Legislature(1999 - 2000)
02/20/1999 10:04 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
HB 89 ADVISORY VOTE ON PF EARNINGS RESERVE ACCT HB 90-APPROP: EARNINGS RES. TO BUDGET RESERVE HB 91-INCOME TAX: INDIV/ESTATES/TRUSTS CHAIR JAMES announced HB 89, "An Act authorizing an advisory vote on the use of the Alaska permanent fund earnings reserve account; relating to certain procedures for the special election; and providing for an effective date" HB. 90, "An Act making a special appropriation from the earnings reserve account of the Alaska permanent fund to the constitutional budget reserve fund; and providing for an effective date," and HB 91, "An Act relating to taxation, including taxation of income of individuals, estates, and trusts; and providing for an effective date" are before the committee and Commissioner Condon is prepared to give us a presentation today on another portion of their funding plan. Number 0021 WILSON CONDON, Commissioner, Department of Revenue, remarked that he would first briefly address questions that were posed to him at the previous hearing of House Bills 89, 90 and 91. He stated, "Madam Chair, you raised the question of the role of state government in the economy overall, what proportion of the economy does it represent. And looking at the state's economy, the way economists measure the size of an economy, gross state product - the best data that I could come with was 1994 data, preliminary data for 1995 and estimated data for 1996. Let's just take the estimate for 1996 because it's going to be close enough to get a rough picture. Gross state product in 1996 was estimated to be just little shy of $26 billion of which sixteen and one-half was the net of oil and gas. Oil and gas thereby comprises of about $9.4 billion, just a little under 40 percent of our gross state product. Seafood, a little over a billion dollars, forest products $275 million, mining $420 million, tourism $575 million. And, I won't read down through all the rest of it - a major one being construction, however, at about a billion two." COMMISSIONER CONDON continued, "And when you look at the public sector, a portion of all the gross state product, the federal government is $1.9 billion, state and local governments together $2.6 and that's comes to $4.4 billion out of a $25 billion economy in measuring it from the perspective of gross state product. Obviously the state budgets and local government budgets are larger than that, but if you think about how dollars get counted in terms of coming up with the gross state product, I think the easiest way to think about that is the government buying utility services and utility services that the government buys count in the utility sector, they don't count in the government's portion of calculation of the gross state product. Obviously the government gets a utility bill and pays it. And, who gets credited for the contribution that the utility..." CHAIR JAMES commented that it's similar to the RSAs. COMMISSIONER CONDON replied it absolutely is. CHAIR JAMES noted the presence of Representatives Hudson and Ogan. Number 0111 COMMISSIONER CONDON provided information on per capita expenditures by a list of states. By looking at the census bureau's compilation of state expenditures (rounded numbers): Delaware is $4,650.00, Montana $3,650.00, New Hampshire $2,830.00, Oregon $3,820.00, Florida $2,560, Nevada $3,100.00, South Dakota $28,000.00, Texas $2,500.00, Washington $4,000.00, and Wyoming $4,500.00. COMMISSIONER CONDON stated, "As you look at those states, you definitely have an apples and oranges comparison among them. Some of them fund a lot of their state schools out of the state budget, some don't. I think only one of them doesn't really have a county jail system that being Delaware - it's part of their correction's program. Some have relatively much larger state police responsibilities, and some are organized in a way so that county sheriffs and local police departments can take care of almost all the policing in the state. So, as you compare those, those numbers don't really fairly compare one of those states to the other." COMMISSIONER CONDON said he believes that covers the items that were requested of him. CHAIR JAMES asked what the cost per capita is in Alaska. COMMISSIONER CONDON replied he is unable to answer that question. CHAIR JAMES mentioned that's another question the committee would like to have on the record. REPRESENTATIVE OGAN remarked, "I have a question, and I guess it would depend on this general fund revenues, or the off-budget issues, including the permanent fund..." CHAIR JAMES asked, for the cost per capita? She indicated that was a good question because a lot of comparisons to the Lower 48 have been made over the years and then stated, "If we're talking about the amount of money that it's costing per capita, that we ought to relate those to the kinds of services that we have provided for, ... such as AIDA [Alaska Industrial Development Association], Alaska Housing [Finance Corporation], those are investments that we have, and they generally make money. And the spending that they do is going to be included in some of these areas. The railroad is another one. So I think it would be exclusive of investments, and the total amount that we spend for goods and services to provide government for the people. And, I don't know how you would be separate that out, I've never tried it." Number 0190 REPRESENTATIVE HUDSON indicated that, in Alaska, we make a terrible mistake of trying to compare ourselves on a per capita basis with other states because of our responsibility to our landmass, it's 20 percent of the size of the United States, and a major portion of our population is people who are living in rural Alaska - and really under third-world condition in some instances. It's good to do this but it also good to make certain that you put some factors in there to show reality. CHAIR JAMES agreed with Representative Hudson. She explained, "The only reason for doing it is, if we suddenly lost all of our income from resource development, which I feel we might if we don't prudently go forward into the future. It takes money to make money, and if we lay off all the folks in the Department of Natural Resources, who have the responsibility of managing our resources, we likely could do that. And if we lost all of our money, from resource development, the amount of money that it would take for us to mange ourselves would be taxable money. And, where would the tax come from? So, I think that number is important, and maybe we can somehow divvy up the cost of government that is allocated to resource development and maybe take that over to side." CHAIR JAMES referred to a conversation she had on the subsistence issue. She said, "What do we do if the federal government comes in and takes over subsistence. Do we just go away and let go with this thing, of course not. We want to be sure that we have enough people in [the Department of] Fish and Game to oversee the federal government to be sure that they're not depleting our resources because we have a responsibility to do that too. Does that mean we need more people in [the Department of] Fish and Game, or less people than we have currently? ... There just questions that I think are important for us to think about when we're thinking of the future of our state. And, we were designed to make money from our resources, and let's not forget that." Number 0236 COMMISSIONER CONDON summarized what he said at the previous hearing. He said, "Someone ... made the suggestion that maybe we're crying wolf, and this a slide I made some time ago asking that very same question. Because, if you go back a decade, the Institute of Social and Economic Research at the University of Alaska told us that we were right on the brink, and that we were going to have a $1 billion gap very soon and that we actually would reach a position where we couldn't continue to do what we're doing in fiscal year 1992. And that didn't happen, and why was that? And the reasons were a couple, first of all we got lots more in the way of settlement payments from the oil and gas disputes that were then on the table when were predicted - it (indisc.) projected that we get $2.2 billion, well actually, by the time we get to fiscal year 2000, projecting that the total deposits in the Constitutional Budget Reserve Fund will be $5.1 billion. We had an unexpected spike in oil prices with the Mid-East war, and at the time we were producing oil at the rate of two million barrels a day. So, that when we got that spike, it was worth a lot to us. But now, as I showed you the other day, our oil production has dropped by 40 percent from where it was when ISER (Institute of Social and Economic Research) did their study in 1988-89, so even if we got a wonderful spike in prices today, we're in a situation where we cannot continue to do what we've been doing." Number 0283 COMMISSIONER CONDON further stated, "The price situation ... has been such that the average disposition price, for that oil produced in our North Slope, has been about $16.50 a barrel at the destination where most of it's been marketed and refined in Alaska - west coast. That shows you the ups-and-downs of prices over the years since 1986. It shows you where we think we are going to be on an average over this year of our oil prices. As you may know - have once again dipped below $10.00. And taking that, the set of projections that we think are responsible and likely now, we see ourselves depleting our constitutional budget reserve fund in 2002 or 2003, and so that's why were all here on this sunny Saturday morning." COMMISSIONER CONDON continued, "The question of course is, since we have until 2003, perhaps shouldn't we wait? Why should we act now? ... I think the important point to make is that, if we take a series of steps now that balance our budget - the kinds of steps we'd have to take three years from now - they simply would be much smaller steps than what we'd have to take three years from now - whether we turned to budget cuts, taxes, or turned to the permanent fund to pay for a portion of public services that your and my government provides - acting now means that, the actions that we have to take, will be much less drastic." Number 0320 COMMISSIONER CONDON continued, "I talked about a set of principles which, some of which, all of us are going to have to agree with, and maybe a couple which we won't. It's hard to argue with - that we ought to balance the budget on a sustainable basis. It's hard to argue that the budget reductions must be responsible. There may be some of who don't believe that maintaining the healthy permanent fund dividend ought to be a high priority, and others of us will. Growing the state savings accounts is an insurance policy for a bright future for Alaskans. If the taxation power should be used to balance the budget, again it's hard to argue that any new tax shouldn't be fair and broad-based. And, then we had no change to the permanent fund, or the dividend program, without a vote of the people. And that's obviously a political pledge that the Governor has made, and is important to his solution. We talked about..." REPRESENTATIVE OGAN interjected that he would like to add to the list, no new taxes without a vote of the people. COMMISSIONER CONDON continued, "And we talked about budget cuts, and where - again breaking the budget down into some fairly distinct pieces. Obviously, one you actually go about making budget decisions, you break it down into much smaller pieces than that, but in terms of thinking about where a billion-dollar deficit might fit in, that picture shows you again, of course state government - the use of non-profits to provide government services, local schools, local government assistance, the safety net and formula programs by which the government provides money or services directly to people through formula programs and our support of the university." COMMISSIONER CONDON reiterated, "We just said a couple of things about the permanent fund, and that's what you asked me to address in a little more detail today. We looked at that graphic, which is one that was prepared by the permanent fund and has been used by them to show the importance of the oil revenue versus permanent fund income in the total fiscal picture of Alaska, and the fact that the permanent fund as a source of revenue has eclipsed - oil revenue in the state's revenue picture." COMMISSIONER CONDON referred to a series of slides that he has on the basic mechanics of the permanent fund. He explained, "The market value of the fund at the beginning of this calendar year, seven weeks ago, was about $25.3 billion and that $25.3 billion - you can think of several different ways. The important way to think about it from the perspective of what the constitution provides, is that the principal of the fund can't be spent by the legislature. And the principal of the fund, on January 1, 199, was $18.6 billion, and the income that had accumulated in the fund was, $6.7 billion." Number 0387 REPRESENTATIVE HUDSON remarked, "I just wanted to make certain, as you give this, that you indicate what percentage, of what dollar value of that $18.6 consists of monies that were put in there above and beyond the constitutional requirements by the legislature." COMMISSIONER CONDON noted that actually is his very next slide. CHAIR JAMES asked if the $6.7 billion is unrealized income, or is some of that income included in the earnings reserve account, or is it exclusive of the earnings account? COMMISSIONER CONDON said an upcoming slide breaks down the $6.7 billion. COMMISSIONER CONDON addressed the $18.6 billion. He said, "The principal is deposited into the fund as a result of dedicated mineral royalties, or as a result of actions taken by the legislature. And the legislature has taken actions which - and they do every year appropriate the amount back that is required to inflation proof the fund. In addition, the legislature [sound lost--teleconferencing network] money from the earnings or income account of the fund back to the principal and then [sound lost-- teleconferencing network] into the principal of the permanent fund. And, so in the breakdown ... you see that it's almost two-thirds of the money that is in the permanent fund now was put there on a discretionary basis by the legislature. The constitutional dedication has put just a little over the third of the money into the fund. The actions by the Alaska [State] Legislature, to save for the future, accounts for almost two-thirds of what you see in the principal of the fund today." Number 0429 COMMISSIONER CONDON referred to the income. He said, "The income today, if you look at the audited financial statement of the Alaska permanent fund, you will see that, for purposes of accounting the earnings reserve account includes both realized and unrealized income. All of the income, that has accumulated in the fund, realized and unrealized, is included in the earnings reserve account for purposes of calculating the dividend, we look only to realized income. And, realized income includes interest, and dividends, and profits that result in the sale of assets. And, the sum of those is what constitutes realized income. Unrealized income is any increase in market value that has occurred over the purchase price of an asset that's currently held by the fund, and it is turned into realized income only when the asset is sold - and the income is realized. And so, the total earnings reserve account, in terms of what the fund reports, under generally accepted accounting principals, includes both realized and unrealized income. But only realized income is used for purposes of calculating the dividend." REPRESENTATIVE HUDSON asked, "As well as the inflation proofing. Does the realized income..." COMMISSIONER CONDON replied, "In the past, the realized income has been looked to, to see whether there's enough of it available after paying the dividend to inflation proof the fund under the formula that sits in the statutes. Now that the generally accepted accounting principals, applicable to accounting for the fund have changed, I'm not sure that that's the way you would necessarily do it in the future." Number 0470 COMMISSIONER CONDON continued his testimony, "Now, there is another way to look at the total assets that are in the fund, other than principal and the income which are depicted over on the left-hand side of the slide, and that's how it's invested. And some of it is invested in real-estate, some of it in fixed income, instruments or bonds, and some of it in stocks. And all of the principal, (indisc.) fund are invested together. There isn't a separate investment pool that constitutes realizing other investments (indis.--teleconferencing network) constitutes unrealizing that another investment (indis.--network interference) that constitutes principal. All of the (indis.--network interference) are invested together in the asset allocation that you see over on the right- hand side of the diagram and if you break them down into principal and income, you see the same amount divided up according to that accounting convention. And, that is an aspect of how the fund works, that lots of folks sometimes get confused about." CHAIR JAMES asked if the 3.9 percent of gains are from stocks. COMMISSIONER CONDON replied, "Most of them, but not all of them. There are unrealized gains applicable to fixed income, bonds that were purchased - and if they were purchased when interest rates were high, and we've had a decline in interest rates, then the market value of the bond will have gone up and that would be an unrealized gain until the bond is sold. Similarly, in terms of the real-estate investments that the fund has made, many of them, in fact most of them have appreciated in value, and there are unrealized gains that pertain to - they're not huge, but they're there." CHAIR JAMES asked Commissioner Condon if the 3.9 percent is broken down. COMMISSIONER CONDON replied no. CHAIR JAMES suggested he put that on his list to get back to the committee with. REPRESENTATIVE HUDSON stated, "I'm trying to get the correlation in my mind between the removal of the $3.9 billion, from the unrealized gains of the permanent fund, to this new account that the Governor is proposing here. What effect would that have, if any, upon the 18.6 - or upon the realized gain? Or would it have any at all." Number 0511 COMMISSIONER CONDON replied, "First of all, it would have no effect on the 18.6. The 18.6 is inviolate, and is constitutionally protected. The Governor's proposal is to move $4 billion out of the combined 2.8 and 3.9 out of the income account and into the constitutional budget reserve fund. And, of course, if the legislature authorized doing that, appropriated the money, then it would obviously reduce the sum of those two by $4 billion. The mechanics that are available for doing that - we're certain that it can be done, but we are not certain about other different ways one might do it. And, there are ways that we know for sure that you could do it are relatively more expensive than the ways we hope you could do it that would be much less expensive." CHAIR JAMES called for an at-ease at 10:35 a.m. due to problems with the teleconferencing network. She called the committee back to order at 10:38 a.m. Number 0542 CHAIR JAMES noted the presence of Representative Burkowitz. REPRESENTATIVE HUDSON asked Commissioner Condon, "If we remove the $3.9, or $4 billion, would the realized gains - I understand that, depending on the market conditions and things of this nature would fluctuate somewhat, but are the realized gains predicated on the $18.6 billion in the principal, or are they predicated upon the combination of the 18.6 and the 3.9." COMMISSIONER CONDON replied, "None of the proposed use of permanent fund money is predicated on the 18.6, except that you can't touch it. And, if the markets should drop significantly - tomorrow, then you very well might not be able to do what the Governor proposes because you can't touch that 18.6 in principal." COMMISSIONER CONDON continued, "The question that you asked, while we were off-the-record, about the effect of this on the dividend, and I'll start off by saying when I worked for the State of the Alaska ... I was in the Attorney General's Office, ... I was testifying to the legislature about something I was working on, and I said, 'I didn't know,' and I was scolded roundly for it at the meeting. I don't know the answer for sure to this question because the question of whether or not the taking money that - taking money out of the unrealized gains portion of the fund would constitute an income recognition event for purposes of calculating the dividend is something which our external auditor and outside council are looking at it for us until we absolutely know what we think the answer is, I have to violate the rule that my boss told me I couldn't violate." Number 0577 REPRESENTATIVE OGAN asked a question on the oil settlements. He said, "I know you're intimately familiar with oil settlements - how much potentially do we have due still. I mean I know we're funding litigation that - about $4 or $5 million a year through the Attorney General's Office on the these oil settlement cases. What's the potential income of that in the near future - to close those out?" COMMISSIONER CONDON replied, "We projected a little over $100 million a year over the next five years. We believe that's a responsible projection. As a matter of policy, we're hoping that that becomes very close to zero after the next five years because we would like to have a situation where the rules are such that everybody knows what they owe in royalties and taxes and that they pay them. On out into the future, the appropriation of money to the Department of Law, or the Department of Revenue, or the Department of Natural Resources to make sure that we continue to collect what we're supposed is going to be important. Even if we don't have large litigations, it's going to be important to stay on top of that or we will once again have them." CHAIR JAMES announced that Representative Cissna has also joined us. COMMISSIONER CONDON pointed out, "The next slide is the dividend, and this is a slide that is intended to show you how the dividend amount is calculated. And the way that you figure out what the dividend you start off with the realized income, and we talked about that on the income slide, and you add up the - you're going to figure out what the dividend that would be payable in the fall of 1998 is going to be - you add up the realized income for fiscal years 94, 95, 96, 97 and 98, and you multiply that sum by ten and one-half percent. And that is the amount of money that the Alaska permanent fund sends to the state treasury for the dividend program. And, there are some - out of that amount of money the Permanent Fund Division is paid, we have to pay dividends for applicants from previous years who have successfully appealed and so on, so there are some adjustments that are made that I don't need to go into, but, you then end up with an amount of money that's divided by this year's eligible applicants and that's how you end up with the dividend that was paid of $1,540.88. Then the sum, of the realized income, for the last five years, multiplied by 10.5 percent, make some relatively small adjustments and divide it by the number of applicants." Number 0620 REPRESENTATIVE WHITAKER referred to the numbers Commissioner Condon provided relating to the earnings reserve account. He asked, "After inflation proofing, the number that you utilized was $350 million throughout the numbers. Was that number predicated upon the five-year average as well?" COMMISSIONER CONDON remarked he is not exactly sure what Representative Whitaker is referring to. REPRESENTATIVE WHITAKER reiterated the earnings reserve account, after the dividend was paid, and using your numbers, at roughly $900 million, after inflation proofing at roughly $350 million, there was roughly $450 million to be utilized as we saw fit, we being the legislature, as either being held or put back in the corpus of the permanent fund. Number 0634 COMMISSIONER CONDON added, "But that really doesn't have anything to do with this formula. What I said is you have a $25 billion asset and if you were thinking about it - setting these formulae to one side for a moment and you just thought, 'Gee, I'm the Whitaker Foundation, my family has done fabulously well, and I'm now managing a $25 billion endowment which is going to support wonderful things around the world.' If you were running that endowment, you would say to yourself, 'I probably can get a 5 percent of the value of my endowment out..." TAPE 99-5, SIDE B Number 0001 COMMISSIONER CONDON continued, "[Five percent of $25 billion] is $250 million. And then you can say, 'But I have a Permanent Fund Dividend Program that I pay to Alaskans through my foundation and it is going to pay out about $900 million.' I like that $900 million a year figure that comes out of the formula, and so if I do pay out $900 million in my dividend program from my foundation, then what I'll have left is about $350 million that I could spend and still preserve the purchasing power of my fund." CHAIR JAMES said, "I think we're talking apples and oranges here because my numbers that I had - that he was listing, I believe was about $890 million for the permanent fund dividends, $423 million for inflation proofing, and what was left over was like $1.2 billion from this current year's earnings. Those are the numbers I got from Legislative Finance. But you were talking about a different tally. Then there's more in that 1.2 plus another 1.2 - similar from the years - there's over $2 billion in debt after the payment of dividends. ... But I think the numbers you are going with was a different configuration of numbers than..." COMMISSIONER CONDON explained that he was simply talking about what you could expect over the long term and not what happened this year. REPRESENTATIVE WHITAKER noted that that was his question. Are we looking at a projection of what we can very conservatively anticipate, or are we simply looking at what occurred last year and saying that is not something we can expect year after year, after year. COMMISSIONER CONDON replied that he thinks over the long run you could. He said he hesitates to use the word 'conservatively,' but would use the word 'reasonably' - expect to be able spend 5 percent of the current market value of the trust fund. CHAIR JAMES remarked these are important questions because this is a complicated issue. REPRESENTATIVE WHITAKER indicated, "It's fair to say that the numbers that you have utilized - the $350 million is a 5 percent number as opposed to an actual performance number." COMMISSIONER CONDON replied that's correct. He went on to say, "Well, I'm prepared to defend that number" [laughter]. Number 0063 COMMISSIONER CONDON further stated, "Another question that comes up is inflation proofing and we shouldn't spend a lot of time on this ... but understand it even if we later forget it. And, that is, what the legislature inflation proofs has been over time the principal of the fund. Remember that the fund includes the principal and the income. But the policy choice that the legislature made, was to inflation proof the principal of the fund, and what they do - it's to give you an example for the inflation proofing that took place for this last year - the change in the consumer price index, percentage change over calendar 1997. What's in the formula that's in the statute was used on June 30, 1998 to inflation proof the fund at that point. So, what's going to happen on June 30, 1999, you'll look at the change in the consumer price index that occurred during 1998, and multiply it by the value of the principal on June 30, 1999, and appropriate that amount from the earnings reserve into the principal. And that is what you as the legislature have been doing year after year - so, that's how you have inflation proofed the fund set forth in a formula in the statute, you reference it in your appropriation, but that's what you do." Number 0127 PATRICK CASEY, Student, University of Alaska Fairbanks, appeared before the committee to represent the university. He said, "I'm not only a husband, I'm going to be a future father in two months, and one of the things I'm concerned with is the future of Alaska, for not only me - I'm a student also, not only for me, for my son that's going to be here in two months." MR. CASEY stated, "HB 89 has its merits, first off, all it's well written, it's simple so the people statewide can understand what they're asking for and what it's going to be taken from. Secondly, we have to answer a question, we have to do something. My classroom, where I'm going to school, we have eight or nine students in my classrooms, and granted it's great for me and my personal relationship with my instructors and stuff, it's not good for the university. We're losing students left and right, and a lot of it is because of funding. We can talk about the 'doom and gloom' of the past, but I don't want to do that anymore. We've got a whole new energy with our university with the president. He's come up with a nice idea - a good idea for funding. The students are energized about this, for the first time in a long time. I'm here to say that I support the president a 100 percent of what he's asking for. Now it comes down to the question of how we're going to fund this. What he's asking for - this new increase into the budget - and that's where this bill, 89 comes into play. Like I said, it has it's merits." MR. CASEY continued, "Recently I heard of a McDowell Report that talked about the college-age students from 18 to around 29 - 60 percent of them said would support using the permanent fund in some way, and some way of using some taxation too. That's a big group of people, especially with the new energy the students are having these days, there's more voters now. We had an increase in voter registration in my campus, and I know across all the campuses with this. I've been fighting apathy for years - as some people on this panel that know me, can attest to. The apathy started to change and I think that President Hamilton's legislation request is part of that. I see something in play." MR. CASEY further stated, "Also I see new facilities on Alaska's, I'm not going to say it's all bad. We've got wonderful new facilities, we've got wonderful research going on, we've got wonderful programs that's coming into play. And what we've done in the past with the limited funding we've had, just imagine what we could do for the future of Alaska if we had more funding. We can invest in the new millennium fabulously, and it would be a wonderful thing if it happens." MR. CASEY concluded, "There's a quote in this article that the Letter to Editor is talking about how equating Alaskans and the permanent fund with a parent giving their child an allowance without any kind of work done for the allowance. It comes a time when we have to quit being spoiled and start thinking about what we can do for our future." Number 0180 ANDREE MCLEOD testified via teleconference from Anchorage. She stated, "As a resident, I'm being asked to consider paying taxes for the running of government. I need to be assured that government is using its assets and resources to provide services to the public in the most economical and efficient manner. The monumental task before you of setting policy in order to create a sustainable source of revenue to help balance the state budget is not envied and very much appreciated. Having obtained an economics degree under my belt, the UAA (University of Alaska-Anchorage) economics professor have trained me well in thinking incrementally and on the margin. In that spirit, I offer my comments which deals with my interaction with Alaska government as a state employee, off-and-on since 1984, and recently while advocating for the 'youth risk behavior survey', being conducted legally. A challenge present that has to be addressed is better accounting of monies received and better accountings of monies expended." MS. MCLEOD provided an example, "While I was addressing surveys conducted in schools dealing with private family affairs, states (indisc.) written parental permission have to be obtained. John (indisc.) has stated there's no money available to get that permission. I asked him the simple question of how much funding is budgeted for conducting the 'youth risk behavior survey' - depending on who was asked, the amount varied. ... Having recently been employed with DOT [Department of Transportation and Public Facilities], I do offer some way to do this, the state accounting system AKSAS has an application imbedded within it that keeps track of all federal dollars received because of federal audit requirement. That's the time and equipment reporting of AKSAS, and every dollar spent on time and equipment is accounted for. This quantification lends itself as a management tool as well." Number 0222 ANDY HARRINGTON testified via teleconference from Fairbanks. He said, "The Governor's plan may not be the best of all possible plans, but it's the best one I've seen, possibly because it's the only one that I've seen, nobody else has put up a contender and that would be my first point. I think that if there is some other plan, some better plan, it needs to be put on the table really quickly because people need to be able to digest it and give their comments on it." MR. HARRINGTON further stated, "Reluctantly I do think that there does need to be a statewide tax. It's been a nice long vacation, almost 20 years, but it is time to clean up the dished and the cocktail peanuts and get back to our responsibilities - I think as citizens and taxpayers. When I get done here, I hope to take my two sons sledding - I've got one son who gets down to the bottom of the hill in his sled, gets a nice glide, pulls the sled back up to the top of the hill. I have another son who gets down to the bottom and even after the glide is gone he keeps on jerking his body in an attempt to try to squeeze two or three more feet of glide out of the sled. And I think that that's kind of the position that we are in. The sooner we face up to the fact that we've got to pull the sled up to the top of the hill the better." MR. HARRINGTON continued, "I think we should accompany this tax with both budget reductions and with a suitable appropriation from the earnings reserve account. I slightly prefer an income tax to a sales tax because I think it's not as regressive and I also think that, at least those Alaskan tax payers who itemize can deduct their state tax from their federal income tax. I respect the Governor for putting the plan forward and for keeping his word to let the people decide about this appropriation from the earnings reserve account and I think that even the people who would -- I think that we should be given an opportunity to vote on it and I would urge the legislature to take that action." Number 0248 MICHAEL COONS testified via teleconference from Palmer. He stated, "I sent written testimony and I'd like to have that put in the record [on file]. Governor Knowles tax proposal as I've seen it is basically hitting special interest and is full of loopholes. What my wife and I would like to see is a flat tax which would be fair and across the board. Why should workers get or lose breaks because of our choices. People that have got children, people that don't have children, married versus single, low paying or high paying jobs. I work for a living and work hard for a living - if I make $100 thousand next year I'll be happy but I'll end up paying more taxes. I'm married - no kids, I'm going to be paying more taxes than somebody that's married with four kids. I have a real problem with this special interest aspect that only certain people are going to get hit higher with taxes and other people aren't." MR. COONS concluded, "I agree with HJR 1 - I would like to see an advisory vote that, for the people to vote on as far as any income tax. But, making it an advisory vote that if less than 51 percent of the registered voters out, that the vote is no. I'd also like to see that if any of you are talking about anything as far as taxes, that we have a sundown aspect with it, and during that four or five years that we have it, a constitutional change to where the voters must have at least 51 percent of the registered voters turnout in order to make any vote valid." MR. COONS concluded, "I'd like to make sure that this thing is going to be educated to the voters on a neutral base, not a political rhetoric, I would like to see something in writing, in the papers, on TV, and in radio saying what we're going to be doing, why we're going to do it, when we're going to do it, where we're going to do it, and who's going to be impacted." Number 0286 JOE SONNEMAN appeared before the committee to testify on HB 89. He mentioned he had earned a PHD in government finance and said, "I'm just going to talk about a narrow aspect which is how the permanent fund - which is an equal amount to everybody, how it impacts people as they receive it, and also how, if you would draw $4 billion and that would, in my estimation, mean a likely drop also as an equal amount, how that would affect Alaskan's of different income groups." MR. SONNEMAN continued, "And I have a very simple chart showing relationships of - these are actually different square inches - that you see the numbers; 99, 53, 21 and 11, and I'm just going to add little circles of 2.5 square inches to each. So, that you can see that adding these equal amounts makes a bigger percentage difference to those with lower incomes. And then I'd also like to show you how a loss affects that, and which would happen. I believe if you actually take $4 billion out of the earnings reserve. And again, you can see that the impact is minimal on the large income and is very large - the impact of the equal amount reduction is very large on those with the lowest incomes. These are just mathematical relationships, and that's - you have big problems before you, I'm just addressing this very small point of how these changes affect people of different income levels." Number 0324 BRIAN BRUNDIN testified via teleconference in opposition to HB 91 from Anchorage. He said, "I'm a tax lawyer and I been so in Anchorage here since 1966. Prior to then I was also a CPA (certified public accountant). So I have represented people in tax matters for a long time including, when Alaska use to have an income tax before it was repealed in 1980." MR. BRUNDIN continued, "My perspective is this, of all of the taxes - and I've published nationally on Alaska taxation as well, my perspective from my general clients point of view is that an income tax is the most people unfriendly, anti-people tax you can have. This has not been said, so I wanted to point it out to you. And you just need to think about what a persons reaction is when he gets a notice of being audited. That auditor comes in and goes into his private affairs unbelievable so. It's frightening to most people. They have to (indisc.--paper shuffling) more private information about themselves, they have more fear, and so forth, than any other kind of taxation. It's also true that it's more expensive to administer. Even when we had our Alaska income tax - was a percentage of the federal - which would seem to be easy to administer. You do your federal tax, and then you just take a percent and send it to the state. But the state made some different rules as it would again. You didn't believe that the federal government - everything it wanted to do was appropriate for Alaska so we had different rules." MR. BRUNDIN continued, "I had clients who had auditors from the federal government, and they ended up showing transactions one way, and then auditors from the state, in those same transactions, ended up being reported differently for the state than the federal. And how do you chase these out-of-state people - we want to collect tax from, you have a tax office in Seattle, and elsewhere, you have a much more expensive administrative problem collecting an income tax. So I would suggest to you that, when you consider an income tax, know that it is the most anti-people tax that we have. It also - another view of it, is that asking for a tax at this time, might also be viewed - to me it is, as progovernment, anti-people. And I say that because of an experience in 1980 when the legislature considered repealing the Alaska income tax, the Governor's proposal then was this, we'll keep the tax, we'll collect it this year, and then if we don't need it we'll refund it to you next year. When I heard that, several of us went down to Juneau and really said, 'gosh, this is - you know, let's protect the government at all costs and get..." CHAIR JAMES asked Mr. Brundin to summarize his statement. MR. BRUNDIN concluded he testimony. He said, "I suggest to you that we cut our expenses and live on our savings account before we go after the people's savings account in and anti-people tax." Number 0369 CARL BENSON testified via teleconference from Fairbanks. He stated, "I would like to point out that my friend in Minnesota - who we talk about these things - he use to live here when paid an income tax. But he told me my governor can beat up your governor. From Minnesota they can say that to any state now, but I told him my governor has got more political courage than yours or any other. He proposed to reinstate our state income tax. And he said, 'What, you mean you don't have one anymore?' No. 'You must have a high state sales tax?' No we don't have that. 'How do you raise taxes from the population?' Well we don't, we mail money out to them instead." MR. BENSON continued, "Last year, the money we mailed out to the public was almost $900 million. It's by far the biggest single item in our state budget. Second to that is education and then you go on down the line. Well, we have the lowest gasoline tax in the United States, our property taxes are low compared to anywhere else. We've got this permanent fund that generates income and the purpose of that was originally to use some of that income to help pay for state government when the nonrenewable resource ran out we have the permanent fund invested as a renewable fund - a renewable income." MR. BENSON further stated, "I think basically, the proposal that Tony Knowles has put forth for a state income tax and to use some for the earnings of the permanent fund for the purpose they were originally intended is a great idea. The proposal looks reasonably good. We're putting in an (indisc.) which was just stated earlier, nobody's put forth a better one. I have to disagree with the previous speaker though, I think sales tax at the state level is more regressive than an income tax. The fairest tax is a graduated income tax, and the idea of spending our savings - spending principal, is absolutely crazy including the CBR (Constitutional Budget Reserve). The whole purpose of a savings account is to generate income and you deal with spending the income and leaving the savings to generate more income." MR. BENSON concluded, "Basically, the other point about the state income tax that's attractive is that it's deductible from the federal tax. Also, last year, it was nearly $900 million that went out in dividends paid to the people constituted about $170 million that went directly to Internal Revenue Service out of that. With a state income tax, we help keep more of that dividend in Alaska instead of packing off to the IRS. And agin, the income tax is deductible from the federal [tax]. Basically I think these ideas look very good." Number 0411 REMY HOLDSWORTH testified in opposition to HB 91 via teleconference from Palmer. She read the following statement: I'm not writing this message in protest of the state income tax, but I'm protesting the way this plan has been written. I feel it is very unfair to single people without children. I am a 42 year old woman who has made the choice not to have children. I work full-time and lead a very productive life. The way this tax plan is written is that single people without children will have to pay most of this tax. I feel this is very discriminating and I fell like I'm being punished in someway or another for my lifestyle. What really makes me mad is that a family of four, who make $60 thousand or less will not have to pay anything at all. That's not right. If you live in this state, and you reap the benefits of the state you should have to pay. I also think that 31 percent is a little excessive in pay, although I do like the idea of a flat tax. If I were given a choice, I would give up my permanent fund - to not have to pay a state tax at all - if I were given that choice. It's nice to be able to get that permanent fund at the end of the year, but however, it does put you into a higher tax bracket, and you end up having to pay more federal tax anyway. REPRESENTATIVE OGAN stated for the record that he has come to the conclusion that maybe that's the Governor's strategy is to scare us into giving up our permanent fund dividend by proposing this tax. Number 0434 GREG YOUNG appeared before the committee. He stated, "I thought when I wrote this that it might be a departure from what you would have been hearing in this committee, but having heard the previous testimony it's not that much of a departure." He read the following statement: Permanent Fund: I've lived in Alaska since 1977, not as long as some, but longer than many, and, as I recall, when the permanent fund was first conceived, the purpose was to provide funds for the day when oil revenues fell off so we could keep providing the citizens of Alaska necessary government services. I underlined "necessary." That is, those services required for life, safety, health as opposed to 'nice to have things'. The whole idea of the permanent fund got translated into a fund that was solely to pay annual cash dividends to Alaskans. Now we hear cries of, 'Don't touch the permanent fund,' and 'Don't touch my permanent fund dividend, the state owes it to me.' Well, three's no such thing as a free lunch. If Alaskan's want to continue to enjoy the standard of living that they've become accustomed to over the last 20 years, then they have to be willing to contribute to it. State Income Tax: I don't mind paying taxes for state services that are needed. What I object to is those who want everything for nothing, and want someone else to pay for it. I would support a flat income tax - deductible from federal, with standard and dependent deductions, and a 'credit' for state residency. State Sales Tax: I would also support an across the board, food excepted, state sales tax. I think the legislature should tell communities who don't have a local sales tax that their portion of state funds will be reduced by whatever amount such a tax could raise for them. Why should residents of communities who pay local tax to partially fund local services contribute to a statewide tax to fund similar services in boroughs and municipalities where there is no sales tax? Doesn't make sense to me. In summary, and I'm sure you've heard this before, even today, Alaska is the only state in the union that has neither a state income tax nor a state sales tax. We basically pay our residents to live here. And, while we have $25 billion in the bank, we sit around and cry, 'poor mouth.' The lower 48 states laugh at us - and I can tell you that because I have relative there. It's about time the people of Alaska re- entered reality and recognized that they need to pay for government and the government services and programs they want. Number 0470 PAM KARALUNAS testified via teleconference from Fairbanks in support the Governor's proposals. She said, "His proposal may not be the best, but it's in front of us for discussion. I agree that it's time we start paying our own way again, however, I feel we should eliminate the permanent fund dividend payments before we tax our citizens. While I'm sure there are still ways we can cut spending, I'm very concerned where and how these cuts may happen." MS. KARALUNAS continued, "My experience over the last 15 years with human services, child protection, law enforcement, and the court system affirm over, and over, and over again, that there's a far greater need for these services than there are services to meet these needs." Number 0485 CLARENCE FURBUSH testified via teleconference from Palmer. He stated, "In my budget, I try to make every dollar count and I have several proposals that probably have been proposed before, but I certainly believe in this increase in efficiency in the government. And, I also believe that it should be audited so that these royalties - to make sure the state gets its share from the sale of state resources such as coal, oil, (indisc.) zinc, and so on. And I think the state should be required to sell a substantial part of its land to provide income, and also as a tax base for municipalities. Unorganized areas should be made to organized so that they can pay their fair share for services." MR. FURBUSH continued, "Mental Health lands, university lands, certainly they should be required to sell a substantial part of their land annually as part of their income. Anyway, if they do this much, at least it should reduce the required amount that is required to pay for their services. I think if you add it all together it won't be an awful lot, but it certainly - it would try to get every cent you can, wherever you can find it." Number 0506 KELLY LUDWIG appeared before the committee. She stated, "I'm just an accountant, I'm not a CPA, I have an accounting degree from the University of Alaska-Southeast in Juneau, and I've worked with taxes for the last few years and my concern comes down to an income tax and the affect that it has with the PFD (permanent fund dividend) to me (indisc.) going to give us a PFD on one hand and then we're going to turn around and take it away. I did some preliminary figures based on Joe Q.-citizen who earns $40 thousand a year as a single person, has no dependents, doesn't have a big investment portfolio - and if you take that $40 thousand - and I used the amount of last year's permanent fund of $1,500.00, I applied the standard deduction - he can itemize deductions and he can only subtract from your federal income tax return - state taxes if you itemize deductions, otherwise it all falls under the standard deduction. He gets his personal exemption for himself, that comes down to a taxable income of $32,550. The federal tax on that is $5,826. Now the state tax would be 31 percent of that, which is $1,806 and the PFD credit, which would be 33 percent of the PFD amount at $1,500 is $495 which makes the state tax $1,311. If you take the PFD at $1,500, you deduct the state tax of $1,311, you get $188.94. Now by adding the $1,500 into his income that he has to pay taxes on, the federal tax effect is $245, so if you subtract all that out, it ends up costing that person $56.12 to get the PFD and pay the state tax on it." MS. LUDWIG further stated, "If we were to cap the PFD - I'm just picking a figure of $850, and we don't have a state income tax, then that $850, included in his income, costs him in federal taxes $266. But the gain on that, that he gets, is $584, which means that for each person, that's $584 drop into our economy and a $56.12 decrease because, not to mention the cost of setting up the department, and which would be a collection department - kind of like child support enforcement which is scary to me. I know people want to keep their PFDs, but I think that maybe capping them and then using the earnings reserve account for the unrealized gains and that is a better option." REPRESENTATIVE OGAN remarked that the Administration didn't provide a breakdown of how much individuals would pay that was previously requested. CHAIR JAMES added that we can request it again. REPRESENTATIVE HUDSON asked Ms. Ludwig to provide the committee with a copy of her worksheet and a worksheet with the sales tax concept as well. Number 0558 DAVID KARALUNAS testified via teleconference from Fairbanks and read the following testimony: I've been a lifelong citizen of Alaska, and I do make a distinction between residency and citizenship. Residency makes you eligible for certain benefits and citizenship acknowledges the responsibility that we all have to contribute to the needs of our society, and that's why I am testifying today. I'd like to say that I support the Governor's leadership in advancing these ideas. In so many instances in Alaska our elected officials failed to leave the open discussion of options in favor of waiting for the other side to blame, and I think that hurts all of us. I support the effort to let the people vote on these issues. Again, I see too often a reluctance to let the public vote, in fact, even attempt to block some issues from reaching, or making it onto the ballot, and I think that's wrong. I support the elimination of the dividend program before we enact any state tax, and here is why, I think many people have come to view the PFD program as an entitlement program, in the worst sense of a welfare-type program. We see people moving to the state with no job and large families just because we have the PFD. And this is the segment of the population that ends up using most other state services..." TAPE 99-6, SIDE A Number 0001 MR. KARALUNAS continued. from [the Department of] Public Safety, to Department of Health and Social Services, to [the Department of] Corrections. If we tax at the top and hand out PFDs at the bottom, we're providing an incentive for this type of behavior to continue. I disagree also with HB 91 because we're trying to reduce state government at the same time here and it seems to me that the paperwork and staff to run the dividend program should be reduced or eliminated before we create a new staff to collect taxes. My overall view is that we should at least cap and or eliminate the dividend before returning any tax. If and when a tax is necessary, I would like to see some other options such as a state sales tax with certain basic needs items like food and medicine not taxed. I admit that this may not be the best way to reach the seasonal or transient workers in our state. I would happy to see this or other options on the ballot so the citizens could choose the best option. Although reducing state spending is perhaps a discussion for another day, I will say that I do not support any further reduction in real-estate services or education spending. However, I do think we need to take a hard look at how to make the basic bureaucracies of our departments more flexible and responsive to change. I urge that the legislature avoid the practice of using budget reductions as a punitive tool. Again, we need leadership here that will work with problem departments to solve their structural problems, not make their jobs ever more difficult and hurt the end user by further cuts. 0043 PHILLIP FURBUSH testified via teleconference from Palmer. He remarked, "First of all I'd like to make a point that I'd like to see reductions in state government first before anything else is done. Second of all I'd like to see a broad range of incomes come into the state through a resource such as users' fees, taxes, et cetera, income taxes. But I don't believe that we should get into the permanent fund. I fear that once we get into the permanent fund - that for state expenses that the state will always be dipping into it until eventually it's gone." MR. FURBUSH further stated, "The permanent fund, in my opinion, is by far one of the greatest achievements the state has done potentially for the future. Our state could be using that for future energy resources, in which I believe it should be. I think, ... we should put more money into the permanent fund to enhance its ability to produce energy resources in the future. Using it for the state income tax, or state expenditures will eventually, I believe be the end of the permanent fund. We should find other ways to come up with revenues other than to use the permanent fund." CHAIR JAMES asked Mr. Furbush if he knows that the corpus of the fund cannot be touched by the legislature, the principal cannot be used. MR. FURBUSH replied he does understand that. He further added, "I also understand that once they've got the people to vote - like this bill wants people to vote on it. Once they've got the people to vote on giving away their permanent fund, that they'll, once they don't get the permanent fund they will go for the principal, (indisc.) rather than paying taxes and what not." Number 0095 GORDON EPPERLY appeared before the committee to testify on HB 91. He said, "I've lived in Juneau, Alaska since 1963. I'd like to comment about the proposed income taxes here, and I hope you can find an alternative to the income tax before you give it much consideration. I'm going to use the Juneau Empire as part of my testimony here - and you can pick up any issue at any time - if you don't believe that you're going to be paying taxes, and you're going to be paying a lot more taxes. First of all, right on the front page we have an article here that says union (indisc.) salary survey and that has to be unions representing the state employees. Well, I find it kind of ridiculous because the unions here representing government employees are the government employees. They negotiate with themselves, they come up with an arbitrary figure, and they only put on a dog and pony show that they're coming into an impasse. So who do they bring into to settle the impasse, another government employee. When it's all said and done with, who gets the bill, me and everybody else out here in the private sector, we had no voice in the matter, but we're expected to pay the bill." MR. EPPERLY further stated, "You can turn to the newspaper any day, any time, and you're going to find issues of taxes. Here in this paper, we have an issue of federal taxes - they're going up. We have another article ... we're going to be forced to pay on a bond to build a new high school of $46 million. Of course, that is a substantial increase in our property taxes, ... yet another phone fee - the federal government is going to attach another tax on our phones. The list goes on, and on, and it's on a day to day issue. So, from that point of view, I would like you to really consider about this here income tax." MR. EPPERLY concluded, "For 30 years I watched the growth of this state government, and yet I see no restraints on the growth. Most of the growth comes from legislation from the congress being passed to states - driving us to accept this legislation for federal funds. But over the years the federal funds dry up, and we the people out here in the states are (indisc.) continue to support there here programs. I don't see us going back and reviewing all those statutes that we have adopted over the last 30 years and see which programs, that are no longer funded by these federal funds, we need to get rid of them because they're not serving the interest of the people and it's bribery. It deprives me of a republican form of government." Number 0160 HARRY JENKINS testified via teleconference from Fairbanks. He said, "Down the road, and I mean way down the road the people in my opinion would not support a state income tax. Why not a state payroll tax, then we could tap the resources from all the outside workers who come to Alaska and make money during the tourist or fishing seasons, or to Prudhoe Bay, then back to their home-state without supporting the state that supplies income. Then too, retired people, and people on subsistence would not have to pay a payroll tax. Companies would be responsible for filing the forms for several employees instead of individuals filing separately and would be processed more easily - requiring fewer state revenue employees." MR. JENKINS further stated, "We tax the tourist's source of income within our state with hotel and motel taxes. Let us tax the individuals who make money in the state and then take it out of the state rather than revenue sources like tourists. Let all the people who use the state as a source of income share the tax burden." Number 0190 "B" JARVI testified via teleconference from Fairbanks. She stated, "Basically I think it is time that we realize that the state should not try to be and cannot be all things to all people. I really believe that it is time for the people of Alaska to start sharing the burden, at least to a greater extent, for their own welfare and for their own needs. I believe in privatization to a great extent because I think the state is in a position now of providing a lot of services to the people that could be done by the private sector. I think also that there should be a great deal of accountability and there should be justification for the monies that are expended or required by agencies that request them. I also feel that it is time for the State of Alaska to look at funding mechanisms because regardless of how much you (indisc.), you're going to have to pay the bill." MS. JARVI further stated, "I do not favor a state income tax for the simple reasons that it is a very costly administrative function that the state would have to take on, and I think that it would be a very evil, unfriendly tax. And I think it's discriminatory the way that it is proposed. If you're going to have an income tax, you need to tax everybody with an income, not just a certain fragment of the population." MS. JARVI concluded, "Of all the three proposals that I have here before me; [House Bills] 89 90 and 91, I would favor [HB] 90 the most. The permanent fund is nice to have, it is a great thing to have, but the permanent fund also was designed to meet the cost of the state. And I think you should take a special appropriation before we look at a state income tax - before we look at any of the funding mechanisms. But the first thing we need to look at here, I think is, what do we need to have. We shouldn't be looking at funding what we already have and adding to it. We should be looking at what do we need to have, and what does the state have to provide that cannot be provided by the private sector." Number 0237 RUDOLPH VETTER testified via teleconference from Fairbanks. He said, "In regard to the income tax bill, [HB 91] I think it's unconstitutional. It looks to me like an escapee or an inmate of API [Alaska Psychiatric Institute] wrote this bill. Freeze new hiring, fire your oil advisor - he advised you a year ago that oil would be somewhere around $18 a barrel - and anybody that's studied the oil situation knows that oil is - the whole world is (indisc.) and the price will price even go lower. And, I think there is a point in the agreement with the oil companies that should oil reach around $6 a barrel, or a little bit better than that, there will be no income to the state. I may be wrong on that, but I'm going by memory." MR. VETTER indicated that he didn't have a comment on HB 90. MR. VETTER stated, "on HB 89, I have an alternate. And the alternate is this - to get rid of all the discussion about the permanent fund, I recommend that you disburse the permanent fund on a three-year basis to all qualified permanent personnel. We change all the laws in regard to natural resources so it would be possible to contain it, and it (indisc.) be the same. We need more productive use of the natural resources or possible natural resources of Alaska. Check out Fort Knox and its impact on Fairbanks. It is one of the few truly productive things that we have, and it's new money and it's going to be long-term money. That's (indisc.) and will be doing business for hundreds of years after all of us are dead." Number 0270 NIILO KOPONEN testified via teleconference from Fairbanks. He stated, "I remember being in the legislature when we could see this problem coming up, but we didn't. We were spending just about as much money out the general fund for maintaining the highways per registered motor vehicle as we were for supporting the public schools. And, even today, I think the use of the payments for the highways per registered motor vehicle is probably still as high as education." MR. KOPONEN further stated, "And speaking of education, we just went through a very cold snap in Fairbanks - my electric bill went up, I had maintenance problems, my oil bill went up, that also happens to the schools. The bill that was passed last year, does not provide any support for schools north of Anchorage in the actual non-educational costs such as heat, lights, and electricity and I think you better look at changing that." MR. KOPONEN further stated, "Also during our boom-years, we were spending money on capital projects. Some of us proposed putting a (indisc.) fund to pay for the maintenance of those buildings but, of course, pork was more popular. I also proposed an income tax in those days. I still support the income tax. I support the Governor's recommendation for a 'snow-bird' tax. In Territorial days we paid an income tax - a good share of the $38 million budget in the first year of statehood came from our actual income tax payments by individuals. I prefer to pay an income tax to the state of Alaska to support the people of Alaska - not the corporations, and rather than sending it to Washington where I have no control over what they do with that money." MR. KOPONEN concluded, "So, I think that you necessarily have to remember that your duty is to look to the future, your duty is to the citizens of the state of Alaska, their health, education, welfare and for the support of human beings rather than corporations and others." REPRESENTATIVE KERTTULA thanked Representative Koponen for his years of leadership and said she wished he was here. Number 0313 MIKE PRAX testified via teleconference from Fairbanks. He said, "I think we need to step back and look at the impact, not just to the state government, but to the overall economy of the state of any of your proposals. And, we need to recognize that there are roughly three streams of income to our state economy that drive our state economy. We've got the wealth created by private industry, we have got some interest income that comes back to the state from the permanent fund, and we've got some money coming back from the federal government that they stole from us in first place through taxes - but they're generous enough to send some back if you whine loud enough." MR. PRAX further stated, "The proposals before us only address the problem of maintaining the state government as though that was some entity separate from the people and that it was sovereign to the people. I think we've got the wrong mind set. Any taxes - internal taxes, will not replace any of the income that is not currently coming into the state because of the decline in oil wealth. All state government can do is redistribute that money from private individuals into those that live off the government." MR. PRAX reiterated, "Again, I want to repeat, I want to emphasize that, that any tax will not address the problem of the loss of revenue coming into the state's economy. So, I think if we want to be more concerned about the individuals in the state, rather than the government of the state, we need to look at different sources. On the other hand, I think we do have a problem that needs to be addressed. We do need to change something. And, of course, the state government is now probably the primary source of wealth because it has way too much in the permanent fund - wealth that should belong to the private individuals, as Mr. Vetter suggested." MR. PRAX concluded, "I would suggest then that we take some of the income that we are receiving from the investments of the permanent fund and use that as a short-term replacement for the loss of income from oil, and then continue along your route of trying to prioritize state spending and transfer state responsibilities back to local governments and preferably the individuals. And, let the individuals then decide whether they want a particular service and they can decide by going and paying for the services they want to have rather than coming down to meetings and sitting for two hours arguing about money." Number 0365 NANCY BAKER testified via teleconference from Fairbanks. She stated, "I do applaud the Governor for having the guts to propose an income tax. And, I have felt for a long time - and the people that I've talked to, as far as I know the word from most of the population, it's about time we have a tax. That we do need it, and we should tax ourselves. I came in when someone was saying we are the butt of jokes all over the country for having no tax and giving money away. And, many of us do know of large families, I know of one recently, with eight kids that moved up, a single mother for the very reason. ... We all have budgets in our home, and we not only want to supply for our bare needs, but something else to make us more presentable in life, and so on. And we are (indisc.) of state and I think there are many needs we have and it's about time we have an income tax." Number 0388 BONNIE WILLIAMS testified via teleconference from Fairbanks. She stated, "I'm opposed to all three of these bill. On the issue of the permanent fund, like any other trust, you never spend the principal. The Governor is proposing to liquidate the principal in order to acquire the $4 billion and then transfer it out into a fund that would then keep the state government in balance for about three years. Then we would be out of balance again. In other words, it's a temporary solution that liquidates our principal. A terrible, terrible thing to do - never do that. There is a bill pending ... that would change the incoming revenue stream from oil taxes and royalties and divert more to state expenses. I think that's a good idea, I would support that." MS. WILLIAMS continued, "The income tax, I totally reject as it's presented because it is unfair and I believe it's unconstitutional. Furthermore, it has specific clauses that incorporate and include taxes ... and I think that we should not be doing that at all." MS. WILLIAMS further stated, "I think that you ought to create a fund - call it 'failed to balance the budget fund,' and put into it money that you get by liquidating most, if not all, of the Alaska Housing Finance Corporation, some money from AIDA [Alaska Industrial Development Association], take the current balance out of the constitutional budget reserve. Use those as a temporary solution as limited as possible. I think you should change your plan for the amount of money that you are cutting out of this year's budget. You need to find $100 to $200 million instead of $50." MS. WILLIAMS concluded, "And finally, any tax that you impose upon us, and I don't like any of them, but any tax that you impose upon any of us and all of us, you should require a reaffirming vote every two years from citizens or it sunsets. That way, we've got our finger on your pulse." Number 0425 NANCY WEBB testified via teleconference from Fairbanks. She stated, "At this point, I'm not ready to give comments specifically on the Governor's bills, but I do want to praise you and encourage you to reach out for testimony like this. I've even been giving thought to the idea that a survey at some point, from the legislature, might be a good tool. I'm not certain the right tools, but I think we really do need to find out what people think about these proposals. I personally, am probably, willing to pay an income tax, but I know that a little bit more clearly in favor of using the permanent fund earnings as one of our tools to solve this problem. And, also, I think I'm probably pretty strongly in favor of the increase in the gasoline tax and I think that might make a lot of sense as far as matching that with federal money or using it for a revenue source." MS. WEBB continued, "What I really would like to encourage is the idea that we explore all these options thoroughly that have been put on the table. And I like the sound of the cooperation going on between the Governor and the legislature right now. I really feel good about that." Number 0455 DAVID WILLIAMS stated, "I just have a couple of suggestions. One, I'm deathly against the personal income tax, except in one condition. The state of Alaska is quite clear that the resources of the state belong to the people, the federal government's determined that - or I should say the supreme court determined that the term people means individuals, not the collective. In that case, I would support an individual income tax in the state of Alaska - where the royalty funds, and all funds from extracted resources in the state go directly to the people first. If we had all the resource income, in the individual hands, then I would fully support the individual income tax to support the government. Particularly, I like the idea because this would allow individuals to take a much finer and closer view of the legislature. Right now they don't pay anything they think - so they don't care how much money you spend because it's coming from someone else." MR. WILLIAMS further stated, "If you would like to think of a place to get some funds, I would suggest that you take the 25 percent royalty that goes into the permanent fund and redirect that to the state income because oil revenues are declining. And although some marginal fields may in the future be developed, it's obvious that the 'greens' are not going to let us develop our oil anyway. So, revenues are declining, probably perpetually until they're gone. So, I say take the 25 percent and give to the state. That holds the permanent fund sacred. ... I want you to put it in a trust, I would suggest and let the simple earnings that come from investments be paid to the people." WILLIAM RENO testified via teleconference from Palmer. He stated, "First of all, if you guys take all the revenue's that this state takes, every dime of it, and put it into one account, under a general fund, instead of having money that's off budget - back behind the budget, whatever. When you can show all the money that this state makes, versus how much they spend, then you can come and ask us for a tax. An income tax, I hate it. ... I suggest a sales tax - two tiers set up - one for tourists, and one for the rest of us." Number 0501 REPRESENTATIVE OGAN stated for the record, "What's missing from the plan, and I'm glad to hear it discussed, was a discussion of the bureaucracy it creates. The income tax does create quite a few jobs - I think 46, or somewhere around there - over 40 jobs to administer. I like the comments of the invasion of privacy. ... When you get audited by any group, they do dig pretty deeply out of your personal affairs." REPRESENTATIVE OGAN continued, "It seem to me the Governor wants people to cut their budget - and I can use an example to show that he wants them to cut it 50 times greater than he offered on his own cuts to fiscal year 1999. For example, he's offered - if you take the budget as a whole, 6.2 billion, and we can argue about that, but if you take all this spending in the state, 6.2 billion - he offered a one-tenth of a one percent budget. For someone that's, for example, a range 28-F, who makes $90 thousand a year and is single, will pay $5 thousand. That's 50 times greater budget cut that he has to make to his budget than the Governor's willing to make in his." REPRESENTATIVE OGAN further stated, "I don't remember the Governor campaigning on a tax and permanent fund platform. Family values, I think, as tax burden increases on people that has a direct effect on families, I think if you look at what's happened to people in our country, as we've gotten away from having one parent at home, whether it's the husband or the wife, or male or female - because I think most people will have to go out - most families need both spouses working just to make ends meet and a lot of that is because of the tax burden. So as we increase taxes, I think we have to look at the affects that it will have on families. It's an additional burden - more people are going to have to get jobs and then that creates even a whole bunch of other social problems with latchkey kids and kids that aren't being parented correctly." REPRESENTATIVE OGAN said, "I think it's a bad policy to deposit the earnings of the permanent fund into the CBR. That further empowers the minority, whatever minority is super-minority of either a radical, right-winged, conservative republicans or radical, left- winged, liberal democrats, or any variation of that to have a say on the final budget. And, I think we're the only state in the union that empowers the super minority about that." REPRESENTATIVE OGAN concluded, "My bottom line is that I'm not ready to pass any taxes or raid the permanent fund until I look my constituents in the eye and tell them that we've done all we can do to reduce the size of government first. And, I think most Alaskans, what I've heard from my constituents, would be willing to step up to the plate and pay a portion or part of their share if they felt we've done that." Number 0548 REPRESENTATIVE ETHAN BERKOWITZ stated, "First of all, I want to make sure that Representative Ogan knows that this is something that Representative Davies said on the floor. As far as the minority is concerned, the three-quarter requirement for the CBR is on the table. This is something that we're willing to discuss, as we understand the necessity of preventing a minority from blocking a budget." REPRESENTATIVE BERKOWITZ said, "The second thing that I had asked Representative Ogan, who has been here for quite awhile, is, if he believes when we need to exercise cuts, which cuts in his district is he going to offer up." REPRESENTATIVE HUDSON remarked, "Whatever we do in the final analysis, we have to look at the affects in the entire economy, not just the affects on how much money is coming into government, but how much money is coming into private citizens - it maintains their jobs. Even money spent in the government creates jobs outside the government and that has to be considered too. So I think we have a long ways to go here." CHAIR JAMES said, "I there is some merit to having a broad-based tax of some sort. And the reason is a merit to doing that is because the economy of the state is tapped into. And when you have more folks coming in and more economic activity, there's a little bit that funnels into the government to take care of the extra things that more population - and more needs are, fixing the roads and those kinds of things." CHAIR JAMES pointed out the other thing is, is that the government's not here to create the economy. She said she believes that the government is here to provide the services that the folks need. She said, "And, it is true that while we're providing services, we're creating employment and that is not our job, that should be a result of providing services. So we have to be sure that when you think about the size of government, that you think about the services that the folks are willing to pay for. If they have some of their own money the pot, such as a broad-based tax would bring, that creates an ownership and in how much we spend, that is more important than what we have now." CHAIR JAMES continued, "The permanent fund dividend, however, is just a gift and, even though it was a really great decision to be made, we have put ourselves into a trap. So, now we have more constituents promoting to have the permanent fund than to pay for the services yet the state wants the services." CHAIR JAMES, said, "We have a huge dichotomy of ideas out there. We don't have a lot of time to do it. What we need to do is hear from everyone. And then we also need to set up, I believe, a priority list of how we deal with those things. I would hope that we don't do it in a debate-fashion, as much as it is a conversation fashion so that we can come up with something that will provide the necessary services in the state, tap in briefly to the economy in one way or another with a broad-based something, and that we would also be able to grow our economy. One of the things, and that is, it takes money to make money. We cannot continue to cut the budget in areas where we encourage resource development. Because if you don't spend the money for the folks to sell the land, as an example, or to give the permits, or to do whatever it is to encourage the folks to bring in their money and investments to make money in our state, then we funnel ourselves all down." CHAIR JAMES concluded, "An example I'd like to give is that all of a sudden, you only have six months a year to work because your job cuts you off in the wintertime. So, then you start cutting your expenses, and would you take your car off first because that's the most expensive thing you have. You sell your car and cancel the insurance, and stop putting gas in it, that's probably the biggest hole to fill. Well, we can't get to work. We have to really think about what is reality and what is just wishes. And I urge every one of us to debate this, if it's a debate in a friendly manner, or realistic manner, and come up with the conclusion that grows the economy in the state, that makes living in Alaska a good place, and that we can have a government that is not too big, but is just the right size to provide the services we need." [House Bills 89, 90 and 91 were held for further consideration].
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