Legislature(2003 - 2004)
04/28/2003 09:04 AM Senate FIN
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
HOUSE BILL NO. 11
"An Act relating to deposits to the Alaska permanent fund from
mineral lease rentals, royalties, royalty sale proceeds, net
profit shares under AS 38.05.180(f) and (g), federal mineral
revenue sharing payments received by the state from mineral
leases, and bonuses received by the state from mineral leases,
and limiting deposits from those sources to the 25 percent
required under art. IX, sec. 15, Constitution of the State of
Alaska; and providing for an effective date."
This was the first hearing for this bill in the Senate Finance
Committee.
Co-chair Wilken informed that this legislation would provide
royalty contribution revenue to the Alaska Permanent Fund at the 25
percent level as specified in the State's Constitution.
REPRESENTATIVE NORM ROKEBERG, the bill's sponsor, informed that in
1981, the Legislature increased the royalty contribution amount
from all new natural development leases from the 25 percent level
specified in the State's Constitution to a 50 percent contribution
level. He stated that this action "has afforded the Permanent Fund
significant revenue and growth opportunities for the past 22
years;" however, he continued, the State's general fund budgetary
needs and fiscal gap situation mandate that the level of revenue
dedicated to the Permanent Fund be returned to the original 25
percent requirement in order to reallocate the additional funds
into the general fund. He stated that production levels have been
stabilized due to new fields being developed to replace the
production decline from Prudhoe Bay. However, he stressed that low
per barrel prices are causing the State to experience "a cash flow
problem." He stated that this legislation would provide a
"painless" remedy as opposed to implementation of a State sales
tax, income tax, or an increase in the motor fuel tax.
Representative Rokeberg stressed that this action would have
minimal affect on the Permanent Fund, and he shared that only one
third of the $1,540 FY 02 Permanent Fund Dividend (PFD) check, or
$532, resulted from the oil revenue contribution and that the
balance of the check was generated by "actions of the Legislature"
via special appropriations and inflation proofing measures.
Representative Rokeberg opined that a recently approved
Municipality of Anchorage Assembly resolution in support of this
legislation indicates that the citizens of the State "are beginning
to understand that this is a solid non-partisan way to attack the
fiscal dilemma" facing the State.
Senator Bunde commented that he supports this legislation as "you
can't cut your way to prosperity; you can't save yourself into
prosperity."
ED MARTIN, SR. testified via teleconference from Kenai and stressed
that the State must control expenses in order not to exceed its
income. He referenced the 1999 special statewide election in which
83 percent of Alaskan voters indicated they do not wish to have the
Permanent Fund system altered, and he urged elected officials to
honor that vote to maintain voter trust.
Senator Bunde noted that, due to budget restraints, the Kenai
Peninsula Borough is considering reducing school funding, and he
asked whether Mr. Martin would support receipt of additional State
funding to assist in alleviating the Borough's budget situation.
Mr. Martin voiced that changes to the Permanent Fund should not be
conducted without a vote of the people. He emphasized that the
State should cut or reduce funding to programs to accomplish the
goal of living within its means.
Senator Bunde therefore "assumed" that the testifier would approve
of further State funding reductions to the Kenai school funding.
Mr. Martin responded that when managing the State's budget, all
aspects of school funding, on a statewide basis, should be
considered including such things as school administration salaries.
He reiterated that the State must work within its budget.
LENORE JONES testified via teleconference from Kenai to voice
concern that the Permanent Fund program might be changed without a
vote of the people. She urged the Committee to oppose this
legislation, and she suggested that a state lottery or income tax
be considered to raise State revenue.
LAURIE CHURCHILL, Board Secretary, Alaska Voters Organization,
testified via teleconference from Kenai and read the Organization's
Resolution 2003-11 [copy on file] that reminded legislators that,
in a 1999 advisory vote, 83 percent of Alaskan voters opted against
using Permanent Fund earnings to balance the State budget. However,
she continued, Governor Frank Murkowski and legislators are now
considering policies that would do just that "in direct opposition"
to that vote and to recent election promises "to defend and protect
the Permanent Fund." She stressed that this legislation's
accompanying fiscal notes understate the loss of potential revenue
to the Permanent Fund, and she noted the current trend of declining
oil production, but increasing government spending.
PETRIA FALKENBERG testified via teleconference from Kenai and
characterized this legislation "as highway robbery of the Permanent
Fund." She reminded Members of campaign promises and the 1999 vote
that specified that the Legislature should not "touch the Permanent
Fund without a vote of the people." She questioned the number of
voters who support this bill.
Senator Bunde responded that the majority of the people in his
district support using Permanent Fund earnings to balance the State
budget rather than a State tax. He additionally noted that the
people in his district recognize that in three years the
Constitutional Budget Reserve (CBR) would be non-existent and the
people of the State would be faced with either "substantial
personal taxes or with using the earnings of the Permanent Fund."
LINDA HORDEMAN testified via teleconference from Kenai and
exclaimed, "the 13 percent of the population lives in his [Senator
Bunde] district that opposed the [1999] vote…now we know where they
live." She addressed the Kenai School District funding shortfalls
by noting that the area is experiencing a decrease in student
enrollment and that the school district is contemplating the
closure and consolidation of school facilities. However, she
questioned the District's wisdom of opening up a school to use as
an administration office as, she exclaimed, this "is not
responsible spending and budgeting." She questioned why teachers
are not being better paid or classrooms being better equipped
because, she attested, the "money is there; we just don't know why
you guys can't get it in the right place."
Ms. Hordeman continued that Legislators have claimed for a decade
that "the sky is falling" and that Permanent Fund revenues must be
accessed to balance budget shortfalls. She voiced that the State
must make "serious cutbacks" in State offices as the private sector
has been forced to do. She opined that it is the private sector
that stimulates the economy and that the Permanent Fund dividend
payments provide money that supports the private sector. She
likened taking the Permanent Fund money, which she declared is "for
the people," away from the people "to a Soviet Union type
government."
Senator Bunde interjected that giving money to people "for not
doing anything" is more "socialistic" than communistic.
Senator Taylor stated that there is a lot of socialism in the
country as, he noted, numerous states, as well as the federal
government, take from people according "to their ability to pay"
and give to people according to their needs.
SUSAN GIBSON testified via teleconference from Kenai and challenged
Senator Bunde's comment regarding "getting free money for nothing."
She clarified that the Permanent Fund was created to replace what
the people have lost due to not being able to claim mineral rights
on their land. She qualified that Alaska is the only state that
does not allow people to purchase property and retain the mineral
rights to that property.
Senator Bunde affirmed that this is correct.
Ms. Gibson urged the Committee to oppose this legislation and
instead to support other legislation, in particular HJR 3, as "it
is past time to redefine the economic reality" of the State…"it is
not revenue shortfall, but instead is spending excess…for the past
ten years." She urged the Legislature "to live in the here and now"
and "make real and meaningful budget cuts" as private citizens are
forced to do.
JAMES PRICE testified via teleconference from Kenai and urged the
Committee to oppose this legislation. He reminded the Committee
that the 83 percent vote against using Permanent Fund earnings to
balance the State's budget "was clearly an indication that the
people do not favor this sort of legislation." He "respectfully
disagreed with Senator Bunde's" comments that his district would
support using the Permanent Fund to balance the budget and
suggested that another advisory vote be conducted to determine
citizen positions. He advised that the State's budget should be
reviewed for the long-term and that budget cuts should be
implemented, as the current budget is unsustainable. He attested
that were the Permanent Fund earnings used now to offset budget
shortfalls "without trimming down State spending" the State would
face the same dilemma again in a few years. He urged for a
responsible approach to the budget be undertaken; however, he
advised that education, transportation, and public safety should be
protected.
Senator Bunde specified that while 83 percent of the voters who
voted in the 1999 advisory election opposed using Permanent Fund
earnings to balance the budget, he noted that only 20 percent of
registered voters voted in that election. He voiced that it "would
be interesting" to put that question to the people again, and he
commented that a higher voter turnout would be welcome.
Senator Bunde referenced information [copy not provided] supplied
by Co-chair Wilken that indicates that the federal government
contributes approximately 36 percent of the State's total annual
operating budget as pass-through funding to state agencies, and he
professed that, were this funding eliminated, the State's fiscal
gap would not be affected "by one dollar." However, he stated that
it might impact citizen programs. He asserted that 15 percent of
the total general fund spending supports the Permanent Fund
program, and he declared that when people insist that the State
reduce spending, they should be aware that the Permanent Fund
dividend program is a substantial expense.
Co-Chair Wilken clarified that the Permanent Fund program accounts
for 15 percent of the total State budget and that general fund
spending accounts for approximately 30 percent of the State's total
budget. Therefore, he asserted that the Permanent Fund program
equates to one-half of general fund spending.
Senator Taylor declared that this information is very informative,
as he had not realized "the magnitude" of the Permanent Fund
program. He questioned whether the numbers include inflation-
proofing funding in addition to the dividend and the cost of
administering the program.
Co-chair Wilken commented that in FY 04, the Permanent Fund program
budget is expected to be approximately one billion dollars.
Therefore, he expounded that the Permanent Fund program expense
would account for approximately half of the total $2.2 billion
general fund spending in FY 04, and that these figures, combined
with projected federal funding, would account for approximately 80
percent of the total State FY 04 budget. He informed that the
remaining 20 percent is money that the Legislature "has no control
over" as it has been previously obligated.
Senator Bunde reiterated that when the citizens request the
Legislature to reduce spending, their request "should be very
specific" because a large portion of the State's spending supports
the Permanent Fund dividend program.
KEVIN RITCHIE, Executive Director, Alaska Municipal League (AML),
conveyed that sixteen municipal officials, representing AML's
Legislative Committee and Board of Directors, recently met "and had
a very sobering discussion with the Director of the Office of
Management and Budget (OMB)" regarding the State's and communities'
"grave fiscal situation." He distributed an Alaska Municipal League
letter and accompanying resolution [copies on file], dated April
25, 2003, and addressed to Governor Frank Murkowski that specify
that AML supports the proposed statutory change in HB 11. He stated
that, "the Board was moved by the fact" that the State's voters
approved the 25 percent contribution level in 1976.
Representative Rokeberg asked the current price of Alaska North
Slope (ANS) crude oil.
CHUCK LOGSDON, Chief Petroleum Economist, Tax Division, Department
of Revenue, testified via teleconference from Anchorage and replied
that ANS crude oil is currently selling for $23.50 per barrel.
Representative Rokeberg asked whether current prices and production
levels would equate to approximately a $65 million shortfall in
general fund availability.
Mr. Logsdon responded that it would.
Co-Chair Wilken asked the production level factored in this
shortfall.
Mr. Logsdon responded that this reflects the current level of
production, which is slightly less than one million barrels a day.
Representative Rokeberg informed that due to the current price of
the oil, the State has lost approximately one million dollars in
the last week. He continued that because of the volatility in the
market, the Organization of Petroleum Exporting Countries (OPEC)
has scheduled an emergency meeting to try to stabilize the market.
He stated that were the market to stabilize and production to
remain constant, ANS prices might meet the State's spring revenue
forecast.
Mr. Logsdon affirmed and specified that the State based its FY 04
revenue forecast projections on the price of $25, which is in the
middle of the OPEC target price range. However, he predicted that,
in the long run, the price per barrel would meet OPEC's low target
range; therefore, he informed that the State has based its long
range projection at $22 per barrel.
Senator Bunde asked the price that ANS would need "to sell for to
balance the budget at the current level of spending."
Mr. Logsdon answered that the price would need to be $38 a barrel
to balance the FY 04 budget.
Senator Bunde asked the likelihood of achieving that price.
Mr. Logsdon replied that ANS oil has never averaged that price.
Representative Rokeberg noted that it would be difficult to
increase State revenue this year because of cash flow problems;
however, he remarked that this legislation would provide a certain
amount of money to assist the Legislature in meeting its
obligations. He stressed that this legislation is not necessarily
"a spending bill," and he supported keeping general fund
expenditures below FY 03 levels.
Representative Rokeberg opined that there is no relationship
between this bill and the 1999 vote, and he argued that the concept
of saying that this legislation has been to the polls and rejected
by the voters is false. He declared that the House of
Representatives has two times previously approved similar
legislation and that the legislators who voted for it were re-
elected. He stated that were the issue appropriately presented to
the voters, it "would be favorable received." He furthered that
this legislation would reduce pressure to implement taxes or to
alter the Permanent Fund program.
Representative Rokeberg aired that while "its true that Congress
granted subsurface mineral rights to the State of Alaska," he
contended that this was done to reduce the State's dependence on
the federal government rather than to establish the Permanent Fund
program "to redistribute money to the citizens because of the loss"
of the mineral rights.
Co-Chair Green respectfully disagreed. She voiced that the
Permanent Fund program was specifically created to compensate
landowners from being prohibited from owning the mineral rights to
their land. She noted that, with the exception of Alaska and
Hawaii, every other state in the union allows the landowner to own
mineral rights to their land.
Representative Rokeberg voiced that while he is not disagreeing
with Co-chair Green's analysis, he is disagreeing that this is the
basis for the establishment of the Permanent Fund.
Senator Taylor communicated that public testimony indicates, "this
bill is perceived as a raid on the Permanent Fund."
Representative Rokeberg responded that for a small amount of people
who do not understand the history and the nature of the
establishment of the Permanent Fund program or the monetary fiscal
crisis that the State is in, this is correct.
Senator Taylor expressed that the focus of today's public testimony
has "emotionally" centered on the Permanent Fund program and the
issue of mineral rights rather than focusing on the revenue stream
that this legislation would contribute to the State. However, he
voiced opposition to the legislation "for those very same reasons,"
and he supported the money continuing to be deposited "into the
Permanent Fund until the people decide what to do."
Senator Olson, referencing the Department of Revenue communiqué
titled "HB 11 dividend projections," dated January 29, 2003 [copy
on file], from Deputy Director, Larry Persily, to the sponsor's
staff, stating that Alaskans are concerned about the affect this
legislation would have on the Permanent Fund dividend payouts.
SFC 03 # 66, Side B 09:52 AM
Representative Rokeberg responded that HB 11 would result in
relatively minor changes to the Permanent Fund dividend amounts. He
stated that until the year 2010, the status quo level and the
amount paid under the guidelines of HB 11 would be identical. He
continued that following that timeframe, minor reductions would
occur as exampled by a ten-dollar reduction in 2010.
Senator Olson ascertained, therefore, that "there would be
relatively no change."
Senator Bunde voiced the public's concern that, were a cash flow
increase of approximately $50 million to result from the passage of
this legislation, the government might increase spending equal to
that amount. He asked how the Legislature could assure the public
that this would not occur, and that the money "would be used to
address the State's deficit rather than supporting new programs."
Representative Rokeberg responded that a reduction in the FY 04
operating budget expense below this amount would demonstrate the
intent of this action. He further suggested that plausible
explanations and information supporting expenditures should be
provided to the public. He reiterated that this legislation would
lessen the pressure on the Legislature to enact taxes or to alter
the Permanent Fund dividend program. He also reiterated that the
public must become aware of the State's serious fiscal dilemma,
which includes such programs as pension fund obligations.
Senator Bunde opined that the Legislature must appropriate less
money, and he asked whether the House of Representatives has
adopted an FY 04 operating budget bill that reduces spending.
Representative Rokeberg noted that while Governor Murkowski's
proposed FY 04 budget reflects an increase in general fund money,
that increase would be offset by the enactment of legislation to
reduce other spending.
Senator Bunde surmised, therefore, that the answer to the question
as to whether the House reduced spending is "no."
Senator Taylor expressed that the low voter turnout in the 1989
advisory vote was less than representative; therefore, he suggested
that the question as to whether the amount of revenue flowing into
the Permanent Fund account should be reduced from the current 50
percent statutory level to the Constitutionally mandated 25 percent
level should be put to the people.
Representative Rokeberg responded that the House considered an
amendment to do just that, and that he had spoken in opposition to
it, as, he stated, "it was Legislative action" that increased the
allocation and "that it is the right and responsibility of the
Legislators to act to either repeal or adjust its own legislation."
To do otherwise, he attested, would minimize the Legislators'
constitutional rights and duties to act on behalf of the people.
He asserted that this would set a precedence that any difficult
decision should be voted on by the people.
Co-Chair Wilken asked the sponsor to verify that the numbers
th
specified in the aforementioned January 29 communiqué are correct
as, he informed, he supports this legislation and would be using
those numbers in its defense.
Representative Rokeberg clarified that the Department of Revenue
fiscal note #1 reflects that minor reductions in the Permanent Fund
dividends would begin in 2005.
Co-chair Wilken stated that the affect of this legislation on
Permanent Fund dividend is of concern to the public, and he noted
that the information contained in fiscal note #1 would be useful in
garnering support for the bill.
Co-Chair Wilken clarified that this legislation would align the
Legislature's action with the Constitution. He suggested that in
order to protect the Permanent Fund and benefit the general fund
the Legislature should determine how 1980 federal law changes might
affect other royalty level adjustments that the State has under
consideration, specifically royalty lease percentages involving the
National Petroleum Reserve-Alaska (NPR-A).
Co-chair Wilken ordered the bill HELD in Committee.
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