Legislature(2001 - 2002)

04/02/2001 01:12 PM JUD

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
HB 3 - DEPOSITS TO THE PERMANENT FUND                                                                                         
Number 0068                                                                                                                     
CHAIR ROKEBERG announced  that the first order  of business would                                                               
be HOUSE BILL  NO. 3, "An Act relating to  deposits to the Alaska                                                               
permanent  fund from  mineral lease  rentals, royalties,  royalty                                                               
sale proceeds, net  profit shares under AS  38.05.180(f) and (g),                                                               
federal mineral  revenue sharing  payments received by  the state                                                               
from  mineral leases,  and  bonuses received  by  the state  from                                                               
mineral leases, and  limiting deposits from those  sources to the                                                               
25 percent required  under art. IX, sec. 15,  Constitution of the                                                               
State of Alaska; and providing for an effective date."                                                                          
CHAIR ROKEBERG,  as the sponsor,  explained that  current statute                                                               
provides that revenues from mineral  leases, bonuses, and federal                                                               
leases  entered into  after January  1980 be  deposited into  the                                                               
corpus of  the permanent fund  at a  50 percent level  versus the                                                               
constitutionally mandated level  of 25 percent.  He  said that HB
3 simply  reverts to the  25 percent constitutional mandate.   He                                                               
also explained that  the general fund (GF) budget  in fiscal year                                                               
(FY)  1980 was  in  excess of  $4.07 billion,  which  he said  is                                                               
almost  twice the  present amount.    He said  that although  the                                                               
current statute was  appropriately enacted at the  time to direct                                                               
a greater amount of mineral  royalties from newer leases into the                                                               
permanent fund, it is now time  to repeal that statute because of                                                               
the diminishing amount  of GF revenue and  the increased pressure                                                               
to draw  on the Constitutional  Budget Reserve (CBR) in  order to                                                               
balance  the  budget.   He  added  that  fields such  as  Alpine,                                                               
Badami,   Northstar,   Meltwater  [Participation   Area],   Tarn,                                                               
Liberty, and  others - as well  as any new future  developments -                                                               
currently all fall under the 50 percent allocation scheme.                                                                      
CHAIR  ROKEBERG  mentioned  that the  handouts  from  Legislative                                                               
Research illustrate  revenue changes,  and he also  remarked that                                                               
based  on  the   "fall  forecast,"  the  fiscal   note  from  the                                                               
Department of Revenue  (DOR) reflects an increase  of $40 million                                                               
for FY  2002, $43.7  million for  FY 2003,  $40.2 million  for FY                                                               
2004, $38.6  for FY 2005, $27.2  million for FY 2006,  [and $24.9                                                               
million  for FY  2007].    He also  mentioned  that  the DOR  has                                                               
submitted  charts  showing  historic  and  projected  income  and                                                               
production information.  He surmised  from one of the charts that                                                               
although  production   from  the   older  fields   is  declining,                                                               
production from the  new fields is allowing  the total production                                                               
levels to stay relatively the same through the year 2009.                                                                       
CHAIR  ROKEBERG  mentioned again  that  HB  3 would  replace  the                                                               
current 50 percent allocation level  with a 25 percent allocation                                                               
level.  He  also noted that the Alaska State  Chamber of Commerce                                                               
has submitted a letter of support of  HB 3.  He offered that HB 3                                                               
is  the first  step in  any  long-range financial  plan that  the                                                               
state  develops.   He  added  that  the impact  of  HB  3 on  the                                                               
permanent  fund  dividend (PFD)  is  de  minimis because  of  the                                                               
"five-year  averaging,"   and  will  not  be   felt  until  2006,                                                               
according   to  a   analysis  by   the   Alaska  Permanent   Fund                                                               
Corporation; at that time there will  only be a $10 decrease.  He                                                               
also pointed  out that the  PFD is estimated  to go up  in future                                                               
years [beginning  in 2007], which  suggests that the  vagaries of                                                               
the market are more important than  any potential impact of HB 3.                                                               
He estimated that with the adoption  of HB 3, the state, over the                                                               
next five years,  will be able refrain from  drawing between $175                                                               
million  and $200  million in  additional funds  from the  CBR to                                                               
balance the budget.   He also offered that HB  3 will enable [the                                                               
legislature] to avoid any future  taxation for the aforementioned                                                               
Number 0632                                                                                                                     
REPRESENTATIVE   BERKOWITZ  offered   the  criticism   that  [the                                                               
legislature]  can  already do  what  is  proposed  in HB  3;  the                                                               
legislature  can appropriate  money from  the "earnings  reserve"                                                               
with a 21-member  vote.  On the more generic  question of what is                                                               
the best overall approach to  managing "our" assets, he said that                                                               
money in the  permanent fund "does better" than money  in the GF.                                                               
He reported  that money in  the permanent fund  has approximately                                                               
an 8 percent return, if not  more, as compared to 4 percent while                                                               
in the  GF.  By looking  at this income as  fungible money, there                                                               
is a difference  between whether it's "parked" in the  GF or it's                                                               
parked in  the earnings reserve.   He said  that there is  a good                                                               
argument  that [the  legislature] could  simply appropriate  this                                                               
extra  25 percent  from  the earnings  reserve  of the  permanent                                                               
fund, now,  and that  there is  no need  to divert  that "stream"                                                               
from  the permanent  fund to  the general  fund.   He added  that                                                               
although the  aforementioned was a good  academic argument, there                                                               
are political  realities to consider  regarding the  objective of                                                               
HB 3.                                                                                                                           
CHAIR  ROKEBERG  offered  the   rejoinder  that  current  statute                                                               
requires  that  the  additional  monies  be  deposited  into  the                                                               
corpus,  or principal,  of  the permanent  fund,  instead of  the                                                               
earnings  reserve.   He  opined  that Representative  Berkowitz's                                                               
theory  presupposes generation  of  earnings, which  historically                                                               
has occurred,  but current market fluctuations  make results more                                                               
suspect for  the coming year[s].   But  for the amounts  from the                                                               
larger bond  and real estate  portfolio, [the legislature]  is in                                                               
the  situation of  realizing substantially  less growth  in those                                                               
earnings.   He  remarked again  that statute  dictates additional                                                               
monies  go  to  the  principal,  and  that  because  neither  the                                                               
legislature nor  the people have  agreed upon the  expenditure of                                                               
any funds for  GF purposes from the earnings reserve,  on a cash-                                                               
flow basis, that money is "dead money."                                                                                         
REPRESENTATIVE   BERKOWITZ  countered   that  according   to  his                                                               
recollection, the money does not  go straight to the corpus; [the                                                               
legislature] appropriates it to the corpus.                                                                                     
CHAIR  ROKEBERG responded  that the  money goes  straight to  the                                                               
Number 0818                                                                                                                     
REPRESENTATIVE  JAMES agreed  that the  money goes  directly into                                                               
the  corpus  of the  permanent  fund.   Although  she  understood                                                               
Representative Berkowitz's  presentation, she said that  there is                                                               
a difference between  having money available and  having only the                                                               
interest income of  the money available.  She said  that the same                                                               
argument could  be given that  [the legislature], with  21 votes,                                                               
could take  the estimated $40  million and  use it in  the budget                                                               
now; in fact, with 21  votes, [the legislature] could take enough                                                               
money out  of the earnings reserve  to avoid taking any  money at                                                               
all out of the CBR.  The  legislature has not decided to do this,                                                               
however, because  it does not have  a long-term plan.   She added                                                               
that all  of these decisions  - how  "we" deal with  the earnings                                                               
reserve, deal  with the PFD,  deal with  the CBR, and  get enough                                                               
money to keep from having less income  than is spent - is part of                                                               
a long-range plan.                                                                                                              
REPRESENTATIVE JAMES explained  that she has often  said that she                                                               
would not be voting  for a part [of the plan]  until she sees the                                                               
whole  thing; however,  she  added,  HB 3  is  the one  exception                                                               
because it  makes a  lot of  sense to  her.   She also  said that                                                               
another item to  carefully consider with regard  to the long-term                                                               
plan is how government spending  is tending to far exceed income,                                                               
and she  voiced the concern that  at the current rate  of growth,                                                               
the state may not be able to  maintain a PFD for its citizens nor                                                               
be able  to tax its citizens  enough to pay for  needed services.                                                               
She said again  that HB 3 makes sense, particularly  now that the                                                               
state  doesn't have  enough money;  although it  was a  good idea                                                               
when the state  had extra money, the extra [25  percent should no                                                               
longer be  placed into the  corpus of  the permanent fund].   She                                                               
concluded by saying that she supported HB 3.                                                                                    
REPRESENTATIVE COGHILL said  that [excessive] government spending                                                               
is one  of the reasons  he voted  not to report  HB 3 out  of the                                                               
House  State  Affairs  Standing  Committee.    He  did,  however,                                                               
acknowledge that  the money would  probably gain more if  it were                                                               
in the permanent  fund, and that having it in  the permanent fund                                                               
was perhaps a  better way of making  use of that money.   He also                                                               
said that there is no doubt  that [the GF] budget is "hungry" for                                                               
more  money  because  of  all the  federal  mandates  and  social                                                               
programs that are  being created but not scrutinized.   He opined                                                               
that another  $40 million  is not going  to satisfy  those needs.                                                               
He said  that although he is  not in favor  of HB 3, he  will not                                                               
vote to stop it.                                                                                                                
Number 1025                                                                                                                     
CHAIR  ROKEBERG   said  that  although  he   understood  some  of                                                               
Representative Coghill's  concerns, he did not  understand all of                                                               
them, even though he considered  himself to be extremely fiscally                                                               
conservative and to be a major  voice for the private sector.  He                                                               
said he  believes that maintaining  a higher balance in  the CBR,                                                               
by funding over 50 percent of  the $75 million increase in the FY                                                               
2002 GF  budget, is  responsible cash-flow  management.   He said                                                               
that HB  3 is a prudent  and immediate step that  the legislature                                                               
can take  and which  [could] be in  effect by July  1.   He added                                                               
that  funds from  any  future fields  that come  online  at a  50                                                               
percent  level would  not replace  the diminution  of funds  from                                                               
current fields  that are at the  25 percent level.   He suggested                                                               
that  "all  we're  doing,  is replacing  [them]  on  a  cash-flow                                                               
REPRESENTATIVE COGHILL  said that  is one of  the reasons  why he                                                               
will not hold HB  3 up, but he added that he  thinks there has to                                                               
be continuing  discussion on the fact  that "we are a  lot bigger                                                               
than we can afford."                                                                                                            
REPRESENTATIVE JAMES said:                                                                                                      
     In the whole scheme of economics,  I think we do need a                                                                    
     lesson on this issue ... that  the only way that we can                                                                    
     ever pay  for our needs in  this state is to  have more                                                                    
     economic activity.   And  the only  way we're  going to                                                                    
     get some more economic activity  is to spend some money                                                                    
     in  the areas  where you  can create  some.   We, as  a                                                                    
     state,  own everything  in this  state;  so that  means                                                                    
     that  it's not  out there  for the  picking without  us                                                                    
     spending some money to get  it picked.  [The Department                                                                    
     of    Natural    Resources   (DNR),    Department    of                                                                    
     Environmental  Conservation  (DEC), and  Department  of                                                                    
     Fish  and Game  (ADF&G)]  are some  of  the areas  that                                                                    
     we're being  pretty skimpy on  right now, and  so we're                                                                    
     discouraging any kind of economic activity.                                                                                
     The  second  reason  why  we're  discouraging  economic                                                                    
     activity  is because  we  have a  hole  in our  budget:                                                                    
     we're spending  more money than  we're taking in.   And                                                                    
     until we change  that, people are going  to be hesitant                                                                    
     to bring money  into this state because  they know that                                                                    
     if we are going to tax  anybody, we're going to tax the                                                                    
     business, because  we have a  society who wants  to pay                                                                    
     nothing for anything - they  just want things but don't                                                                    
     want to pay.                                                                                                               
     So,   I  agree   with   the   representative  from   my                                                                    
     neighboring  district  that  we certainly  have  to  be                                                                    
     cautious, and I am very  distressed about the amount of                                                                    
     money that we're spending this  year because we haven't                                                                    
     got  any overall  plan as  to  how we're  going to  get                                                                    
     there; it doesn't  even do us any good to  get some new                                                                    
     economic activity if we don't  have some way of tapping                                                                    
     into that with, like, a  broad-based tax that will help                                                                    
     us  to fund  schools, and  roads, and  police, and  all                                                                    
     those kinds of  things that we'll need more  of when we                                                                    
     have more  people.  So I  think that we really  do need                                                                    
     to have  a lesson in  economics, and maybe I  could put                                                                    
     on a workshop one of  these days on this, Mr. Chairman,                                                                    
     so that we can understand  how we're going to get there                                                                    
     - to be prudent and  still make enough money to survive                                                                    
     over the long term.                                                                                                        
Number 1231                                                                                                                     
REPRESENTATIVE JAMES moved  to report HB 3 out  of committee with                                                               
individual  recommendations  and  the accompanying  fiscal  note.                                                               
There  being no  objection,  HB  3 was  reported  from the  House                                                               
Judiciary Standing Committee.                                                                                                   
REPRESENTATIVE  JAMES  further commented  that  the  only way  to                                                               
really cut  the budget,  with regard  to the  way [Representative                                                               
Coghill] wishes, is  to be sure that every  able-bodied person in                                                               
this state  has a good-paying job,  and then there will  not be a                                                               
need for all  of those social services that  [the legislature] is                                                               
paying for.                                                                                                                     
REPRESENTATIVE BERKOWITZ  noted that  [the legislature]  has been                                                               
cutting the budget and scrutinizing  programs for a long stretch.                                                               
In  response to  a  question, he  said that  he  has sat  through                                                               
plenty of  budget debates,  and he did  not notice  anyone coming                                                               
forward with amendments to eliminate  programs in their entirety;                                                               
he did not  notice those discussions as really being  part of the                                                               
conversation.   He said  he has  heard a lot  of people  say that                                                               
[the  state] has  too  many programs;  that there  are  a lot  of                                                               
things going  on that folks really  don't want; and that  if [the                                                               
legislature]  looked just  a little  bit more  closely, it  would                                                               
find  items in  the  budget it  could  do away  with.   He  said,                                                               
however,  that  he  was  still  waiting for  people  to  be  more                                                               
concrete with those proposals.                                                                                                  
REPRESENTATIVE  COGHILL   said  he  appreciated   those  comments                                                               
because he has  spent a lot of  time looking in order  to come up                                                               
with some  proposals.  He added  that there are a  lot of federal                                                               
dollars driving many  budget items, and that it is  going to take                                                               
some fortitude to deal with them.                                                                                               
REPRESENTATIVE  BERKOWITZ  remarked   that  "when  those  federal                                                               
dollars dry  up ... in the  next couple of years,  we're going to                                                               
see what kind of hole we're really in."                                                                                         
CHAIR  ROKEBERG commented  that  at the  [Fiscal Policy  Caucus],                                                               
Commissioner  Condon gave  a presentation  of the  fall forecast.                                                               
He said  the presentation reflected  a potential for  a shrinkage                                                               
of the  state's domestic product  - or  the overall economy  - if                                                               
the state  were to use  various forms  of taxation as  opposed to                                                               
using  money   from  the  earnings  reserve   account,  which  is                                                               
currently in  portfolios outside  the state.   He added  that the                                                               
irony of this is that [the  legislature] is much better off using                                                               
earnings reserve  moneys rather  than taxing,  which is  a fiscal                                                               
policy that has  a negative impact on the economy.   He said that                                                               
HB 3  avoids the issues surrounding  taxation and the use  of the                                                               
earnings reserve, and is one small step towards saving money.                                                                   
REPRESENTATIVE JAMES  added that [adopting  HB 3] is  the prudent                                                               
thing to do.                                                                                                                    
[HB 3 was reported from the House Judiciary Standing Committee.]                                                                

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