Legislature(2005 - 2006)BELTZ 211
01/18/2006 01:30 PM Senate COMMUNITY & REGIONAL AFFAIRS
| Audio | Topic |
|---|---|
| Start | |
| SB219 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| *+ | SB 219 | TELECONFERENCED | |
SB 219-COMMUNITY DIVIDEND PROGRAM
CHAIR GARY STEVENS announced SB 219 to be up for consideration
and noted that the committee would hear a number of community
dividend plans during the course of the legislative session.
1:47:44 PM
Senator Gary Wilken, sponsor of SB 219, introduced the bill as a
community dividend suggestion and then reviewed the material in
the packets.
CHAIR GARY STEVENS asked for a motion to adopt the committee
substitute (CS).
1:50:16 PM
SENATOR STEDMAN motioned to adopt \Y version CS for SB 219.
SENATOR WILKEN read the following sponsor statement into the
record:
Senate Bill 219 creates a sustainable community
dividend program to share state revenue with Alaska's
local municipal governments and unincorporated
communities. The proposed community dividend program
is in response to concerns expressed by communities
throughout Alaska. Higher costs of basic living and
government needs, coupled with diminished traditional
state support, have placed greater financial burdens
on all local governments, large and small alike.
Under Senate Bill 219, the funding source for the new
community dividend program is structured to be
sustainable, the most important aspect of any
meaningful state revenue sharing plan. One-third of
the funds come from each of the following sustainable
sources: 1) the earnings on the Amerada Hess sub-
account of the Permanent Fund, 2) the Constitutional
Budget Reserve, and 3) the Permanent Fund Earnings
Reserve Account.
Senate Bill 219 provides $70 per person for all local
municipalities and unincorporated communities.
Additionally, each municipality that is a school
district and is meeting the 4-mill local contribution
school requirement will receive an additional $30 for
a total of $100 per resident.
The Department of Commerce, Community, and Economic
Development will issue the dividends to Alaskan
communities on July 1 of the year following the actual
legislative appropriation. This one-year delay will
allow local governments to build an operating budget
based on firm numbers. There will be no need for the
budget writers to wait for the legislature to take
action before drafting and passing their annual
budgets.
Alaskans have enjoyed the benefit of their individual
Permanent Fund dividend for many years; the time has
come to share the state's wealth with our communities.
Senate Bill 219 utilizes three robust and sustainable
revenue sources to provide each Alaskan community an
annual dividend.
1:52:34 PM
SENATOR WILKEN remarked he introduced SB 219 as an effort to
equally share the state's wealth. Furthermore, he would hope
that everyone sees the folly of funding a community dividend
program from the general fund because there will be budget
deficit problems again. He encouraged using the assets that are
available and sustainable.
In conclusion, Senator Wilken posed the following questions:
1. Do we want a community dividend?
2. If we want a dividend, to what level?
3. Once the level is determined, what is the funding source?
1:54:31 PM
CHAIR GARY STEVENS opened public testimony.
1:54:52 PM
WAYNE STEVENS, President, Alaska State Chamber of Commerce,
stated support for SB 219. The state chamber supports "a
sustainable community dividend using an endowment management
method to provide local tax relief to business and families and
to assist in providing basic public services throughout Alaska."
1:56:30 PM
CHAIR GARY STEVENS asked Senator Wilken to comment on the
rational for using funds from the three proposed sources.
SENATOR WILKEN responded those sources are sustainable and
robust and they provide flexibility. First, he likes the idea of
setting Amerada Hess aside for a specific purpose. Taking $26
million from that source still allows it to grow. Second,
revenue from the CBR would be available unless the draw would
pull the fund below $1 billion. Current estimates indicate that
drawing $20 million would amount to just one-third to one-fourth
of the earnings of the CBR. The third source is the earnings
reserve. According to a Department of Revenue report, taking $20
million to $23 million out annually over the next 10 years would
reduce Permanent Fund Dividend checks by just $49 spread over
the 10-year period.
2:00:32 PM
CHAIR GARY STEVENS asked if one-third would actually come from
each revenue source.
SENATOR WILKEN replied the bill currently contemplates one-third
from each source, but a wiser course would be to take some
amount greater than one-third from Amerada Hess and the balance
from the other two sources in equal portions.
CHAIR GARY STEVENS recognized that Representative Carl Moses and
Representative Bill Thomas, Jr. were also in attendance.
2:01:32 PM
SENATOR BERT STEDMAN suggested that the discussion include the
state's overall fiscal position with respect to using a portion
of the earnings reserve as well as the issue of the nearly $6
billion in under funded pension and benefits liability. He
pointed out that some of that liability sits in lap of the
communities, cities, and boroughs.
He asked whether the proposed help to the communities is
targeted for pension liability or whether the proposal is an
entirely separate issue, which would require the creation of an
entirely different funding mechanism.
SENATOR WILKEN replied how to use the money is a local option.
Municipalities that contribute to schools are targeted with a
school support supplement, but that's as far as he is willing to
go in directing how the funds are used.
SENATOR STEDMAN clarified his questions by saying that direct
appropriations could be made into the trust or direct
appropriations could be made to communities and cities. He then
asked whether the $63 million allocation to communities would
relinquish the state's voluntary help to communities to fund the
payroll increases they face for the next 15 years or more.
SENATOR WILKEN responded it isn't his intention to mix the
PERS/TRS responsibilities with SB 219. How to use the funds is a
local issue. "If my borough wants to spend their $8 million on
their PERS/TRS then that's their decision and they're held
accountable," he said.
2:05:29 PM
CHAIR GARY STEVENS asked about double payments. He referenced
the community dividend estimates for Fairbanks and the Fairbanks
North Star Borough and asked how the figures were derived.
SENATOR WILKEN acknowledged the question had arisen earlier.
Using a visual aid, he demonstrated that Fairbanks, North Pole
and the Fairbanks North Star Borough would each receive the $70
per capita dividend. Because the borough operates the school
district, it would receive the $30 per capita school support
supplement.
CHAIR GARY STEVENS remarked the borough wouldn't get a $70
dividend for those people living in Fairbanks or North Pole.
SENATOR WILKEN agreed and added the CS clarifies that point.
2:07:09 PM
CHAIR GARY STEVENS questioned whether a dividend program might
discourage some communities from moving on to form boroughs.
SENATOR WILKEN replied he certainly hopes that wouldn't be the
outcome. He mentioned the discussion regarding minimum payments
to small communities and said his response is that everyone
should be treated the same. He recommended that conversations
take place regarding how to make the money go farther. If the
bill brings local governance, that's good but it's not a large
part of this bill, he concluded.
2:09:20 PM
JAMES HORNADAY, Mayor, City of Homer, testified via
teleconference and read a city council resolution into the
record urging the state to establish a sustainable program to
share revenue with all Alaskan communities. Furthermore, the
resolution suggested that each community receive no less than
$75,000 beginning in 2007. [A copy of the full resolution may be
found in the bill file.]
MAYOR HORNADAY outlined some of the anticipated City of Homer
projects and concluded his remarks by reiterating support for
some type of community revenue sharing.
2:14:13 PM
CHAIR GARY STEVENS informed him that four or five revenue
sharing bills have been introduced. He encouraged Mayor Hornaday
to watch closely.
2:14:58 PM
RANDY FRANK, Fairbanks North Star Borough Assembly member,
testified via teleconference as a private citizen in support of
some sort of community dividend program. In particular, he said
he likes the term "sustainable" so the program could be counted
on in years to come. Also, it's helpful if a program is set up
so that a community knows what it will receive before the budget
is prepared.
He stated support for spreading the burden among the three
revenue sources because it allows needed flexibility and
sustainability. I really like this idea, he concluded.
2:17:41 PM
TIM BECK, Fairbanks North Star Assembly member and Alaska
Municipal League member, testified via teleconference to answer
the three questions Senator Wilken posed. Yes, we do want a
program and its size should be large enough to be meaningful
rather than a token effort. Finally, the funding source should
be sustainable. That is key to the entire program, he asserted.
In conclusion he thanked Senator Wilken and other legislators
who are working to reinstate municipal revenue sharing in some
fashion.
CHAIR GARY STEVENS noted that Bill Rolfzen, Division of
Community Advocacy, Department of Commerce, Community, &
Economic Development (DCCED) was available for questions.
2:19:35 PM
KEVIN RITCHIE, Executive Director, Alaska Municipal League
(AML), opened his remarks by stating appreciation for the bill
then referenced the 2006 AML policy statement, which supports
use of Permanent Fund earnings. He agreed with the sponsor that
using a portion of the Permanent Fund wouldn't noticeably affect
the value of the dividend. In fact, the per capita payment could
be viewed as $70 to $100 of tax relief each year. Because the
money would be taken from government and given to government
there wouldn't be a federal income tax issue, which makes this
an efficient way to offer relief to communities and businesses.
The proposed bill would not only provide substantial tax relief,
it would also keep small communities viable. As a business
issue, that is good for all of Alaska. "We're actually brought
closer together economically by our great distances," he said.
Citing the Anchorage Economic Development Corporation he pointed
to the number of jobs in urban areas that exist to serve rural
areas.
The community dividend is a sustainable concept. The former
revenue sharing program existed in dwindling form for 35 years
and AML is enthusiastic about helping to develop a sustainable
program that provides long-term tax relief and helps small
communities.
He suggested that further conversations are needed to provide
substantial relief to very small communities. They have certain
record keeping and meeting requirements to "keep the lights on."
We'd like to work with you in that area, but this is a good
start in the discussion, he concluded.
2:23:38 PM
CHAIR GARY STEVENS referenced a data sheet prepared by the
Division of Community Advocacy and noted that a number of small
communities are experiencing serious difficulties.
2:24:16 PM
SENATOR STEDMAN asked Mr. Ritchie to address the issue of double
or triple dipping as the state makes an effort to help
communities in financial difficulty. In particular he asked him
to address the question in terms of the PERS/TRS liability and
the AML flier that talks about a maximum contribution rate of 20
percent of payroll. Who's going to pay the liability, he asked.
2:25:13 PM
MR. RITCHIE responded all the liability facing communities would
have to be addressed in another committee and that approximately
half of the $6 billion unfunded liability falls on local
government, school districts and the university. For years
municipalities contributed 5 to 10 percent of salary and didn't
give much thought to the retirement system and now the actuaries
say that on average 40 percent of all salaries paid must go to
the retirement system. Over the last several years the state has
responded by raising the PERS rates for employers by 5 percent
per year. That means that a municipal government is likely to
spend 60 to 75 percent of its budget on salaries and in school
districts, salaries probably represent closer to 85 or 90
percent of the budget.
With regard to paying the bills, he said the Constitution
envisioned state and local government working together to
minimize the impact on taxpayers. I can't answer Senator
Stedman's question directly, he said, but the Legislature is
working on the problem and the retirement management board is
also working on the issue.
In November the AML passed a resolution stating that PERS/TRS
shouldn't be more than 20 percent of payroll. How to pay the
amount in excess of 20 percent will be the subject of much
discussion but the Alaska Retirement Management Board has said
that it will discuss that point with the Legislature.
2:29:19 PM
SENATOR STEDMAN stated his concern is that cities need revenue
help from the state. Clearly there is a PERS liability that
rests with municipalities and not the state, but it's a state
obligation to help municipalities when their revenue is squeezed
and they are in financial crisis. However, tying up revenue
streams that the state may need either partially or wholly to
tackle this problem is a dangerous road to take.
He suggested that it is preferable to look at help for
municipalities in its entirety rather than in a segmented
fashion. If the piecemeal approach is taken, municipalities will
be back in a few months asking for more help with their PERS/TRS
liability. Certainly, some communities are having trouble
grasping the fact that they have this liability.
He summarized his concern with the bill relates to the unfunded
liability and dealing with the Permanent Fund in an era of
expected revenue excesses over expenditures.
2:32:37 PM
JENNIFER YUHAS, Fairbanks North Star Borough representative,
testified via teleconference and read Chief Finance Officer,
Michael Lamb's, supporting testimony into the record. The
borough supports a sustainable community dividend program and in
particular the provision that recognizes communities that
support their schools. [A copy of the letter may be found in the
bill file.]
2:34:37 PM
CHAIR GARY STEVENS noted that Leslie Ridle with the Anchorage
Mayor's Office and Elaine Price from Coffman Cove were listening
online.
DAVE TALERICO, Mayor, Denali Borough, testified via
teleconference in support of the bill.
A key feature is that funds may be used for any municipal or
community purpose. Furthermore, he considers the funding
mechanism to be appropriate and sustainable.
Finally, he voiced concern that a minimum base amount for small
community operations is not included. If a minimum were included
he could be "incredibly supportive." He then expressed
appreciation to the sponsor and said the proposal is working
toward a resolution.
2:36:42 PM
GARY HENNIGH, Manager, City of King Cove, testified in support
of the effort represented in SB 219. As city manager he said he
understands and supports the sustainability features of the
program.
He outlined the measures the City of King Cove instituted when
revenue sharing and municipal assistance disappeared in 2003.
That included increasing sales taxes 25 percent and initiating a
fisheries business impact tax on the lone fish processor.
He voiced support for the financial parameters found in
Representative Moses' House Bill 28 because that amount more
closely anticipates what the city projects its' needs to be.
With anticipated need in mind, he suggested averaging the three
highest years from when there was revenue sharing to establish a
base amount. This is a compromise between SB 219 and what might
ultimately pass, he concluded.
2:40:33 PM
VALERIE McCANDLESS, Mayor, City of Wrangell, testified via
teleconference in support of a sustainable community dividend
program with a minimum established for smaller communities. We
will be following all the bills as they go forward, she
concluded.
2:41:31 PM
SENATOR STEDMAN stated that legislators do recognize the need
for help for communities and the discussion will center on what
will be encompassed in giving that help. He assured participants
that at the end of the day the Legislature will take some
action.
2:42:15 PM
CHAIR GARY STEVENS asked the sponsor if he had closing comments.
2:42:23 PM
SENATOR WILKEN referenced the report by legislative research
dated October 10 titled "Revenue Sharing in Alaska" and
commented that it is a good summary and indicates that Alaska
has done a good job.
He noted that there are 11 different proposals on revenue
sharing, but he wanted to recognize Representative Moses'
efforts in particular because he's kept the idea in front of the
Legislature year after year.
CHAIR GARY STEVENS announced he would hold SB 219 in committee.
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