Legislature(2021 - 2022)BUTROVICH 205
09/08/2021 01:30 PM Senate JUDICIARY
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| Audio | Topic |
|---|---|
| Start | |
| SJR301 | |
| SJR302 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| += | SJR301 | TELECONFERENCED | |
| *+ | SJR302 | TELECONFERENCED | |
SJR 302-CONST. AM: PFD/SUSTAINABLE DIVIDEND/PCE
1:45:02 PM
CHAIR HOLLAND announced the consideration of SENATE JOINT
RESOLUTION NO. 302 Proposing amendments to the Constitution of
the State of Alaska relating to the Alaska permanent fund,
creating the sustainable dividend account and power cost
equalization account in the permanent fund, and relating to a
dividend for state residents.
1:45:49 PM
MERCEDES COLBERT, Staff, Senator Tom Begich, Alaska State
Legislature, Juneau, Alaska, said the intent is to present SJR
302 as an option for discussion. She stated that Senator Begich
is open to other ideas but keeping the same goals in mind. She
reviewed the goals of SJR 302 on slide 2:
o Remove the risk of unstructured draws from the
Earnings Reserve Account;
o Resolve the tension of choosing between spending on
services versus dividends;
o Constitutionally protect the Permanent Fund Dividend
and PCE;
o Invest our state savings with the Permanent Fund to
generate more earnings; and
o Help Alaska households and state lawmakers budget
for a sustainable PFD amount indefinitely.
1:47:05 PM
MS. COLBERT presented the sectional analysis for SJR 302,
which read:
Section 1: Amends Article IX, section 15, of the
Alaska State Constitution, redesignating this section
as 15(a):
• Changes the existing language to clarify that 25
percent of all earnings of the Alaska Permanent Fund
are placed into the principal.
• Creates the Sustainable Dividend Account and the
Power Cost Equalization Account within the Permanent
Fund.
• The income-producing investments of the Permanent
Fund and these two new subaccounts shall be
designated by law.
• Requires the principal and income earnings of the
fund and the two new subaccounts to be kept in the
fund or subaccount.
• The legislature may appropriate from the fund and
accounts only as provided in this section of the
state constitution.
1:48:29 PM
MS. COLBERT paraphrased the sectional analysis, Section 2
which read:
Section 2: Creates new subsections 15(b-e) under
Article IX, pertaining to the percent of market values
of the Permanent Fund, Sustainable Dividend Account,
and the Power Cost Equalization Account:
b. The legislature may appropriate up to 4.5 percent of
the average market value from the Alaska Permanent
Fund to the General Fund each fiscal year. This
subsection protects the Sustainable Dividend and
Power Cost Equalization Accounts from general fund
spending.
c. The legislature shall appropriate 5 percent of the
average market value of and from the Sustainable
Dividend Account each fiscal year to pay dividends
to eligible Alaska residents.
d. The legislature shall appropriate 5 percent of the
average market value of and from the Power Cost
Equalization Account each fiscal year. This
appropriation shall be used for the payment of
energy subsidies, capital improvements to energy
infrastructure to rural communities, community
assistance payments, and renewable energy projects.
e. Establishes the average market value of the
Permanent Fund, the Sustainable Dividend and Power
Cost Equalization Accounts. The average market value
of the whole fund includes the value of the
Sustainable Dividend and Power Cost Equalization
Accounts. The value is calculated using the average
value for the preceding five fiscal years, excluding
the fiscal year that had just ended. The value of
the whole fund and the subaccounts shall be
calculated on the last day of the fiscal year.
1:50:45 PM
MS. COLBERT paraphrased the sectional analysis of SJR 302,
Section 3, which read:
Section 3: Adds a new Section 18 under Article IX of
the Alaska Constitution:
• Sets a minimum divided payment of $1,200 to eligible
Alaska residents; and
• Requires the legislature to appropriate the amount
necessary to meet the $1,200 dividend if the
Sustainable Dividend Account does not have enough to
provide for the $1,200 dividend on its own.
1:51:08 PM
Section 4: Adds a new Section 30 under Article XV of
the Alaska Constitution, to establish transitional
language for the Permanent Fund amendments above, and
the establishment of the Sustainable Dividend and
Power Cost Equalization Accounts:
a. On June 30, 2023, the balance of the Earnings
Reserve Account shall be deposited into the
Permanent Fund principal. This amount shall be the
unencumbered balance of the account on Sept 30,
2022, or June 30, 2023, whichever is greater.
b. On June 30, 2023, the legislature shall appropriate
from the Permanent Fund principal to the Sustainable
Dividend Account the amount that would have been
paid under the current statutory dividend formula
from fiscal years 2017 through 2023. This amount
transferred to the Sustainable Dividend Account
includes the earnings and interest accrued during
that time.
c. On June 30, 2023, the balance of the Power Cost
Equalization Endowment Fund shall be deposited in
the Power Cost Equalization Account within the
Permanent Fund.
d. The revised and expanded Article IX Section 15 of
the Constitution takes effect Fiscal Year 2024.
e. Provides transitional flexibility for determining by
law the average market value of the Sustainable
Dividend and Power Cost Equalization Accounts.
Section 5: This constitutional amendment shall appear
on the general election ballot following passage of
this legislation.
1:54:01 PM
MS. COLBERT explained that SJR 302 would require a two-thirds
vote in each body, 14 members in the Senate and 27 members in
the House, to pass the legislature before it would go to a vote
of the people in the next general election.
1:54:35 PM
MS. COLBERT explained the $1,200 amount genesis, which was
derived by using a rounded-calculated average not adjusted for
inflation. It was based on information from the Permanent Fund
Division's website. If one person received all 38 permanent fund
dividends distributed from 1982 through 2020, the recipient
would have received $45,419.41. By dividing that amount by 38
distributions, the average comes to $1,195.25, she said.
1:55:07 PM
SENATOR MYERS asked why it was not adjusted for inflation.
MS. COLBERT said she was unsure.
1:55:39 PM
SENATOR HUGHES commented that without inflation proofing, in 20
to 30 years the value would be equivalent to $600. She said
$1,200 might seem fine to some, but $600 would seem very small
to others.
1:56:00 PM
CHAIR HOLLAND said the first permanent fund dividend was $2,700.
1:56:14 PM
MS. COLBERT referred to slide 4 of the PowerPoint on SJR 302,
titled "How does the Sustainable Dividend Account start at $10.9
Billion? She deferred technical questions to Legislative
Finance.
MS. COLBERT paraphrased the following rationale used for the
table on slide 4:
Slide 4 shows the assumptions used to arrive at the
initial deposit of $10.9 Billion to create the
Sustainable Dividend Account. She deferred to
Legislative Finance to provide the details. This
assumes the legislature will appropriate $1,000 PFDs
in 2021 and 2022, per the accompanying SB 3003. She
said:
o We wanted to use the amount of money that was not
paid out in PFDs since calendar year 2016 which
translates to FY2017 the first year a dividend
was paid out under the statutory formula.
o The total return of the earnings that amount made
is also factored in. Cumulatively, the amount
that would have been paid out in 2016 through the
projections of 2022 PLUS the projected return
on those investments with the funds staying in
the earnings reserve are pulled out of the
Earnings Reserve to create the Sustainable
Dividend Fund.
o Interestingly, the amount of nearly $8.36 Billon
that was not paid in dividends over time resulted
in $2.58 Billion in more earnings in our savings.
1:58:12 PM
MS. COLBERT summarized the information on slides 5 and 6 of the
PowerPoint on SJR 302 stating the following:
• Slide 5 is a rough attempt to make sense of how the
mechanisms of this drafted proposal would work. As a
preface, I would note that Senator Begich would like
to offer this discussion assuming new revenue
generated from SB 3002 which will be heard in Senate
Resources tomorrow. This bill builds on existing
revenue sources to generate $250 million revenue in
FY24, so this number is used here on this slide.
o The new Sustainable Dividend Account and PCE
Account are subaccounts of the Permanent Fund,
that's why they're overlapping. The total value
of these combined which may add up to more than
$85 billion come FY24? are used to calculate
the 4.5% percent of market value draw to the
General Fund. This amount is estimated to be
approximately $3.29 Billion.
o Meanwhile, the Spring 2021 Revenue forecast
estimates approximately $2.1 Billion in UGF
revenue outside of the POMV add this to the
general fund, and approximately $250 million
estimated in FY24 from SB 3002.
o Note that because the PCE and Sustainable
Dividend Accounts are still managed by the
Permanent Fund Corporation, and are subaccounts
of the overall fund, the definition of the
"permanent fund dividend" remains the same.
2:00:33 PM
Slide 6 shows how the draws from the Sustainable
Dividend Account and the PCE Account work. In
practice, The Dividend Account and PCE account are
separate from the Permanent Fund. That is, they can
only be used for the purposes described in the
constitutional amendment (remember, we can dedicate
funds in the constitution).
o The 5 percent
o POMV from the PCE Account is estimated to be about
$60 million to be used for the payment of energy
subsidies, capital improvements to energy
infrastructure to rural communities, community
assistance payments, and renewable energy projects
(Section 2 of the bill).
o The 5 percent POMV from the Sustainable Dividend
Account is estimated to be $545 million. This pays for
more than half the amount needed to meet the $1,200
PFD, but not all of it. Approximately $275 million
would be needed to make up the difference, drawn from
the General Fund. The Constitutional Amendment
proposes that if the SDA is not enough to generate
$1,200, then the legislature Shall appropriate the
difference to meet that minimum the language is most
easily interpreted to mean, "not more than" $1,200,
but could be amended.
2:02:14 PM
SENATOR MYERS noted that slide 6 indicated a five-percent POMV
draw but SB 3003 indicates 4.5 percent. He asked why there were
different draw rates.
MS. COLBERT answered that mathematical modeling showed there was
too much of a draw on the permanent fund. The effective draw
rate was closer to 6 percent. She offered to share the modeling
with members. She stated that it created too much stress on the
permanent fund so the POMV draw was reduced to 4.5 percent.
2:02:58 PM
SENATOR MYERS asked why it would not create too much stress on
the sub-accounts.
MS. COLBERT deferred to Mr. Bell.
2:03:35 PM
CONOR BELL, Fiscal Analyst, Legislative Finance Division,
Legislative Agencies and Offices, Legislative Affairs Agency,
Juneau, Alaska, responded that the 4.5 percent POMV draw is
based on a combination of the permanent fund principal, the
Power Cost Equalization Account (PCE) and the Sustainable
Dividend Account (SDA). However, the draw is coming from the
principal of the permanent fund. He related his understanding
that this would not put the same potential stress on the PCE or
SDA accounts, which are subject to the 5 percent POMV structured
draw.
2:04:26 PM
SENATOR HUGHES recalled Ms. Colbert mentioned a 6 percent
effective rate draw. She highlighted that the current 5 percent
POMV draw is an effective rate draw of 3.7 percent of the
current fund balance. Even if the legislature were to draw an
additional 1.5 percent to transition to fiscal certainty and a
50:50 PFD, it would result in a 5 percent effective rate draw.
She said she was somewhat confused about how it could be a 6
percent effective rate draw.
MS. COLBERT answered that those projections are out of date
since they were based on April models which were prepared before
the new Callan projections and prior to the Fiscal Policy
Working Group (FPWG) recommendations. She explained those were
more conservative projections of the permanent fund returns
using a different mechanism than the one in this bill. The 6
percent effective rate draw is out of date. She offered to
provide a model based on a 5 percent draw.
2:06:11 PM
CHAIR HOLLAND imagined that a 5 percent draw was too high for
the permanent fund, but this proposes three separate 5 percent
draws: 5 percent of 1/8 of the fund for the SDA, 5 percent for
the PCE, with another 5 percent draw from the corpus of the
fund. He remarked it was ironic that under the 50:50 plan, the 5
percent POMV is split, with 50 percent funding the PFD and the
remainder going to state services. He offered his view that 4.5
percent of 7/8 would be a huge amount going to the state. He
offered his view that the figure should be less than 4.5
percent.
2:07:20 PM
SENATOR HUGHES referred to the red arrow on slide 6, which read
$275 million. She directed attention to the gray oval on slide 5
that predicts new revenue from SB 3002 would bring in
approximately $250 million. Essentially, SJR 302 would use
public taxes to fund PFDs, which fundamentally was not the
intent of the PFD program. She recalled Senator Hoffman recently
stated during a floor debate that revenues are not to pay for
PFDs but to pay for government. While she said she understood
the desire to structure revenue with the PFD, thereby calling it
a PFD, it basically taxes people to fund their PFDs. This is
problematic, she said.
SENATOR HUGHES said she appreciated Senator Begich's efforts to
bring forth a proposal. However, the FPWG spent considerable
effort to develop a plan. In developing its recommendations,
many FPWG members had to compromise. For example, her fiscal
solution might have included cutting $1 billion from state
government and adhering to the statutory PFD. Instead, she
supported the FPWG's comprehensive proposal. She said moving
forward with SJR 302 was similar to her putting forth her
preferred solution.
2:09:36 PM
SENATOR HUGHES remarked that the legislature has been rehashing
this issue for six years. The FPWG developed a proposal to help
coalesce the legislature in order to solve the PFD issues. Thus,
starting over by proposing something new that does not align
with the FPWG recommendations is problematic. Further, taxing
people to pay for a PFD is not what a PFD is in Alaskans minds,
she said.
2:10:06 PM
SENATOR KIEHL agreed that Senator Begich's proposal was not in
keeping with the FPWG's model. However, the FPWG's comprehensive
solution recommended considering raising taxes to help pay for
the PFD. Further, it recommended reducing services for some
Alaskans to provide a PFD for all Alaskans. In fact, the PFD is
a government check from the public treasury to all Alaskans. He
acknowledged that the PFD program is an important one, which he
supports.
SENATOR KIEHL highlighted that what interests him in Senator
Begich's approach is that it directly requires the PFD to be a
certain size, but it passes part of it through the general fund
draw from the permanent fund until a separate account increases
to the point that it will provide for that size of PFD. He
pointed out that the general fund consists of investment
earnings, taxes, rents and fees. He was unsure why this model
uses a multistep approach rather than using one draw to the
general fund to meet PFD obligations and other services.
2:12:09 PM
MS. COLBERT responded that Senator Begich worked on this bill
early on, that his intent was not to overstep the FPWG's work.
She acknowledged the substantial effort the FPWG made, including
issuing a fantastic, comprehensive report that helped shape the
current legislative conversations. In fact, many of the earlier
economic models were redone based on the FPWG's baseline
assumptions. Instead, she stated that SB 3001 and SJR 301 are
concepts for the committee to consider. Since three members of
the committee serve on the FPWG, there is no better committee to
review them, she said. She stated that the sponsor is open to
amendments and other concepts.
2:13:34 PM
MS. COLBERT, in response to Senator Kiehl's question of why SJR
302 does not have a 75:25 or 50:50 split, characterized it as
removing the tension of government spending from the PFD itself.
The sponsor's idea was to separate the choice of how to fund
appropriations for troopers, ferries and other services from the
PFD. She explained that creating a separate account within the
fund would generate its own earnings to pay PFDs while another
account would pay for government services. The committee
certainly can adjust the figures, she said. This concept would
create a separate account to disperse unpaid PFD earnings from
2016 to the present instead of splitting out the POMV by
percentage.
2:15:32 PM
MS. COLBERT reviewed the impact to the general fund for a $1,200
PFD as shown by the graphs on slide 7. She explained that if the
constitutional amendment obtains voter approval and SJR 302
becomes law, the graph shows that under the first year of
distribution in FY 2024, it would be necessary to use additional
general funds to pay a $1,200 dividend. The question remains as
to how much and for how long it would be necessary to use
general fund draws to fill in until the Sustainable Dividend
Account (SDA) generates enough funds for the $1,200 PFD. Slide
7, prepared by Legislative Finance illustrates that it will take
time for the SDA to generate sufficient income.
2:17:19 PM
SENATOR HUGHES asked by what year the SDA would generate
sufficient income to cover the PFD. She referred to the chart
that projected income from FY 2024 to FY 2040 but it fell short
of achieving the $1,200 PFD.
2:17:37 PM
MR. BELL answered that it would become self-sustainable at some
point but the 20-year projections are hypothetical. He predicted
that based on Callan's projected returns of 6.2 percent, the
structured draw would be around 4 percent of the prior year's
fund balance. Further population growth was estimated at .5 or
.6 percent, which is why it will take longer to reach $1,200
PFDs. However, using these assumptions, it would reach the
threshold at some point, he said.
2:18:43 PM
SENATOR KIEHL related his understanding that Legislative Finance
lacked sufficient time to perform the analysis. He asked if this
approach was taken, what balance would be needed to provide a
$1,200 PFD from the start.
MR. BELL offered to provide those figures after the meeting.
CHAIR HOLLAND stated that he could also report back later in the
meeting if he obtained the figures earlier.
2:19:48 PM
MS. COLBERT described slide 8, which showed the Callan Returns
for SJR 302 and SB 3002. She stated:
• Slide 8 shows the Callan Returns for this
constitutional amendment (its accompanying bill SB
3003). This assumes the Fiscal Plan working Group's
basic baseline assumptions for spending, revenue
forecasts, etc., as well as Callan's optimistic
projections for the Permanent Fund's returns. The
Principal grows over time, and the Sustainable
Dividend Fund is sustainable and sustained over
time, as does the PCE Account.
• We do have projections and models by Legislative
finance with both the Callan projections as well as
the FY07-17 returns (which is the "stress testing" of
the fund). I have those available by request.
2:20:52 PM
SENATOR MYERS asked whether any royalties from lease sales
beyond the initial deposit into the SDA would be deposited into
the SDF.
MS. COLBERT answered that royalties are not affected by the
resolution.
SENATOR MYERS asked if the legislature could transfer funds from
the permanent fund into the SDA.
MS. COLBERT deferred to Ms. Nauman.
2:22:39 PM
EMILY NAUMAN, Attorney, Legislative Legal Services, Legislative
Affairs Agency, Juneau, Alaska, answered that SJR 302 does not
allow any use of the permanent fund principal other than what is
set out in the resolution. Thus, the short answer is no. The
legislature would be free to appropriate funds into the SDA from
other sources. The only income the SDA would generate will be
based on the initial amount deposited.
2:23:23 PM
CHAIR HOLLAND asked if the SDA was inside or outside of the
principal of the permanent fund.
MS. NAUMAN responded that the SDA fund would technically be part
of the permanent fund. In response to a question, she confirmed
that the SDA is part of the permanent fund, but it is accounted
for separately.
2:23:58 PM
SENATOR HUGHES asked for the specific cite in SJR 302 that
identifies the ERA fund transfer to the principal of the fund.
She said the slides referred to "ERA/SDF". She asked if ERA
funds could be moved to the SDA if the ERA is not folded into
the principal of the permanent fund.
MS. NAUMAN responded that the language was in Section 4, Section
30 (a) [on page 2, lines 30 to page 3, line 5]. The balance of
the ERA is deposited into the principal of the permanent fund.
At that point, it would no longer be available for appropriation
by the legislature, she said.
2:25:10 PM
At ease
2:25:43 PM
CHAIR HOLLAND reconvened the meeting. He offered that by his
calculation it would take $16 billion to achieve a $1,253 PFD
based on about 2 percent growth per year.
2:26:05 PM
SENATOR HUGHES asked Curtis Thayer to respond to the impact of
the 5 percent draw on the current PCE needed for this year and
projected into the future. She restated her question.
2:27:19 PM
CURTIS THAYER, Executive Director, Alaska Energy Authority,
Department of Commerce, Community & Economic Development,
Anchorage, Alaska, answered that currently AEA uses a 5 percent
lookback to determine future PCE needs. He characterized it as a
cascading flow, first to PCE and then to community assistance.
Further, the current PCE program allows up to $25 million to be
used for one of three items: the Bulk Fuel Revolving Loan Fund,
powerhouses or the Renewable Energy Fund. He reported this has
happened only twice in the past few years, including in this
calendar year. The short answer is that the 5 percent [funding
from earnings of the PCE Endowment Fund] rule is currently being
used. It has been sufficient to not only sustain PCE but also
provide for community assistance, and in good years to fund
renewable energy and powerhouses in rural Alaska.
SENATOR HUGHES related her understanding that he was satisfied
with the 5 percent.
MR. THAYER answered yes; that 5 percent [of the earnings of the
PCE Endowment Fund's three-year average market value] has been
sufficient in the past and he predicted that it would do so
going forward.
2:28:43 PM
CHAIR HOLLAND referred to Section 2, paragraph (e) on page 2,
lines 17-21 of SJR 302, which read:
(e) The average market value of the fund, and each
account in the fund, is the average value of the fund
or account for the preceding five fiscal years,
excluding the fiscal year just ended. The average
market value of the fund includes the value of the
sustainable dividend account and the power cost
equalization account. The value of the fund and each
account shall be calculated on the last day of the
fiscal year.
SENATOR HOLLAND expressed concern that this language could be
interpreted to mean four of the last five years. He asked if it
was intended to be five of the last six fiscal years.
2:29:14 PM
MS. COLBERT answered yes. She deferred to Ms. Nauman to
elaborate but agreed that the appropriations would be based on
the average market value of the fund for the last five fiscal
years.
2:29:41 PM
CHAIR HOLLAND expressed concern with the proposal in SJR 302. He
stated that his preference was to continue to pursue SJR 6 with
the 50:50 split.
[SJR 302 was held in committee.]
| Document Name | Date/Time | Subjects |
|---|---|---|
| SJR 302 PowerPoint Slides for SJUD.pdf |
SJUD 9/8/2021 1:30:00 PM |
SJR302 |
| SJR 302 Sectional Analysis.pdf |
SJUD 9/8/2021 1:30:00 PM |
SJR302 |
| SJR 302 Sponsor Statement.pdf |
SJUD 9/8/2021 1:30:00 PM |
SJR302 |
| SJR and HJR 301 AML Input.docx |
SJUD 9/8/2021 1:30:00 PM |
HJR301 |
| SJR301 - APF Testimony - 08 Sept 2021.pdf |
SJUD 9/8/2021 1:30:00 PM |
SJR301 |