Legislature(2001 - 2002)
10/19/2001 11:11 AM House JUD
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* first hearing in first committee of referral
+ teleconferenced
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HJR 15 - CONST. AM: PERMANENT FUND [Contains brief reference to SJR 13, the companion bill to HJR 15.] Number 0020 CHAIR ROKEBERG announced that the first order of business would be HOUSE JOINT RESOLUTION NO. 15, Proposing amendments to the Constitution of the State of Alaska relating to inflation- proofing the permanent fund. Number 0036 CLARK GRUENING, Member, Board of Trustees of the Alaska Permanent Fund Corporation ("the board"), said that the board enthusiastically supports HJR 15. He noted that it was upon the recommendations of the board that the Legislative Budget and Audit Committee requested that the House Rules Standing Committee and the Senate Rules Standing Committee sponsor HJR 15 and SJR 13, respectively. He relayed that for the first 21 years of the permanent fund's existence, the fund has been governed by a six-member board of trustees whose single highest priority policy has been to protect the fund against inflation. The very first board testified before the legislature that the greatest threat to permanence of the fund is inflation. In response, the legislature adopted statutory inflation-proofing in 1982. In more recent years, he said, the board has examined various large endowments and public funds that use a formula approach to determine the method and size of payouts. MR. GRUENING explained that this approach is generally referred to as the "percentage of market value payout," or POMV payout. The purpose of this endowment-type formula is to protect the long-term viability of a fund and provide consistent distributions to the beneficiary's of that fund. He went on to say that after considerable review and discussion, the board recommends the constitutional change that is proposed in HJR 15. The language of HJR 15 provides a spending limit on what can currently be appropriated. The existing constitutional language, which established the permanent fund, only prohibits the appropriation of principal; in other words, he added, anything that is not principal is considered income, which can be spent. He explained that principal does not vary or move up and down with the market; instead, principal is a notional number that simply equals the sum of the constitutionally mandated 25 percent deposit of mineral proceeds, and the voluntary deposits that the legislature may choose to make. MR. GRUENING acknowledged that two-thirds of the $21 billion deposited to the principal of the fund has been made voluntarily by the legislature as either inflation-proofing or as extra deposits to the principal; only one-third of the $21 billion came from the mandated deposit of 25 percent of mineral proceeds. Over the past year, he noted, "we" have lost three former trustees who had a great deal to do with the formation and success of the permanent fund: Elmer Rassmussen, Hugh Malone, and Oral Freeman. He added that they were concerned with the future of the fund and were totally committed to inflation-proofing it, recounting that Elmer Rassmussen used to say, "Inflation is a thief in the night," which is as true today as it was in 1982. MR. GRUENING went on to say that things have changed since 1982. For instance, the earnings reserve is now a much greater proportion of the total fund. Also, the fiscal position of the state is dramatically [different]. Mr. Gruening informed the committee that if all the deposits to the fund from 1977-1992 were averaged, the earnings reserve averaged approximately 8 percent of the fund. Even today, with the recent payout and the travails of the market, the earnings reserve still makes up about 14 percent of the fund. Unlike the current statutory provision, for which the legislature has faithfully appropriated money, the proposal before the committee provides for inflation- proofing of the entire fund. Moreover, the proposal is a formula that will maximize distributions over the long term, which is significant due to the state's current fiscal situation. "The Alaska permanent fund has, and will continue to be in the future, the largest single revenue source ... as compared to any other Alaska resource," Mr. Gruening emphasized. The Alaska permanent fund will be larger than oil in the future, and larger than tourism, fishing, and anything anticipated from a natural gas pipeline. Mr. Gruening explained that the board's proposal for inflation-proofing doesn't require any statutory change, including the dividend statute. Therefore, the 5 percent payout of market value assures complete and protected inflation-proofing while providing maximum sustainable payout over the long term, regardless of future decisions made by the legislature or the voters. MR. GRUENING concluded by saying that if Alaska is going to have a fund that is truly permanent, steps to ensure that have to be taken. Therefore, there has to be investment for future generations as well as current generations, which requires commitment to the principles of long-term investment. The long term is more than a business or political cycle. At a minimum, the long term should include the time in which "our children, grandchildren, and their children grow into adulthood." Mr. Gruening said, "The critical flip-side of a sound long-term investment strategy is a sound and sustainable distribution payout plan; a plan that will sustain and maximize benefits to each generation of Alaska." The form in which these benefits flow will be a subject of debate in the years to come. However, the fund can't do it all. Mr. Gruening remarked: What, I think we ..., as Alaskans, want to avoid at all costs is defaulting to a position where the constitutional budget reserve is today. Within the next 4-5 years, the CBR, without some change, is destined for extinction. As the investment horizon of the CBR shortens, it has been and will continue to be necessary to keep the assets of the CBR in very short- term and less profitable investments. As the day of the CBR's demise grows near, the trustees and staff of your permanent fund will also have to seriously consider a shorter investment horizon for a significant proportion of the fund, unless there is something that changes. Whether we liken an Alaskan permanent fund to a whole resource industry, like the Alaska fisheries, or to some kind of perpetual endowment, one thing is clear: the Alaska permanent fund imports more money into the state year after year than any other revenues or natural resources. Legislative passage and voter approval of this amendment would protect the ability of the fund to be managed for the long term and to continue to pour money into the Alaska economy. One final thought: Your legislature, that is the Twenty-Second Legislature, has an opportunity to accomplish something, I think, as significant and as beneficial as the Ninth Legislature did 25 years ago with the original constitutional amendment. The trustees believe that this proposal for complete and protected inflation-proofing makes ultimate good sense for Alaska's permanent fund for Alaska's future. Number 0170 REPRESENTATIVE BERKOWITZ remarked that it seemed that most of the [proposed] changes could be done statutorily. If that isn't the case, are there any collateral benefits, such as providing Wall Street greater assurance with regard to the security of the permanent fund, that would enhance the state's bond ratings. MR. GRUENING answered that a statutory payout rule would be no different, in terms of its impact on inflation-proofing, than the current statute, which has been [saving] the fund because the money was there. Much of the money that was part of the principal was extra that wasn't required. However, he emphasized that any appropriation [that the legislature makes] overrides the statute. "Unless it's in the constitution, it's not constitutional to protect it," he pointed out. When the voters hear and understand this, the public seems to accept that the fund can be used for other things than its current use. Number 0193 ROBERT STORER, Executive Director, Alaska Permanent Fund Corporation, Department of Revenue, responded with an unequivocal yes to Representative Berkowitz's question regarding bond ratings. He pointed out that part of recognizing one's risk tolerance is one's discipline to stay the course. The past three years of fall meetings with the rating agencies has illustrated that rating agencies like to see a disciplined spending approach and such an approach enhances the way in which the rating agencies view the State of Alaska's finances, and therefore the state's credit rating. Number 0204 REPRESENTATIVE MEYER commented on the challenge of educating the voters on the issue and, therefore, he asked if that is a concern. Furthermore, the permanent fund is a sensitive issue. Representative Meyer asked whether any thought had been given to such concerns when reviewing whether to proceed with a constitutional proposal versus Representative Berkowitz's proposal. MR. GRUENING related his belief that the public would feel a greater degree of confidence with [the constitutional proposal]. Clearly, this will be the [public's] most important policy initiative. He highlighted his belief that this is really going to be up to the legislature, especially since there's only one more session before its possible passage. The idea of this matter being in the constitution has seemed to provide the public with some comfort. He noted that he discovered this in the presentations [with which he had taken been part]. MR. STORER agreed. Mr. Storer noted that the challenge, during these presentations, is to distill this idea into understandable terms. From his speeches, he has gathered that the public finds comfort in seeing a disciplined approach to the permanent fund. Number 0235 REPRESENTATIVE COGHILL returned to the issue of the [state's] bond rating. He asked if the combination of the legislature's actions with regard to the statute and its authority, and the management of the fund, has lessened [the state's] bond rating. MR. STORER replied no. He acknowledged that the legislature has appropriated money into the principal fund, inflation-proofing as well as additional sums. The rating agencies have been comforted by that action. He clarified his perspective that as the state's finances are debated more, the more disciplined approach will provide continued solace for the bond rating agencies. REPRESENTATIVE COGHILL expressed concern with the notion that since the fund, under this proposal, would be managed under a constitutional protection, it would provide a better bond rating than if in statute with public debate. He said that such a situation would call in to question the credibility of the public debate in the legislature. MR. STORER clarified that the legislature's actions to date have assisted in the state's high bond rating. Therefore, from his perspective, the statute could settle the issue if [the statute] was memorialized in the constitution, which is, to some degree, a higher order of discipline. The rating agencies would find solace in that. However, that isn't to say that the rating agencies would view some use of the permanent fund as [inadequate]. Number 0277 CHAIR ROKEBERG turned to Mr. Gruening's statement that this amendment [HJR 15] wouldn't require any statutory changes. He found that statement troubling because, in his opinion, the current statute is broken and needs to be fixed. Chair Rokeberg also expressed concern with how the inflation-proofing design fits into the entire model in terms of the statute, specifically related to the sweep effect and down market situations. MR. GRUENING clarified, "What is meant by that is that you can adopt a constitutional spending limit or inflation-proofing provision and still administer the dividend statute in the same way." Mr. Gruening noted that "we" have indicated that having a payout of the dividend based on market value is probably less volatile. Although that would be advisable, it isn't necessary for passage of [HJR 15]. However, the statute could, undoubtedly, be improved upon and that will be up to the legislature to decide how to do so. CHAIR ROKEBERG recalled earlier comments that CBR investments must be for the short-term horizon because of the contraction of the length and need for the funding. Chair Rokeberg said that he understood that the perceived need for funding, market conditions, and the amount available has an impact on the length and quality of the investment instrument that [is chosen]. However, he also understood testimony to indicate that as time passes without any changes, the same type of policy changes that relate to the permanent fund itself will have to occur. He said: I suspect that that's because ... if we kept the status quo, the earnings reserve is in the situation where it could be appropriated by the legislature; therefore, as a matter of policy, the corporation would have to shorten the length of commitment on the part of the investment vehicle in the security you might buy to make sure that those funds were available for appropriation on a near-term basis as we get nearer falling of the cliff and go broke. MR. GRUENING agreed with Chair Rokeberg's understanding. Number 0332 MR. STORER posed the question: Why 5 percent? He noted that the staff and the board have spent much time reviewing that and have determined that 5 percent of a five-year moving average is on the high end of achievable. He explained that over the long- term, the current asset allocation of the fund would earn about 8.25 percent. Analysis suggests that inflation will be about 3.25 percent. Therefore, "we know that we can afford to payout up to 5 percent of the fund and retain the balance of the earnings to ensure that the fund is inflation-proofed for the future," he explained. However, Mr. Storer acknowledged that markets change and thus there has been review of history, which has found that asset allocation similar to the fund and statute have also amounted to about a 5 percent payout. This review is over about a 75-year course. Mr. Storer reiterated that there is review of risk, which is measured by volatility of the market. He expressed the need to define an asset allocation, within a risk tolerance, that achieves the goals while also having the discipline to stay the course. Without that discipline, one won't achieve his/her goals. MR. STORER informed the committee that there are two components of this fund. What makes the fund unique is its principal protection via the constitution. However, when reviewing any fund, one would review the fund's cash flow. The fund has been in a situation whereby it has been in a negative cash flow for a decade. Although such a situation is fine and part of the analysis, one must recognize that and include it in the risk return profile. He explained that he mentioned this because most endowment funds that use this model have a 4.5-5 [percent] payout rule, although some payout more. In response to Chair Rokeberg, Mr. Storer said that the inflation-proofing appropriation isn't part of cash flow in his calculation. He explained that "we" are paying out $1.1 billion on the dividend while receiving about $400 million. CHAIR ROKEBERG related his understanding that although it's an appropriation to the corpus, the inflation-proofing appropriation isn't considered part of the cash flow. MR. STORER clarified, "I do not consider it a negative cash flow because it's retained in the fund." CHAIR ROKEBERG asked if it's a positive cash flow because it moves from the earnings reserve into the corpus. MR. STORER said he would say no, although he remarked that it is a good point. "If that's the case, we're at about a push right now," he said. He specified that most would define it as money that is leaving the fund rather than entering the fund. He explained, "My point is that if you look at a Harvard or an MIT, they can afford to take a greater risk profile and the reason being is they can withstand the near-term volatility of a riskier profile ... because they are continuing to get new funds so they can meet their payoff discipline. And if their wrong in the near term, they know that they'll have a positive cash flow, which allows them ... to take ... an asset allocation that would have a higher expected return, significantly higher than ours as an example." He explained that he noted this because if the CBR dissipates and there are greater withdrawals on the permanent fund, ironically, the fund would have to be managed more conservatively. Therefore, the 5 percent discipline provides more effective management. Number 0429 CHAIR ROKEBERG asked if the unrealized gains are now considered part of the principal. MR. STORER replied no, the principal would be new oil revenue and contributions to the fund by the legislature, as well as inflation that the legislature appropriates into the fund. Unrealized gains and losses aren't part of the principal. However, the accounting records have changed. Mr. Storer explained that the dividend is calculated by realized income, which is the dividend's interest plus the actual realized gains of a buy and sell of a security. However, "GAP" accounting says that one must book the gains and losses every day. "It's not a question of principal, it's how you mark to market the fund on a daily basis," he explained. CHAIR ROKEBERG inquired as to the position of the corporation. He asked, "Which set of books do you use?" MR. STORER answered that the "GAP" is followed for accounting purposes as well as the annual report, which says that gains and losses are recognized. CHAIR ROKEBERG interjected that he disagrees with that ["GAP" accounting]. MR. STORER continued by informing the committee that [the corporation] does recognize realized income to compute the dividend. Therefore, "you see it both ways." Number 0496 MARY GRISWOLD testified via teleconference in support of HJR 15 because it provides a better money management framework. She said that POMV reduces the pressure to manage the permanent fund for return over value. "Managing for value is generally considered a better fiscal approach. A 5 percent payout is generally recognized by large endowments as the highest sustainable payout, beyond which the real value of the fund would diminish over time." She highlighted a secondary benefit of HJR 15 as providing a reasonable money stream for government if the legislature chooses to use it. Currently, the money in the earnings reserve account is available for legislative appropriation for purposes other than dividends. Although the legislature has never spent it, she felt that there would be more pressure in the future for the legislature to use this money. Therefore, HJR 15 will limit the amount the legislature can use to a predictable and modest amount. MS. GRISWOLD noted that it is important to recognize that dividends are as much as they are because the legislature made special appropriations from the earnings reserve account to the principal and did not spend the earnings available. However, any use of permanent fund earnings for purposes other than dividends will decrease the value of the dividend because whatever is spent won't be available to earn more money. Still, dividends could be reduced by much more under the current payout system versus POMV. The status quo dividend formula could be preserved with a 5 POMV, an 80 percent allocation for dividends, and a 20 percent allocation for government. However, one must realize that a 20 percent transfer from the fund will reduce the fund's future income-producing potential. Ms. Griswold said that she believes it is time to allocate some permanent fund earnings to government and she saw a 5 POMV as the best way to do so. More importantly, Ms. Griswold saw the 5 POMV as a better money management tool that will keep the permanent fund permanent for future generations. MS. GRISWOLD, in response to Chair Rokeberg, agreed that her understanding was that there would have to be an 80:20 allocation in order to maintain the permanent fund dividend at its current level. Number 0546 ARLISS STURGULEWSKI, former Senator, Alaska State Legislature, remarked that she is really proud of the Board of Trustees and its management of the fund. She felt that there has been extraordinarily good management of the fund, and that has placed the state in its current position. Furthermore, the legislature has been [helpful as well]. Ms. Sturgulewski announced that she is in strong support of this proposed constitutional amendment. Ms. Sturgulewski commented that Hugh Malone and Elmer Rasmussen, as well as people from around the country who dealt with large foundations really developed the idea of inflation-proofing. She informed the committee that last year, 32 percent of the amount of the dividend came from inflation-proofing. There was also a substantial portion of the dividend that came from the dollars that the legislature put into the fund. Ms. Sturgulewski related her feeling that the permanent fund would be the target if the fiscal gap isn't answered, which she felt would be a mistake. Ms. Sturgulewski noted that she serves on the University of Alaska foundation, the Board of Sheldon Jackson, and the local board of the YMCA, all of which use similar principles [to that of inflation-proofing the permanent fund]. TAPE 01-82, SIDE B MS. STURGULEWSKI highlighted the fact that [even with HJR 15] the legislature would maintain its authority. The resolution merely protects a pot of money that will afford the legislature the ability to appropriate money from this pot in times of pressure. She hoped the committee would move ahead with this. Number 0009 CHAIR ROKEBERG remarked that one of the problems with HJR 15 is that it requires the legislature to place a de facto cap or stipulate an allocation. MS. STURGULEWSKI [agreed] that HJR 15 doesn't solve the fiscal planning, although it provides a tool: money. The legislature still has to make the decision. CHAIR ROKEBERG surmised then that [the constitutional amendment] would have to proceed one step further in order to impact any of the long-range fiscal gaps. MS. STURGULEWSKI agreed. CHAIR ROKEBERG expressed concern with the adoption of this amendment without the ability of the legislature to deviate from the 5 percent constitutional rate, in the event of an emergency. He said that flexibility would probably give this amendment a boost. MS. STURGULEWSKI echoed earlier statements that it would be up to the legislature to make the determination. Furthermore, the earned income account would still be available. CHAIR ROKEBERG interjected that with the adoption of [HJR 15] the earned income account would go away. MR. GRUENING remarked that the only thing that would be limiting would be the concept of principal. He posed a situation in which [HJR 15] was in place and there was a large emergency, which would result in the reordering of priorities. MS. STURGULEWSKI said that everyone should understand that currently "we" have the components of the constitutional appropriation and there is the amount that the legislature has placed in the corpus. Furthermore, there are the earnings. Number 0044 CHAIR ROKEBERG restated his question that deals with the circuit breaker concept. He saw this amendment as allowing [the legislature access to] only the 5 POMV funds. Therefore, he was concerned that the legislature has no provision to allow for an emergency allocation. MR. GRUENING said, "Without amending the constitution." Mr. Gruening pointed out that such an argument was made against establishing the permanent fund in the first place. Senator Radar said to the Senate that it shouldn't tell future legislatures that it can't spend it all. CHAIR ROKEBERG commented that such was taken care of with the creation of the statutory earnings reserve, although he wasn't sure that was fully understood at the time the fund was created. MR. STORER pointed out that there is 5 percent, $1.2-$1.3 billion, available per year under this program. However, it would mean spending the dividend. In response to Chair Rokeberg, Mr. Storer said that this year it was just short of $1.1 billion. Therefore, the legislature would have about $1.25 billion to address an emergency. He noted that usually an emergency of the magnitude [that would be addressed by the $1.25 billion] would take years to address. CHAIR ROKEBERG questioned whether $9 [a barrel for] oil would be considered an emergency. MR. GRUENING facetiously pointed out that a three-quarter vote could be taken. CHAIR ROKEBERG expressed concern with the potential $800-$900 million annual gap and the availability of [only] about $200 million [to address that gap]. MS. STURGULEWSKI commented that such difficulties illustrate why the permanent fund is a target. She asked whether [the legislature] wants to have [the 5 POMV of the permanent fund] as one of its tools on an ongoing basis [as proposed under HJR 15]. Number 0089 REPRESENTATIVE COGHILL turned to the mechanics, the timing, that would take place if HJR 15 were to pass and be adopted by the voters. He inquired as to the timing in relation to overlapping the statute with regard to the earnings reserve account and the determination of advisory averaging while moving into a market base. MR. STORER answered that he believes there is a 60 or 90 day lag. However, the computation would use the prior five years and thus one would immediately know how much is available. Number 0100 JIM KELLY, Research & Liaison Officer, Alaska Permanent Fund Corporation, Department of Revenue, clarified that it would be less than 90 days; it would be some time prior to February 2003. At that time, the projections show a 5 percent payout being around $1.3 [billion]. He pointed out that in terms of emergencies, the legislature has a solution in the form of the CBR, which has $3 billion and that is as much as is in the earnings reserve account. Mr. Kelly remarked that if one wants to think about a long-term solution to a problem, one wants to keep a constitutional budget reserve. However, the permanent fund should be looked at as a growing source of income. Mr. Kelly reviewed the forecast over time in regard to the growth of the [earnings reserve account] and emphasized that the legislature wants to ensure that it has this resource. Without [the earnings reserve account], there is not only no resource, there is no solution to the problem. Number 0125 REPRESENTATIVE COGHILL referred to lines 9-11 of HJR 15 and asked if that was taken care of in [subsection] (b). He asked whether that language [on lines 9-11] was necessary. MR. KELLY explained that when the constitution was created 20 years ago, all the income from the permanent fund was to be deposited into the general fund, unless otherwise provided by law. Therefore, the permanent fund was the principal only. In 1980, with the passage of the Alaska Permanent Fund Corporation Act, the law was changed to provide that income stayed in the permanent fund in an earnings reserve account. Therefore, it was clear in statute that the income was included as part of the permanent fund. This constitutional change clarifies the matter further by placing [the aforementioned language] in the constitution and thus the income of the earnings reserve account is part of the permanent fund. Therefore, the 5 percent of the income is paid plus the principal. MS. STURGULEWSKI clarified, "On top of that." Number 0157 CHAIR ROKEBERG requested that Mr. Storer or Mr. Kelly comment on his belief that the statute is broken as it relates to the Mother of all Models (MOMA) and thus [the state] finds itself in a negative market situation. He recalled that particular run of the model was based on the 1970s. He also requested comments regarding what would happen in relation to the statute with a Nikkei market that was 10-year down or flat-lined. MR. STORER said that without using the MOMA but rather a simpler model he [researched] the type of market impacts that would have an adversarial effect on the permanent fund. He found, in reviewing the size of the fund now back to 1971, there was a lag. In about 1977 he found that the dividend ceased to exist and it was difficult to fund inflation-proofing for about a year, after which it went back up. That was the most negative scenario he could find. He mentioned that he actually [reviewed] the Depression era, where he found no impact. CHAIR ROKEBERG recalled testimony from the corporation at a Senate Finance Committee hearing that if the large amount of monies in the earnings reserve hadn't been available, the dividend wouldn't have been paid. He mentioned a timeframe [during which the market] was on the downside. MR. STORER agreed that the earnings reserve does allow a cushion in really negative environments such as is the case currently. CHAIR ROKEBERG surmised then that if all the money people had wanted to take from the earnings reserve to place in the corpus had been done, there may not have been the money to pay the dividend, even in the near term. MR. STORER agreed. He noted that in the late 1980s some money did go into the principal, which replenished the earnings reserve very quickly. Although that cushion [the earnings reserve] is down, it still constitutes about 15 percent of the fund. Mr. Storer indicated agreement with Chair Rokeberg's statement that in the 1980s almost everything was inflation- proofed. CHAIR ROKEBERG expressed concern with the allocation issue and reiterated his concern with the circuit breaker issue. He related his belief that if [HJR 15] is adopted, then there should be a statutory scheme in place that goes along with it so that voters understand what will happen. He explained that the threat of an untoward allocation on the PFD could be used by opponents of the amendment. For instance, there [could be] a 50:50 split between the GF and the PFD that would lower the PFD to the point that this amendment [HJR 15] would be defeated. On other hand, having a residual of $100-$200 million for the GF seems to "lock up" the permanent fund for perpetuity and would also lead to the defeat of [HJR 15]. Therefore, Chair Rokeberg felt that the statute has to be changed along with the amendment, and also there needs to be some sort of circuit breaker even if that is the three-quarter vote. Number 0242 SCOTT GOLDSMITH, Economist, University of Alaska - Anchorage, spoke in support of this amendment, HJR 15. He felt that [HJR 15] would achieve three very important objectives. First there is always the potential, under the current structure, that there may be conflicting management objectives. On the one hand, there is the objective of maximizing long-term real rate of return on the fund. On the other hand, there is the short-term objective of meeting any dividend payment target, which would be eliminated with a 5 percent annual automatic draw from the fund. Furthermore, Mr. Goldsmith felt that the 5 [POMV] would free management to look to the long-term and maximize the real rate of return of the fund. Second the current annual flow of income off the fund is somewhat unstable. Although the 5 [POMV] wouldn't completely eliminate that instability, the fluctuations from year to year would be significantly reduced, he thought. Such would be useful in regard to long-term fiscal planning. Finally, this amendment would solidify the inflation-proofing of the principal so that there would be no chance of having years without inflation-proofing. Number 0276 REPRESENTATIVE DAVIES explained that the inflation-proofing [the 5 POMV] is built in to the calculation, assuming the long-term rate of return and the long-term inflation rate. Therefore, he questioned how "good" those numbers are. MR. GOLDSMITH noted that he isn't an expert in how other funds have performed. However, in speaking with others that are more knowledgeable, he understood that 5 percent is a reasonable target that can be achieved over the long-term. He said he wouldn't recommend going higher than 5 percent. CHAIR ROKEBERG pointed out that [the 5 percent] is the payout and isn't necessarily the real rate of return, which is based on the level of inflation. MR. GOLDSMITH clarified that he has the understanding that a 5 percent rate of return isn't unreasonable over the long term. In response to Chair Rokeberg, Mr. Goldsmith remarked that a 6 percent rate of return would be "stretching it a little bit." MR. GOLDSMITH, in response to Chair Rokeberg's concern regarding a circuit breaker for emergencies, noted that the legislature would probably have other sources available in an emergency. He felt that turning to the permanent fund should be the last resort. He echoed earlier testimony that the CBR or temporary taxes could be options. CHAIR ROKEBERG announced that the public hearing on HJR 15 would be recessed until some time in January. [HJR 15 was held over.]
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