Legislature(2019 - 2020)BELTZ 105 (TSBldg)

04/08/2019 01:30 PM JUDICIARY

Note: the audio and video recordings are distinct records and are obtained from different sources. As such there may be key differences between the two. The audio recordings are captured by our records offices as the official record of the meeting and will have more accurate timestamps. Use the icons to switch between them.

Download Mp3. <- Right click and save file as

* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+= SB 35 CRIMES;SEX CRIMES;SENTENCING; PAROLE TELECONFERENCED
Moved CSSB 35(JUD) Out of Committee
-- Public Testimony --
+ SJR 5 CONST. AM.:PERMANENT FUND & DIVIDEND TELECONFERENCED
Heard & Held
-- Testimony <Invitation Only> --
+ Bills Previously Heard/Scheduled TELECONFERENCED
           SJR 5-CONST. AM.:PERMANENT FUND & DIVIDEND                                                                       
                                                                                                                                
2:27:22 PM                                                                                                                    
CHAIR  HUGHES  reconvened the  meeting.  She  announced that  the                                                               
final order of  business would be SENATE JOINT  RESOLUTION NO. 5,                                                               
Proposing amendments to  the Constitution of the  State of Alaska                                                               
relating  to the  Alaska permanent  fund and  the permanent  fund                                                               
dividend.                                                                                                                       
                                                                                                                                
[Before the committee was the CSSJR 5(STA), Version U.]                                                                         
                                                                                                                                
2:30:23 PM                                                                                                                    
BRUCE  TANGEMAN, Commissioner  Designee,  Department of  Revenue,                                                               
Anchorage, stated  that SJR  5 would  change the  Constitution of                                                               
the State  of Alaska to  include the permanent fund  dividend. He                                                               
explained  that  for  over  three   decades  the  permanent  fund                                                               
dividend calculation  and the amount  paid to Alaskans  was never                                                               
questioned.  As recently  as 2012  and  2013, the  amount of  the                                                               
dividend was  $900. The Alaska  Permanent Fund and  the permanent                                                               
fund  dividend were  not broken  and did  not need  to be  fixed.                                                               
During the  previous administration the  legislature appropriated                                                               
the full  permanent fund dividend  amount. However,  the governor                                                               
vetoed half of  it. The following two years,  the legislature and                                                               
the  governor  agreed  on  a  dividend that  was  less  than  the                                                               
calculated amount.                                                                                                              
                                                                                                                                
He said  that SJR  5 will guarantee  the permanent  fund dividend                                                               
(PFD). It would not be  subject to appropriation. The funds would                                                               
automatically  be transferred  for payment  to Alaskans.  He said                                                               
this process  would protect the  permanent fund  dividend (PFDs),                                                               
which would not be subject to  the governor's veto. The PFD would                                                               
follow  the  calculation amount.  Any  changes  to the  statutory                                                               
permanent  fund dividend  formula  would require  a  vote of  the                                                               
people. He said  this resolution is part of the  fiscal plan that                                                               
the  governor introduced  this  legislative  session, which  also                                                               
includes  a constitutional  spending limit  and a  constitutional                                                               
amendment  for any  changes to  taxes  or new  taxes proposed  in                                                               
Alaska.                                                                                                                         
                                                                                                                                
2:32:58 PM                                                                                                                    
WILLIAM MILKS, Assistant Attorney  General, Civil Division, Labor                                                               
&  State   Affairs,  Department  of  Law,   Juneau,  presented  a                                                               
sectional  analysis during  the  hearing of  SJR  5. He  reviewed                                                               
Section 1.                                                                                                                      
                                                                                                                                
     Section 1:  This would  provide a  conforming amendment                                                                    
     to  the  existing  language in  order  to  authorize  a                                                                    
     portion  of  permanent  fund  income  to  be  used  for                                                                    
     dividends as set forth in Section 2.                                                                                       
                                                                                                                                
MR. MILKS said that except  as provided under subsection (b), all                                                               
income from the permanent fund  shall be deposited to the general                                                               
fund unless otherwise provided by law.                                                                                          
                                                                                                                                
2:33:51 PM                                                                                                                    
MR. MILKS reviewed Section 2.                                                                                                   
                                                                                                                                
     Section   2:  This   section  would   create  two   new                                                                    
     subsections in the permanent fund amendment.                                                                               
                                                                                                                                
MR.  MILKS  explained that  a  portion  of  the income  from  the                                                               
permanent  fund shall  be  transferred solely  for  a program  of                                                               
dividend payments to state residents.                                                                                           
                                                                                                                                
2:34:04 PM                                                                                                                    
MR. MILKS read subsections (b) and (c).                                                                                         
                                                                                                                                
     Subsection  (b) would  require that  a  portion of  the                                                                    
     permanent   fund    income   be   used,    without   an                                                                    
     appropriation,  solely   for  the  purpose   of  paying                                                                    
     permanent  fund  dividends  to state  residents.  Those                                                                    
     payments would occur according  to the dividend program                                                                    
     and formula currently set forth in statute.                                                                                
                                                                                                                                
     Subsection  (b) would  also  allow  the legislature  to                                                                    
     change  the  dividend  program,  including  amount  and                                                                    
     eligibility, subject  to the approval of  the voters in                                                                    
     subsection (c).                                                                                                            
                                                                                                                                
     Subsection  (c) would  require that  any law  passed by                                                                    
     the legislature  to amend  the permanent  fund dividend                                                                    
     program,  including  the  amount  and  the  eligibility                                                                    
     requirements, would  not take effect unless  the voters                                                                    
     approved  the  proposed  law   at  the  next  statewide                                                                    
     election.  If approved  by the  voters,  it would  take                                                                    
     effect 90  days after certification of  the election or                                                                    
     on a special effective  date concurred in by two-thirds                                                                    
     of the  members of  each house upon  passage, whichever                                                                    
     date is later.                                                                                                             
                                                                                                                                
MR. MILKS read Section 3.                                                                                                       
                                                                                                                                
     Section  3: This  transition  provision specifies  that                                                                    
     the dividend program in place  on January 1, 2019 would                                                                    
     remain in  place until the  legislature and  the voters                                                                    
     approved a change to the program.                                                                                          
                                                                                                                                
2:35:10 PM                                                                                                                    
MR. MILKS read Section 4.                                                                                                       
                                                                                                                                
     Section  4:   This  section  would  require   that  the                                                                    
     constitutional  amendment  be  placed  on  the  general                                                                    
     election ballot in 2020.                                                                                                   
                                                                                                                                
2:35:21 PM                                                                                                                    
MR. MILKS  said that  as Commissioner  Tangeman explained,  SJR 5                                                               
would  do  several important  things.  It  would provide  that  a                                                               
portion of  permanent fund  income would be  used for  a dividend                                                               
program. It also  would provide for an automatic  transfer of the                                                               
income  for  the  permanent fund  dividend  program  without  any                                                               
appropriation. It would place into  the Constitution of the State                                                               
of  Alaska  a  permanent  fund dividend  program  that  could  be                                                               
changed by the legislature and  the voters working together. This                                                               
resolution follows  up on  the Alaska  Supreme Court  decision in                                                               
Wielechowski v.  State that the  permanent fund  dividend program                                                               
set forth in statute is  subject to legislative appropriation and                                                               
the  governor's  veto.  He  characterized that  as  the  sum  and                                                               
substance of SJR 5.                                                                                                             
                                                                                                                                
2:36:29 PM                                                                                                                    
CHAIR HUGHES  asked how  many years  the permanent  fund dividend                                                               
has gone  through the budget  appropriation process.  She related                                                               
her understanding that initially it  was a direct transfer to the                                                               
program and payment.                                                                                                            
                                                                                                                                
MR. TANGEMAN said he was unsure.                                                                                                
                                                                                                                                
MR. MILKS  remarked that  certainly through the  80s it  has been                                                               
through  the  budget appropriation  process.  He  added that  the                                                               
court  ultimately  said  it  is   subject  to  the  appropriation                                                               
process.                                                                                                                        
                                                                                                                                
CHAIR  HUGHES  said  that  one argument  she  has  heard  against                                                               
putting the  permanent fund dividend  in the Constitution  of the                                                               
State  of  Alaska is  that  it  does not  reach  the  level of  a                                                               
fundamental right.  She highlighted  areas that are  important to                                                               
Alaskans.  For  example,  education  and  health  care  are  very                                                               
important to society. The U.S. has  a K-12 system and the federal                                                               
government provides Medicaid and  Medicare. The U.S. Constitution                                                               
does  not  set   out  public  education  or  health   care  as  a                                                               
fundamental  right. She  asked whether  other  functions are  not                                                               
included in the  Constitution of the State of Alaska  or in other                                                               
states' constitutions.                                                                                                          
                                                                                                                                
MR. MILKS directed attention to  Article VIII of the Constitution                                                               
of  the State  of Alaska  to  the Natural  Resources Section.  He                                                               
identified this as  an uncommon provision that  embodies a policy                                                               
statement  in terms  of the  utilization of  the state's  natural                                                               
resources  for the  collective  benefit of  the  Alaskans in  the                                                               
constitution.                                                                                                                   
                                                                                                                                
2:39:04 PM                                                                                                                    
CHAIR  HUGHES said  she  would  be interested  to  know if  other                                                               
states also have unusual constitutional provisions.                                                                             
                                                                                                                                
MR. MILKS  said he would need  to contemplate it and  report back                                                               
to the committee.                                                                                                               
                                                                                                                                
2:39:16 PM                                                                                                                    
CHAIR HUGHES turned  to the mathematical provision  in statute to                                                               
the Percent of Market Value (POMV),  which is set at 5.25 percent                                                               
but  will drop  to 5  percent.  She recalled  that a  Legislative                                                               
Legal  Services  opinion  indicated that  the  legislature  could                                                               
decide to draw  out additional funds. She asked  whether it would                                                               
ever be necessary to draw out more than the POMV.                                                                               
                                                                                                                                
COMMISSIONER  DESIGNEE TANGEMAN  answered yes.  He said  that the                                                               
calculation  for the  POMV is  5.25 percent,  stepping down  to 5                                                               
percent. He pointed  out that the statute is silent  on how those                                                               
funds  are  spent.  Obviously,  this  discussion  is  related  to                                                               
government and dividends. However,  the historical rate of growth                                                               
has been  4 percent. Under  that scenario, the entire  POMV would                                                               
be consumed  by government. He  estimated that this  could happen                                                               
within  the  next 10-15  years.  Since  the  rate of  growth  for                                                               
spending  is not  connected  to the  POMV  calculation, it  still                                                               
could be consumed by government spending.                                                                                       
                                                                                                                                
2:40:54 PM                                                                                                                    
CHAIR HUGHES clarified her interest  was whether [the POMV] could                                                               
ever be consumed by the PFD by following the historical formula.                                                                
                                                                                                                                
COMMISSIONER  DESIGNEE TANGEMAN  said  he thought  that was  also                                                               
possible.  If  the state  enjoys  continued  healthy returns  the                                                               
dividend would  continue to  grow. He stated  that the  state saw                                                               
returns of 15-20 percent in at  least two of the last five years.                                                               
He  predicted that  without market  corrections  factored in  the                                                               
permanent  fund dividend  would  continue to  grow. He  estimated                                                               
that this  year's permanent fund dividend  would be approximately                                                               
$3,000.  However, the  POMV could  also be  consumed by  the full                                                               
dividend, he said.                                                                                                              
                                                                                                                                
2:41:41 PM                                                                                                                    
CHAIR  HUGHES pointed  out that  with  continued healthy  growth,                                                               
especially if  the constitutional amendment for  a spending limit                                                               
were  to pass,  the state  could have  very large  permanent fund                                                               
dividends  in  the  future. She  expressed  concern  that  people                                                               
outside  Alaska might  want  to come  to  Alaska specifically  to                                                               
receive this permanent fund dividend benefit.                                                                                   
                                                                                                                                
She  said  that   SJR  5  also  would  require   any  changes  to                                                               
eligibility to  be approved by  a public vote. She  asked whether                                                               
the administration would be open  to a change in the eligibility,                                                               
perhaps requiring a two-year residency  prior to eligibility. She                                                               
asked  whether eligibility  could  reduce  the allowable  absence                                                               
from 180 days to 90 or  100 days, and if other restrictions could                                                               
be made to the number of  years for an allowable absence from the                                                               
state for  medical reasons or  military personnel.  She preferred                                                               
that  the eligibility  changes would  be made  in statute  rather                                                               
than in the Constitution of the State of Alaska.                                                                                
                                                                                                                                
COMMISSIONER  DESIGNEE  TANGEMAN  offered  his  belief  that  the                                                               
governor  would  consider  any proposals  the  legislature  would                                                               
recommend.  He characterized  the  permanent fund  dividend as  a                                                               
very important issue.  The dividend has been  on "cruise control"                                                               
for several  decades. However, in  the last few years  the public                                                               
has been more  engaged because the statutory  calculation has not                                                               
been followed.                                                                                                                  
                                                                                                                                
CHAIR HUGHES asked him to follow up with information on the two-                                                                
year  eligibility, lessening  the  allowable  absences, and  some                                                               
type of limitation for people  who leave the state for qualifying                                                               
reasons but who no longer reside  in Alaska and have not lived in                                                               
Alaska for a number of years.                                                                                                   
                                                                                                                                
2:45:10 PM                                                                                                                    
SENATOR  KIEHL referred  to Chair  Hughes's  questions about  the                                                               
Senate Bill 26 limit and  the permanent fund dividend payment. He                                                               
asked whether  the statutory limit  in the rapid  growth scenario                                                               
is  effective. He  asked  whether  it is  a  part  of the  system                                                               
provided by law.                                                                                                                
                                                                                                                                
COMMISSIONER DESIGNEE TANGEMAN responded  that the Senate Bill 26                                                               
debate  focused  on the  amount  that  could  be taken  from  the                                                               
earnings  reserve account  (ERA) without  harming it.  He pointed                                                               
out that the Alaska Permanent  Fund Corporation does not weigh in                                                               
on  how the  earnings are  spent. The  entire legislative  debate                                                               
surrounds what would constitute a  sustainable draw from the ERA.                                                               
Step  two  after adopting  Senate  Bill  26  would have  been  to                                                               
determine  the   split  [between  government  services   and  the                                                               
permanent fund  dividend]. The legislature  has not been  able to                                                               
come to a  consensus on that issue, so the  debate has shifted to                                                               
how to spend it in a responsible manner.                                                                                        
                                                                                                                                
He   highlighted   that    this   administration   believes   the                                                               
constitutional  amendment to  the  existing spending  limit is  a                                                               
critical  part of  the  equation since  it  would cap  government                                                               
spending. That  would address the  concern that  government would                                                               
absorb the  bulk of Senate  Bill 26 and  the POMV draw.  When the                                                               
spending  limit  is  put  into place,  the  focus  on  government                                                               
spending is  critical because  the POMV draw  would be  a limited                                                               
amount, he said.                                                                                                                
                                                                                                                                
2:47:25 PM                                                                                                                    
SENATOR KIEHL recapped that the  state has had a five-year period                                                               
with  11-12  percent  growth.  He  estimated  that  half  of  the                                                               
earnings over that  period would be more than the  5 percent cap.                                                               
He  said that  SJR 5  would  calculate the  dividend payments  as                                                               
required  by law.  "So is  [Senate Bill  26] a  provision by  law                                                               
protected  by this  constitutional  amendment? Do  we reduce  the                                                               
dividend?" he asked.                                                                                                            
                                                                                                                                
MR.  MILKS  responded  that  under  SJR  5,  the  permanent  fund                                                               
dividend is provided  by law as the  statutory dividend framework                                                               
per  the  Alaska Supreme  Court  decision  under Wielechowski  v.                                                               
State.  The Alaska  Supreme Court  identified that  the statutory                                                               
calculation  determines the  amount  available for  distribution,                                                               
and another calculation requires 50  percent of that income shall                                                               
be   transferred   from   the  earnings   reserve   account   for                                                               
distribution of  the permanent fund dividend.  Finally, that case                                                               
also addressed the eligibility requirements.  SJR 5 would set out                                                               
in law the existing three-piece statutory framework, he said.                                                                   
                                                                                                                                
He said that  Commissioner Tangeman described the  Senate Bill 26                                                               
law  that set  up the  statutory Percent  of Market  Value (POMV)                                                               
framework  for a  sustainable draw.  Thus,  these components  are                                                               
related. However,  SJR 5 would  establish the  existing statutory                                                               
program for dividends.                                                                                                          
                                                                                                                                
2:49:21 PM                                                                                                                    
SENATOR KIEHL  apologized for not  stating his  question clearly.                                                               
He offered to submit his question in writing.                                                                                   
                                                                                                                                
2:49:34 PM                                                                                                                    
CHAIR HUGHES referred to  [page 1, line 31 to page  2, line 1] of                                                               
SJR 5, which  states, "provided by law read on  January 1, 2019."                                                               
She said  the POMV  is involved. However,  Mr. Milks  referred to                                                               
the  historical statutory  formula. She  offered her  belief that                                                               
ambiguity exists  since the historical statutory  formula and the                                                               
statutory POMV are both laws.                                                                                                   
                                                                                                                                
2:50:11 PM                                                                                                                    
SENATOR SHOWER  remarked that  a lot  of confusion  surrounds the                                                               
statutory  provisions for  the permanent  fund dividend.  He said                                                               
that it  is straightforward.  He pointed out  that last  year the                                                               
legislature passed Senate Bill 26,  which establishes the formula                                                               
for the  draw. The historical  statutory formula, which  has been                                                               
in place for  40 years, is still  law, he said. If SJR  5 were to                                                               
pass,  the  legislature  would  draw an  amount  using  the  POMV                                                               
formula  [established  in  Senate  Bill  26],  but  it  would  be                                                               
calculated  and   distributed  using  the   historical  statutory                                                               
formula. He suggested  that the confusion about  the amount arose                                                               
because  the legislature  did not  make any  change to  the 50:50                                                               
split, which means a weird statute is in place.                                                                                 
                                                                                                                                
CHAIR  HUGHES  pointed  out  a conflict  exists.  She  said  that                                                               
Commissioner    Tangeman    explained    the    conflict    since                                                               
mathematically the historical statutory  formula could exceed the                                                               
POMV draw.                                                                                                                      
                                                                                                                                
2:51:49 PM                                                                                                                    
SENATOR REINBOLD  asked what  the difference  is between  the way                                                               
the  [Alaska Permanent  Fund  Corporation]  invests the  earnings                                                               
reserve as opposed to the permanent fund principal.                                                                             
                                                                                                                                
COMMISSIONER  DESIGNEE TANGEMAN  answered that  there is  not any                                                               
difference,  other  than  the liquidity  aspect.  For  investment                                                               
purposes, the  Alaska Permanent Fund  does not treat the  ERA and                                                               
the corpus of the fund differently.                                                                                             
                                                                                                                                
SENATOR REINBOLD related  a scenario in which the  ERA balance is                                                               
$15 billion, with a $3 billion  draw, and another $2 billion draw                                                               
to  pay  for paybacks.  That  would  reduce  the balance  to  $10                                                               
billion and  thus affect investments.  She expressed  an interest                                                               
in learning the rate of return on the ERA versus the principal.                                                                 
                                                                                                                                
COMMISSIONER DESIGNEE  TANGEMAN explained  that when  some people                                                               
calculate the  funds drawn from  the permanent fund, they  do not                                                               
consider  the incoming  revenues.  He said  their calculation  is                                                               
typically based on a 6.55 percent  expected rate of return so for                                                               
FY 2020, an estimated $4 billion  would be deposited to the fund,                                                               
and $3  billion would be  drawn based  on the POMV.  Instead, the                                                               
investment portfolio of $65 billion  should be the focus, not the                                                               
ERA which is  only a repository for realized gains.  The issue is                                                               
more  about the  return on  $65  billion, and  that any  realized                                                               
gains are deposited to the ERA,  which is the current $18 billion                                                               
balance. To illustrate  this, he related a scenario  in which the                                                               
earnings  were $4  billion, $3  billion  was drawn  based on  the                                                               
POMV, and  another $600 million  was drawn for the  backpay. This                                                               
would result in a net $400 million increase, he said.                                                                           
                                                                                                                                
2:54:55 PM                                                                                                                    
SENATOR REINBOLD offered her belief  that the POMV draw, the full                                                               
$3,000 dividend,  and $2 billion  in unallocated for back  pay of                                                               
the  dividends  is  important  because  it  could  affect  future                                                               
dividends.  She  said  that understanding  the  whole  scope  and                                                               
trigger  points  was important.  Although  she  supports the  PFD                                                               
statutory formula  as a  means to  compensate Alaskans  for their                                                               
subsurface  rights, she  was  unsure how  the  mineral rights  of                                                               
Native  Regional   Corporations  might   affect  the   fund.  The                                                               
Constitution  of  the State  of  Alaska  provides rights,  so  if                                                               
people  are  stripped  of permanent  fund  dividend  and  mineral                                                               
rights, it  raises constitutional issues, she  said. She wondered                                                               
if the  legislature was  giving people  false hope.  She recalled                                                               
the  ramifications  of the  massive  dip  in the  permanent  fund                                                               
during 2008.  She feared  there could be  a negative  dividend at                                                               
some point.  That is  the reason she  wants to  better understand                                                               
the impact  that the POMV,  the statutory formula  and allocation                                                               
draw have on future permanent fund dividends.                                                                                   
                                                                                                                                
2:57:13 PM                                                                                                                    
SENATOR KIEHL asked why the  administration chose 120 days in SJR
5, since  it would leave the  choice of using either  the primary                                                               
or the general election ballot.                                                                                                 
                                                                                                                                
MR.  MILKS answered  that the  language of  120 days  was derived                                                               
from the  initiative language in  Article II, Section 4.  He said                                                               
that  the administration  sought consistency  in time  periods in                                                               
the Constitution of the State of Alaska.                                                                                        
                                                                                                                                
2:58:11 PM                                                                                                                    
SENATOR  KIEHL asked  for further  clarification on  which ballot                                                               
would be  used for proposed  changes. He turned to  the technical                                                               
language  in the  bill  and asked  for the  impact  on the  funds                                                               
transferred under Article IX, Section 17(b).                                                                                    
                                                                                                                                
MR. MILKS  said that  SJR 5  would provide  an exception  and the                                                               
funds would be moved without  an appropriation. He suggested that                                                               
might  be an  issue for  him to  review since  it relates  to the                                                               
constitutional budget reserve account (CBR) issue.                                                                              
                                                                                                                                
2:59:24 PM                                                                                                                    
SENATOR KIEHL  asked for further  clarification of  the statutory                                                               
POMV structure.  He asked why  the proposal does not  provide any                                                               
inflation-proofing protection  or a POMV cap  in the Constitution                                                               
of  the State  of Alaska.  He said  that knowing  the interaction                                                               
between the two would be valuable.                                                                                              
                                                                                                                                
COMMISSIONER DESIGNEE  TANGEMAN answered that  the administration                                                               
has proposed  a series of  amendments to the Constitution  of the                                                               
State of  Alaska. He offered  his belief that  inflation proofing                                                               
would  be  handled  under the  resolution  for  a  constitutional                                                               
spending  cap. He  acknowledged  that  inflation-proofing is  not                                                               
covered in SJR 5.                                                                                                               
                                                                                                                                
3:00:51 PM                                                                                                                    
SENATOR  KIEHL  questioned  whether the  administration  had  any                                                               
charts or for projections to show how that would work.                                                                          
                                                                                                                                
COMMISSIONER DESIGNEE TANGEMAN offered to  work with his staff to                                                               
provide the information.                                                                                                        
                                                                                                                                
SENATOR  KIEHL  observed  that  the   state  attempts  to  use  a                                                               
statutory  POMV  cap,  but  still  maintains  the  constitutional                                                               
distinction  between   the  permanent  fund  principal   and  the                                                               
earnings  reserve account.  He expressed  concern that  over time                                                               
the value of  the principal would diminish, and the  value of the                                                               
ERA would  take over. He  suggested that without  some limitation                                                               
"with teeth,"  unstructured draws could  create more risk  to the                                                               
value  of the  permanent fund.  If  the legislature  is going  to                                                               
consider  a constitutional  amendment on  the permanent  fund, it                                                               
should consider protections  to the permanent fund  that would be                                                               
effective for  generations rather than  for only a few  years, he                                                               
said.                                                                                                                           
                                                                                                                                
3:02:13 PM                                                                                                                    
SENATOR SHOWER  raised a counterpoint on  the three-year payback.                                                               
He pointed  out that if  $2 billion had  been taken out  over the                                                               
three years, the  fund value would be less today.  He offered his                                                               
belief  that the  fund value  would  have changed  over time.  He                                                               
related a scenario  in which someone has $20,000  in his/her bank                                                               
account,  then deposits  $4,000,  but also  withdraws $4,000.  It                                                               
would net to $20,000, he said.                                                                                                  
                                                                                                                                
He explained that  the money not paid out for  dividends over the                                                               
three-year-period is still in the  fund, such that the balance is                                                               
essentially the same.                                                                                                           
                                                                                                                                
SENATOR   SHOWERS   expressed   concern   that   enshrining   the                                                               
eligibility  requirements in  the  Constitution of  the State  of                                                               
Alaska may  lead to  some unintended  consequences. He  asked Mr.                                                               
Milks to discuss any potential downfalls.                                                                                       
                                                                                                                                
MR. MILKS  answered that  SJR 5 includes  a requirement  of voter                                                               
approval  on eligibility  and computation  of the  permanent fund                                                               
dividend.  Alaska  statutes   contain  eligibility  statutes  and                                                               
exceptions  that permit  absences from  Alaska for  the permanent                                                               
fund dividend  program. He  said he thought  it would  be covered                                                               
under SJR  5 if adopted  in this  form. He recalled  that Senator                                                               
Reinbold  raised  come  ancillary  concerns  in  prior  committee                                                               
hearings, such  as garnishment.  However, he  did not  think that                                                               
changes of  that nature  would be subject  to voter  approval. He                                                               
characterized  garnishments as  being  more of  a consequence  of                                                               
receiving a dividend rather than an eligibility issue.                                                                          
                                                                                                                                
3:06:45 PM                                                                                                                    
SENATOR SHOWER  said that  one concern  is whether  the permanent                                                               
fund  dividend  should   be  an  individual  right   and  if  the                                                               
legislature  should retain  eligibility requirements  in statute.                                                               
He  said he  would like  to protect  the permanent  fund dividend                                                               
program. He  said the  struggle is  related to  the legislature's                                                               
ability  to  change the  amount.  He  said  that he  favors  less                                                               
government  spending. He  wondered  if the  legislature would  be                                                               
stuck with  a 50:50 split.  He maintained that  eligibility might                                                               
be better left in the legislature's  purview since it may need to                                                               
change eligibility  requirements for absences for  college or the                                                               
military.                                                                                                                       
                                                                                                                                
CHAIR HUGHES  said that she  does not support  adding eligibility                                                               
in the Constitution of the State  of Alaska either. She asked the                                                               
rationale for constitutionalizing eligibility requirements.                                                                     
                                                                                                                                
COMMISSIONER DESIGNEE  TANGEMAN said the administration  would be                                                               
willing to entertain discussions on  eligibility. That has been a                                                               
topic of internal discussion, he said.                                                                                          
                                                                                                                                
3:08:47 PM                                                                                                                    
CHAIR HUGHES raised   an issue that she acknowledged  was more of                                                               
an issue for  the finance committee to consider. She  asked for a                                                               
rough estimate on  the number of people who would  be affected if                                                               
eligibility  requirements  were  changed to  a  two-year  minimum                                                               
residency, a  90-day maximum absence,  and an  eligibility cutoff                                                               
after  a  three-year legitimate  absence  for  those who  do  not                                                               
physically  reside  in Alaska.    Further,  she would  like  more                                                               
information  on  the  "fundamental  right" issue.  She  said  her                                                               
primary interest was  to identify any other programs  that do not                                                               
fall  under  fundamental  rights.   She  expressed  concern  that                                                               
protections were not  in place for the  earnings reserve account.                                                               
She  said that  the Legislative  Legal Services  provided a  memo                                                               
after Senate Bill 26 passed  that indicated the legislature has a                                                               
right to  draw outside of  the POMV.  She asked whether  this was                                                               
something that the administration would also entertain.                                                                         
                                                                                                                                
COMMISSIONER  DESIGNEE  TANGEMAN  answered yes.  He  offered  his                                                               
belief that  the administration's view  is that the ERA  would be                                                               
protected through the constitutional spending limit in SJR 4.                                                                   
                                                                                                                                
3:10:48 PM                                                                                                                    
CHAIR  HUGHES  said  she  understood   that  the  permanent  fund                                                               
dividend  would be  issued  based  on a  direct  transfer to  the                                                               
program. She  asked whether this  transfer would come  before the                                                               
legislative finance committees.                                                                                                 
                                                                                                                                
COMMISSIONER  DESIGNEE TANGEMAN  answered that  it would  not. He                                                               
said  that  the calculation  would  occur,  and the  funds  would                                                               
transfer directly  into the permanent  fund dividend  program. It                                                               
would not part of the appropriation process, he said.                                                                           
                                                                                                                                
3:11:28 PM                                                                                                                    
SENATOR MICCICHE said  that he agreed with the  discussion on the                                                               
eligibility requirements.  He offered his belief  that the public                                                               
would  not be  interested in  voting on  changes to  eligibility,                                                               
such as the  length and cause of absences. He  said the permanent                                                               
fund dividend program is  about protecting residents. Eligibility                                                               
would be  something else since  it would pertain to  someone that                                                               
may  not be  regarded as  being qualified  yet. It  is not  about                                                               
taking away any rights from established residents, he said.                                                                     
                                                                                                                                
He  referred to  subsection (c)  on page  2, line  6. He  said he                                                               
found  it  interesting  that  it  refers to  the  amount  of  the                                                               
dividend instead of the dividend  calculation. He said that SJR 5                                                               
supports what was in statute on  January 1, 2019. He said that he                                                               
thought  the dividend  calculation  would be  a more  appropriate                                                               
choice of language.                                                                                                             
                                                                                                                                
MR. MILKS  said he understood  the point and agreed  the language                                                               
could be clearer.                                                                                                               
                                                                                                                                
3:13:51 PM                                                                                                                    
SENATOR  MICCICHE  related  his  understanding  that  this  would                                                               
preserve  the  dividend  calculation,   but  the  amount  of  the                                                               
dividend is  not part of  the resolution.  It is not  possible to                                                               
know the  earnings or what would  be available in the  future for                                                               
distribution, he  said. Instead, the statutory  calculation would                                                               
be enshrined in the Constitution of the State of Alaska.                                                                        
                                                                                                                                
MR.  MILKS agreed  that the  statutory formula  is what  would be                                                               
enshrined since  the amount  of the  permanent fund  dividend has                                                               
historically varied.                                                                                                            
                                                                                                                                
3:14:58 PM                                                                                                                    
SENATOR MICCICHE  asked whether  a quarterly payment  could occur                                                               
under SJR 5 since it would be limited to a distribution method.                                                                 
                                                                                                                                
MR.  MILKS offered  his belief  that would  likely work  since it                                                               
would  not be  part of  the dividend  calculation nor  was it  an                                                               
eligibility issue.  He said  he thought  it would  be permissible                                                               
and not subject to voter ratification.                                                                                          
                                                                                                                                
3:16:42 PM                                                                                                                    
CHAIR HUGHES  returned to  an earlier  discussion related  to the                                                               
historical  formula and  the POMV  laws in  effect on  January 1,                                                               
2019.  She  asked  which  statute  would  trump  the  other,  the                                                               
historical statutory formula or the  POMV formula in statute. She                                                               
wondered  if the  permanent fund  would  get to  the point  where                                                               
paying the  permanent fund dividend  according to  the historical                                                               
formula would  exceed the POMV  draw. She asked whether  it would                                                               
stop with the POMV amount and  be divided by the population or if                                                               
the historical formula would trump the POMV statute.                                                                            
                                                                                                                                
MR. MILKS offered  his belief that this would be  an amendment to                                                               
the  Constitution of  the State  of Alaska.  The language  in the                                                               
constitution  would   supersede  a   statute  that   described  a                                                               
statutory draw. SJR  5 would state that a portion  of income from                                                               
the permanent  fund would be  used for a permanent  fund dividend                                                               
program.                                                                                                                        
                                                                                                                                
CHAIR HUGHES asked for further  clarification that the historical                                                               
formula would  trump the  POMV law. She  said that  both statutes                                                               
were  in law  as of  January 1,  2019. She  asked whether  he was                                                               
saying that the  courts would interpret it in that  way. "Even if                                                               
mathematically  the  historical formula  to  pay  it out  to  the                                                               
residents would  be more than the  five, let's say we  are at the                                                               
five  percent point,  that  the constitution  would  say you  can                                                               
exceed the law on the books that says five percent," she said.                                                                  
                                                                                                                                
MR. MILKS, referring to the  hypothetical question, said that the                                                               
provision  in  the Constitution  of  the  State of  Alaska  would                                                               
govern.  The court  would look  at  the constitutional  provision                                                               
that  established  a  portion  of  income would  be  used  for  a                                                               
dividend  program. He  said that  the administration  has tracked                                                               
the Wielechowski case, which has  been described as the permanent                                                               
fund  dividend   program,  which  is  based   on  the  historical                                                               
statutory formula  being the amount  of income to  be transferred                                                               
to  pay  the permanent  fund  dividends.  He explained  that  the                                                               
statute  enacted  by Senate  Bill  26  addressed the  sustainable                                                               
Percent of Market Value (POMV)  draw. Although these two statutes                                                               
are related,  one pertains  directly to  the dividends,  which is                                                               
the historical  statutory framework.  He offered his  belief that                                                               
the provisions in SJR 5 would govern.                                                                                           
                                                                                                                                
3:19:52 PM                                                                                                                    
CHAIR HUGHES asked whether SJR 5  would require the draw be taken                                                               
out of  the POMV or if  it could be  taken outside of it  and the                                                               
POMV could be used to fund government services.                                                                                 
                                                                                                                                
MR. MILKS answered  that the POMV was established  by Senate Bill                                                               
26  and is  a statute.  SJR  5 would  address income  out of  the                                                               
permanent fund,  which is not  identified in the  Constitution of                                                               
the State of Alaska as the POMV.                                                                                                
                                                                                                                                
CHAIR HUGHES asked  whether the POMV could be used  for the state                                                               
budget and the draw could be on top of that.                                                                                    
                                                                                                                                
3:21:15 PM                                                                                                                    
SENATOR KIEHL  argued that  Senate Bill 26  would prevent  it. He                                                               
also  argued  against what  Mr.  Milks  said earlier,  that  this                                                               
transfer  in the  Constitution  of the  State  of Alaska  somehow                                                               
trumps the  POMV statute established  by Senate Bill 26.  He said                                                               
that  the  statute  established under  Senate  Bill  26  referred                                                               
directly to the transfer for  dividends and an appropriation that                                                               
could be used to fund  state government services. Further, Senate                                                               
Bill 26  is also a  law that existed on  January 1, 2019.   Thus,                                                               
SJR 5 would  set the Senate Bill  26 limit in stone,  he said. He                                                               
said  he did  not  share  the concern  that  the dividends  would                                                               
regularly go over 5 percent,  but the possibility of limiting the                                                               
permanent fund dividend is a concern.                                                                                           
                                                                                                                                
3:22:27 PM                                                                                                                    
CHAIR  HUGHES  asked  whether  the language  in  Senate  Bill  26                                                               
mentioned  permanent  fund dividends  or  if  it referred  to  an                                                               
appropriation.                                                                                                                  
                                                                                                                                
COMMISSIONER  DESIGNEE   TANGEMAN  said  he  did   not  think  it                                                               
mentioned dividends because  the legislature could not  come to a                                                               
resolution on the  split. He said the legislature  settled on the                                                               
amount available for a sustainable draw.                                                                                        
                                                                                                                                
CHAIR HUGHES related her understanding  that SJR 5 would have the                                                               
historical  formula   outside  the  appropriation   process.  She                                                               
offered her  belief that  the 5.25  or 5.0  percent appropriation                                                               
draw could  be used  for government  spending and  the historical                                                               
formula transfer  could be  separate. She asked  if that  was the                                                               
administration's intention.                                                                                                     
                                                                                                                                
COMMISSIONER DESIGNEE  TANGEMAN said he acknowledges  her concern                                                               
is  that there  would  be  two separate  paths.  He recapped  her                                                               
concern, that  the permanent fund  dividend would be  drawn using                                                               
the historical  formula under SJR 5  but the POMV would  be drawn                                                               
from  the  earnings reserve  account.  He  offered to  study  the                                                               
question and respond to the committee in writing.                                                                               
                                                                                                                                
3:23:57 PM                                                                                                                    
SENATOR MICCICHE  argued that for  the POMV  to be consumed  by a                                                               
statutory  permanent  fund  dividend  would  require  20  percent                                                               
earnings  net of  fees. He  said  would be  unprecedented but  he                                                               
thought it  was a good point.  He said if  SJR 5 were to  pass it                                                               
would  be important  to revise  the statutes  affected by  Senate                                                               
Bill 26 to  reflect that automatic transfer. The  POMV would need                                                               
to  be  net  of  that  transfer  in  order  to  stay  within  the                                                               
investment  disbursement rules  that were  assumed when  the step                                                               
down to 5  percent was established. Otherwise, it  would create a                                                               
situation  that would  very quickly  erode  the earnings  reserve                                                               
account, which would be problematic.                                                                                            
                                                                                                                                
3:25:11 PM                                                                                                                    
SENATOR  SHOWER said  that the  constitutional spending  limit is                                                               
critical  to curtail  state government.  If  SJR 5  were to  pass                                                               
without a spending limit in place, it would be a setup for                                                                      
failure, he said.                                                                                                               
                                                                                                                                
3:25:46 PM                                                                                                                    
CHAIR HUGHES said that she concurred. However, she said that it                                                                 
still makes her nervous to have the spending limit and permanent                                                                
fund dividend constitutional changes in separate resolutions.                                                                   
                                                                                                                                
[SJR 5 was held in committee.]                                                                                                  

Document Name Date/Time Subjects
SJR 5 Transmittal Letter.pdf SJUD 4/8/2019 1:30:00 PM
SSTA 3/28/2019 3:30:00 PM
SJR 5
CSSJR 5 Version U.PDF SJUD 4/8/2019 1:30:00 PM
SJUD 4/15/2019 1:30:00 PM
SJR 5
SJR 5 - CSSJR 5(STA) ver U Sectional 4.8.19.pdf SJUD 4/8/2019 1:30:00 PM
SJUD 4/15/2019 1:30:00 PM
SJR 5
SJR 5 - CSSJR 5(STA) - Comparison 4.8.19.pdf SJUD 4/8/2019 1:30:00 PM
SJUD 4/15/2019 1:30:00 PM
SJR 5
SJR 5 Fiscal Note GOV-DOE.pdf SJUD 4/8/2019 1:30:00 PM
SSTA 4/2/2019 3:30:00 PM
SSTA 4/4/2019 1:30:00 PM
SJR 5