    
set  in order  to  prevent  a hemp  crop  from impeding  the                                                                    
production of a recreational crop.                                                                                              
                                                                                                                                
4:07:37 PM                                                                                                                    
                                                                                                                                
Representative  Guttenberg  understood   that  Colorado  was                                                                    
considering  5 or  10 miles  and he  recognized the  federal                                                                    
government  had probably  done no  research on  the specific                                                                    
topic.  He   asked  about  the   parameters  set   by  other                                                                    
jurisdictions.                                                                                                                  
                                                                                                                                
Mr.  Carter answered  that Colorado  had started  looking at                                                                    
the  aforementioned  ideals  [5  to  10  miles  between  two                                                                    
similar species]. The Division  of Agriculture looked at the                                                                    
issue from  the purity  standards of setting  seed tolerance                                                                    
isolation   distances.   Colorado    had   established   its                                                                    
recommendation  for  its  isolation distances  required  for                                                                    
cannabis  production. He  detailed that  it depended  on the                                                                    
type, which  was unique to  this crop. There  were dioecious                                                                    
and  monoecious types  and hybrids  that were  all female  -                                                                    
each   one  had   a   different   isolation  distance.   The                                                                    
recommended isolation  distance in Colorado for  the highest                                                                    
quality  and   most  pure  was  called   the  foundation  or                                                                    
registered  seed,   was  16,150  feet.  He   furthered  that                                                                    
distances  were  set  regionally   based  on  wind  patterns                                                                    
because cannabis  sativa is highly wind  pollinated and also                                                                    
pollinated  by insect.  Isolation distances  in Canada  were                                                                    
anywhere  between  1 meter  and  5,000  meters. He  believed                                                                    
there  would need  to be  regional  isolation distances  for                                                                    
Alaska  and  he  believed  there would  need  to  be  strong                                                                    
communication  with  registered  and  recognized  commercial                                                                    
growers  through the  marijuana control  board in  order for                                                                    
the  division to  identify  where  the outdoor  recreational                                                                    
cannabis was  being produced in  order to give  everyone the                                                                    
right to produce crops.                                                                                                         
                                                                                                                                
4:10:05 PM                                                                                                                    
                                                                                                                                
Representative Grenn  referred to fiscal note  OMB Component                                                                    
2204   that   mentioned   the   division   anticipated   the                                                                    
registration  of possibly  25 farms  in the  first year.  He                                                                    
asked  if regulations  would prohibit  someone from  growing                                                                    
recreational marijuana and industrial hemp.                                                                                     
                                                                                                                                
Mr. Whitt answered  there was no provision in  the bill that                                                                    
would preclude someone from growing  both; however, it would                                                                    
be  highly  risky for  a  person  to  do  both in  terms  of                                                                    
ensuring the viability of the commercial marijuana.                                                                             
                                                                                                                                
Representative  Kawasaki   asked  when  states   started  to                                                                    
legalize the manufacturing and growing of hemp.                                                                                 
                                                                                                                                
Senator Hughes  answered that  the law  had been  changed by                                                                    
the federal  Farm Bill  in 2014. She  deferred to  her staff                                                                    
for further detail.                                                                                                             
                                                                                                                                
Mr. Whitt  replied there were  a few of states  that started                                                                    
their process  before federal law  had allowed it.  He could                                                                    
not speak  about each  state, but he  relayed that  when the                                                                    
cart was  put before the  horse, states were having  to make                                                                    
some changes  to fit federal  guidelines. He  referenced the                                                                    
2014 Farm  Bill and a  2016 omnibus bill, which  had allowed                                                                    
transportation of industrial hemp  across state lines. There                                                                    
was  also the  USDA Statement  of Principles  [on Industrial                                                                    
Hemp], which  had been published  in 2016 and  specified how                                                                    
the USDA  would treat  the product. There  were a  number of                                                                    
states that  had put the effort  in prior to the  release of                                                                    
federal  guidelines.  He  offered  to follow  up  with  more                                                                    
detail on the timeline.                                                                                                         
                                                                                                                                
Representative Kawasaki  relayed there  had been  six states                                                                    
prior  to 2006  that had  passed laws  including California.                                                                    
The Industrial Hemp Act had passed  in 2009. He asked why it                                                                    
had  taken  Alaska so  long  to  get  to  the point  it  was                                                                    
considering  industrial  hemp  farming. He  believed  Alaska                                                                    
would be the 33rd or 34th state to take on the activity.                                                                        
                                                                                                                                
Senator  Hughes responded  that although  some states  began                                                                    
early, there  had been  some colonies  that started  early -                                                                    
she relayed  that George  Washington, Thomas  Jefferson, and                                                                    
John Adams  had all grown  hemp. She relayed that  she would                                                                    
probably have  worked on  the issue earlier  if it  had been                                                                    
brought to her attention earlier.                                                                                               
                                                                                                                                
4:14:27 PM                                                                                                                    
                                                                                                                                
Representative   Kawasaki   recalled   that  as   a   former                                                                    
councilperson,  the  council  [Fairbanks City  Council]  had                                                                    
introduced  a resolution  supporting industrial  hemp around                                                                    
2006. He supported  the bill and thought it would  be a boon                                                                    
for the agricultural and scientific community in Alaska.                                                                        
                                                                                                                                
Representative  Thompson relayed  that he  had tried  to get                                                                    
something similar to  the bill going in 2011.  He had spoken                                                                    
with   the  University   of  Alaska   Fairbanks  Agriculture                                                                    
Department.  He  provided  further  detail  about  the  past                                                                    
effort to do  an experimental grow with  the community's 24-                                                                    
hours  of  sunlight to  see  how  the  product would  do  in                                                                    
Northern Alaska.  The goal  had also been  to check  the oil                                                                    
and fiber content. The effort  had ceased because it had not                                                                    
been possible to obtain the seeds  at that time. He was glad                                                                    
to see the  bill and believed hemp was a  possible cash crop                                                                    
that could be an economic boon for Alaska.                                                                                      
                                                                                                                                
CSSB  6(JUD) was  HEARD and  HELD in  committee for  further                                                                    
consideration.                                                                                                                  
                                                                                                                                
Co-Chair Foster addressed the agenda for the following day.                                                                     
                                                                                                                                
ADJOURNMENT                                                                                                                   
                                                                                                                                
4:16:26 PM                                                                                                                    
                                                                                                                                
The meeting was adjourned at 4:16 p.m.                                                                                          

Document Name Date/Time Subjects
ITEP Davis HFIN 050117.pdf HFIN 5/1/2017 1:30:00 PM
HFIN Fiscal Policy
ITEP_RevenueOptionsPresentation.pdf HFIN 5/1/2017 1:30:00 PM
ITEP Slides HFIN 5-1-17
CSSB6 (JUD) - Sectional Analysis.pdf HFIN 5/1/2017 1:30:00 PM
SB 6
SB 6 Sponsor Statement.pdf HFIN 5/1/2017 1:30:00 PM
SB 6
SB6 Explanation of Changes Version R to E.pdf HFIN 5/1/2017 1:30:00 PM
SB 6
SB6 Supporting Documents-Alaska Industrial Hemp Grow 1916.pdf HFIN 5/1/2017 1:30:00 PM
SB 6
SB6 Supporting Documents-Commercial Hemp Chart.png HFIN 5/1/2017 1:30:00 PM
SB 6
SB6 Supporting Documents-Federal Laws and Guidelines for Industrial Hemp.pdf HFIN 5/1/2017 1:30:00 PM
SB 6
SB6 Supporting Documents-KPEDD.pdf HFIN 5/1/2017 1:30:00 PM
SB 6
SB6 Supporting Documents-Letter Ember Haynes.pdf HFIN 5/1/2017 1:30:00 PM
SB 6
SB6 Supporting Documents-Letter form Constance.pdf HFIN 5/1/2017 1:30:00 PM
SB 6
SB6 Supporting Documents-Letter from Connie Fredenberg.pdf HFIN 5/1/2017 1:30:00 PM
SB 6
SB6 Supporting Documents-Letter from Connor Scher.pdf HFIN 5/1/2017 1:30:00 PM
SB 6
SB6 Supporting Documents-Letter from Jeremiah Emmerson.pdf HFIN 5/1/2017 1:30:00 PM
SB 6
SB6 Supporting Documents-Letter from Mayor Navarre of Kenai Borough.pdf HFIN 5/1/2017 1:30:00 PM
SB 6
SB6 Supporting Documents-Letter Jack Bennett.pdf HFIN 5/1/2017 1:30:00 PM
SB 6
SB6 Supporting Documents-Letter Larry DeVilbiss.pdf HFIN 5/1/2017 1:30:00 PM
SB 6
SB6 Supporting Documents-Letter Sara Williams Letter.pdf HFIN 5/1/2017 1:30:00 PM
SB 6
SB8 Supporting Documents-Letter from Jack Bennett 2.pdf HFIN 5/1/2017 1:30:00 PM
SB 8
HFIN LFD Static Graphs for Interactive Modeling 5-1-17.pdf HFIN 5/1/2017 1:30:00 PM
LFD Fiscal Plan 5 1 17 HFC SB26.pdf HFIN 5/1/2017 1:30:00 PM
SB 26