Legislature(2001 - 2002)

04/10/2001 08:09 AM STA

Audio Topic
* first hearing in first committee of referral
+ 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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