Legislature(1997 - 1998)
04/08/1998 01:13 PM House JUD
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* first hearing in first committee of referral
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+ teleconferenced
= bill was previously heard/scheduled
HJR 60 - COMMUNITY DIVIDEND FUND Number 0616 CHAIRMAN GREEN announced the committee would address HJR 60, "Proposing amendments to the Constitution of the State of Alaska relating to the community dividend fund, the permanent fund, and the budget reserve fund," sponsored by Representative Davis. REPRESENTATIVE GARY DAVIS came before the committee to explain his resolution. One of the reasons he introduced the legislation is because of budget constraints. He stated as a member of the House Finance Committee, he has become aware of the complexities involved with our budget cutting process and the elimination of programs. Representative Davis said, "We need to look at how we ... operate state government, what we provide for the citizens of our state compared to how other states operate and what they provide. Of course we have a uniqueness in Alaska that is different than other states. Our manufacturing opportunities are not as great and there is a large tax base associated with manufacturing operations. Industry is a similar situation. Our population base is not large enough to where property taxes, sales taxes and things like that don't generate as much dollars as they do in other states. Our law enforcement enforcing laws and local ordinances and regulations is weak at best. With myself, living on the Kenai River in a community that the Kenai River runs through, we consistently hear of fishing violations that people are getting absolutely fed up with, but there is no enforcement. There is no dollars for enforcement. There is no additional dollars, no increases in those dollars for enforcement of those type of activities. And of course the municipal funding needs, most of what I just talked about, in most places provide an economic base for most municipalities to provide for the services of the citizens of each community. In Alaska, we provide lots of those dollars. There is lists of what we provide and I think ... probably in every page of the ... state budget we can see things that the state provides to local municipalities that, under normal circumstances in most places, local municipalities provide those funds, and those services, and the dollars to provide those services. So we have a unique situation." Representative Davis indicated if there was a larger tax base and opportunity for industry in communities, the municipalities would be able to provide for themselves. He continued to inform the committee members of several programs that the state currently funds. Representative Davis informed the committee he introduced the resolution to provide an endowment for municipalities. He stated that he proposes that some seed money, $750 million, from the constitutional budget reserve fund, be used. He stated he has also proposed 2 percent of the permanent fund earnings be used to supplement $750 million on an annual basis. He informed the committee that his understanding of the intent of the permanent fund was to provide revenues to the state when our oil wealth is diminished to the degree that we cannot adequately provide government services to the people of the state. He indicated this would provide dollars for the future. The initial set up of the fund would come close to what the state is currently providing in municipal assistance and revenue sharing. Municipalities are concerned as to what their annual appropriations will be. If the resolution is passed by the legislature, the question would then go the voters as it would be a dedicated fund and would require a constitutional change. Number 1146 CHAIRMAN GREEN stated there are some estimates for 20 years from now that the amount of money that is generated by the permanent fund may be too low to take care of inflation-proofing and permanent fund dividends (PFD). He said, "And that if we put this, as it says 'not withstanding' that would set that, I presume, above the other two categories. Has there been any thought to that possibility other than just some concerns? I haven't heard or seen any projections to that effect, but I've certainly heard that concern expressed." REPRESENTATIVE DAVIES explained that the intent is put the 2 percent draw above those. The 2 percent draw is for 20 years also. Depending on how the numbers come out on when there may be a draw down to not even be able cover inflation proofing, the 20 years could be adjusted. He noted that even the 2 percent could be withdrawn. The legislation is flexible and is drafted to generate discussion on all the issues. Number 1227 REPRESENTATIVE BUNDE referred to legislature often being criticized for the volume of per capita amount of state spending when the local governments don't pick up a good portion of the funding in other areas. Representative Bunde referred to the 2 percent figure and asked if that wouldn't be better spent statewide by the legislature rather than in the local arenas. Representative Bunde referred to the municipalities having a dividend coming in and asked if wouldn't encourage residents of those municipalities to demand services at a higher level because they're not going to have to pay for them as money would come in off the dividend. He asked how the dividend would deal with specific services that aren't currently state services. He referenced that in Anchorage there are hybrid roads that belong to the state and are maintained by the city and, in other words, nobody is responsible for them. Number 1336 REPRESENTATIVE DAVIS referred to the maintenance of highways and roads and explained that the state has been trying to negotiate with municipalities to take over some of that maintenance. He informed the committee that in Soldotna the there is a five mile long road and there are six or eight roads off of that road. The state maintains the long road and the municipality maintains some of side roads. The state doesn't maintain anything across the highway. If the legislation passes, it would offer opportunity to simplify the process. REPRESENTATIVE PORTER offered his congratulations for bringing the issue up as it is one that needs discussion. He said Representative Davies indicated that the numbers would be pretty close to what the municipal revenue sharing and municipal assistance budget currently is. REPRESENTATIVE DAVIS said he has information that shows the current revenue sharing dollars for FY 98 is $22 million. He indicated that currently there is about $50 million being paid out by the state into those two accounts. A proposed income for the first year would be about $76 million. Number 1518 DEB DAVIDSON, Legislative Administrative Assistant to Representative Gary Davis, Alaska State Legislature, came before the committee. She said, "If we're looking at the pay out to the community dividend fund the interest from the fund, as estimated by the -- the permanent fund did the actual projections, the income pay out in the first year from the interest earned on what was put into the municipal dividend fund would be right around $56 million depending on whether or not you decided to inflation proof or how you wanted to inflation-proof and also depending on the type of investments that were made." REPRESENTATIVE DAVIS noted that you would want to try and increase the principal as much as possible, at least initially, and not have 100 percent pay out. He stated that you may look at an 80 percent or 90 percent pay out. You would want to keep some additional dollars to increase the principal over time. REPRESENTATIVE PORTER said he would assume that there wouldn't be an adverse impact on projected dividends and inflation-proofing. MS. DAVIDSON said there may be a table in the committee file that lists some projections on the effect of the PFD. By taking the 2 percent off of the income, the amounts needed for inflation- proofing and the PFD would not change as the 2 percent would not be subtracted out of the calculations. The change would be in the balance of the earnings reserve account over the years. REPRESENTATIVE DAVIS said, "The initial proposed hits to the dividend would be zero. At 20 years, it would be about $20. So it's an average of $10. If you take all the money over 20 years, it would be an average of $10, a year, hit on the dividend." Number 1826 REPRESENTATIVE PORTER asked Representative Davis if he is anticipating the same general distribution criteria that currently exists. REPRESENTATIVE DAVIS explained that the legislation speaks to organized municipalities that are organized under Title 29. He said he believes that there are currently some municipal assistance dollars being distributed to unorganized municipalities. The resolution was drafted to generate discussion on whether the state should distribute to areas not organized under Title 29. Number 1872 REPRESENTATIVE ROKEBERG said former Governor Hickel has spoke about something similar. Governor Hickel had taken the approach that the legislature would look at each individual allocation of the PFD and take a percentage or allocate a percentage of that to the political subdivision of the resident of which that permanent fund was directed to. He asked Representative Davis if he as looked at other methodologies to try and reach the same goal. REPRESENTATIVE DAVIS said he got the idea from Governor Hickel. He stated that he believes Governor Hickel's proposal is mirrored in a resolution submitted by Representative Moses. His understanding is that it caps the PFD. It still uses the dividend formula, and anything above the cap would be distributed into this account. He stated it also utilizes 100 percent of the balance of the earnings reserve and puts that into the account. He stated he isn't sure how long the balance of the earnings reserve fund and the cap on the dividends would be utilized. Representative Davis stated he introduced his resolution because he didn't feel that previous proposals he discussed wouldn't be acceptable at this time by the voters. He noted his 2 percent figure is not a vital part of his resolution and he used it to generate public discussion. Number 2163 REPRESENTATIVE BUNDE said one of the things that vexes him is the same people who are critical of the legislature not reducing state spending enough are also critical of the legislature reducing municipal revenue sharing. He said, "And I would find one problem with this idea is that they're getting theirs so they would still be then very critical of state spending in other areas because this money is going to organize cities and boroughs. As a resident of an organized city, I could see some advantage to that, however, I could also anticipate some criticism from people who live in unorganized areas. And I'm wonder if you think this might be, (1) and incentive to organize and start paying for some of the services they feel they need; and (2) how do we respond to the notion that this is using the people's money, the permanent fund, for ... part of Alaska rather than if the money went to the legislature, it would be available for appropriation to all of us?" REPRESENTATIVE DAVIS said it is true that it uses the people's money, but it's also going to the people. He stated he has had reservations, since drafting the resolution, about not including the unorganized areas. For simplicity, it should be distributed under the current formula that revenue sharing is distributed, which would include all organized and unorganized areas of the state. The money is the people's money and it would go to the people which he believes is an intent of the permanent fund. Representative Davis said, "We choose to distribute the people's money in dividends and we've chosen to inflation proof and we've chosen to hold on to the balance and keep it into an account and redistribute it into the principal. Those are what the legislature has chosen to do to meet what apparently the legislature feels is the intent of the permanent fund. But I also think its generating discussion is the intent, also, to share the wealth with municipalities, which in turn - I mean under this proposal and there is no strings attached to these dollars like there are to other dollars that the state distributes to municipalities. If Anchorage wanted to form their own dividend and distribute those dollars to the people that they receive, that would be their prerogative. There is no strings attached to these. So it is going to the people. The municipalities, by ordinance, would be spending these dollars. If the people realize there is a chunk of money coming to the municipality from this fund, the people could go to their assembly...." TAPE 98-59, SIDE A Number 0001 REPRESENTATIVE PORTER said although there has been a lot of ideas on what should be the first public purpose use instead of individual dividends for the earnings of the permanent fund, his problem with most of them was they highlighted one particular area of need in the state and didn't address the other needs. It was extremely hard to justify one salient need over one or two other salient needs that wouldn't be receiving those funds. Representative Porter said his opinion is the resolution is as close as he has seen to an appropriate first crack as it does distribute these earnings where they belong - to the people. Number 0201 JOHN WILLIAMS, Mayor, City of Kenai, testified via teleconference from Kenai in support of HJR 60. He stated he is pleased with Representative Davis' decision to introduce the legislation. The concept of the resolution is something that he has been discussing around the state with many groups and people. He elaborated on discussion he had with former Governor Hickel who suggested keeping it simple. Mr. Williams pointed out the Alaska Municipal League (AML) has looked at the concept of the legislation as a great way to solve differences between the legislature and communities with regard to continuing efforts in municipal assistance and revenue funds. The Alaska Mayors Association has taken up the call of an educational process that hopefully will lead to an amendment to the constitution. Mr. Williams said the numbers are correct with regard to the 2 percent earnings. He referred to the unorganized areas and said they look to their borough assembly, which is the Alaska State Legislature. He stated, "We have handled that situation through AML by having a $40,000 hold harmless agreement with those groups and villagers who could apply and I'm sure that could be built into the distribution of funds from the community dividend program. The Alaska Humanities Forum has been traveling around the state for several months now holding public hearings. I've attended two of them." Mr. Williams said HJR 60 is a definite move in a positive direction. He urged the committee to continue the education process and the development of the community dividend program. Number 0510 GEORGE CARNAHAN testified via teleconference from Kenai against HJR 60. He stated, "I'm opposed to this House Joint Resolution 60 because you've imposed a tobacco tax - all different kinds of taxes and give the oil companies money. They won't charge them full appraisals on their property and they turn around and want to take it out on us second class citizens pockets. And I think the Governor has got to get real and think -- maybe they got to do what China done here last week, they cut half their government in half." Number 0572 KEVIN RITCHIE, Executive Director, Alaska Municipal League, testified in support of HJR 60. He thanked Representative Davis for introducing the resolution. Mr. Ritchie stated that he believes Representative Davis outlined very nicely the old reality of the state budget and revenues and the new reality of the state budget and revenues. Mr. Ritchie stated one reality is that the interest earnings from the Alaska's savings account, including the permanent fund, have exceeded any other source of revenue for the state of Alaska. It is a vast economic resource that truly does need to be discussed as to that is used. Mr. Ritchie said the reality the AML sees on a municipal level is that people are not asking for less maintenance on roads, schools or boat harbors. They're asking for things to be done probably at a higher rate than they're being done today. The question is, "Who is going to pay for that?" He asked if we are going to use the current resources that are available or is the property tax going to be the key way of funding municipal services. He continued to discuss schools and how they are funded with the mill rate. Mr. Ritchie referred to the taxes that people pay on their PFD and pointed out the money sent to the federal government could be sent to communities instead by cutting the local taxpayer out of the route. There is a tremendous amount of potential. He referred to it being a real valid question as to how responsibilities are allocated between state and local government and pointed out that a number of local governments, that are water-based municipalities, are willing to take over ownership of their state boat harbor after good repairs are done by the state. He noted the same thing for roads being transferred to the municipalities. Mr. Ritchie pointed out that the constitution puts the legislature clearly in charge of what the municipalities do and how they do it. The legislature will always be in charge one way or the other. He pointed out the AML and the Alaska Conference of Mayors are not specifically endorsing one process of doing this as the only way. They are just trying to get the public in productive discussions of how this vast resource can be used. Mr. Ritchie gave committee members a resolution that was adopted the previous week by the Alaska Conference of Mayors and the AML board of directors. He thanked the committee for listening to his testimony. CHAIRMAN GREEN indicated there were no further witnesses to testify and asked what the wish was of the committee. Number 0962 REPRESENTATIVE PORTER pointed out the total pay out in PFDs is $500 million a year. If you figure an average of 20 percent in taxes, $100 million per year is being sent to the federal government. Representative Porter moved and asked unanimous consent to move HJR 60 out of committee with individual recommendations. There being no objection, HJR 60 moved out of the House Judiciary Standing Committee.
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