Legislature(2001 - 2002)

03/13/2001 08:01 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 0256                                                                                                                     
CHAIR  COGHILL announced  the first  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 0282                                                                                                                     
JANET  SEITZ,  Staff  to Representative  Rokeberg,  Alaska  State                                                               
Legislature,  sponsor  of  HB  3,   came  forward.    She  called                                                               
committee   members'  attention   to  a   workbook  provided   by                                                               
Representative Rokeberg concerning the revenue  impact of HB 3 on                                                               
the  general fund.    The  material had  been  prepared by  Chuck                                                               
Logsden, Chief Petroleum Economist, Department of Revenue.                                                                      
CHAIR COGHILL noted  that the information had just  been given to                                                               
committee members,  who had not had  a chance to study  it before                                                               
the meeting.   He asked why the year 2006  was such a significant                                                               
one for income.                                                                                                                 
Number 0430                                                                                                                     
CHUCK LOGSDEN, Chief Petroleum  Economist, Department of Revenue,                                                               
testified  by  teleconference.    Two new  fields  are  beginning                                                               
production  and increasing  the  amount of  oil  coming from  new                                                               
leases (potentially  contributing a  greater percentage  into the                                                               
general fund than the old leases  do.  He stressed that the older                                                               
fields will continue  to dominate production over  the next 10-15                                                               
years.   By 2005, 20 percent  of the state's oil  royalties would                                                               
be coming  from new leases  that could be impacted  by HB 3.   He                                                               
stressed that  revenue forecasts  are very  much impacted  by the                                                               
price of oil.                                                                                                                   
MR. LOGSDEN turned his attention to  the fiscal note.  He pointed                                                               
out  that the  amount of  revenue  coming into  the general  fund                                                               
could be anywhere between $25  million and $45 million, depending                                                               
upon oil prices.                                                                                                                
MR.  LOGSDEN  noted  that  the  fiscal  note  projections  extend                                                               
through 2007.   Any production  resulting from  exploration going                                                               
on today will not occur until  after 2007, and possibly not until                                                               
10-12 years from now.                                                                                                           
Number 0799                                                                                                                     
CHAIR COGHILL  observed, "It  really does come  down to  a policy                                                               
decision" about whether  the legislature wishes to  return to the                                                               
constitutionally mandated 25 percent of  oil royalties going into                                                               
the Permanent  Fund or allow  the current 50  percent allocation,                                                               
authorized by  statute, to remain in  effect.  Because HB  3 also                                                               
will be heard  by the House Judiciary and  Finance Committees, he                                                               
said he  did not want  the State Affairs Committee  to scrutinize                                                               
all the dollars, but to "discover the policy."                                                                                  
Number 0888                                                                                                                     
REPRESENTATIVE JAMES  expressed her support  for HB 3.   She said                                                               
she  was  hesitant  to  support anything  short  of  a  long-term                                                               
revenue plan,  "and if we  inch our way  along, we may  never get                                                               
there."   However,  she thinks  HB  3 is  a piece  of the  larger                                                               
solution.   The state has  been taking in  less money than  it is                                                               
spending every year, and in  the past five years, the legislature                                                               
has worked very hard to  reduce general fund spending and thereby                                                               
to close  that fiscal gap.   Yet there is an  automatic growth in                                                               
government every year just to  cover cost-of-living pay increases                                                               
and  the  growing  number of  participants  that  affect  formula                                                               
funding.   To  close the  fiscal gap  and maintain  the economies                                                               
that have  been achieved,  "we have  to have  a lot  of different                                                               
pieces," she said.                                                                                                              
REPRESENTATIVE JAMES  noted that  the principal of  the Permanent                                                               
Fund   is   untouchable  as   a   source   of  money;   that   is                                                               
constitutionally   mandated.     But   also   according  to   the                                                               
constitution, the earnings  reserve of the Permanent  Fund is not                                                               
untouchable.  It is the  legislature's prerogative to decide what                                                               
to do with the earnings reserve.   She said it would be better to                                                               
give that fund a different  name because the public perceives the                                                               
Permanent Fund as  all one piece, and so thinks  it all should be                                                               
protected.  She  noted that the Permanent Fund  [principal] has a                                                               
lot of  money in  it, providing the  state with  long-term income                                                               
from interest  earnings.  She also  thinks it is a  good thing to                                                               
give the people  a dividend out of those  earnings, "because that                                                               
gives us the constituency to protect the fund."                                                                                 
REPRESENTATIVE JAMES said  a long-range fiscal plan  will be made                                                               
up  of "a  little [from]  taxes here  and there  -- fair  ... and                                                               
equitable taxes across  the board ...[so] everyone  pays a little                                                               
-- and  also some more reduction  ... in the cost  of government,                                                               
[including]  maybe  even  not  doing some  of  the  things  we're                                                               
REPRESENTATIVE JAMES noted, "The amount  of money that we've been                                                               
putting   into   the   Permanent   Fund  over   and   above   the                                                               
constitutional mandate  was made when  we were rolling  in bucks.                                                               
We're not rolling  in bucks any more."  She  said it doesn't make                                                               
a lot  of sense to keep  putting in more money  than is mandated.                                                               
She thinks HB  3 is an excellent first step  that the legislature                                                               
should take toward long-range fiscal stability.                                                                                 
Number 1223                                                                                                                     
REPRESENTATIVE JAMES moved  to report HB 3 out  of committee with                                                               
individual recommendations and the accompanying fiscal notes.                                                                   
Number 1242                                                                                                                     
REPRESENTATIVE  WILSON agreed  with  Representative  James.   She                                                               
observed that  the people of  the state  are used to  high income                                                               
from oil royalties, and "don't believe  us when we say that we're                                                               
in a  crunch and that we're  having to be very  careful about how                                                               
we budget the  finances of the state right now."   She cautioned,                                                               
"When we do something like  this [HB 3]..., they're saying, 'See,                                                               
we aren't in that  bad a shape.  See, they  pulled the money from                                                               
somewhere and they always do.'"                                                                                                 
Number 1356                                                                                                                     
CHAIR  COGHILL  objected  to Representative  James's  motion  for                                                               
purposes of discussion.                                                                                                         
Number 1369                                                                                                                     
REPRESENTATIVE STEVENS concurred that HB  3 was a good first step                                                               
toward good  fiscal management, but  he acknowledged that  "it is                                                               
just  putting  off  the  day  when  we  have  to  consider  other                                                               
Number 1394                                                                                                                     
REPRESENTATIVE  FATE agreed  that  there is  a public  perception                                                               
that Alaska has  a lot of money.   True, the state  has about $21                                                               
billion  in the  principal of  the  Permanent Fund.   But  that's                                                               
protected by  the constitution, and  the people helped  vote that                                                               
into the constitution, he pointed out.   "So we simply don't have                                                               
that  money available,"  he emphasized.   "We  have the  earnings                                                               
from that money  available, and the earnings simply  don't go far                                                               
enough  to  run  government  once you  take  out  the  inflation-                                                               
proofing  ...[and] the  dividends,  [both of]  which  we want  to                                                               
continue."    The state  does  have  a lot  of  money  but it  is                                                               
unavailable  and it  was  made  unavailable by  the  vote of  the                                                               
people.  He concluded by voicing support for HB 3.                                                                              
Number 1479                                                                                                                     
REPRESENTATIVE CRAWFORD said:                                                                                                   
     I feel really pulled because I don't believe that our                                                                      
      generation is paying our fair share.  We're the only                                                                      
     state in the  union [in which people do  not] pay their                                                                    
     share of the  cost of government today.   We completely                                                                    
     fund  our  government  off of  non-recurring,  one-time                                                                    
     revenues.   I believe  that ... if  we pass  this bill,                                                                    
     we're  taking money  away from  future generations.   I                                                                    
     believe   it's  time   now  for   us  to   realize  our                                                                    
     responsibilities   and  use   some  of   our  recurring                                                                    
     revenues to fund the cost  of government, and I believe                                                                    
     that this  is just a  very small step toward  [a] long-                                                                    
     term fiscal plan  and our stepping up to  the plate and                                                                    
     doing what  really needs  to be done.   I  don't concur                                                                    
     with this.                                                                                                                 
Number 1547                                                                                                                     
REPRESENTATIVE  JAMES  said the  numbers  tell  the story.    The                                                               
fiscal note  for HB 3  projects an  increase in revenue  of about                                                               
$40  million.   "We're anticipating  in  the budget  this year  a                                                               
shortage of somewhere  near $400-500 million.  If  we would yield                                                               
to all  of the  demands out  there that are  reasonable, ...   we                                                               
could raise that deficit from $400-500  million to a billion in a                                                               
heartbeat.   We can anticipate,  if we have a  broad-based income                                                               
tax  similar to  what we  had before  ..., bringing  in somewhere                                                               
between $400 [million] and $500 million at the most."                                                                           
REPRESENTATIVE JAMES continued:                                                                                                 
     My  point is  that this  $40  million is  a very  small                                                                    
     contribution.    This  has   no  effect  whatsoever  on                                                                    
     whether  or  not we  need  a  broad-based tax,  because                                                                    
     we're going to need a  broad-based tax.  We're going to                                                                    
     need  some more  economic development  to increase  the                                                                    
     amount  that we  can  receive from  a broad-based  tax.                                                                    
     We're going to have to use  some of the earnings of the                                                                    
     Permanent Fund,  and we're quite  likely going  to have                                                                    
     to  change  the way  we  calculate  the Permanent  Fund                                                                    
     dividend although  we can  maintain a  healthy dividend                                                                    
     over the long term.                                                                                                        
REPRESENTATIVE JAMES  reiterated that  the potential  income from                                                               
HB 3  is a very  little piece of  what is needed.   Nevertheless,                                                               
she said, it a piece that should be put in place.                                                                               
Number 1712                                                                                                                     
CHAIR COGHILL  confessed that he  struggles with HB 3,  which has                                                               
been called  a "no brainer."   He is disturbed by  the insatiable                                                               
appetitive of government.   "We are a service  government; we are                                                               
a service-delivery government,"  he stated.  "I  object to that."                                                               
Just because there  is a need in society,  it doesn't necessarily                                                               
mean  that government  should step  up and  fill that  need.   He                                                               
thinks government  has been too  many things to too  many people,                                                               
and  the question  needs  to be  asked  about whether  government                                                               
should even be doing  some of the things it is  doing now.  Chair                                                               
Coghill concluded  that he is going  to vote against HB  3 but he                                                               
thinks it would be  unfair of him as a chairman  to hold the bill                                                               
in committee.                                                                                                                   
Number 1845                                                                                                                     
CHAIR COGHILL  removed his  objection to  HB 3.   There  being no                                                               
further  objection,  HB 3  was  passed  out  of the  House  State                                                               
Affairs Standing Committee.                                                                                                     

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