Legislature(1999 - 2000)
03/23/1999 08:06 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 96-DEPOSITS TO THE PERMANENT FUND CHAIR JAMES announced SSHB 96, "An Act relating to deposits to the Alaska permanent fund; and providing for an effective date," is before the committee. Number 0015 REPRESENTATIVE ROKEBERG advised the committee members that HB 96 will help close the fiscal gap by a statutory reallocation where the funds generated from mineral royalties and bonus lease sales are deposited. House Bill 96 repeals a provision from the 1980 legislation passed in conjunction with the entire rewrite of the Permanent Fund Corporation's operating procedures and policies. At that time the amount of general fund revenues was $4.07 billion. REPRESENTATIVE ROKEBERG said that in the early 80s the state was "awash in our cash." The legislature directed and allocated more royalty and bonus revenues into the corpus and principal of the permanent fund rather than going directly into the general fund. He pointed out that a reason they were able to do that, is that the vast majority of oil fields (that were discovered on the North Slope) were excluded from the calculations as well as those fields in the Cook Inlet Region (an area that was still having a substantial contribution to state revenue). Therefore, when the decision was made to make the reallocation it had a limited impact on the budget allocation. And frankly, to this day, it has very little impact. Representative Rokeberg further stated, "That's an example of what it takes to develop resources in the state - sometimes literally decades before leases are made, exploration takes place and with success any revenues flow toward the state and the other members of the state of Alaska, our citizens." Number 0095 REPRESENTATIVE ROKEBERG applauded the legislature for making the statutory changes to the permanent fund and directed the member's attention to the "History of Alaska's Permanent Fund," Rural Research Agency, Alaska State Senate and encouraged the members to read it. [Not included in the packet]. REPRESENTATIVE ROKEBERG referred to Section 15 of the Alaska Constitution states that: At least twenty-five percent of all mineral lease rentals, royalties, royalty sale proceeds, federal mineral revenue sharing payments and bonuses received by the State shall be placed in a permanent fund the principal of which shall be used only for those income-producing investments specifically designated by law as eligible for permanent fund investments. All income from the permanent fund shall be deposited in the general fund unless otherwise provided by law. Number 0128 REPRESENTATIVE ROKEBERG explained that the legislature is providing by law the allocation to the statutory or constitutional minimum of 25 percent which the Prudhoe Bay field, and most other fields in the state, are currently producing. REPRESENTATIVE ROKEBERG referred to the report "Estimated Impact on the General Fund if Permanent Fund Contributions Were at 25 Percent of Mineral Income," Legislative Research, February 16, 1999 [included in the packet]. The spreadsheet lists royalties for most of the fields that are entered into as leases after December 1, 1979. Approximately $5.5 million would have been realized in this current fiscal year if HB 96 were in place. He said coal leasing and other mineral revenues are not listed and believes bonus amounts were also not included. REPRESENTATIVE ROKEBERG pointed out that HB 96 has an effective date of July 1, therefore, it would impact fiscal year 2000. He said, "And you'll see in column A, that this is current price projections that are being used for the Legislative Finance [Committee] and the Governor in calculating our current budget. And it shows a $12.50 ANS west coast 'basket price' and projects over on the far-right column to $9.5 million. So, madam chair, this is a relatively small and minor amount. ... This is one tile in the whole mosaic and that what we have to do to put together to recognize the problems that are facing the state's fiscal year right now." Number 0181 REPRESENTATIVE ROKEBERG noted the report also indicates, that during the next 15 years, the revenues derived from this statutory change will generate $16 million which shows how the revenues would go up. REPRESENTATIVE ROKEBERG stated, "I think the important thing about this particular legislation right now is that number one it's symbolic in terms of recognizing our needs to have funds in the general fund. And secondly, any future development that we undertake to replace the diminishing production at Prudhoe Bay should be, I believe at the 25 percent level and not the 50 percent level. ... This includes potential federal revenue. There's the bill before the U.S. Congress right now to have a multi-state revenue sharing for ... offshore of the Outer Continental Shelf oil development. And if any federal royalties are received, for example into our 90-10 split - so it would be allocated at 25 percent instead of 50 percent. So any future income we could receive from the federal government would also be at the 25 percent to the permanent fund and 75 percent to the general fund." Number 0221 REPRESENTATIVE ROKEBERG said the first area wide lease sale, of June 1998, generated a net of $53 million in closed bids to the State of Alaska. Had HB 96 been in place, we would have realized an additional $13 million into the general fund - now they go into the permanent fund. He further stated, "I believe the legislature can make the case that, currently we need the money and in the future we'll need money for our operating account. And from an economic standpoint, this does nothing ... more than change the allocation because I would suggest to the committee that we can't save our way to prosperity by putting money into the permanent fund and frankly getting little or no value out of it with the exception of the permanent fund dividend." Representative Rokeberg said he thinks making a change in that allocation will have very minimal (indisc.) impacts. REPRESENTATIVE ROKEBERG said the director of Communications, Alaska Permanent Fund Corporation, prepared an analysis of the impact on the dividend for HB 96, which includes the proposed $4 billion transfer from the corpus of realized earnings (which the Governor made in the State of the State Address). The director's short response (March 22, 1999) was that the differential was so minimum he didn't even make a difference. He said ... based on our financial analysis, the impact would be less than $10 difference over five years in either case. REPRESENTATIVE ROKEBERG indicated that the public may accuse him of raiding the permanent fund which he is doing nothing of the kind. He suggested that the legislature use its constitutional mandated power (indisc.) appropriation. Its right to change statutory allocations and that's what HB 96 does. Number 0287 REPRESENTATIVE OGAN referred to an article regarding the use of the earnings reserve of the permanent fund. He said, "As you know, the legislature has the authority to appropriate with a simple majority vote, and it's simply the left over income after we pay dividends and inflation proof." He indicated that, in every instance, the press referred to it as "the permanent fund." This money isn't the permanent fund because it has not been deposited yet. He asked Representative Rokeberg if HB 96 would get fair play in the press. REPRESENTATIVE ROKEBERG remarked that HB 96 deals with the allocation of deposits either in the principal of the permanent fund or the general fund. It remains to be seen what type of impact it will have. REPRESENTATIVE ROKEBERG mentioned he had recently conducted a survey in his district. He said question 19 shows that people recognize what type of financial condition the state is in. Alaska's Constitution mandates that 25% of oil and mineral leases, royalties and bonuses are deposited into the principal of the Permanent Fund. In 1980, the Legislature increased that to 50% of all new leases. If we repealed this law and went back to the original 25%, an extra $12 million a year would be generated to help close the fiscal gap. Do you support changing the law back to the Constitution's 25%? Yes 164 No 72 REPRESENTATIVE OGAN stated, "I just look at the monies that are available to us, in the Constitutional Budget Reserve, the Earnings Reserve which we can spend with a simple majority. We have a tremendous asset in Alaska Housing [Finance Corporation], AIDA [Alaska Industrial Development and Export Authority], [Alaska] Science and Technology [Foundation] - we're talking billions, and billions, and billions of dollars." He said if his lifestyle was exceeding his income, he would make adjustments before he started looking at cutting off the revenue stream into his retirement account. He indicated that the legislature has basically scratched the surface with the changed in lifestyle but hasn't done a fundamental reorganization and reprioritization. Therefore, he has a hard time supporting HB 96. Number 0405 REPRESENTATIVE HUDSON said he recalled when the legislature felt so flush that we decided that we could increase our contributions into the permanent fund from 25 percent to 50 percent on all new leases. He also mentioned the state's generosity through the permanent fund dividend program. REPRESENTATIVE HUDSON further stated, "We have shown the savings of this state, something that we should all be very proud of as well as our predecessors, because I think that when you can put $25 billion aside and still give away billions of dollars to the people that reside in the state of Alaska, totally eliminate any income tax in their behalf, have no statewide sales tax or other revenue generating things, and over the last number of years cut hundreds of millions of dollars out of your spending plan, I think that we've probably done a pretty noble thing. And now we are looking at a billion dollars deficit between what I consider to be largely essential services and the revenue stream that is coming in from our taxes and royalties and other receipts. To consider going back to the 25 percent from the 50 percent in the generous days is not unrealistic and so, ... I don't see how in the world we cannot look at something like this as a part of the total fix that we have to come up with here. So, I for one believe that it is timely and I'm quite supportive - I want to see the whole plan before I make my final decision." Number 0446 REPRESENTATIVE SMALLEY stated that hundreds of millions of dollars in cuts have also led to some increased taxes at the local level which is due to reductions in revenue sharing and municipal assistance. He said he agreed with Representative Hudson and would probably support HB 96 as well. REPRESENTATIVE ROKEBERG said he agrees with Representative Ogan about the necessity for making reductions in state spending and that his survey shows overwhelmingly that the people of the state of Alaska desire reductions in spending. Representative Rokeberg further stated that, "And I support that and will continue to support that. The point in fact, madam chair, is that we can't cut $1.1 billion out of our budget. It's absolutely impossible. Anybody who thinks otherwise is dreaming. So we need to look at all areas and all avenues in order to build a long range plan - that the state is sustainable and have public acceptance. And, I think this bill is only one small part of that because it doesn't have a major impact now but will have in the future - I think for future fuel development". If future legislators want to change that, they have a right to do that. REPRESENTATIVE ROKEBERG said his number one goal is finding a solution to the state's problems but avoiding taxation both at the state and local levels. He reiterated that the impact of HB 96 will be minimal because we're just shifting an allocation, we're going from savings to appropriations. Number 0491 REPRESENTATIVE ROKEBERG said he disagrees with Representative Ogan characterization of the permanent fund as a retirement account because the permanent fund is for all generations and future generations of Alaskans. CHAIR JAMES mentioned no one had signed up to testify on HB 96. REPRESENTATIVE OGAN said a better clarification of the permanent fund would be a "rainy day account." The permanent fund was set up in case the state ran out of money or that it couldn't pay for services. He said Senator Stevens indicated that the Pacific Rim is recovering faster than anyone expected. The day after OPEC (Organization of Petroleum Exporting Countries) decides to cut back production, Alaska's prices could jump significantly. REPRESENTATIVE OGAN concluded that the legislature needs to be careful in planning because of possible short-term glitches in the oil prices. He said the state has enough savings accounts that the legislature doesn't need to make drastic changes to policy. Number 0546 CHAIR JAMES stressed that the state needs a long-term spending plan before we can have a long-term funding plan - and we're working on that as we speak. Chair James said, "In putting together a long- term spending plan, it is much easier to start at 2.2 than it is to start at 3 because I don't know how, without some magic, that we could cover an escalating $3.3 billion budget at this time. So, I think we can be real pleased with ourselves that we've been able to curb our spending and our appetite for money". She said she believes the legislature also needs to look at every little pot of money to see whether it should be put into one big pot. CHAIR JAMES referred to Representative Rokeberg's survey. She said, "I think it's up to us to be able to provide the public with the explanation of reality because we absolutely cannot cut ourselves clean and we cannot tax ourselves enough to solve this problem. So, it's going to take a combination of things and this is one of them. ... I like to avoid taxes as long as possible, and when we do put in taxes, I want to know that that is going to fill the gap." Number 0596 REPRESENTATIVE HUDSON moved to report SSHB 96 out of committee with individual recommendations and the accompanying zero fiscal note. There being no objection, it was so ordered.
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