Legislature(2019 - 2020)GRUENBERG 120
04/25/2019 03:00 PM House STATE AFFAIRS
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HJR 6-CONST. AM.:PERMANENT FUND & DIVIDEND [Contains discussion of HJR 5, HJR 7, SJR 4, SJR 5, and SJR 6] 4:21:13 PM CO-CHAIR FIELDS announced that the final order of business would be HOUSE JOINT RESOLUTION NO. 6, Proposing amendments to the Constitution of the State of Alaska relating to the Alaska permanent fund and the permanent fund dividend. 4:21:24 PM BRUCE TANGEMAN, Commissioner, Department of Revenue (DOR), on behalf of the House Rules Standing Committee, sponsor of HJR 6, by request of the governor, lauded the actions of the legislature in creating the percent of market value (POMV) structure of drawing money from the permanent fund and noted the current discussions in the committee meeting addressing the split. He stated that HJR 6 would protect Alaskans' right to determine the future of the permanent fund dividend (PFD). He said that the permanent fund and the PFD was never broken and worked exactly as designed for 34 years. Over the three decades, the PFD calculation and the amount paid to Alaskans was never questioned, regardless of the size of the check, until 2016, when the legislature appropriated the full PFD and Governor Bill Walker vetoed it by half. In 2017 and 2018, both branches of government agreed on a reduced dividend. MR. TANGEMAN, in response to Representative Wool's proposed legislation [HB 132, introduced and discussed during the 4/25/19 House State Affairs Standing Committee meeting], said that currently DOR tracks the market to determine a five-year rolling average; HB 132 would track the price and production of oil. He stated that in 2012, the PFD was $878; in 2013 the PFD was $900; however, in 2015, the dividend was the largest ever at $2,072. He stated that the dip reflected the market correction of 2008, which affected the following five years; in 2013, the amount again increased and was at its highest level in 2015. He conceded that there has been volatility in the PFD amount, but Alaskans never questioned the amount, because they understood it to be the result of the calculation and not politics. He maintained that political decisions regarding the amount of the PFD are what "got people's attention" and created the current situation. MR. TANGEMAN said that the constitutional amendment under HJR 6 would guarantee the PFD; PFDs would not be subject to appropriation; the funds would be transferred to the PFD payment fund and distributed. He maintained that the amendment under the proposed resolution would protect the PFD; it could not be reduced by the legislature or the governor's veto. Further, the amendment would require that any changes to the statutory PFD formula would require a vote of the people. He emphasized, "It's Alaska's PFD and they should be entrusted with the future of any changes to the calculation." He stated that the proposed resolution is part of Governor Michael J. Dunleavy's larger fiscal plan, which is to ensure Alaskans are included when deciding the size and scope of their government. 4:26:09 PM WILLIAM MILKS, Senior Assistant Attorney General, Legislation & Regulations Section, Civil Division (Juneau), Department of Law (DOL), on behalf of the House Rules Standing Committee, sponsor of HJR 6, by request of the governor, relayed that the proposed resolution consists of a constitutional amendment which would provide for a dividend in the Alaska State Constitution. He reiterated that the statutory dividend program was followed for three decades; it not being followed prompted a court case challenge; the Alaska Supreme Court stated clearly that absent a constitutional amendment providing for a dividend, the PFD will compete annually for legislative appropriations. He relayed that the proposed amendment follows up on that decision. MR. MILKS paraphrased from the sectional analysis, which read as follows [original punctuation provided]: Section 1: This would provide a conforming amendment to the existing language in order to authorize a portion of permanent fund income to be used for dividends as set forth in Section 2. Section 2: This section would create two new subsections in the permanent fund amendment. Subsection (b) would require that a portion of the permanent fund income be used, without an appropriation, solely for the purpose of paying permanent fund dividends to state residents. Those payments would occur according to the dividend program and formula currently set forth in statute. Subsection (b) would also allow the legislature to change the dividend program, including amount and eligibility, subject to the approval of the voters in subsection (c). Subsection (c) would require that any law passed by the legislature to amend the permanent fund dividend program, including the amount and the eligibility requirements, would not take effect unless the voters approved the proposed law at the next statewide election. If approved by the voters, it would take effect 90 days after certification of the election. Section 3: This transition provision specifies that the dividend program in place on January 1, 2019 would remain in place until the legislature and the voters approved a change to the program. Section 4: This section would require that the constitutional amendment be placed on the general election ballot in 2020. 4:29:06 PM CO-CHAIR KREISS-TOMKINS asked for the administration's perspective on the changes made to [SJR 5] - the Senate companion resolution. MR. MILKS responded that the largest change was that the proposed constitutional amendment would include the statutory formula for calculating the dividend amount, and any change in the formula would be subject to the approval of the voters. He mentioned that an additional change to the proposed amendment was the replacement of annual payments with quarterly payments. CO-CHAIR KREISS-TOMKINS asked for the administration's position on the quarterly disbursements. 4:31:15 PM MIKE BARNHILL, Director of Policy, Office of Management & Budget (OMB), Office of the Governor, responded on the administration's position on changes made to SJR 5 by the Senate Judiciary Standing Committee [during the 4/15/19 meeting]. The administration supports the elimination of the requirement that any change in eligibility requirements [for the PFD] must be approved by voters. The administration does not object to the amendment calling for quarterly disbursements of the PFD but that the change would be accomplished more appropriately by statute. The administration did not voice an objection regarding the third change - rolling SJR 6 into SJR 5. He explained that SJR 6 constitutes the administration's proposal with respect to a constitutional spending limit. He said that the administration's preference is that the two proposed resolutions be considered separately; they represent substantial policy amendments to the constitution. REPRESENTATIVE LEDOUX asked whether the administration opposes quarterly payments as a social engineering concept. MR. BARNHILL expressed that there are valid policy reasons to pay the PFD on a more periodic basis: more of the dividend money would stay in state; it would have more impact on the economy of the state; it could generate jobs; and an annual dividend tends to be spent Outside. He said that the administration's objection is not from a policy standpoint, but due to a concern for the appropriate place - constitution or statute. REPRESENTATIVE VANCE suggested that quarterly payments would benefit not only the recipients but the earnings of the corpus, as the money would remain in the corpus longer. She expressed a desire to hear the perspective of Angela Rodell, Executive Director, Alaska Permanent Fund Corporation, (APFC) regarding quarterly payments. REPRESENTATIVE VANCE asked if it is possible to adopt the proposed constitutional amendment in HJR 6 without adopting the proposed spending cap and vice versa. MR. BARNHILL answered that the administration intentionally structured the proposed constitutional amendments in three separate vehicles so that the citizens would have the ability to vote on each one based on its merits; by implication, one could be adopted without the other. He said that the constitutional amendments would give the voters the opportunity to vote up or down on the spending limit [HJR 7 and SJR 6], on a dividend that is constitutionally appropriated [HJR 6 and SJR 5], and on the taxpayer's bill of rights [HJR 5 and SJR 4]. He concluded that one amendment could be adopted without the others; however, it is the Dunleavy administration's perspective is that the residents should have the opportunity to vote on each. REPRESENTATIVE VANCE asked whether HJR 6 protects the corpus of the permanent fund. MR. BARNHILL responded that existing constitutional construct regarding the permanent fund protects the corpus; the language was adopted in 1976. It relays that the principle shall be used only for incoming-producing investments, implying that it cannot be appropriated. 4:36:46 PM CO-CHAIR FIELDS commented that the constitution does not protect the ERA; therefore, the legislature could still draw down that account. MR. BARNHILL concurred. REPRESENTATIVE WOOL asked for confirmation that under the proposed constitutional amendment, the statutory formula [for the PFD] would be in the constitution, and a change in the formula would require a vote of the people. MR. BARNHILL replied that the constitutional amendment would guarantee the transfer of PFD funds pursuant to statute. It would introduce direct democracy into the constitution by dictating that if the legislature changes the statutory formula, the people would automatically get an opportunity to vote on the change. It would not enshrine a particular statutory approach to the PFD calculation. The legislature would retain the right to change the calculation; however, any change would require approval by a vote of the people. REPRESENTATIVE LEDOUX asked whether the people would vote on any changes that the legislature made before the changes can go into effect. MR. BARNHILL responded, "Correct." REPRESENTATIVE LEDOUX asked for confirmation that if the legislature wants to make any changes, it would make the changes, put the changes out for vote, and if the people accept the changes, the changes would go into effect the next year. MR. BARNHILL said, "Correct." He explained that the proposed constitutional amendment would prepackage a referendum. Currently under the constitution when the legislature passes any law, the public can get the issue on the ballot by gathering signatures in a referendum process. The proposed constitutional amendment would make the referendum process automatic. 4:39:15 PM CO-CHAIR KREISS-TOMKINS mentioned discussion about a 50-50 split of the POMV draw as a compromise, producing a dividend amount that would be larger than that of the last two years but smaller than this proposal would yield. He asked whether the administration has a position on the 50-50 split compromise. 4:40:05 PM The committee took a brief at-ease at 4:40 p.m. 4:40:09 PM MR. BARNHILL answered that the administration has not taken a position on any new approach to the PFD, such as a 50-50 split, but is willing to discuss it. REPRESENTATIVE VANCE asked for confirmation that if HJR 6 passed, it would be put to a vote on the 2020 ballot to decide if it should be in the constitution. MR. BARNHILL concurred. CO-CHAIR FIELDS asked whether the administration has mapped out a timeline, since any change in the statutory formula would substantially alter the budget process. MR. BARNHILL disagreed that a change in the statutory formula would substantially change the budget process. The proposed resolution clearly states the timelines; the first opportunity for the legislature to make appropriations pursuant to a new statutory formula would be the fiscal year following the election. For example: the vote is in November; the legislative session begins the following January; and the legislature would appropriate for the following fiscal year pursuant to the constitutional amendment. REPRESENTATIVE VANCE asked whether it would be feasible for the legislature to combine the three resolutions so that the spending cap, the income tax, and the PFD were all put before the voters in one ballot question. Mr. BARNHILL stated that he appreciated the representative's desire to simplify constitutional issues for the voters; however, he offered that considerable time and effort was spent to determine the best way to present the issues. The decision was made to use three separate vehicles addressing three separate subjects. He maintained that giving the people a voice in how the PFD is calculated and in any legislative decision to change that calculation is a discreet issue that stands on its own. The other two issues - giving people a voice in any tax changes or rate increases and giving the people a voice in amending the constitution to limit spending - are also separate discreet issues. He conceded that since all three issues fall under Article IX of the constitution, it would be possible to defend combining them; however, it is the intention of the administration to give the people the ability to vote each one up or down. 4:45:04 PM REPRESENTATIVE LEDOUX referred to the proposed constitutional amendment [in HJR 5 and STR 4], also known as the taxpayer bill of rights, and asked whether the legislature would be required to approve a tax passed by the people through an initiative process. Mr. BARNHILL agreed that passage of the constitutional amendment would require the people to vote on any new tax or tax rate increase passed by the legislature, and alternately, if the people initiate a tax or a tax increase, the legislature would be required to approve it before it is enacted. He stated that both mechanisms currently exist with one exception - when the people initiate a law, the legislature cannot repeal it for two years. The resolution seeks to shorten that time frame. REPRESENTATIVE LEDOUX expressed her belief that most people who support the taxpayer bill of rights do not realize that it would impact their ability through the initiative process. She offered that the most likely tax to be approved through an initiative process would be an oil tax. She stated that she does not think most people realize that the constitutional amendment would give the legislature "a second bite at that." REPRESENTATIVE WOOL maintained that the three issues - taxes, PFDs, and the spending cap - are all intertwined in the final budget product. He asked whether Mr. Barnhill thought that separating issues that are intertwined might present a problem. Mr. BARNHILL responded, no. He expressed his belief that the people can analyze each issue separately. He added that if there is an emerging consensus within the committee to roll the resolutions together to move them forward, the administration would most likely not object. REPRESENTATIVE WOOL suggested that the administration, through the proposed constitutional amendments, is introducing another branch of government. Raising or lowering revenue would require approval not only of the House, the Senate, and the executive branch, but of the people, which would take a year or more and a great deal of educational campaigning. Mr. BARNHILL responded that this very point was debated at length at the constitutional convention, and the convention approved this vigorous element of direct democracy. He added that Alaska has a very strong access to legislation through the initiative and referendum process. He suggested that the governor is proposing to take that element of direct democracy that exists right now and that the people regularly access right now and pre-package the initiative/referendum in respect to the PFD and new and increased taxes. He opined that if the legislature were to make a change to the PFD statute, there is a high likelihood that a referendum would be filed. He added that the passage of a personal income tax would most likely result in a referendum as well. The administration is seeking to make that referendum automatic and give the people the opportunity to vote on these very important issues that they care deeply about. 4:51:47 PM CO-CHAIR FIELDS asked whether the inclusion of legislative approval of voter-approved initiatives was intentional or accidental. As an example, he referred to a voter initiative to spend less money on per barrel tax credits to oil companies. MR. BARNHILL responded that requiring legislative approval over a voter initiated new tax or tax rate increase was no accident; it was the point. MR. MILKS responded that in the proposed constitutional amendment addressing taxes, if the voters, by initiative, pass a new tax or increase the rate of tax, the legislature can reject it. He stated that in the original version of the resolution, the default was as follows: if the legislature did nothing, the new tax was rejected. The Senate Judiciary Standing Committee changed the default to the following: if the voters pass a tax, the legislature has the opportunity to .... [Due to technical difficulties, the last minute of the hearing was not recorded.] CO-CHAIR FIELDS stated that HJR 6 would be held over.