Legislature(2001 - 2002)

04/12/2001 08:14 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 0097                                                                                                                     
                                                                                                                                
CHAIR COGHILL  announced that the  first order of  business 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 0133                                                                                                                     
                                                                                                                                
LORI  BACKES,  Staff  to Representative  Whitaker,  Alaska  State                                                               
Legislature, came forward to testify  on behalf of Representative                                                               
Jim Whitaker, sponsor of HB 17.   She noted that the audio-visual                                                               
presentation on  HB 17 that  Representative Whitaker gave  at the                                                               
last committee  meeting was  available in both  hard copy  and on                                                               
disk.   She pointed out a  correction needed on the  slide titled                                                               
"Capital  Projects  Fund."    The  figure  on  the  second  line,                                                               
$160,712,500,  should be  changed  to $211,500,000  to match  the                                                               
other updated amounts shown throughout, she explained.                                                                          
                                                                                                                                
MS.  BACKES said  that HB  17 does  not take  the money  from the                                                               
earnings reserve account  itself.  "This takes  the earnings from                                                               
the earnings  reserve account,"  she said.   "The  permanent fund                                                               
has  its  own  earnings,  and the  earnings  reserve  account  is                                                               
invested a  little bit differently;  and this takes  the earnings                                                               
for one year from the earnings reserve account."                                                                                
                                                                                                                                
Number 0339                                                                                                                     
                                                                                                                                
CHAIR COGHILL  noted for the record  that Representative Crawford                                                               
had joined  the meeting.   He then  asked how one  determines the                                                               
parameters of the earnings of the earnings reserve.                                                                             
                                                                                                                                
MS.  BACKES  said   she  could  not  help   much  with  financial                                                               
explanations, but knew  that the earnings reserve  account is the                                                               
money  left over  after the  permanent fund  has been  inflation-                                                               
proofed  and after  the dividend  has been  paid.   The remainder                                                               
goes into  a separate  earnings reserve account.   That  money is                                                               
invested  separately from  the permanent  fund, and  so generates                                                               
its own  income.   "That's the income  we're talking  about," she                                                               
said.   "It  has nothing  to  do with  the direct  income of  the                                                               
permanent fund."                                                                                                                
                                                                                                                                
Number 0433                                                                                                                     
                                                                                                                                
CHAIR COGHILL asked if he  understood correctly that under HB 17,                                                               
the earnings  part of  the earnings reserve  would be  divided in                                                               
half.                                                                                                                           
                                                                                                                                
MS. BACKES said that  is what would be done for one  year.  As HB
17  is written,  half  of  that money  would  go  to the  capital                                                               
projects  fund  and  the  other  half would  be  paid  out  as  a                                                               
supplement to the  permanent fund dividend.  She  said the amount                                                               
of that supplement would be about $360 per dividend.                                                                            
                                                                                                                                
MS. BACKES added  that some legislators have  suggested using the                                                               
money  for  a municipal  dividend  instead  of supplementing  the                                                               
dividend, she  said.  That would  require amending HB 17  so that                                                               
half of  the money [the  earnings of the earnings  reserve] would                                                               
go into  the capital projects  fund and  the other half  would be                                                               
dispersed to communities based on their population.                                                                             
                                                                                                                                
CHAIR  COGHILL  supposed  that  would  be  similar  to  the  plan                                                               
proposed in HB 20.                                                                                                              
                                                                                                                                
MS. BACKES said  what is being discussed was  similar in concept,                                                               
but that she did not know the particulars.                                                                                      
                                                                                                                                
CHAIR COGHILL asked how much would be provided per capita.                                                                      
                                                                                                                                
MS. BACKES said  she did not know how the  money would be divided                                                               
per capita  if it were  given out as  a municipal dividend.   "If                                                               
it's a  supplement to the dividend  payout, it would be  $360 per                                                               
person," she said.                                                                                                              
                                                                                                                                
CHAIR COGHILL  asked if that  was the amount anticipated  in this                                                               
year only.                                                                                                                      
                                                                                                                                
MS. BACKES  said that was  correct, emphasizing  that HB 17  is a                                                               
one-year bill.                                                                                                                  
                                                                                                                                
Number 0624                                                                                                                     
                                                                                                                                
CHAIR COGHILL said he wanted the  committee to note that "this is                                                               
a one-time shot at trying it to see how it works."                                                                              
He also noted  that Representative Hayes had  joined the meeting,                                                               
and asked him if his bill had passed.                                                                                           
                                                                                                                                
REPRESENTATIVE HAYES replied, "Absolutely, Mr. Chair."                                                                          
                                                                                                                                
Number 0666                                                                                                                     
                                                                                                                                
CHAIR COGHILL  observed that on  page 1, line  11 of HB  17, "you                                                               
have up to  35 percent of the balance ...  to be appropriated for                                                               
projects located in a single  municipality."  He wondered why the                                                               
bill said "up to 35 percent."                                                                                                   
                                                                                                                                
MS. BACKES said it  was a positive way of putting  a limit on how                                                               
much each community  might receive in the  form of appropriations                                                               
for  capital   projects,  and  that  the   legislature  has  done                                                               
something similar in the past.                                                                                                  
                                                                                                                                
Number 0727                                                                                                                     
                                                                                                                                
CHAIR COGHILL  said he  was trying  to think  of the  policy call                                                               
that will  have to be  made in  the House State  Affairs Standing                                                               
Committee.   "The  earnings  reserve  has never  been  used in  a                                                               
manner such as this," he said,  "so this would begin a precedent,                                                               
I  think, that  would  be very  significant;  something that  the                                                               
legislature's  been very  reluctant to  do in  the past.   And  I                                                               
guess the  [indisc.] from you  folks is to  try it for  one year,                                                               
see how it goes?"                                                                                                               
                                                                                                                                
MS.  BACKES  again pointed  out  that  HB  17  is not  using  the                                                               
earnings reserve, but  the income from the  earnings reserve, "so                                                               
it's almost two to three times removed from ... getting anywhere                                                                
near the permanent fund," she said.                                                                                             
                                                                                                                                
Number 0805                                                                                                                     
                                                                                                                                
JIM KELLY, Director of Communications, Alaska Permanent Fund                                                                    
Corporation, came forward to testify.                                                                                           
                                                                                                                                
CHAIR COGHILL explained that he  had been asking Ms. Backes about                                                               
the parameters  of the  earnings of the  earning reserve  and how                                                               
that relates to realized and unrealized  gains.  "Can you give us                                                               
a little description on that?" he asked.                                                                                        
                                                                                                                                
MR. KELLY explained:                                                                                                            
                                                                                                                                
     There are two parts to  the permanent fund, there's the                                                                    
     principal and there's everything  else.  Anything above                                                                    
     the amount of  money that you have  appropriated to the                                                                    
     principal  -- which  is the  constitutionally dedicated                                                                    
     oil   revenues,  the   little  piece   of  additionally                                                                    
     statutorily   appropriated  oil   revenues,  inflation-                                                                    
     proofing, and then the  special appropriations that the                                                                    
     legislature  has  made I  think  seven  times over  the                                                                    
     years -- that's $20.2 billion.                                                                                             
                                                                                                                                
     Everything in the  fund that you see  that's over $20.2                                                                    
     billion  is in  the earnings  reserve account.   It  is                                                                    
     income.    Some  of  it  is realized;  some  of  it  is                                                                    
     unrealized.   But all of  the money that we  make every                                                                    
     day flows  into the  earnings reserve  account, whether                                                                    
     it's  an  interest payment  that  we  receive from  the                                                                    
     federal government  or whether  its a dividend  that we                                                                    
     receive  from   one  of  the  holdings   of  the  4,000                                                                    
     companies that  you own around the  world, whether it's                                                                    
     cash  flow from  an  apartment building  that the  fund                                                                    
     owns   in  Miami,   Florida,   or   whether  it's   the                                                                    
     appreciation in -- or the  depreciation in -- the value                                                                    
     of any  of those assets  from any given date,  that all                                                                    
     shows  up in  the accounting  for the  earnings reserve                                                                    
     account.                                                                                                                   
                                                                                                                                
Number 0925                                                                                                                     
                                                                                                                                
     So if  the fund is  $25.2 billion today, which  I think                                                                    
     it's  pretty close  to that,  that  means that  there's                                                                    
     about $5 billion  in the earnings reserve  account.  We                                                                    
     project  in  the  future   that  the  earnings  reserve                                                                    
     account will earn  8 percent, 8.25 percent  return.  So                                                                    
     when we  did the  analysis of HB  17, we  calculated an                                                                    
     8.25 [percent]  return on the earnings  reserve account                                                                    
     and  then followed  the prescription  of  the bill  and                                                                    
     split it the two ways and paid it out.                                                                                     
                                                                                                                                
     One thing  that's interesting to  note is that  ... the                                                                    
     [Permanent Fund  Corporation] board has a  proposal for                                                                    
     a  5   percent  payout  limitation,   a  constitutional                                                                    
     amendment, which is  really intended to inflation-proof                                                                    
     the   fund  permanently,   but   also   to  provide   a                                                                    
     sustainable income  stream to  the state.   And  if you                                                                    
     look [at] that over a  20-year period, the numbers turn                                                                    
     out to  be just about the  same as they do  with HB 17,                                                                    
     and I'll get into that.   But basically what I'm saying                                                                    
     is that the  amount of money that's  being talked about                                                                    
     is pretty  consistent with being  able to  maintain the                                                                    
     purchasing power of the fund.   Over 20 years, under HB
     17,  you'd  end up  with  a  fund  that was  about  $51                                                                    
     billion, twice the  size that it is  today.  Meanwhile,                                                                    
     you  will  have  produced  over  that  period  of  time                                                                    
     something like  $57 billion  worth of  total investment                                                                    
     return.                                                                                                                    
                                                                                                                                
Number 1036                                                                                                                     
                                                                                                                                
     It's  going to  take $20  billion of  that to  keep the                                                                    
     fund whole against inflation, just  as in the past it's                                                                    
     taken $7 billion  to keep the fund whole to  today.  So                                                                    
     that leaves $36 billion, which  is about how much HB 17                                                                    
     envisions being available.                                                                                                 
                                                                                                                                
Number 1060                                                                                                                     
                                                                                                                                
     Of  that, the  dividend  program status  quo will  take                                                                    
     approximately  $28  billion,  so  that  leaves  ...  $8                                                                    
     billion or  something like that  for other uses.   This                                                                    
     particular  proposal  shifts  some  of  that  into  the                                                                    
     dividend fund  and it provides  some of it  for capital                                                                    
     projects.  But the long and  the short of it is that it                                                                    
     does leave the fund basically  in a whole position over                                                                    
     a period  of time and  it has provided for  billions of                                                                    
     dollars of  new permanent  fund income  to be  used for                                                                    
     the benefit of the  Alaskan economy without sacrificing                                                                    
     the  fund or  the real  and the  nominal growth  in the                                                                    
     dividend.                                                                                                                  
                                                                                                                                
Number 1121                                                                                                                     
                                                                                                                                
REPRESENTATIVE WILSON asked, "So if we  look at HB 17 and look at                                                               
what we're doing now?"                                                                                                          
                                                                                                                                
MR. KELLY  said the  difference is  that ...  if one  did nothing                                                               
with  the income  besides the  dividends and  inflation-proofing,                                                               
the  fund would  grow to  $64 billion,  with $14  billion in  the                                                               
earnings reserve account.                                                                                                       
                                                                                                                                
REPRESENTATIVE WILSON added,  "I meant as we keep  taking some of                                                               
it away."                                                                                                                       
                                                                                                                                
MR. KELLY asked what she meant by "taking it away."                                                                             
                                                                                                                                
REPRESENTATIVE WILSON  asked, "Don't  we take  some of  this each                                                               
time ...?"                                                                                                                      
                                                                                                                                
MR. KELLY responded, "Oh, you mean for HB 17?"                                                                                  
                                                                                                                                
REPRESENTATIVE    WILSON   realized,    "Oh,    it's   the    CBR                                                               
(Constitutional Budget Reserve) that we keep taking ...; OK."                                                                   
                                                                                                                                
Number 1181                                                                                                                     
                                                                                                                                
REPRESENTATIVE  FATE  said, "I'm  a  little  confused here,  Jim,                                                               
because  you're mixing  [HB]  17  with what  you  were trying  to                                                               
achieve before,  which is a  constitutional amendment.   I'd like                                                               
to stick  to this bill  and ... what  will happen, or  whether we                                                               
should even  give ...  back to  the dividend,  or whether  ... it                                                               
should  go  to  the  communities..., and  whether  or  not  these                                                               
figures ... that have been projected are ... valid figures."                                                                    
                                                                                                                                
Number 1248                                                                                                                     
                                                                                                                                
MR. KELLY said  HB 17 pays out money in  excess of what statutory                                                               
inflation proofing  requires.   There is  additional money.   The                                                               
Permanent  Fund Corporation  estimates  that there  will be  $175                                                               
million to  $300 million a  year available, and that  number will                                                               
grow as the market value of the fund grows.                                                                                     
                                                                                                                                
MR.  KELLY said  the way  that  money ought  to be  spent is  not                                                               
something the trustees [of the  Permanent Fund Corporation] would                                                               
ever  get involved  with  deciding.   "We're  only interested  in                                                               
producing the money...," he said.                                                                                               
                                                                                                                                
REPRESENTATIVE FATE said what he wanted  had to know was that the                                                               
$423  million from  which  the  other figures  derive  is a  good                                                               
figure for the income from the earnings reserve account.                                                                        
                                                                                                                                
MR. KELLY  confirmed that it  was, [depending on what  happens in                                                               
the current, final quarter of the fiscal year].                                                                                 
                                                                                                                                
Number 1324                                                                                                                     
                                                                                                                                
REPRESENTATIVE FATE asked about the  projected earning of about 8                                                               
percent on  the earnings  reserve account: "In  light of  the ...                                                               
'bear  market' that  we're  having  now, is  that  still a  valid                                                               
figure?"                                                                                                                        
                                                                                                                                
MR. KELLY said it was, and explained how it is calculated.                                                                      
                                                                                                                                
Number 1401                                                                                                                     
                                                                                                                                
CHAIR COGHILL asked  if, in light of the bad  market year, the HB
17 proposal is a valid one to be discussing right now.                                                                          
                                                                                                                                
MR. KELLY  said the projected  earnings are based on  December 31                                                               
[of 2000]  numbers, and he  thinks they  are as good  as anything                                                               
the Permanent Fund Corporation could produce.                                                                                   
                                                                                                                                
Number 1448                                                                                                                     
                                                                                                                                
REPRESENTATIVE JAMES  asked a question related  to a presentation                                                               
the  Permanent  Fund  Corporation  had  made  at  a  Rotary  Club                                                               
meeting.   There was a  chart that showed  the ups and  downs [of                                                               
the  stock market]  over the  last 75  years, and  Representative                                                               
James understood that  8-8.5 percent is the  historical amount of                                                               
growth that can be expected from a fund over the long term.                                                                     
                                                                                                                                
MR. KELLY  said it is  about 8  percent, including 3  percent for                                                               
inflation and 5 percent for payout.                                                                                             
                                                                                                                                
REPRESENTATIVE JAMES  asked if  that was  how the  Permanent Fund                                                               
Corporation  came up  with  the 5  percent  payout, "because  you                                                               
assume that  the average is  going to  be 3 percent  on inflation                                                               
and that's going  to keep it ... inflation-proofed  over the long                                                               
period of time?"                                                                                                                
                                                                                                                                
MR. KELLY  said that was  correct, based on the  asset allocation                                                               
the fund has now.                                                                                                               
                                                                                                                                
Number 1570                                                                                                                     
                                                                                                                                
REPRESENTATIVE JAMES recalled that in  the early 1990's, the rate                                                               
of inflation  was so high  that legislators worried that  if they                                                               
first  inflation-proofed,   there  would  be  nothing   left  for                                                               
dividends, and might  not even be enough  for inflation proofing.                                                               
"Could we get there again?" she asked.                                                                                          
                                                                                                                                
Number 1656                                                                                                                     
                                                                                                                                
MR. KELLY said yes, and that  is why the board is suggesting that                                                               
statutory inflation proofing isn't the  best way to go because it                                                               
moves that money  from the earnings reserve account,  where it is                                                               
available  for appropriation,  and  puts it  into the  principal,                                                               
where  it's not.   And  in a  year like  this one,  in which  the                                                               
Permanent  Fund  has lost  $2  billion  of  money, that's  not  a                                                               
problem  because  there  is  still $5  billion  in  the  earnings                                                               
reserve  account.   "But  you have  a year  like  this again  and                                                               
another year like that again,  then you're into a situation where                                                               
you do  not have  the ability  to make  a dividend  payment, much                                                               
less the payment that's envisioned in an HB 17," he said.                                                                       
                                                                                                                                
Number 1690                                                                                                                     
                                                                                                                                
CHAIR  COGHILL  asked, "Is  this  going  to be  problematic  with                                                               
regard to  that?  ...  If we're going to  make a policy  call, we                                                               
need to  make sure that as  we proceed in this,  that they're not                                                               
going to be in competition, but that they could work together."                                                                 
                                                                                                                                
MR. KELLY  replied, "It's really a  public policy call.   ... All                                                               
of the  money in  the earnings reserve  account is  available for                                                               
the  legislature to  spend.    If you're  going  to continue  the                                                               
current  system, ...  the best  protection you  have against  bad                                                               
markets  is a  lot  of  money in  the  earnings reserve  account.                                                               
Anything  you do  to  take  money out  of  that reserve  account,                                                               
whether  it's  putting  it  into   the  principal  for  inflation                                                               
proofing  or whether  it's paying  it out  for purposes  of state                                                               
government,  diminishes  that and  increases  the  risk down  the                                                               
road.... That's  sort of a flaw  that the trustees are  trying to                                                               
overcome."                                                                                                                      
                                                                                                                                
Number 1760                                                                                                                     
                                                                                                                                
REPRESENTATIVE FATE said he would really  like to try to focus on                                                               
HB 17.  "It  looks to me like we're not  going to really diminish                                                               
the earnings reserve,"  he said.  "We're taking  the earnings off                                                               
of it, unless  you account for a small amount  of that that might                                                               
go back  into the earnings  reserve."  He noted  that HB 17  is a                                                               
"one-time  deal"  that  provides much-needed  funds  for  capital                                                               
projects.  How  to divide the other portion of  that revenue from                                                               
the earnings  reserve account, "whether  it's going to go  to the                                                               
municipalities  or  whether  it's  going  to  go  back  into  the                                                               
dividend, is something  that ... perhaps should  be wrestled with                                                               
a little bit" [in the State  Affairs Committee].  From the public                                                               
policy standpoint,  he thinks HB 17  has a lot of  merit and that                                                               
it would  be better to let  the finance committee go  through the                                                               
number crunching.                                                                                                               
                                                                                                                                
Number 1836                                                                                                                     
                                                                                                                                
CHAIR COGHILL  said he think  the policy call that  the committee                                                               
wants to  make is,  "Shall we  use the  earnings of  the earnings                                                               
reserve?"                                                                                                                       
                                                                                                                                
Number 1847                                                                                                                     
                                                                                                                                
REPRESENTATIVE WILSON requested clarification.   "With this bill,                                                               
we take the earning from  the earnings reserve...," she observed.                                                               
"Does  the  bill  inflation-proof the  earnings  reserve  account                                                               
before we do that?"                                                                                                             
                                                                                                                                
MS. BACKES said it does not.                                                                                                    
                                                                                                                                
REPRESENTATIVE WILSON asked if she  knew what difference it would                                                               
make if we did that.                                                                                                            
                                                                                                                                
MS.  BACKES said  it would,  of course,  depend on  the level  of                                                               
inflation proofing  that was decided  upon, but beyond  that, she                                                               
didn't  know  the  effect  it  would have.    "I  think  that  it                                                               
certainly  would  be   a  policy  call  if   the  legislature  is                                                               
interested in  inflation-proofing the  earnings reserve  when the                                                               
permanent fund is inflation-proofed."                                                                                           
                                                                                                                                
REPRESENTATIVE WILSON mentioned that  the earning of the earnings                                                               
reserve would be a changing number all the time.                                                                                
                                                                                                                                
CHAIR COGHILL  said he thought  the question she was  raising was                                                               
whether to  inflation-proof the earnings reserve  rather than the                                                               
corpus of  the fund, which  is a policy  question HB 17  does not                                                               
address.                                                                                                                        
                                                                                                                                
Number 1957                                                                                                                     
                                                                                                                                
REPRESENTATIVE JAMES  commented that HB  17 is a  one-time thing,                                                               
and it appears to  her that the same amount that  HB 17 would put                                                               
into   the  capital   projects  fund   [$211,500,000]  could   be                                                               
appropriated today without this piece  of legislation.  "We don't                                                               
need, this,"  she said, "if ...  we are willing as  a legislature                                                               
to  take money  from  the  earnings reserve...."    She said  the                                                               
calculation  is important  and the  presentation  shows that  the                                                               
money  would not  come from  the earnings  reserve, but  from its                                                               
earnings, and  only use half  of that.   The same money  could be                                                               
appropriated by a simple majority vote.                                                                                         
                                                                                                                                
REPRESENTATIVE JAMES added  that she thinks the  5 percent payout                                                               
makes a  lot of financial  sense over the  long term. "But  ... I                                                               
don't  want to  deal  with  that until  we  deal with  everything                                                               
else," she said; "because it's all an integral part of a long-                                                                  
term plan,  and I'm  not willing  to set aside  5 percent  of the                                                               
market value  without doing something with  the dividend program,                                                               
which would take at least 80  percent of that and ... [leave very                                                               
little left to use] in balancing our budget over the long term."                                                                
                                                                                                                                
Number 2099                                                                                                                     
                                                                                                                                
REPRESENTATIVE COGHILL asked  Ms. Backes to explain  why the bill                                                               
is being  introduced.   He said  it would be  his guess  that the                                                               
sponsor intends to bring about  a policy debate about whether the                                                               
legislature should use  the permanent fund, the  earnings, or the                                                               
earnings of the earnings.                                                                                                       
                                                                                                                                
MS. BACKES said  the impetus for HB 17 comes  from the mandate in                                                               
Article 9,  Section 16 of  the state Constitution.   That mandate                                                               
was put  there by amendment  in the  early 1980s, when  the state                                                               
was getting  a lot  of money  and there was  concern that  it was                                                               
being  spent  without  a  great  deal  of  self-restraint.    The                                                               
amendment set  an appropriation limit, which  the legislature has                                                               
never come  near reaching.   However, within this limit,  it also                                                               
states  that at  least  one-third of  the  money the  legislature                                                               
appropriates  shall be  reserved  for capital  projects and  loan                                                               
appropriations.    The  legislature  has   never  come  close  to                                                               
designating   one-third  of   its   appropriations  for   capital                                                               
projects, she said.   In 1983, the state  attorney general issued                                                               
an  opinion saying  he thought  the amendment  was ambiguous  and                                                               
that the courts  wouldn't hold the legislature  to the provisions                                                               
of the  amendment.   There is a  second opinion  from Legislative                                                               
Legal Services  that directly contradicts the  attorney general's                                                               
opinion,   which   has   never    been   challenged   in   court.                                                               
"Representative Whitaker  believes that we ought  to challenge it                                                               
in  some fashion  because  the legislature  does  have a  mandate                                                               
within  the constitution  to appropriate  one-third," Ms.  Backes                                                               
said.   "This  bill doesn't  appropriate one-third,  but it  does                                                               
bring us a little bit closer."                                                                                                  
                                                                                                                                
Number 2234                                                                                                                     
                                                                                                                                
REPRESENTATIVE  FATE said  he  agreed  with Representative  James                                                               
about  the legislature  being able  by majority  vote to  use the                                                               
earning  of the  earnings reserve,   "That,  to me,  is basically                                                               
what  this does,"  he said.   He  has seen  the presentation  and                                                               
thinks it is  the right step "because, as  everybody knows, we're                                                               
in  the process  right now  of  trying to  formulate some  fiscal                                                               
policy for  the State of Alaska,"  he said.  "Also,  as everybody                                                               
knows,  we  are  way  behind  on  capital  improvement  including                                                               
deferred maintenance....   So this, to  me, is a first  and valid                                                               
step in  trying to address the  capital problems that we  have in                                                               
the  state."   As  for the  other  part, the  other  half of  the                                                               
revenues  from  the earnings  reserve  account,  he said  he  was                                                               
undecided about whether  that should be used as a  dividend or to                                                               
provide revenue  to communities.   He  said he  hopes that  HB 17                                                               
will get a  majority vote that will start the  process of capital                                                               
improvement once more.                                                                                                          
                                                                                                                                
REPRESENTATIVE JAMES  addressed the constitutional  amendment and                                                               
the attorney  general's opinion.   She said  she agrees  with the                                                               
attorney general  that the bill  is very convoluted and  could be                                                               
challenged.    She said  the  constitutional  budget reserve  was                                                               
another convoluted  constitutional amendment that ended  up being                                                               
challenged in  court.  The  decision was that the  amendment was,                                                               
indeed, convoluted,  and that the  purpose of  the constitutional                                                               
budget  reserve was  to allow  the  legislature, if  it had  less                                                               
money available in  the current year than in  the previous year's                                                               
budget, to tap  the constitutional budget reserve  account with a                                                               
majority vote.  For any  other reason that the legislature wanted                                                               
to  spend  money from  that  account,  a three-fourths  vote  was                                                               
needed.   And regardless of  how the expenditure was  approved or                                                               
the money  used, at the  end of  the following year,  whatever is                                                               
left for  appropriation is swept into  the constitutional reserve                                                               
to pay it  back.  "Pulling all  the money out of the  bank to pay                                                               
back the  constitutional budget  reserve at the  end of  a fiscal                                                               
year is absurd," she said.                                                                                                      
                                                                                                                                
REPRESENTATIVE  JAMES said  the court  also ruled  that when  the                                                               
legislature   determines    that   the   money    available   for                                                               
appropriation is less that what was  spent in the last year, "you                                                               
...  count the  earnings of  the permanent  fund reserve  because                                                               
it's available for  appropriation.  But when it comes  to June 30                                                               
and time  to sweep  all the  money back  in to  pay it  back, you                                                               
don't count  the earnings  reserve of the  permanent fund.   That                                                               
and other things about the  constitutional amendment need fixing,                                                               
she said.   She thinks the  legislature needs to do  that as part                                                               
of a  long-term fiscal plan  and also  to have a  spending limit.                                                               
An  attorney   general's  opinion   is  the  law   until  someone                                                               
challenges it  in court, and only  the court can make  that final                                                               
decision, she said.                                                                                                             
                                                                                                                                
Number 2533                                                                                                                     
                                                                                                                                
CHAIR COGHILL asked  Ms. Backes "how far down the  road this goes                                                               
to a challenge on that."                                                                                                        
                                                                                                                                
MS. BACKES was not sure she understood the question.                                                                            
                                                                                                                                
CHAIR COGHILL asked,  "Does this go over the one-third?   Does it                                                               
stay under the one-third?   Are we even going to  come up to what                                                               
the attorney general's opinion is on this?"                                                                                     
                                                                                                                                
MS.  BACKES  said  HB  17 does  not  appropriate  one-third,  but                                                               
"brings us a little bit closer."  She further explained:                                                                        
                                                                                                                                
     The  attorney general's  opinion doesn't  deal so  much                                                                    
     with how  appropriate it is  to set  the appropriations                                                                    
     limit  through this  amendment, and  it really  doesn't                                                                    
     deal  with  the  constitutional budget  reserve.    The                                                                    
     question  that  Representative   Whitaker  has  in  the                                                                    
     attorney   general's  opinion   deals  with   just  the                                                                    
     sentence that  says, "Within this limit,  at least one-                                                                    
     third shall  be reserved for capital  projects and loan                                                                    
     appropriations."   The  attorney general  believed that                                                                    
     the statement  within this  limit was  ambiguous enough                                                                    
     to state in  his opinion that if  the legislature never                                                                    
     reached that appropriation limit.   That, by the way, I                                                                    
     think would  have been $6.1  billion last year  for the                                                                    
     legislature to  appropriate.... If we never  reach that                                                                    
     limit,  we  don't  have  to  appropriate  a  third  for                                                                    
     capital projects.  That was  his interpretation of this                                                                    
     amendment, and  that is  the part  of his  opinion that                                                                    
     Representative Whitaker  disagrees with  as well  as in                                                                    
     our legal opinion from Tam Cook.                                                                                           
                                                                                                                                
Number 2623                                                                                                                     
                                                                                                                                
CHAIR  COGHILL said  he wanted  to be  very clear  that HB  17 is                                                               
asserting that the  legislature should get as  close to one-third                                                               
as it  can, and that  it is not  going to challenge  the attorney                                                               
general's opinion because it does  not appropriate more than one-                                                               
third.                                                                                                                          
                                                                                                                                
MS.  BACKES said  she  did  not see  and  certainly hasn't  heard                                                               
anything  from the  attorney general's  office  to indicate  that                                                               
there  would be  a  challenge  on HB  17  based  on the  attorney                                                               
general's opinion.                                                                                                              
                                                                                                                                
Number 2660                                                                                                                     
                                                                                                                                
REPRESENTATIVE CRAWFORD  commented that he had  heard some really                                                               
interesting conversation here this  morning and would really like                                                               
to  discuss  it  over  pizza   some  night,  but  he  thinks  the                                                               
discussion is getting  fairly far afield from HB 17.   "What this                                                               
seems to  do is it uses  some of the earnings  from the permanent                                                               
fund.   Even though it  comes from  the earnings of  the earnings                                                               
... of the  reserve account, it's still money  from the permanent                                                               
fund," he  said.   As he was  going door-to-door  campaigning, he                                                               
heard repeatedly  that people do not  want to see the  budget gap                                                               
filled  with   earnings  from  the   permanent  fund   without  a                                                               
comprehensive fiscal plan, and he agreed with that.                                                                             
                                                                                                                                
Number 2725                                                                                                                     
                                                                                                                                
REPRESENTATIVE FATE moved  to report HB 17 out  of committee with                                                               
individual  recommendations and  the  accompanying fiscal  notes.                                                               
There  being no  objection, HB  17  was reported  from the  House                                                               
State Affairs Standing Committee.                                                                                               
                                                                                                                                

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