Legislature(2001 - 2002)

03/08/2001 08:02 AM STA

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
HB 3-DEPOSITS TO THE PERMANENT FUND                                                                                           
Number 0324                                                                                                                     
CHAIR COGHILL announced that the  next order of business would be                                                               
HOUSE BILL  NO. 3,  "An Act  relating to  deposits to  the Alaska                                                               
permanent  fund from  mineral lease  rentals, royalties,  royalty                                                               
sale proceeds, net  profit shares under AS  38.05.180(f) and (g),                                                               
federal mineral  revenue sharing  payments received by  the state                                                               
from  mineral leases,  and  bonuses received  by  the state  from                                                               
mineral leases, and  limiting deposits from those  sources to the                                                               
25 percent required  under art. IX, sec. 15,  Constitution of the                                                               
State of Alaska; and providing for an effective date."                                                                          
Number 0380                                                                                                                     
REPRESENTATIVE ROKEBERG came forward to  testify as sponsor of HB
3.    He  distributed  one additional  sheet  of  information  to                                                               
supplement what was  in committee packets.  He  testified that HB
3  is  a   reintroduction  of  legislation  known   in  the  21st                                                               
Legislature as HB 96.                                                                                                           
REPRESENTATIVE  ROKEBERG   explained  that   HB  3   returns  the                                                               
percentage of  all mineral lease royalties  and bonuses deposited                                                               
into  the  Permanent Fund  to  the  constitutionally mandated  25                                                               
percent.   The current  statutory requirement  is 50  percent for                                                               
those leases that were entered into on or around January 1980.                                                                  
REPRESENTATIVE  ROKEBERG  cited  Article  9, Section  15  of  the                                                               
Alaska Constitution that  states that at least 25  percent of all                                                               
mineral  lease rentals  ... [including]  federal mineral  revenue                                                               
sharing  payments and  bonuses  received by  the  state shall  be                                                               
placed in  a permanent fund.   That  was the percentage  when the                                                               
Permanent  Fund   was  established;  the  contribution   was  set                                                               
constitutionally at  25 percent.   That changed in 1980  when the                                                               
legislature, "awash in money,  changed the statutory contribution                                                               
for  new leases.   Those  new leases,  which do  not include  the                                                               
major Prudhoe Bay fields and  the majority of the Kuparuk fields,                                                               
contribute to  the Permanent Fund  on a  50 percent basis.   When                                                               
the  legislature took  that action,  the amount  of money  in the                                                               
general  fund  available  for appropriation  was  $4.07  billion,                                                               
almost  twice as  much as  is available  now.   He thought  their                                                               
action  was commendable,  "However,  we don't  find ourselves  in                                                               
that particular situation again."                                                                                               
REPRESENTATIVE ROKEBERG recalled  that in the seven  years he has                                                               
been  a member,  the  legislature has  drawn upon  constitutional                                                               
budget  reserve funds  to balance  the budget,  which is  another                                                               
constitutional  mandate.   Therefore,  he  is  commending to  the                                                               
legislature that it reexamine the  1980 policy and "take the more                                                               
prudent path  and reduce  that particular  percentage."   The new                                                               
fields that  are coming on  line are contributing 50  percent [to                                                               
the  general fund]   Meanwhile,  production is  declining in  the                                                               
older  fields that  are contributing  at 75  percent   "It's just                                                               
basic arithmetic  in terms of  the state's cash  flow situation,"                                                               
he said.                                                                                                                        
REPRESENTATIVE ROKEBERG called attention  to Table 1 in committee                                                               
packets that showed the potential impact  of HB 3.  The table was                                                               
part  of  a  Legislative  Research Services  Report  prepared  in                                                               
January  2001.   For example,  for fiscal  year 2002,  the change                                                               
would  generate  an  additional $39.5  million  in  general  fund                                                               
revenue.   He  observed that  was about  the same  amount as  the                                                               
estimated shortfall  for that  fiscal year.   If  the legislature                                                               
were to  make the policy change  through HB 3, it  would minimize                                                               
the  draw on  the  constitutional  budget reserve.    He said  he                                                               
thinks it  is important to  "save the money  that we have  in our                                                               
savings account,  ... our  seed corn, by  using our  general fund                                                               
monies more appropriately."                                                                                                     
REPRESENTATIVE  ROKEBERG  noted  that  the  projected  income  is                                                               
expected  to peak  in fiscal  year 2003  with $3.8  million, then                                                               
decline to $19.5 million in fiscal  year 2010.  He then turned to                                                               
the  preceding page  in  the  report and  called  attention to  a                                                               
sentence  that  read,  "The   additional  general  fund  revenues                                                               
predicted in  Table 1  ... underestimate  deposits to  the extent                                                               
that mineral  rents and revenues from  as-yet undiscovered fields                                                               
are  not included  in these  figures."   That  means the  overall                                                               
increase  in  potential is  significant.    Anything let  in  the                                                               
current area-wide  leasing program  in the  North Slope  and Cook                                                               
Inlet  that produces  and goes  on line  would contribute  at the                                                               
rate of 50 percent.                                                                                                             
REPRESENTATIVE ROKEBERG then showed  a memorandum from the Alaska                                                               
Permanent Fund  Corporation (dated  March 6, 2001)  regarding the                                                               
impact of  HB 3 on  oil contributions  to the Permanent  Fund and                                                               
the  consequent  per   capita  dividends.    He   said  the  most                                                               
controversial thing  about HB 3  is its potential impacts  on the                                                               
Permanent Fund dividend.  "It's not  a raid on the Permanent Fund                                                               
whatsoever," he stated.  "The people  in the State of Alaska have                                                               
to realize that  this particular body, the  legislature, has made                                                               
direct appropriations that are greater  than the royalty benefits                                                               
that  we've  received over  the  course  of  the history  of  the                                                               
Permanent Fund."   He  apologized for  not having  exact figures.                                                               
The  legislature has  the responsibility  to  manage the  state's                                                               
funds properly,  and he thinks HB  3 is a very  prudent action to                                                               
take.  "I  don't like taxes, and  to me, each dollar  we can save                                                               
by making some adjustments like this  puts off the day that we're                                                               
going to have to have taxation," he said.                                                                                       
REPRESENTATIVE ROKEBERG  pointed to the estimated  impacts on the                                                               
Permanent Fund  dividend of the enactment  of HB 3.   "If we were                                                               
to enact this bill, it would  not even have any impact whatsoever                                                               
until the  calendar year 2006."   After that time, it  would have                                                               
less  than one  percent impact  or $10  against a  projected 2006                                                               
Permanent Fund dividend of $1,890.   "The dividend goes up faster                                                               
than any draw down," he emphasized.                                                                                             
REPRESENTATIVE ROKEBERG concluded  that HB 3 was  the right thing                                                               
to do in terms of prudent  fiscal management in the state.  "This                                                               
is the  first step we  need to  take in any  long-range financial                                                               
plan, without question," he said.                                                                                               
Number 1715                                                                                                                     
CHAIR  COGHILL   said  he  would  schedule   time  for  committee                                                               
discussion with  Representative Rokeberg  at its next  meeting on                                                               
March 13.  [HB 3 was HEARD AND HELD.]                                                                                           

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