Legislature(2023 - 2024)DAVIS 106
04/24/2023 06:00 PM House WAYS & MEANS
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| Audio | Topic |
|---|---|
| Start | |
| HB110 | |
| HJR7 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| += | HJR 7 | TELECONFERENCED | |
| += | HB 110 | TELECONFERENCED | |
| + | TELECONFERENCED |
HJR 7-CONST AM: PERMANENT FUND DIVIDEND
6:03:29 PM
CHAIR CARPENTER announced that the last order of business would
be HOUSE JOINT RESOLUTION NO. 7, Proposing amendments to the
Constitution of the State of Alaska requiring payment of a
dividend to eligible state residents.
[Contains discussion of HB 110 and HJR 9]
6:03:35 PM
REPRESENTATIVE MCCABE moved to adopt Amendment 1 to HJR 7,
labeled 33-LS0439\B.4, Nauman, 4/21/23, which read as follows:
Page 1, line 1, following "Alaska":
Insert "relating to the permanent fund, relating
to transfers out of the permanent fund, and"
Page 1, line 8, following "to":
Insert "transfers out of the permanent fund and"
Page 1, line 14, following "for":
Insert "transfers out of the permanent fund and"
Page 2, lines 8 - 10:
Delete "[ALL INCOME FROM THE PERMANENT FUND SHALL
BE DEPOSITED IN THE GENERAL FUND UNLESS OTHERWISE
PROVIDED BY LAW.]"
Insert "All income from the permanent fund shall
be deposited in an earnings reserve account in the
fund [THE GENERAL FUND UNLESS OTHERWISE PROVIDED BY
LAW]."
Page 2, lines 13 - 16:
Delete all material and insert:
"(b) Each fiscal year, without appropriation,
the State shall, according to a formula set out in
law, pay from the earnings reserve account a dividend
to eligible residents of the State. Each fiscal year,
without appropriation, an amount determined by a
formula set out in law shall be transferred from the
earnings reserve account in the permanent fund to the
general fund. The total amount transferred from the
earnings reserve account under this subsection shall
not exceed the balance of the earnings reserve account
or a limitation on the transfer amount set out in
law."
Page 2, line 21:
Delete "deposits"
Insert "transfers"
Page 2, following line 21:
Insert a new subsection to read:
"(b) On June 30, 2025, the unencumbered balance
of the earnings reserve account established by law
shall be deposited in the earnings reserve account
established in the Alaska permanent fund."
6:03:40 PM
REPRESENTATIVE GRAY objected for the purpose of discussion.
6:04:03 PM
The committee took a brief at-ease.
6:04:33 PM
CHAIR CARPENTER outlined the changes proposed in Amendment 1.
6:07:07 PM
REPRESENTATIVE GRAY requested an explanation of the intent of
the transfers from the Permanent Fund, as addressed in the
amendment.
CHAIR CARPENTER stated that line 6 of Amendment 1 addresses
Section 7, Article 9 of the Constitution of the State of Alaska.
He stated that this is related to transfers out of the Permanent
Fund and the payment of dividends.
REPRESENTATIVE GRAY questioned whether the amendment is in
reference to making language in HB 110 consistent.
CHAIR CARPENTER responded that HB 110 and HJR 7 are designed to
work together. He stated that in 2021 the Fiscal Plan Working
Group (FPWG) indicated that numbers should not be put into the
constitution, and he provided the example of a percent of market
value (POMV) draw. To overcome judiciary objections to the
legislature's ability to dedicate funds, he said, HJR 7
addresses this portion of the constitution, and this [would work
in conjunction with] HB 110, which would give the legislature
the authority to dedicate funds in regard to the earnings from
the Permanent Fund. He said the numbers and payments would not
be put in the constitution, but only a requirement a payment be
made, and from this point the legislature would decide the
amounts.
REPRESENTATIVE GRAY, in reference to line 18 of the amendment,
pointed out this amount would be determined by a formula set out
in law. He expressed the assumption that this amount could be
changed, but the formula would have to be followed. He
suggested that the voters would not be seeing the formula.
CHAIR CARPENTER responded in the affirmative.
REPRESENTATIVE GRAY expressed the understanding that the
language is very general. He questioned what would happen if
only the resolution passed without the other legislation.
CHAIR CARPENTER, responding, expressed the belief that either
the statute most recently passed or the precedent statute would
be used. He suggested there could be a debate on this in the
legislature. He continued that companion bill HB 110 would
address this issue by removing the 21 percent of net earnings
and replacing this with a 5 percent POMV. He expressed the
opinion that this solution has the most support in the
legislature.
6:13:15 PM
REPRESENTATIVE MCCABE reiterated that this is the issue FPWG
spoke about. He stated that the proposed legislation would
leave no constitutional requirement for dedicated funds, as the
expenditure in the constitution would be redefined. He stated
that there would be a permanent fund dividend (PFD) of some sort
based on the formula in HB 110. From discussions, he expressed
the understanding that there has been resistance to putting this
in the constitution, and he reminded the committee that it had
agreed HJR 7 would be the best way forward.
6:14:37 PM
REPRESENTATIVE GROH stressed the importance of being clear about
what HJR 7 would do. He questioned how the proposed Amendment 1
to HJR 7 would affect the POMV draw and the potential
implications of the change on the sustainability of the
Permanent Fund.
6:15:59 PM
DEVEN MITCHELL, Executive Director, Alaska Permanent Fund
Corporation (APFC), answered questions on the proposed
legislation. He said from APFC's perspective, this would relate
to the dedication and distribution of revenue without an
appropriation. He continued that the proposed legislation does
not have the details to answer the question concerning the
sustainability of the fund, as this would hinge on the proposed
statutes. He said the trustees have talked about the changes
regarding the definition of which income would be deposited in
the earnings reserve account (ERA), whether it would be "gap"
income or "realized" earnings of the fund. He said that it
would be important to establish how money would be transferred
into ERA.
REPRESENTATIVE GROH pointed out that the proposed HJR 9 would
create a single account structure for the Permanent Fund by
combining ERA with the principal. He requested a comparison of
the consequences of the passage of HJR 7 with Amendment 1 and
HJR 9.
MR. MITCHELL expressed the understanding that, in view of what
APFC's trustees have expressed over the years, shifting to a
single fund with HJR 9 and using POMV would be more in line with
the board's position. He explained that this would remove the
angst in context of the importance of having a "fair share" from
an intergenerational perspective. He stated that with POMV, the
fund would not be overdrawn, as opposed to what is [proposed in
HJR 7], where the use would be defined by statute, leaving more
questions on how to ensure the durability of the structure
within the test of time. He expressed the importance of the
idea to "weigh the needs of today against the promise of the
folks of tomorrow."
REPRESENTATIVE GROH expressed the understanding that Mr.
Mitchell has related that HJR 9 would prevent overdrawing. He
requested a description of the effect of the proposed HJR 7,
with Amendment 1, as it relates to overdrawing and overspending.
MR. MITCHELL responded that this would depend on the established
statutory framework and the fortitude of future legislatures to
abide by these statutes. He stated that this would also depend
on the definition of "income," as it relates to the proposed
bill. He said that if gap income includes the unrealized gains,
along with realized income, any particular year could result in
a large amount of funds in ERA. He warned that this could lead
to future legislatures wanting access to the funds. He
expressed the opinion that HJR 9 is more structured, and it
would not have the same flexibility. He suggested that this
would prevent future legislatures from spending more than the
defined POMV transfer.
6:25:35 PM
CHAIR CARPENTER requested a description of how ERA would move
from the general fund (GF) to APFC.
MR. MITCHELL responded that currently ERA is held within the
Permanent Fund, and the transfers out of the Permanent Fund go
to GF. The amendment would keep ERA within APFC but in a
separate, new account, which would be available for
appropriations.
CHAIR CARPENTER expressed disagreement, as the intent of
Amendment 1 would be to prevent the legislature from
appropriating money from ERA. He stated that money could be
transferred out, via a statute, but the purpose of the proposed
legislation would be to constitutionalize the dedication of
funds, such that an appropriation would not be able to spend
from ERA. He argued that with the proposed legislation, the
legislature would not be able to spend from ERA.
MR. MITCHELL expressed the understanding that the amendment does
not have this level of restriction. He stated that he would
review the amendment and provide a follow up. He expressed
agreement that, if there is a statutory framework around the
fund, it would be more difficult to over expend from the fund.
He added that the legislature can currently draw from the money.
CHAIR CARPENTER, for a better understanding, requested that
Emily Nauman speak to the effect of the amendment concerning
ERA.
6:29:26 PM
EMILY NAUMAN, Director, Legislative Legal Services, Legislative
Affairs Agency, expressed the opinion that the question is
whether the proposed legislation would act as a safeguard or
restriction against the legislature from overdrawing ERA in any
given year.
CHAIR CARPENTER responded in the affirmative.
MS. NAUMAN continued that this amendment would effectuate a
transfer from ERA, rather than requiring an appropriation. She
stated that the nuance is the transfer would be based on a
statute in law; however, the statute could still be changed by a
majority vote. In response to a follow-up question, she stated
that ERA is now set in statute to be deposited into GF, as
specified in the constitution. She said the proposed
legislation would clarify in the constitution the current
structure which is set out in statute.
6:32:05 PM
The committee took an at-ease from 6:32 p.m. to 6:36 p.m.
6:36:19 PM
CHAIR CARPENTER questioned Ms. Nauman about the effect of
deleting language from the constitution, in relation to HJR 7,
Section 3, but without Amendment 1.
MS. NAUMAN responded that Section 3 and Section 4 of HJR 7 would
direct all income from the Permanent Fund go either to GF or to
PFDs. She further explained that under Amendment 1, the income
from the Permanent Fund would remain in the fund and be
deposited in a new, separate ERA; each year an amount would be
pulled out of the new account, and this amount would be limited
based on the balance of the account. This amount would pay PFDs
or be transferred to GF, according to the new formulas which
would be set out in law.
CHAIR CARPENTER questioned, if HJR 7 with the amendment were
enacted, whether the legislature would be able to appropriate
money out of ERA.
MS. NAUMAN responded in the negative. She explained that each
of the movements would happen without a legislative
appropriation, but automatically in accordance with the formula
in statute. She added that the legislature could change the
formula before the transfers happen.
CHAIR CARPENTER questioned the process by which the legislature
could change these statutes. For the record, he stated that he
would like to compare this with the appropriations process.
MS. NAUMAN stated that the process would be the same as passing
a bill. She stated that an appropriation would be one Act
combining many things into one bill, whereas an Act to change
statutes would have to be a bill limited under the single
subject rule in the constitution.
6:40:25 PM
REPRESENTATIVE GROH requested that both Mr. Mitchell and Ms.
Nauman address the following question. He presented the
hypothetical that the legislature changed the statute formula of
the transfer from ERA to the Permanent Fund, but not the
dividend distribution, and as a result the legislature spent the
money in ERA in a single year. He questioned whether this would
be allowed under the proposed legislation.
MS. NAUMAN responded in the affirmative.
REPRESENTATIVE GROH requested that Mr. Mitchell speak to the
question on an operational level.
6:42:37 PM
MR. MITCHELL responded that this hypothetical would not conform
to the board's guidance, as this would not provide for inflation
proofing the fund, so the future generations would have the same
benefits. He advised that this would put the fund on a path
towards less financial impact, as the purchasing power would
decline.
6:43:43 PM
REPRESENTATIVE GRAY posed the hypothetical that all the other
connected legislation passed; however, HJR 7 did not pass by the
voters. He questioned whether there would still be a fiscal
plan.
CHAIR CARPENTER deferred the question to Ms. Nauman.
6:44:18 PM
MS. NAUMAN responded that if the voters did not approve HJR 7,
then the situation would be status quo, and the legislature
could appropriate any amount from ERA in any given year.
CHAIR CARPENTER concurred. He stated that the solution being
sought would have some control around the PFD and ERA, without
defining the number in the constitution. He said that the
legislature is always going to be subject to the ability to
change statutes put in place by previous legislatures. He
stated that under this circumstance, the appropriations process,
or annual budget, has nothing to do with ERA because it is
already being taken care of in statute. He added that changing
a statute would take place in a policy meeting, but this would
have nothing to do with the budget.
6:45:41 PM
REPRESENTATIVE GRAY expressed the understanding that in the past
there had been a financial shortage, and dividends were cut, and
this was during the administration under Governor Bill Walker.
He continued with the understanding that some people were not
happy with this, as dividends have a history of being paid. He
deduced that the current approach is attempting to
constitutionally make what happened during this time impossible.
He questioned whether this is the problem being addressed.
CHAIR CARPENTER responded that some members of the legislature
question whether there will be PFDs in the future. He pointed
out the limited number of options for revenue and the continued
growth of government. He suggested that the growth of
government is going to consume all the revenue, and there may be
no money for PFDs. He stated that the conversation concerns how
to sustain PFDs and government spending. He argued that because
of the dominance of this topic, other subjects do not get
addressed by the legislature. He suggested that creating a more
stable structure, eliminating this conversation, the budget
process can be simplified. He stated that this is the intent
behind the proposed legislation.
6:48:33 PM
REPRESENTATIVE MCCABE opined that this is an example of what
happens every year, where the blame is being given to different
people and reasons. He argued that the state was not short of
money during the Walker Administration, and Governor Walker's
veto was the "start of us down this path that we have been on
ever since."
6:49:13 PM
REPRESENTATIVE GROH argued that there was an enormous drop in
revenues during the Walker Administration. He noted that there
was a veto, but since this time the dividend has become a
negotiation process. He concurred with the chair concerning the
need for stability to the Permanent Fund, preventing it from
being the annual "political football." He added that it is also
useful to understand overspending ERA by the legislature. He
expressed the understanding that the proposed legislation would
still allow a risk of this. He expressed support for working
toward PFD stability while protecting ERA.
CHAIR CARPENTER reiterated that there is a way to protect ERA
and the PFD, and this would be by putting numbers into the
constitution. He continued that there is not a consensus on the
right numbers now or for the future. He added that the process
for changing the numbers, once they are in the constitution,
would be problematic, because a constitutional amendment would
be needed. He expressed the belief that there cannot be
constitutional certainty because the votes would not be enough;
therefore, a compromise needs to be made.
6:52:10 PM
REPRESENTATIVE GRAY contemplated that if economic growth were to
be achieved with a million people living in Alaska, then more
funding for government services would be needed. He expressed
the understanding that "if the government grows its bad." He
expressed the desire to support HJR 7; however, he expressed
uncertainty about HB 110. He expressed the understanding that
the language in Amendment 1 seems to only make sense if HB 110
passes. He questioned the effect of HJR 7 if HB 110 does not
pass.
CHAIR CARPENTER deferred the question of this conflict to Ms.
Nauman.
6:54:13 PM
MS. NAUMAN expressed the understanding that if HJR 7 passes, but
HB 110 does not pass, there would not be an issue. She
continued that she would examine the question more closely and
follow up to the committee.
CHAIR CARPENTER stated that the intent has always been to
provide maximum flexibility by statute outside of the
appropriations process, as it relates to the split of the
earnings. He stated that HJR 7 would not direct the
legislature; therefore, current statute fits within the
framework of HJR 7.
6:55:32 PM
REPRESENTATIVE MCCABE questioned whether a new earnings account
would be made under the Permanent Fund, which would be a
dedicated fund, even though the constitution does not allow
dedicated funds. He expressed the understanding that this is
why the constitution would be changed.
MS. NAUMAN responded in the affirmative. She continued that
part of the funds would be going into GF, and these funds would
not be dedicated for any specific purpose, but because the
constitution would require this, the funds "in a way" would be
dedicated.
REPRESENTATIVE MCCABE expressed the understanding that if a fund
is dedicated to a certain purpose, it would be available to the
legislature to fund other services by appropriations.
MS. NAUMAN responded that the fund would be required to be used
in accordance with the constitution, whether Amendment 1 passes
or not.
REPRESENTATIVE MCCABE, repeating Representative Groh's question,
asked whether the legislature would be able to use the funds if
they are needed.
MS. NAUMAN responded that the legislature could "tinker" with
the formula for the amount going to GF and to PFDs in such a way
the money could be used for any purpose the legislature desires.
REPRESENTATIVE MCCABE stated that for this to happen another
statute would need to be passed, as a modification to HB 110.
MS. NAUMAN responded in the affirmative.
6:58:23 PM
REPRESENTATIVE GROH pointed out that the constitution restricts
initiative power which could dedicate revenues. He asked, per
the proposed legislation, whether the voters, by an initiative,
could change the statute and create an "excessively large
liability for the state." He continued by asking whether the
voters could make changes with an initiative to the statutory
language provided in the proposed legislation.
MS. NAUMAN responded that this creates an interesting question.
She continued that because the Alaska Supreme Court has not
addressed this, there is no answer. She expressed the opinion
that an initiative would not change the statutes; however, she
requested that she be able to follow up to the committee with an
answer. She warned that any answer to this question would still
contain uncertainty.
7:00:53 PM
REPRESENTATIVE GRAY withdrew his objection to Amendment 1.
7:01:05 PM
REPRESENTATIVE GROH objected. He expressed concern about the
risk of the legislature overdrawing the fund. He moved
Conceptual Amendment 1 to Amendment 1 to HJR 7. He stated that
the conceptual amendment would provide a provision which would
limit a total withdraw from ERA, whether through an
appropriation or non-appropriation, and this would include that
the payment of dividends would not exceed a specific POMV amount
of the fund.
7:02:39 PM
REPRESENTATIVE MCCABE objected.
7:02:56 PM
The committee took an at-ease from 7:02 p.m. to 7:10 p.m.
7:10:13 PM
CHAIR CARPENTER stated there is a conceptual amendment to the
proposed legislation which would amend the state constitution.
REPRESENTATIVE GROH, speaking to Conceptual Amendment 1 to
Amendment 1, stated that it would be to provide additional
protection as it relates to transfers out of ERA. He explained
that the total amount withdrawn shall not go over POMV, as
determined by statute. He stated that this would protect
against the risk of overdrawing from ERA.
CHAIR CARPENTER ruled that Conceptual Amendment 1 to Amendment 1
to HJR 7 was out of order. He pointed out that the conceptual
amendment does not address anything related to Amendment 1;
moreover, it would be the introduction of a new subject. He
advised that it would need to be drafted as a second amendment
to HJR 7; however, the deadline for this has passed.
REPRESENTATIVE GROH maintained his objection to Amendment 1 to
HJR 7.
7:12:07 PM
A roll call vote was taken. Representatives Allard, McKay,
McCabe, Gray, Tilton, and Carpenter voted in favor of Amendment
1 to HJR 7. Representative Groh voted against it. Therefore,
Amendment 1 was adopted by a vote of 6-1.
7:13:01 PM
CHAIR CARPENTER announced that HJR 7, as amended, was held over.
| Document Name | Date/Time | Subjects |
|---|---|---|
| HJR 7 Amendment 1.pdf |
HW&M 4/24/2023 6:00:00 PM |
HJR 7 |