Legislature(1997 - 1998)
03/15/1997 11:07 AM House STA
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
HJR 25 - CONST. AM: PERM. FUND INCOME & DIVIDEND The next order of business to come before the House State Affairs Standing Committee was HJR 25, Proposing amendments to the Constitution of the State of Alaska to guarantee the permanent fund dividend, to provide for inflation-proofing, and to require a vote of the people before spending undistributed income from the earnings reserve of the permanent fund; and relating to the permanent fund. CHAIR JAMES announced she worked with the sponsor and with Mike Greany, Legislative Fiscal Analyst, Legislative Finance Division, on a committee substitute because she was concerned about putting a statute in the constitution. It was a misuse of constitutional space. She did not have a problem with establishing the priorities of the use of the earnings in the constitution, however. Number 1624 REPRESENTATIVE ALAN AUSTERMAN, Alaska State Legislature, explained that the committee substitute, version "B", took the actual formula that they had been using for the dividend program and for the inflation-proofing and kept it in the statute as a mandate. The formulas stayed in the statute in order not to bind future legislatures. If the formulas were in the constitution, "You'd be in a world of hurt if you had a crash in the market or something like that." Therefore, if there was a problem, the formula could be adjusted easily in statute. Number 1705 CHAIR JAMES explained the committee substitute, version "B," took the existing constitutional language minus the following statement: "All income from the Permanent Fund shall be deposited in the General Fund unless otherwise provided by law." CHAIR JAMES further read the following from the committee substitute, version "B": "(b) Income from the permanent fund shall be deposited into a separate account in the fund, the earnings reserve account, as soon as it is received. Money in the account shall be invested in investments designated by law under (a) of this section, and income from the investments shall also be deposited into the account. "(c) On the first day of each fiscal year, an amount of income shall be transferred from the earnings reserve account for distribution as dividends to State residents as provided by law. An amount of income shall also be transferred as provided by law from the earnings reserve account to the principal of the permanent fund to offset the effect of inflation on the principal of the fund during the fiscal year just ended. Income distributed as dividends or transferred to the principal is not subject to appropriation. "(d) Appropriations may be made from the earnings reserve account; however, the amount appropriated during a fiscal year may not exceed the amount in the account on the first day of that fiscal year after transfers have been made under (c) of this section." CHAIR JAMES stated that the committee substitute, version "B", protected the permanent fund dividend program as the first use of the funds and protected the inflation-proofing as the second use of the funds. If there were any funds left over, it authorized the legislature to appropriate them. The original draft also said that the balance of the earnings reserve could not be utilized without a vote of the people which was taken out in version "B." Number 1839 REPRESENTATIVE ELTON stated the major problem that he had with the original bill was the vote of the people. That was now gone in the committee substitute. The committee substitute did not say that the income from the Permanent Fund would go into the General Fund, but rather the income would go into a special account within the Permanent Fund. And from that special account, there would be an appropriation; first, for the dividend and; second, for inflation- proofing. It would also authorize the legislature to appropriate the remainder of the funds from that income account. Therefore, the only thing that the committee substitute would do would be to change the earnings from being designated as general funds to a special account within the Permanent Fund, but those earnings would still be available for appropriation by the legislature after the two priorities. CHAIR JAMES stated the biggest difference was that the original draft put the statute in the constitution so that the way it was calculated would be a constitutional mandate. Generally, statutory language was not put in the constitution. The constitution was a guide to establish mandates. Number 1971 REPRESENTATIVE ELTON wondered if an analogy would be "us determining the statutory language, we may not want to be too specific in statutory language, let's handle that through regulation to allow for changing circumstances that a department may...." Number 1981 CHAIR JAMES replied it was not so much regulative change as it was statutory change. The statute was being put in and not the regulation. Number 2031 REPRESENTATIVE AUSTERMAN stated that the language of the vote of the people had been taken out because once it was in the constitution it would take the vote of the people to change it. Number 2048 CHAIR JAMES explained the legislature could appropriate funds that were left over for anything. The legislature had consistently appropriated it back into the fund because the public believed that anything the legislature would do to it would affect the dividend and they feared that the dividend would be taken away. Therefore, this was an opportunity to put into statute that there would be a dividend program which gave them some protection. The original bill indicated that in order to spend the money left over the legislature would have to go to the vote of the people, even if the legislature wanted to put it back into the corpus of the fund. It was possible that some of the money would need to be used in the future. In fact, it was available with a simple majority vote; not the three-quarters vote that it would take for the budget reserve. Number 2153 REPRESENTATIVE ELTON asked Representative Austerman, if he wanted to appropriate money from the left-over dollars to help built the Kodiak launch facility for example, could if be done with a simple majority vote? REPRESENTATIVE AUSTERMAN replied, "Currently." REPRESENTATIVE ELTON asked Representative Austerman, if he wanted to appropriate more money than what was left in the account, would it require a vote of the people to lower the amount of the dividend appropriation or to lower the amount used for inflation-proofing? Number 2208 REPRESENTATIVE AUSTERMAN replied, "Correct." The committee substitute read: "(d) Appropriations may be made from the earnings reserve account; however, the amount appropriated during a fiscal year may not exceed the amount in the account on the first day of that fiscal year after transfers have been made under (c) of this section." REPRESENTATIVE ELTON stated a third scenario could be to change the statute to change the inflation-proofing rate so that there would be more money left in. Number 2226 CHAIR JAMES replied, "That's right. In fact, you can't take any more money out that's in there because you can not go to the corpus." The statement made by Representative Elton was not totally correct. The only reason he would have to go to the vote of the people would be if the legislature said there was not a reason for inflation-proofing anymore, for example. But, the statute would need to be changed first. Number 2249 REPRESENTATIVE ELTON stated the inflation-proofing formula in statute would have to be changed. CHAIR JAMES replied, currently, that could be done without changing the constitution. "You just can't give up inflation-proofing. It's there and it has to have a program." Number 2258 REPRESENTATIVE AUSTERMAN explained the bill would not change either of the current statutes or the formulas. Number 2276 CHAIR JAMES called for a motion to adopt the committee substitute. Number 2283 REPRESENTATIVE HODGINS moved to adopt the committee substitute, 0- LS0659/B, Cook, 3/14/97. There was no objection, the committee substitute was so adopted. Number 2305 REPRESENTATIVE BERKOWITZ wondered if there was anybody from the Permanent Fund to talk on this issue today. CHAIR JAMES replied no one was here. She talked with the fellow that was here from the trust after the last meeting. He was concerned about putting statutory language in the constitution. Otherwise, he believed that they did not have a dog in this fight because they were there to manage the fund and what was done with the earnings was up to the legislature. Number 2335 REPRESENTATIVE AUSTERMAN stated he also agreed that the statutory language should not go into the constitution. He called the committee substitute excellent. Number 2354 REPRESENTATIVE MARTIN, Alaska State Legislature, stated that the Permanent Fund Corporation had very wisely over the years resisted giving testimony on legislation because they did not want to get into the dog fight. The last time that they did, however, was over the warning of the investment in gold, of which, the state lost millions of dollars. CHAIR JAMES called for a motion to move the bill out of the committee. Number 2370 REPRESENTATIVE HODGINS moved that HJR 25, as amended, move from the committee with individual recommendations and the attached fiscal note(s). There was no objection, CSHJR 25(STA) was so moved from the House State Affairs Standing Committee.
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