Legislature(2001 - 2002)
04/10/2001 08:09 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 17 - CAPITAL PROJ/DISTRIB. OF PERM FUND INC Number 0136 CHAIR COGHILL announced that the next order of business before the committee would be HOUSE BILL NO. 17, "An Act relating to the capital projects fund, to distribution of money in the earnings reserve account of the Alaska permanent fund to the capital projects fund and to the dividend fund at the end of fiscal year 2001, and to increasing the amount of permanent fund dividends for calendar year 2001; and providing for an effective date." Number 0187 REPRESENTATIVE JIM WHITAKER, Alaska State Legislature, came forward to testify as sponsor of HB 17. He said he had a very brief presentation to make, but that it would take up the remaining minutes of the committee's meeting time and significantly limit discussion. CHAIR COGHILL suggested not moving the bill today, but simply starting with the presentation. REPRESENTATIVE WHITAKER attempted to begin the presentation, but found that equipment had been unplugged. CHAIR COGHILL declared a brief at-ease at 9:47 a.m. The meeting was called back to order at 9:48. Number 0416 REPRESENTATIVE WHITAKER gave an audio-visual presentation of HB 17. He narrated: House Bill 17. This is what it does. It builds Alaska's future through infrastructure development and economic growth. We ask, of course, the question, "Why is HB 17 necessary, or a bill similar to HB 17?" and the reasons are very straightforward. Alaska's infrastructure and capital needs are significant and they are not being met and Alaska's economy is not growing. It is, in fact, shrinking. We have the dubious honor of having the fastest-shrinking economy amongst the 50 states. Even though our state's constitution is very straightforward, Article 9, Section 16, requires an appropriation limit. It also requires a spending quota if you will for capital spending. Within ... this limit, at least one-third shall be reserved for capital projects and loan appropriations. In 1981, the people of the State of Alaska amended the Constitution with that amendment. In 1983, before it went into effect, an attorney general's opinion trumped the Alaska State Constitution. So while we have the mandate to spend for capital, we don't do it, and shame on us! We should be better than that, and that particular attorney general's opinion should be challenged. HB 17 begins to correct the situation. This is how it works. Number 0559 REPRESENTATIVE WHITAKER continued: At any time that we talk about the permanent fund, we've got to be very clear about what we're doing. HB 17 does not affect the inflation-proofing mechanism, as it currently exists. It does not affect the manner in which dividends are paid out, as it currently exists. It does not spend the corpus of the permanent fund nor does it spend the corpus of the reserve account. Number 0593 What it does is this. It utilizes the earnings from the earnings reserve account. These, by the way, are Permanent Fund Corporation numbers, updated yesterday. So what we are talking about is utilizing $423 million as the earnings of the earnings reserve account. And we divide that in half. Half for a capital projects fund, half as a supplement to the dividend. First thing, the capital projects fund: An additional $211 million, FY 02, without leverage. You can read that as well as I can. That's a lot of money. You write the check and you take care of the state's needs, or, again you can read that as well as I can, and that's not just the request for FY 02. Number 0668 That's the entire request for deferred maintenance and capital needs for the university. ... These are capital projects from around the state that have been requested. We simply do not have the funding necessary to meet these needs. Of particular interest are the last four projects on the list. There's enough money to pay for all the proposed improvements on the Parks Highway, the Richardson Highway, the Denali Highway, the Glenn Highway, and the Klondike Highway in addition to those above. And after all that, there ... [are] still significant amounts of money left. Number 0741 REPRESENTATIVE WHITAKER continued: Another way of looking at it: If we're going to leverage it, and certainly I'm not an expert on leveraging, but we do have those in the state who are, and so we can put some examples out. Putting $55 million toward a federal ten-to-one match, obviously we can do the arithmetic and that's $605 million. $130 million toward a fifty-fifty match. You can do the arithmetic as well as I can. Number 0770 And so add it all up, and I think it's safe to say that we can conservatively approach $900 million for infrastructure development in FY 02 as a result of a piece of legislation such as HB 17. You can see it. That's the number. A lot of money, and we need it. Capital investment FY 02. That's half the program. Number 0896 REPRESENTATIVE WHITAKER continued: And now the other half of the program -- growing our economy and why it's necessary. As I mentioned earlier, over the last ten years, while the rest of the nation has significantly increased, our economy has significantly decreased. In fact we're one of two states that has decreased, Wyoming being the other. We have decreased 11 percent; Wyoming has decreased 1 percent. [Audio: "Houston, we have a problem, Houston, we have a problem."] Oh, my! And we do have a problem. If we were average, as compared to the other states, our growth rate would be the pink line. We're not. The bottom line is Alaska's gross state product. And if we look only at Alaska from 1990 through FY 02, you can see that is our growth chart. By providing for capital funding and a supplement to the dividend or a municipal dividend, we can grow Alaska's economy substantially. Number 0888 That's what HB 17 does. So we have a choice. That growth curve or that growth curve. And more succinctly, that is the effect that HB 17 will have on Alaska's economy. Number 0913 REPRESENTATIVE WHITAKER continued: And now let's talk about the effect on the dividend. An extra $211 million to pay out in dividends. And let's take a look at what has been paid out in the past. Last year, this year, projected 02, and a supplement of $360 to every man, woman, and child in the state. Now let's be very clear about what happens to future dividends. Is there an effect? Of course there is. There is no free lunch, and I don't need to quote any more clichés. But certainly there's a cost, and this is what the cost is. Number 0962 Putting it graphically as you can see, ... actually it's [in] FY 01 that we'll pay out. It is FY 02 that this bill takes effect. That's an odd sort of circumstances, but nonetheless, it is correct. You can see the supplement to the dividend paid out in FY 01 and you can see that the effect is minimal until FY 05, and then you begin to feel an effect on future dividends. Number 0997 So there is no free lunch, and I want to be very clear on that. And if we continue it for seven years as a supplement -- by the way, I point that out because HB 17 is a one-year bill. It sunsets in FY 03. But if it were continued, if future legislatures made the determination that they wanted to continue a program of this nature, that would be the effect on future dividends. Number 1026 REPRESENTATIVE WHITAKER continued: You can see that by FY 11, there is still a gain to the dividend. We reach a point of diminishing return somewhere in the range of 15 to 16 years out. What we have in the meantime, though, is substantial economic growth and substantial infrastructure development. Number 1046 OK, and we can do this with no effect to the permanent fund corpus. Obviously, we've all come through the ... September of '99 vote. We know the questions that are raised about the permanent fund and the corpus and all of that, and so we need [to] be very, very clear. There is no effect on the permanent fund corpus. It is zero. We show that graphically and the reason is ... very simple. We only utilize the earnings of the earnings reserve account. We do not touch the corpus of the permanent fund nor do we touch the corpus of the earnings reserve account. So HB 17: It adds $900 million in capital appropriation. If we put an economic growth factor on that of 1.725, you can see that's a billion and a half dollars that our economy grows. Number 1114 Then we utilize the permanent fund dividend supplement. You can see there's another half a billion of economic growth, so over $2 billion of economic growth results from this bill. And let me say it again, it leaves the permanent fund corpus untouched. Number 1131 REPRESENTATIVE WHITAKER continued: But if you don't like that, roll it back and let's take a look at another option. By the way, this option is not in the bill. It would require an amendment. It takes just a second and I think we are going to make it in time, Mr. Chairman. How about this approach. The municipal dividend. Everything stays the same except the lower right hand corner. Rather than a supplement to the dividend, we provide a municipal dividend. And this is what it does around the state. I know you all caught that, so let's just look at five municipalities around the state: Anchorage would receive $84 million, Fairbanks $26 million, Kenai $16 million, Mat-Su $19 million, Juneau, $10 million. Those are per capita bases. Number 1186 So, again: Option 2. It still builds the infrastructure. We don't touch that portion of it, and it grows Alaska's economy. It still puts significant amounts of revenue into our economy, which is very, very important. We have a shrinking economy and we must stop that. And once again, it leaves the permanent fund corpus untouched. Number 1210 So one more time, this is what it does. [Series of visuals] And [it] doesn't mess with the permanent fund. Two billion dollars of economic growth, and doesn't mess with the permanent fund. That's what it does.... That's HB 17. Number 1253 CHAIR COGHILL commented that the presentation was very well done and explained the bill. He said he would bring up HB 17 at the committee's next scheduled meeting, following HB 200, which is going to be at the top of the list. [HB 17 was heard and held.]
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