Legislature(2003 - 2004)

06/22/2004 03:08 PM Senate FIN

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
     SENATE JOINT RESOLUTION NO. 101                                                                                            
     Proposing  amendments  to  the  Constitution  of the  State  of                                                            
     Alaska relating to  and limiting appropriations from the Alaska                                                            
     permanent fund based  on an averaged percent of the fund market                                                            
     SENATE JOINT RESOLUTION NO. 102                                                                                            
     Proposing  amendments  to  the  Constitution  of the  State  of                                                            
     Alaska relating to  and limiting appropriations from the Alaska                                                            
     permanent fund based  on an averaged percent of the fund market                                                            
      value and relating to permanent fund dividend payments.                                                                   
     SENATE JOINT RESOLUTION NO. 103                                                                                            
     Proposing  amendments  to  the  Constitution  of the  State  of                                                            
     Alaska relating to an appropriation limit.                                                                                 
     SENATE BILL NO. 1003                                                                                                       
     "An Act relating  to the income of and appropriations  from the                                                            
     Alaska permanent  fund under art. IX, sec. 15(b),  Constitution                                                            
     of  the State  of  Alaska, and  making  conforming amendments;                                                             
     relating  to  permanent  fund  dividend  payments of  at  least                                                            
     $1,000;  relating  to the determination  of  net income of  the                                                            
     mental  health  trust  fund;  and providing  for  an  effective                                                            
     SENATE BILL NO. 1004                                                                                                       
     "An Act providing  for and relating to the issuance  of general                                                            
     obligation bonds for  the purpose of paying the cost of design,                                                            
     construction,  and  major  maintenance  of  facilities  at  the                                                            
     University of Alaska; and providing for an effective date."                                                                
     SENATE BILL NO. 1005                                                                                                       
     "An Act providing  for and relating to the issuance  of general                                                            
     obligation  bonds for the purpose  of paying the cost  of state                                                            
     surface   transportation   projects;  and   providing   for  an                                                            
     effective date."                                                                                                           
This was  the first hearing  for these bills  in the Senate  Finance                                                            
GOVERNOR  FRANK MURKOWSKI  stressed  that this  special session  was                                                            
necessary in order to further  efforts to resolve the State's fiscal                                                            
dilemma.  While there are  differing opinions  about how to  address                                                            
the State's  fiscal crisis,  it could be  agreed upon that  Alaskans                                                            
are looking  for  and expect  a solution  from the  Legislature.  He                                                            
recounted that  today's Anchorage  Daily News newspaper contains  an                                                            
editorial   titled  "Let's   see  some   action"   as  well  as   an                                                            
advertisement  from the Conference of Alaskans urging  consideration                                                            
be  given to  their  recommendations  regarding  how to  remedy  the                                                            
fiscal situation.                                                                                                               
Governor  Murkowski stated  that one  of the  "paramount" issues  of                                                            
this deliberation would  be the decision regarding whether or not to                                                            
authorize  that  no more  than  five-percent  of  the value  of  the                                                            
Permanent Fund  could be spent in support of State  government. Were                                                            
this Percent  of Market  Value (POMV) proposal  supported,  the next                                                            
decision would  entail how that process  should be implemented.  The                                                            
State has  been dealing with  its fiscal situation  for more  than a                                                            
decade. He urged that a bipartisan solution be developed.                                                                       
Governor Murkowski  stated that the  convening of the Conference  of                                                            
Alaskans  this  year was  a  different approach  to  addressing  the                                                            
State's  fiscal dilemma.  The Conference  Delegates recognized  that                                                            
there is a  problem and developed  recommendations through  which to                                                            
address the fiscal  issue. In addition, the Legislature  listened to                                                            
presentations  from national  bond  rating agencies  that  portrayed                                                            
that the State's  "bond rating is in jeopardy." The  Committee would                                                            
be  discussing,  today,  bond proposals  amounting  to  $76  million                                                            
dollars  for transportation  enhancements as  well as approximately                                                             
$36 million in University of Alaska bond authorizations.                                                                        
Governor  Murkowski  reiterated  that the  State's  citizens want  a                                                            
resolution  to the State's fiscal  dilemma. In addition to  the $410                                                            
increase that the Legislature  authorized for the Student Foundation                                                            
Funding Formula  this year, additional  monies would be required  to                                                            
appropriately  fund  education. The  Constitutional  Budget  Reserve                                                            
(CBR),  the Permanent  Fund's  Earnings  Reserve Account  (ERA)  and                                                            
other funding  sources could  be utilized  to support education.  He                                                            
reminded  the Committee of  his support for  establishing a  minimum                                                            
CBR balance  in order to  address cash flow  needs and to  recognize                                                            
that  the  price  of  crude  oil  "would  eventually  go  down."  In                                                            
addition,  he cautioned  that State  communities,  especially  Rural                                                            
communities,  would   also  require  assistance,  particularly   for                                                            
expenses such  as fuel. He provided a detail sheet  titled "Examples                                                            
of community  dividend distribution:"  [copy  on file] that  depicts                                                            
the various components  of the allocation distributions  proposed in                                                            
SJR 102. This  proposal would allocate approximately  $70 million to                                                            
communities  by distributing,  for  example, $25,000  to each  small                                                            
community  plus   $87  per  resident.  Large  communities   such  as                                                            
Anchorage  would receive  $24 million  and Fairbanks  would  receive                                                            
seven million dollars.                                                                                                          
Governor  Murkowski  stated that  this  Special Session  was  called                                                            
because the  Legislature did  not develop  a fiscal solution  during                                                            
the  Twenty-Third  Alaska  State  Legislature.   The  Conference  of                                                            
Alaskans  adopted  recommendations.  The  House  of Representatives                                                             
adopted a  Percent of Market  Value (POMV)  proposal and the  Senate                                                            
did not.                                                                                                                        
Governor  Murkowski stated  that  his Administration  has  developed                                                            
legislation  that would meet the needs  of most Alaskans:  The terms                                                            
proposed  in  SB 1003  are  simple;  the State's  citizens  must  be                                                            
assured  that they  would  receive a  dividend. The  proposal  would                                                            
guarantee  a minimum Dividend  of $1,000 or  50-percent of  the five                                                            
percent  of the  value  of the  Permanent  Fund (PF),  whichever  is                                                            
greater.  The dividend would  grow with the  PF over time.  He noted                                                            
that when the  gas pipeline and other resource developments  come to                                                            
fruition, the  State would not require  money from the PF.  However,                                                            
this "bridge"  would be  required until  those supplemental  revenue                                                            
sources become  available. Forty-five  percent of the fifty-percent                                                             
balance of the five percent  of the value of the PF would be used to                                                            
support  education  and five-percent  of  the amount  would  provide                                                            
dividends to local governments.                                                                                                 
Governor Murkowski also  stated that a Constitutional Spending Limit                                                            
must  be  implemented  in  order  to  limit  or  reduce   government                                                            
spending.  In 18 months,  State spending  was reduced $245  million,                                                            
and, even  thought the  education budget  was increased $88  million                                                            
this year, the  overall FY 05 budget only increased  by $17 million.                                                            
State   government  staffing   positions   have   been  reduced   by                                                            
approximately  400 positions. He thanked  the Legislators  for their                                                            
efforts in reducing the rate of State government growth.                                                                        
Governor Murkowski  stated that efforts  must be made over  the next                                                            
decade to increase oil  production, construct a gas line, extent the                                                            
Alaska  Railroad  lines,  open  new mines,  grow  the  economy,  and                                                            
develop new  revenue streams. This  is the time frame designated  in                                                            
SB 1003: the plan would  be enacted for 10 years and then terminate.                                                            
The dividend  component would not  be enshrined in the Constitution                                                             
and would terminate  at the end of ten years. The  proposal would be                                                            
accommodated by  "modernizing the Fund as an endowment  and spending                                                            
a limited  amount of its  income." This  would guarantee  dividends,                                                            
guarantee funding for education,  and guarantee assistance for local                                                            
governments. Through modernizing  the Fund's management and spending                                                            
five-percent  of its income,  the Fund would  continue to grow.  The                                                            
Fund earned  $4.1 billion  dollars the previous  year. This  50/45/5                                                            
percent split proposal would cost approximately $1.3 billion.                                                                   
Governor  Murkowski  declared that  a  long-term fiscal  plan  would                                                            
assist the  State in increasing job  opportunities and would  assure                                                            
the business community  that the State is a good place to invest. It                                                            
would  continue the  State's excellent  credit  rating, and  thereby                                                            
allow for bonds  to be available at  good interest rates  to support                                                            
State projects.                                                                                                                 
Governor Murkowski urged  the Legislators to address these proposals                                                            
and  allow the  State's  citizens  to vote  on them.  The  alternate                                                            
choice would  be to raise  revenue or deplete  the Earnings  Reserve                                                            
Account after  the CBR were depleted.  Let the public vote  on these                                                            
issues  and make  the decision.  Polls  reflect that  71-percent  of                                                            
Alaskans  feel they  have the  right to  vote on whether  or not  to                                                            
utilize Permanent  Fund earnings.  59-percent of those polled  would                                                            
support a minimum $1,000 Dividend.                                                                                              
Governor Murkowski remarked  that the Administration's proposals are                                                            
"just a plan"  that was drafted to address Alaskans'  concerns. They                                                            
could  be altered.  He urged  that  through compromise,  the  issues                                                            
could  be  resolved.   In  addition  to  the  fiscal   proposals  he                                                            
highlighted,  there  is also  a proposal  through  which to  address                                                            
workers'  compensation issues  that would  reduce expenses  to small                                                            
businesses  and a proposal to increase  the tobacco tax in  order to                                                            
address health issues.                                                                                                          
Governor Murkowski concluded his remarks.                                                                                       
Senator Dyson  expressed concern  with the  proposal to utilize  the                                                            
principal  of the  Permanent  Fund even  were a  ten-year  provision                                                            
included.  In addition,  the  funding  priorities specified  in  the                                                            
proposal  appear   to  place  more   importance  on  the   specified                                                            
components  and his concern is that  funding for such things  as law                                                            
enforcement,  which  is  not  an  identified   component,  would  be                                                            
Governor Murkowski  acknowledged the concern, but  pointed out that,                                                            
the protection  of the PFD is paramount to the public's  "prevailing                                                            
attitude."  Education  is  their  second  highest  priority.  Public                                                            
health and safety  are among the top five public concerns.  He noted                                                            
that the number of Alaska  State Troopers has increased and attempts                                                            
have been made to further  health care concerns such as prescriptive                                                            
medication expenses.  The proposal before the Committee  would allow                                                            
for the amount of the PFD  to be declared each year based on a five-                                                            
year average of the value  of the Fund. The proposal would guarantee                                                            
that the Dividend  would be paid as  supported by the citizens.  The                                                            
process would  be re-evaluated  at the end  of the ten-year  period.                                                            
This is an effort  to address the public's position  in this regard.                                                            
He emphasized  that  rather  than abandoning  this  issue were  this                                                            
proposal unacceptable,  Legislators  could approach it differently.                                                             
He urged them to address it.                                                                                                    
Senator Dyson  addressed the comment that, were a  spending plan not                                                            
adopted, the choices would  be to either utilize the CBR and the ERA                                                            
or increase  taxation.  However, a  third option,  which would  be a                                                            
further reduction  in State spending, was not addressed.  Therefore,                                                            
he asked what efforts are  being taken by the Administration, and in                                                            
particular  the  Department   of Health   and  Social  Services,  to                                                            
streamline   operations  and  further   contain  spending.   Further                                                            
reductions  in State spending are  his top priority. He pointed  out                                                            
that the  fact that  the FY 05  overall budget  is only $17  million                                                            
more than FY 04,  even with the $88 million increase  for education,                                                            
signifies the  efforts made by the  Legislature to reduce  spending.                                                            
Further cooperation with  the Administration in this regard would be                                                            
beneficial. He  opined that even were the Administration's  Spending                                                            
Limit, POMV, and the 50/45/5  proposals adopted, without an increase                                                            
in revenues  through taxation, funding  from the CBR and  eventually                                                            
the ERA would  be required next year. A "disservice"  would continue                                                            
to be  provided to  education, as,  in order to  adequately  fund it                                                            
were the  price of  oil to decline,  funding from  the CBR would  be                                                            
required.  In conclusion,  he asked  whether  further reductions  to                                                            
State government  would be required in order to address  the State's                                                            
fiscal situation.                                                                                                               
Governor  Murkowski stated  that  he would  welcome recommendations                                                             
from the Legislature in this regard.                                                                                            
Senator Bunde asked the  Governor's response were the Legislature to                                                            
address  these  proposals  in  a Statutory  manner  rather  than  to                                                            
further  them via  a statewide  ballot proposal  process. He  warned                                                            
that  a vote  of the  people  might preclude  the  Legislature  from                                                            
utilizing Permanent  Fund earnings  for an extensive period  of time                                                            
rather than allowing them to use it.                                                                                            
Governor Murkowski  expressed that he is aware that  the Legislature                                                            
has this authority. That  right would not be challenged. However, he                                                            
communicated the belief  that a vote of the people should be allowed                                                            
when a change in the Permanent Fund is being proposed.                                                                          
Co-Chair Wilken thanked the Governor for his comments.                                                                          
Co-Chair Wilken announced  that Ms. Frasca would be presenting brief                                                            
overviews on the bills.                                                                                                         
CHERYL FRASCA, Director,  Office of Budget and Management, Office of                                                            
the Governor,  stated  that SJR 101  mirrors the  HJR 26-CONST.  AM:                                                            
PERMANENT  FUND  P.O.M.V  legislation   that  passed  the  House  of                                                            
Representatives  at the  end of the  second session  of the  Twenty-                                                            
Third Alaska  State Legislature.  It proposes  that five percent  of                                                            
the value of the Permanent Fund could be appropriated.                                                                          
Ms. Frasca  stated that SJR 102 is  the Constitutional distribution                                                             
legislation  that  would specify  that  fifty-percent  of the  five-                                                            
percent  of Fund  Value  POMV  proposal allotment  would  support  a                                                            
minimum $1,000  PFD and the fifty-percent balance  of that allotment                                                            
would be divvied  up with 45-percent going to support  education and                                                            
five-percent going to support local communities.                                                                                
Ms.  Frasca stated  that  SB  1003 would  mirror  SJR  102 with  the                                                            
exception  being that the  provisions would  be enacted Statutorily                                                             
rather than  Constitutionally. This  approach would address  Senator                                                            
Bunde and Senator Dyson's concerns.                                                                                             
Ms. Frasca  stated that the  level of the  Permanent Fund, as  it is                                                            
currently  formulated, could  be very volatile  in the future.  Were                                                            
SJR 102 enacted,  the PFD amount declared  in October 2005  would be                                                            
$1,000. At  status quo, there is a  24-percent chance that  it would                                                            
be at that  level. This  would be further  addressed in forthcoming                                                             
testimony from  the Permanent Fund  Corporation Executive  Director,                                                            
Robert Storer.                                                                                                                  
Ms. Frasca  stated that the 45-percent  to education proposal  would                                                            
assist  in  addressing  future  Public  Employee  Retirement  System                                                            
(PERS) and  Teacher Retirement System  (TRS) obligation expenses  to                                                            
school districts.  The FY  05 obligation is  projected to amount  to                                                            
$39 million  with another $130 million  projected for the  following                                                            
three years. This would  be a challenge. The 45-percent to education                                                            
proposal  would  provide  a  solid funding  base  through  which  to                                                            
support  the  K-12  student  foundation   funding  formula  and  the                                                            
University  of Alaska. In FY 05, $970  million would be provided  to                                                            
support the K-12 formula and the University.                                                                                    
Ms. Frasca stated  that the five-percent to local  governments would                                                            
provide funding  to State communities.  She referenced a  Department                                                            
of Community and  Economic Development handout, titled  "Examples of                                                            
community  dividend  distribution"   [copy  on  file]  that  depicts                                                            
various community allocations,  but noted that the Legislature would                                                            
have the final determination  in this allocation. In addition to the                                                            
challenge  of funding  fuel expenses,  local  communities must  also                                                            
provide an estimated  $22 million in PERS expenses  in FY 05 and $61                                                            
million over the following three years.                                                                                         
Ms.  Frasca  clarified  that  while  SJR  102  contains  a  ten-year                                                            
Constitutional  termination date,  SB 1003  does not, as changes  in                                                            
Statute could be made by a majority vote.                                                                                       
In response  to a  question from  Senator Bunde,  Ms. Frasca  stated                                                            
that were  SJR 102 enacted,  its provisions  would terminate  in ten                                                            
years. The Legislature  at that time could introduce  a new proposal                                                            
or ask voters to re-ratify the existing proposal.                                                                               
Ms. Frasca informed that  SJR 103 proposes a Constitutional Spending                                                            
Limit this  mirrors the  legislation adopted  by the Senate  Finance                                                            
Committee this past Session.                                                                                                    
Ms. Frasca stated that  SB 1005 is a $77 million Transportation Bond                                                            
package that  addresses congestion  issues, primarily in  Anchorage.                                                            
Other projects  that  would be addressed  by this  bond package  are                                                            
located  in  Fairbanks,  the  Mat-Su  valley,  the  Yukon-Kuskokwim                                                             
transportation corridor, and other areas.                                                                                       
Ms. Frasca  explained that SB 1004  would provide approximately  $39                                                            
million for the University of Alaska system Statewide.                                                                          
Ms. Frasca stated  that these two bond packages would  not transpire                                                            
were a fiscal  plan not authorized as the goal is  to not to further                                                            
burden the State's bond rating.                                                                                                 
Co-Chair  Wilken announced  that the  bills would  now be  discussed                                                            
[NOTE: Co-Chair Green chaired this portion of the meeting.]                                                                     
     SENATE JOINT RESOLUTION NO. 101                                                                                            
     Proposing  amendments  to  the  Constitution  of the  State  of                                                            
     Alaska relating to  and limiting appropriations from the Alaska                                                            
     permanent fund based  on an averaged percent of the fund market                                                            
WILLIAM CORBUS,  Commissioner, Department of Revenue,  reviewed five                                                            
reasons  that support  the adoption  of  the POMV  proposal: 1)  "it                                                            
would provide  a more reliable revenue stream for  the future," were                                                            
oil companies  and others to not make  the necessary investments  in                                                            
the States' resources that  would generate the projected next decade                                                            
of revenues; 2) it would  allow the issuance of State debt needed to                                                            
satisfy capital needs,  including transportation and education needs                                                            
as exampled  by the  bond packages  in SB 1004 and  SB 1005;  3) "it                                                            
would provide  a steady reliable dividend stream"  for residents; 4)                                                            
it would be a  "much better management tool" than  that currently in                                                            
place through which the  Permanent Fund Corporation could manage the                                                            
Fund; and  5) it  would provide  a spending limit  on the  Permanent                                                            
Fund. There is  approximately four billion dollars  in the Fund "now                                                            
that is theoretically available" for Legislative appropriation.                                                                 
Commissioner  Corbus  reiterated  the Governor's  request  that  the                                                            
State's  budgetary  deficit  be addressed  now.  Regardless  of  the                                                            
favorable oil prices currently  being realized, POMV would provide a                                                            
solution  to the problem  until other  new revenue  sources come  to                                                            
BOB STORER, Executive  Director, Alaska Permanent  Fund Corporation,                                                            
stated that POMV would  be a Fund management change that would allow                                                            
that  no more  than five-percent  of the  five-year  average of  the                                                            
value of the  Fund to be utilized  to support State government.  The                                                            
status  quo  formula  is  volatile.  The  Permanent  Fund  Board  of                                                            
Trustees  has  emphasized  that  POMV  is  a  management  tool.  One                                                            
question  asked  of the  Board regards  how  the Dividend  would  be                                                            
affected  by  the  POMV proposal.  Two  levels  of  information  are                                                            
produced by  the Board in this regard:  the most commonly  viewed is                                                            
the  linear model  which does  not  consider market  volatility  and                                                            
simply projects  five-percent of the  Fund's value into the  future,                                                            
with  steady  growth.  This  model   could  be  quickly  and  easily                                                            
produced.  The second model  considers market  volatility.  There is                                                            
internal  debate as  to whether  to include  market volatility  with                                                            
other PFD projections  including: population estimates;  the size of                                                            
the  Fund; the  extrapolations;  and  the real  rate  of return.  He                                                            
provided a  chart titled "Volatility  in change in FY 10  per person                                                            
dividend  projection over  time" [copy on  file] that was  developed                                                            
encompassing  the volatility factor.  It reflects that, in  a matter                                                            
of  months,  the per  capita  dividend  amount  could  change  "very                                                            
quickly," as  the result of "the enormous  influence" of  short-term                                                            
market performance.                                                                                                             
SFC-04 1st SS #1, Side B                                                                                                        
Mr. Storer concluded  that this must be considered  "when evaluating                                                            
what  the numbers  would  look  like as  we  move forward."  In  the                                                            
future, "the  disparity would  become ever  greater from quarter  to                                                            
quarter, month to month" based on stock market fluctuations.                                                                    
Co-Chair Green asked for further explanation of the graph.                                                                      
Mr. Storer replied  that the FY 10 dividend projection  graph, which                                                            
was based on three-month  incremental extrapolations of actual stock                                                            
market fluctuations from  September 1999 through June 2004, reflects                                                            
how these market  fluctuations would influence the  dividend amount.                                                            
Senator Bunde  stated that a more pessimistic view  of the future is                                                            
developed upon observing the FY10 Dividend projection graph.                                                                    
Senator  Bunde questioned  how  the  Legislature's  decision not  to                                                            
utilize the  four billion dollars  in the ERA could have  a negative                                                            
affect on the State's bond market rating, as is "rumored."                                                                      
Commissioner  Corbus  commented  that the  Standard  & Poors  Credit                                                            
Rating Agency had, during  a previous presentation to the Committee,                                                            
communicated  that the development  of a plan and a methodology  for                                                            
stabilizing the Fund, such  as the POMV proposal, would meet desired                                                            
criteria. Leaving  the money in the Permanent Fund  in the status of                                                            
being potentially  available  to the Legislature  for appropriation                                                             
would not suffice.                                                                                                              
Senator Bunde  asked whether  an actual expenditure  of that  money,                                                            
regardless  of any methodology  being developed,  would satisfy  the                                                            
bond market's concern,  as he pointed out that POMV does not specify                                                            
how the funds should be dispersed.                                                                                              
Commissioner Corbus responded  that rather than questioning the fact                                                            
that  the  funds are  available,  they  are  concerned,  for  credit                                                            
purposes, whether they are "politically accessible."                                                                            
Senator  Bunde   understood  therefore   that  the  expenditure   of                                                            
approximately  $40 million  of Fund money for  such things  as hold-                                                            
harmless  and  the   processing  of  the  Permanent  Fund   Dividend                                                            
applications   would  not  be  recognized   as  an  "indication   of                                                            
Commissioner Corbus  responded that the basis of the  concern is the                                                            
ability  to access the  Fund to  help balance  the State's  budget's                                                            
difference in spending and revenue.                                                                                             
Senator  Olson  noted that,  as  depicted  on  the chart,  the  Fund                                                            
appeared to stabilize after September 11, 2001.                                                                                 
Mr. Storer responded that  the financial market began to rally after                                                            
September  2001.  The  quarterly   returns  since  that  point  have                                                            
Senator Hoffman  observed that under the status quo  dividend system                                                            
each Alaskan is projected  to receive a total of $16,440 in PFDs for                                                            
the  FY 05  -  FY 15  period,  as  reflected  in the  Department  of                                                            
Revenue's  spreadsheet  that is attached  to fiscal  note #2,  dated                                                            
June  19, 2004.  However,  the projections  indicate  that the  POMV                                                            
proposal payouts for that  same period would be approximately $4,000                                                            
less. The POMV  proposal might be more palatable to  voters were the                                                            
payouts aligned. Therefore,  he calculated that were SJR 102 altered                                                            
to reflect a 60-percent  payout for Dividends, 35-percent  for State                                                            
services, and  five-percent for local governments,  it might be more                                                            
acceptable to Alaskans.                                                                                                         
Commissioner  Corbus stated  that the Administration  would  welcome                                                            
alternative proposals in order to further these efforts.                                                                        
Co-Chair Wilken  pointed out that  a CBR draw might not be  required                                                            
in FY 04. Had  the POMV proposal been  in place, an additional  $1.3                                                            
billion would have been  made available, but would not have required                                                            
to fund the budget.                                                                                                             
Commissioner Corbus  replied that many changes including  increasing                                                            
needs  and decreasing  revenues  are  forecast  for the  future.  He                                                            
clarified  that  only half  of  the  $1.3 billion  would  have  been                                                            
available for the State's operating expenses.                                                                                   
Co-Chair  Wilken  noted  that   it is  important   to  realize  "the                                                            
mechanics"  associated with the adoption  of the POMV program.  Were                                                            
the  FY 05  budget based  on $32  per barrel  oil  prices, a  budget                                                            
deficit of  $387 million dollar was  projected. However,  due to the                                                            
fact that  the price  of oil  has increased  to $35  per barrel,  no                                                            
budget  deficit is  forecast. Were  the POMV  plan implemented,  the                                                            
State would receive five-percent  of the value of the Permanent Fund                                                            
whether it was needed or not.                                                                                                   
Commissioner   Corbus  reminded  that,  in  addition   to  the  POMV                                                            
proposal, there is also a spending limit proposal.                                                                              
Co-Chair  Wilken  acknowledged   and  clarified  that  his  question                                                            
relates to the scenario absent a spending limit.                                                                                
Commissioner  Corbus  expressed  that  Co-Chair  Wilken's  scenario,                                                            
looking forward, is based  upon there being status quo expenditures.                                                            
This would not be the case.                                                                                                     
Mr. Storer  pointed out that the Permanent  Fund Board of  Trustees'                                                            
interpretation of the POMV  plan is that it would specify a limit of                                                            
"no  more"  than  five-percent  of  the  value  of  the  Fund.  This                                                            
currently  would  allow  for  "up to"  $1.3  billion  dollars  being                                                            
available for appropriation.  "X percent" of that amount, whether it                                                            
is fifty-percent  or sixty-percent,  would be dedicated to  meet the                                                            
Dividend obligation.  The usage of  the balance would be  determined                                                            
by  the Legislature  who  might decide  not  to appropriate  it  and                                                            
thereby  allow it  to remain  in the  Fund.  The other  side of  the                                                            
equation  is that once people  get used to  spending that money,  it                                                            
would become  habitual. Three options  could include: leaving  it in                                                            
the Fund; moving  it to the CBR, or  moving it to the General  Fund.                                                            
Co-Chair Wilken  summarized that the Legislature could  either spend                                                            
it or move it to the General  Fund, leave it in the Fund, or move it                                                            
to the CBR.                                                                                                                     
Co-Chair  Wilken understood  that money left  in the Permanent  Fund                                                            
could not be used as a credit in another fiscal year.                                                                           
Mr.  Storer   affirmed.  It  would   be  considered  as   a  special                                                            
contribution  to the Fund  that would be  compounded and earn  money                                                            
for the Fund.  He reiterated that  "the essence of POMV"  is that no                                                            
more than five-percent  of the Fund's balance could be appropriated.                                                            
Senator Hoffman  understood  that the average  earnings of  POMV are                                                            
projected to be  eight-percent with three-percent  of that to offset                                                            
inflation. He asked for  clarification of previous POMV testimony in                                                            
which it was  stated that in some  years the earnings might  be less                                                            
than eight percent.                                                                                                             
Mr. Storer expressed  that during the development  of the POMV plan,                                                            
several different  scenarios were  discussed, with some including  a                                                            
Statutory  guideline  utilizing  a ten-year  moving  rate of  return                                                            
earnings  average. He reiterated  that different  language  could be                                                            
Co-Chair Green  understood from the  Standard & Poors' presentation                                                             
that "their primary objective"  was that the State of Alaska develop                                                            
a "sustainable  new source  of revenue" such  as an income tax  or a                                                            
sales tax. This was paramount to being able to access the ERA.                                                                  
[NOTE: Co-Chair Wilken assumed chair of the meeting.]                                                                           
Ms. Frasca  noted that the volatility  of the stock market's  affect                                                            
on the  PFD, as explained  earlier by Mr.  Storer, supports  Senator                                                            
Hoffman's concern  relating to fluctuating earnings  amounts and how                                                            
they would influence the  amount of the PFD. She stressed that while                                                            
the status  quo projection  for  FY 05 through  FY  15 might be  for                                                            
$16,000 in  total dividends, this  is a projection and might  not be                                                            
Senator  Hoffman referenced  the status quo  Dividend projection  as                                                            
depicted  in  the  spreadsheet  accompanying  fiscal  note  #2.  The                                                            
problem is  that voters understand  that, were  they to not  approve                                                            
POMV, Legislators  would not eliminate  the PFD. A re-evaluation  of                                                            
the POMV dividend program  percentage might be required to win voter                                                            
approval.  He  reiterated  his suggestion  that  60-percent  of  the                                                            
earnings rather than 50-percent be the basis for the PFD.                                                                       
Mr.  Storer  responded  that,  while  he  could  not  speak  to  the                                                            
percentage  level  as that  is  a policy  decision,  two  components                                                            
should  be considered  in the monetary  projections;  one being  the                                                            
volatility  of the  financial market  and the  other being  "current                                                            
Statutes  that contemplate  less than a  five-percent payoff."  Were                                                            
more than  five-percent  allocated, the  size of  the Fund would  be                                                            
reduced.  A smaller  Fund  would  reduce  the amount  available  for                                                            
future PFD allocations.                                                                                                         
Senator Hoffman  pointed out that  the aforementioned chart  depicts                                                            
that under POMV the projected  Fund value would be approximately $37                                                            
billion in  FY 15. The  current system, with  its higher  dividends,                                                            
would have  a balance  that exceeds  the projected  POMV balance  by                                                            
eight million dollars.                                                                                                          
Ms. Frasca commented that,  in regard to the $1.3 billion that would                                                            
be available  were the  POMV plan  implemented,  this is the  reason                                                            
that the Administration  regards the spending limit legislation, SJR
103, as  part of the packet.  These are not  stand alone issues  but                                                            
are rather parts of a package.  She pointed out that even though the                                                            
Legislature  currently has the ability  to appropriate the  money in                                                            
the ERA,  it does not  mean that  they do. Therefore,  were  there a                                                            
balanced budget,  the fact that the  Legislature could access  money                                                            
through the POMV, would  not require that it be spent. Including the                                                            
spending  limit legislation  with  the  POMV proposal  would  assure                                                            
Alaskans  that "government  would  not grow  at the  expense of  the                                                            
Permanent Fund earnings."                                                                                                       
Co-Chair Wilken referenced  the sheet titled, "Examples of community                                                            
dividend  distribution"  that was  provided by  the Governor;  which                                                            
depicts  that the community  dividend being  proposed would  provide                                                            
the Fairbanks  North  Slope Borough  $4.6  million and  the City  of                                                            
Fairbanks $2.6  million. He understood  that rather than  this being                                                            
new money, it would be a fund source change.                                                                                    
Ms. Frasca clarified that  this would be new funding. It would serve                                                            
to  offset funding  that  was once  available  in the  form of  such                                                            
things  as revenue  sharing  and municipal  sharing  programs.  This                                                            
sheet  depicts   a  hypothetical   methodology   developed   by  the                                                            
Department  of Community and Economic  Development. She stated  that                                                            
each  unincorporated  community  would receive  $25,000,  each  city                                                            
would  receive $50,000,  and each  borough would  receive  $250,000.                                                            
Additional per resident allowances would also be provided.                                                                      
Senator Hoffman  asked whether language should be  incorporated into                                                            
the ballot  measure  to specify  that were  either the  POMV or  the                                                            
spending limit proposal defeated, neither would be enacted.                                                                     
Ms. Frasca  stated that  such language could  be incorporated.  This                                                            
had been considered.                                                                                                            
Co-Chair  Wilken  stated  that  the discussion   "blended  together"                                                            
information relating to both SJR 101 and SJR 102.                                                                               
Senator  B.  Stevens   declared  that,  while  he  appreciates   the                                                            
discussions, no new information has been presented.                                                                             

Document Name Date/Time Subjects