Legislature(2021 - 2022)DAVIS 106
05/13/2021 11:30 AM House WAYS & MEANS
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| Audio | Topic |
|---|---|
| Start | |
| HB202 | |
| HB37 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| + | TELECONFERENCED | ||
| += | HB 202 | TELECONFERENCED | |
| += | HB 37 | TELECONFERENCED | |
| + | TELECONFERENCED |
HB 202-PERMANENT FUND DIVIDEND; ROYALTIES
12:03:50 PM
CHAIR SPOHNHOLZ announced that the first order of business would
be HOUSE BILL NO. 202, "An Act relating to the Alaska permanent
fund; relating to dividends for state residents; relating to the
use of certain state income; and providing for an effective
date."
12:04:16 PM
REPRESENTATIVE KELLY MERRICK, Alaska State Legislature, prime
sponsor, introduced HB 202. She read the following prepared
statement:
Since the decline in oil prices caused a huge revenue
shortfall in fiscal year 2015, the state has struggled
to pay the permanent fund dividend according to the
43-year-old statute. After former Governor Walker
reduced the FY 17 PFD, the dividend has been
determined by available funds after meeting our
requirements to fund services. In recognition of our
new fiscal reality, the 2016 legislature restructured
out budget around a percent of market value (POMV)
structure that meets our constitutional obligations
for services and serves as kind of a spending cap. We
must reconsider our PFD formula within the POMV
framework, and let's recognize when we protect the
POMV, we maintain fiscal stability and a low-tax
environment for both families and businesses.
When people think of the PFD, they think of oil money,
and while that's the foundation of the permanent fund,
the dividend that people receive is no longer based on
resource development, but instead on various
investments that are managed by the Alaska Permanent
Fund Corporation. HB 202 ties the dividend directly
to resource development in the state by setting aside
a portion of the royalties received by the state for
dividends. Specifically, it sets aside 30 percent of
the royalties with another third going to the
permanent fund, per existing statute and the
constitution, and the remainder going to the General
Fund to pay for public services.
There's been a growing recognition over the past few
years that paying a dividend according to the 1982
statute is unsustainable and would require violating
the POMV spending cap. HB 202 addresses both of these
problems by repealing the current formula and
replacing it with one that's simpler, more
sustainable, and provides a stable fiscal environment
for our state.
12:07:14 PM
TALLY TEAL, Staff, Representative Kelly Merrick, Alaska State
Legislature, on behalf of Representative Merrick, prime sponsor,
presented a sectional analysis of HB 202 [included in the
committee packet], which read [original punctuation provided]:
Section 1: amends AS 37.13.140(a) to remove language
relating to the income available for distribution of
the permanent fund dividend.
Section 2: amends AS 37.13.145(c) to make conforming
changes due to the repeal of 37.13.145(b) and updates
language to conform to the decision in Wielechowski v.
State.
Section 3: amends AS 37.13.145(d) to make conforming
changes due to the repeal of 37.13.145(b) and updates
language to conform to the decision in Wielechowski v.
State.
Section 4: amends AS 37.13.145(e) to reaffirm the
prohibition on overdrawing the percent of market value
(POMV). This is necessary due to the repeal of
37.13.145(f).
Section 5: amends 43.23.025(a) to make conforming
changes as a result of sections 1 and 7.
Section 6: amends AS 43.23.028(a) to make conforming
changes as a result of from section 1.
Section 7: adds a new subsection to AS 43.23.045 to
designate 30% of all mineral lease rentals, royalties,
royalty sale proceeds, federal mineral revenue sharing
payments, and bonuses received by the state during
that fiscal year for distribution of dividends.
Section 8: repeals AS 37.13.145(b) and AS
37.13.145(f).
Section 9: provides an effective date of July 1, 2021.
12:09:57 PM
MS. TEAL directed attention to the HB 202 flow chart [included
in the committee packet], explaining that the 30-35 percent of
all royalty income going into the Alaska Permanent Fund would
remain unchanged by the proposed legislation. She noted that
the remaining 60-65 percent currently goes to the General Fund;
however, under HB 202, 30 percent would go to dividends and the
remainder would be allocated to the General Fund.
12:11:00 PM
MS. TEAL turned attention to the fiscal model from Legislative
Finance Division (LFD) [included in the committee packet],
highlighting that HB 202 would not deplete reserves and that the
value of the Alaska Permanent Fund would grow over time. She
further noted that the value of the Permanent Fund Dividend
would be significantly lower than it is under the current
formula. Finally, she indicated that the proposed legislation
would result in a balanced budget, providing a reasonable,
sustainable, and stable solution to the fiscal crisis.
12:12:02 PM
REPRESENTATIVE EASTMAN sought to confirm that under HB 202, the
PFD would no longer be tied to investment income.
REPRESENTATIVE MERRICK confirmed.
REPRESENTATIVE EASTMAN asked why the money going to Alaskans
would be called a dividend if it had no relation to investment
income.
REPRESENTATIVE MERRICK responded that the name could be changed
if that would be more appealing. Nonetheless, Alaskans would
still be receiving their share of the oil money.
12:13:02 PM
REPRESENTATIVE SCHRAGE said he liked the idea of tying the
divided to oil revenues; however, he found it curious that the
permanent fund, as well as a portion of the oil royalties, would
go into the General Fund. He asked the bill sponsor to comment
on the intent of that structure.
REPRESENTATIVE MERRICK explained that she had considered paying
the dividend with the entirety of the remaining 60-65 percent of
royalties that currently goes to the General Fund; however, it
would require an overdraw of the POMV. She stated that her
intention was to propose a solution that would not require an
overdraw. She reiterated that under HB 202, the remaining 60-65
percent of royalties would be split 50/50 between the dividend
and the General Fund.
REPRESENTATIVE SCHRAGE asked whether this proposal would avoid
the necessity of broad-based new revenues.
REPRESENTATIVE MERRICK answered yes, which was one of the key
elements when designing this plan. She conveyed that her
constituents opposed the implementation of a revenue tax.
REPRESENTATIVE SCHRAGE said he appreciated the rationale of the
structure; however, he expressed concern that the proposal is
regressive and would affect lower-income families that are
already being impacted by the PFD reduction.
12:15:19 PM
REPRESENTATIVE STORY applauded the concept of a solution that
maintains the POMV structure and balances the budget. However,
she asked whether the bill would preclude the legislature from
appropriating a dividend from the permanent fund instead of
natural resource income.
MS. TEAL deferred to Legislative Legal Services. She shared her
understanding that because Section 1 of the bill removes the
current statutory dividend formula, the legislature might not
have the statutory authority to pay a dividend directly from the
permanent fund. Nonetheless, she stated her belief that nothing
in the bill would preclude the legislature from over
appropriating to the dividend and therefore increasing the
payout.
12:17:08 PM
PAULYN SWANSON, Communications Manager, Alaska Permanent Fund
Corporation (APFC), confirmed that the proposed legislation
would delete the statutory dividend formula as currently
written. She shared her understanding that the bill would not
preclude an additional appropriation from the POMV to the
General Fund or an ad hoc draw from Earnings Reserve Account
(ERA) account.
REPRESENTATIVE STORY asked whether the bill sponsor conducted
any modeling of the proposed dividend calculation based on the
past five years.
12:19:18 PM
MS. TEAL offered to follow up with the requested information.
12:19:56 PM
REPRESENTATIVE WOOL said he likes the concept of linking the
dividend to the performance of oil, noting that he proposed a
similar bill in recent years that combined a percentage of oil
with a percentage of the POMV. He believed it would connect the
PFD to oil, as opposed to the stock market performance. He
asked whether the proposed legislation would impact federal
royalties, which are expected to grow.
MS. TEAL said she's not familiar with the nuances of mineral
resource development. She noted that federal mineral revenue
sharing payments are included the bill.
REPRESENTATIVE WOOL asked Ms. Nauman whether the bill would
impact the structure of federal royalties.
12:22:07 PM
EMILY NAUMAN, Deputy Director, Legislative Legal Services,
Juneau, Alaska, replied that the bill would not change
underlying statutory structure related to allocation or use of
federal royalties. She added that the amount of federal
royalties is largely determined in federal law. She recalled
that the under HB 202, the money for the dividend would be
pulled from the General Fund; therefore, to the extent that all
that money is "mixing together," it's possible that some of the
money from federal royalties could be used for the dividend due
to its inherent fungible nature. However, that is not
explicitly specified in the bill.
12:23:10 PM
REPRESENTATIVE STORY asked whether the bill would prohibit the
legislature from offering an individual assistance payment or
some other appropriation from the POMV.
MS. NAUMAN said nothing would preclude the legislature from
providing a supplemental dividend amount from the General Fund,
which would include money that had been deposited into the fund
from the POMV draw.
12:24:11 PM
REPRESENTATIVE SCHRAGE questioned what would happen to the
dividend if in the future, royalties started to decline. He
wondered whether the dividend would decline to the point of
nonexistence.
REPRESENTATIVE MERRICK indicated that the dividend would be
nonexistent if there were no royalties.
MS. TEAL added that LFD had modeled a projection into FY 50,
which forecasted a "modest" dividend coming from royalties under
HB 202.
CHAIR SPOHNHOLZ believed that the likelihood of running out of
oil in the next thirty years is low.
12:25:30 PM
REPRESENTATIVE JOSEPHSON sought to confirm that if oil
production were to scale up or prices were to increase
significantly, that the formula in HB 202 would track those
returns and grow the dividend accordingly.
REPRESENTATIVE MERRICK answered yes.
12:26:19 PM
CHAIR SPOHNHOLZ expressed concern that a dividend of $500, as
proposed in the bill, is roughly half of the historical average
without adjusting for inflation. Further, she highlighted the
bill language "may appropriate," as opposed to "shall
appropriate," noting that some legislators who feel strongly
about the dividend may be concerned about that.
REPRESENTATIVE MERRICK recounted that the permanent fund was
originally created for the purpose of paying for state services
when oil production declined and to make a nonrenewable resource
renewable. She cited AS 43.23, indicating that the purpose of
the PFD was to distribute to the people of Alaska a portion of
the state's energy wealth derived from the development and
production of the natural resources belonging to them as
Alaskans. She emphasized that HB 202 would satisfy that by
tying the dividend to natural resource income.
12:28:31 PM
REPRESENTATIVE EASTMAN asked how much of the money from the
permanent fund would go towards state government versus other
uses if the bill were to pass.
REPRESENTATIVE MERRICK asked whether Representative Eastman was
referring to the POMV draw.
REPRESENTATIVE EASTMAN remarked, "any money coming from the
permanent fund."
REPRESENTATIVE MERRICK responded that the POMV draw would be
available for the legislature to appropriate at their
discretion.
CHAIR SPOHNHOLZ pointed out that the legislature has the power
of appropriation, as determined by Wielechowski v. Alaska, and
could therefore fund a larger PFD if desired.
REPRESENTATIVE EASTMAN asked which sections of the bill address
changing the statutory dividend formula.
MS. TEAL stated that Section 1 removes the statutory dividend
formula.
REPRESENTATIVE EASTMAN asked how this year's dividend would have
been impacted had the bill already been implemented.
REPRESENTATIVE MERRICK clarified that the bill would take effect
in July 2021; therefore, it would not affect the 2021 dividend.
REPRESENTATIVE EASTMAN asked how that amount would have changed
under HB 202.
REPRESENTATIVE MERRICK said HB 202 would provide a dividend of
$463.
REPRESENTATIVE EASTMAN asked Representative Merrick to contrast
that the current statutory amount.
REPRESENTATIVE MERRICK shared her understanding that currently,
the statutory dividend would be set at $3,400.
12:30:59 PM
REPRESENTATIVE SCHRAGE pointed out that the legislature had not
paid out anything close to that in recent years.
REPRESENTATIVE MERRICK confirmed. She explained that the
dividend in recent years had been based on ad hoc draw, or in
other words, an arbitrary amount as determined by the
legislature.
CHAIR SPOHNHOLZ noted that the dividend amount has fluctuated
between $1,000 and $1,600 in recent years.
REPRESENTATIVE SCHRAGE advocated for implementing honest
expectations in regard to the dividend amount, as opposed to
ignoring the statutory calculation and setting an arbitrary
amount during the budgeting process.
REPRESENTATIVE MERRICK noted that the dividend in HB 202 would
be based on expected royalties. She added that the amount would
correlate to oil production. She believed it would provide an
incentive to develop state resources; further, that the dividend
would no longer be competing with state services in terms of
funding. She emphasized that the proposed legislation would pay
a dividend first and provide a solution for those that say,
"follow the law or change the law."
CHAIR SPOHNHOLZ appreciated the effort to redefine the dividend
formula. She believed that if the state cannot afford to fund a
statutory dividend, the legislature should be honest about that.
12:33:43 PM
REPRESENTATIVE STORY noted that the dividend would cease to
exist if a statutory dividend were to be paid out continually.
CHAIR SPOHNHOLZ announced that HB 202 was held over.
| Document Name | Date/Time | Subjects |
|---|---|---|
| HB 202 Sponsor Statement 5.5.2021.pdf |
HW&M 5/11/2021 11:30:00 AM HW&M 5/13/2021 11:30:00 AM HW&M 5/15/2021 11:30:00 AM |
HB 202 |
| HB 202 Sectional Analysis 5.5.2021.pdf |
HW&M 5/11/2021 11:30:00 AM HW&M 5/13/2021 11:30:00 AM HW&M 5/15/2021 11:30:00 AM |
HB 202 |
| HB 202 Flowchart.pdf |
HW&M 5/11/2021 11:30:00 AM HW&M 5/13/2021 11:30:00 AM HW&M 5/15/2021 11:30:00 AM |
HB 202 |
| HB 202 Fiscal Note OMB-PFD 5.9.21.pdf |
HW&M 5/11/2021 11:30:00 AM HW&M 5/13/2021 11:30:00 AM HW&M 5/15/2021 11:30:00 AM |
HB 202 |
| HB 202 Fiscal Model Output REVISED.pdf |
HW&M 5/11/2021 11:30:00 AM HW&M 5/13/2021 11:30:00 AM HW&M 5/15/2021 11:30:00 AM |
HB 202 |
| HB 202 Testimony - Opposition as of 5.11.21.pdf |
HW&M 5/11/2021 11:30:00 AM HW&M 5/13/2021 11:30:00 AM HW&M 5/15/2021 11:30:00 AM |
HB 202 |
| HB 37 Sponsor Statement.pdf |
HW&M 5/11/2021 11:30:00 AM HW&M 5/13/2021 11:30:00 AM HW&M 5/15/2021 11:30:00 AM HW&M 5/18/2021 11:30:00 AM |
HB 37 |
| HB 37 Sectional Analysis.pdf |
HW&M 5/11/2021 11:30:00 AM HW&M 5/13/2021 11:30:00 AM HW&M 5/15/2021 11:30:00 AM HW&M 5/18/2021 11:30:00 AM |
HB 37 |
| HB 37 Fiscal Note DOR-TAX - Updated 5.11.21.pdf |
HW&M 5/11/2021 11:30:00 AM HW&M 5/13/2021 11:30:00 AM HW&M 5/15/2021 11:30:00 AM HW&M 5/18/2021 11:30:00 AM |
HB 37 |
| HB 37 Fiscal Note DOA-OAH 5.7.21.pdf |
HW&M 5/11/2021 11:30:00 AM HW&M 5/13/2021 11:30:00 AM HW&M 5/15/2021 11:30:00 AM HW&M 5/18/2021 11:30:00 AM |
HB 37 |
| HB 37 ITEP Flat Tax Report 12.2020.pdf |
HW&M 5/11/2021 11:30:00 AM HW&M 5/13/2021 11:30:00 AM HW&M 5/15/2021 11:30:00 AM HW&M 5/18/2021 11:30:00 AM |
HB 37 |
| HB 37 Presentation 5.13.21.pdf |
HW&M 5/13/2021 11:30:00 AM HW&M 5/15/2021 11:30:00 AM HW&M 5/18/2021 11:30:00 AM |
HB 37 |
| HB 37 Fiscal Model.pdf |
HW&M 5/13/2021 11:30:00 AM HW&M 5/15/2021 11:30:00 AM HW&M 5/18/2021 11:30:00 AM |
HB 37 |