Legislature(2021 - 2022)BUTROVICH 205

03/29/2021 01:00 PM Senate JUDICIARY

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01:34:16 PM Start
01:34:51 PM Confirmation Hearing
01:41:28 PM SB9
02:37:19 PM SJR1
03:05:52 PM Adjourn
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
-- Delayed to 1:30 p.m. --
-- Please Note Time Change --
+ Consideration of Governor's Appointees TELECONFERENCED
- Todd Fletcher, Commission on Judicial Conduct
-- Public Testimony --
- Treg Taylor, Attorney General
- Appointee Above Removed from Agenda -
Heard & Held
- Senator Micciche
Heard & Held
- Senator Wielechowski
-- Testimony <Invitation Only> --
+ Bills Previously Heard/Scheduled TELECONFERENCED
          SJR 1-CONST AM: GUARANTEE PERM FUND DIVIDEND                                                                      
2:37:19 PM                                                                                                                    
CHAIR  REINBOLD   reconvened  the   meeting  and   announced  the                                                               
consideration  of  SENATE  JOINT   RESOLUTION  NO.  1,  Proposing                                                               
amendments to  the Constitution of  the State of  Alaska relating                                                               
to the Alaska  permanent fund and appropriations  from the Alaska                                                               
permanent fund.                                                                                                                 
2:37:33 PM                                                                                                                    
SENATOR  BILL  WIELECHOWSKI,  Alaska State  Legislature,  Juneau,                                                               
Alaska, sponsor  of SJR  1, stated that  he introduced  a similar                                                               
resolution  for  the past  eight  or  nine  years. He  said  that                                                               
placing the  permanent fund in  the constitution is the  only way                                                               
to  protect   the  permanent   fund  dividend.   The  legislature                                                               
attempted  to do  so  in  2018 by  passing  legislation, yet  the                                                               
permanent fund dividends (PFDs)  continue to dwindle. Many people                                                               
were  shocked  when then-Governor  Bill  Walker  cut the  PFD  by                                                               
$1,000 by vetoing  full permanent fund dividend  funding in 2016.                                                               
In the last  four years, the legislature cut the  PFD amount. The                                                               
Alaska Supreme Court  said that the legislature  and the governor                                                               
could ignore  the plain mandatory  language in  multiple statutes                                                               
that require  a full PFD to  be paid each year.  Any governor can                                                               
reduce the  PFD by vetoing  the amount to whatever  level chosen.                                                               
Further,  any future  legislature  can set  the  PFD at  whatever                                                               
level it determines, including setting it to zero.                                                                              
SENATOR  WIELECHOWSKI  said   corporations  or  special  interest                                                               
groups   often   speak   to    the   importance   of   stability,                                                               
predictability  and consistency  in Alaska's  tax structures.  He                                                               
offered his  view that Alaskans  deserve the  same predictability                                                               
and consistency with their PFDs.                                                                                                
2:39:22 PM                                                                                                                    
SENATOR  WIELECHOWSKI   pointed  out  that  the   permanent  fund                                                               
dividend program  has been  one of the  most popular  programs in                                                               
American  history.  According  to  the Institute  of  Social  and                                                               
Economic Research  (ISER) at  the University  of Alaska,  tens of                                                               
thousands  of Alaskans  were  elevated from  poverty  due to  the                                                               
statutory PFD. Alaska  has among the lowest  income inequality in                                                               
the  United States,  largely  because of  the  PFD. According  to                                                               
ISER, the PFD creates thousands of jobs in Alaska.                                                                              
He  said many  people  don't  realize that  the  founders of  the                                                               
permanent fund in 1976 had  envisioned the prospect of a dividend                                                               
to  the people  of Alaska.  Governor  Hammond spoke  of having  a                                                               
dividend flow  from the permanent  fund. In members'  packets are                                                               
several  historical statements  that were  made about  the future                                                               
plan for  a dividend  program, he  said. The  1976 constitutional                                                               
amendment was specifically changed to  allow for PFD payments and                                                               
a letter of intent was added to clarify these payments.                                                                         
2:40:43 PM                                                                                                                    
SENATOR WIELECHOWSKI said that in  1982, the legislature observed                                                               
that  special  interests  and   the  politically  connected  were                                                               
reaping  more benefit  from the  permanent fund  earnings through                                                               
government spending  than average Alaskans. He  reported that the                                                               
current  value  of  the  Permanent   Fund  is  approximately  $74                                                               
billion.  Article  IX,  Section  15 of  the  Alaska  Constitution                                                               
requires that at  least 25 percent of the  mineral lease rentals,                                                               
royalties,  royalty sale  proceeds  and  federal mineral  revenue                                                               
sharing payments  and bonuses received  by the state go  into the                                                               
permanent fund.                                                                                                                 
2:41:13 PM                                                                                                                    
SENATOR   WIELECHOWSKI  cautioned   that  the   PFD  is   not  an                                                               
entitlement since  the subsurface rights  of the state  belong to                                                               
the  people collectively.  Under  Article IX,  Section  2 of  the                                                               
Alaska Constitution, the state has  an obligation to "provide for                                                               
the  utilization, development,  and conservation  of all  natural                                                               
resources belonging to the State,  including land and waters, for                                                               
the maximum  benefit of its people."  He said the authors  of the                                                               
1982 PFD legislation tied the  current PFD to this constitutional                                                               
obligation. Every Alaskan has a  right to their share of Alaska's                                                               
oil  wealth  and  the  legislature  found  that  the  best,  most                                                               
efficient way to do this was through a dividend.                                                                                
SENATOR WIELECHOWSKI reported that  Alaskans have only received a                                                               
very  small share  of the  state's oil  wealth. For  example, 100                                                               
percent  of state  property taxes,  income taxes,  and production                                                               
taxes  and 75  percent of  royalties  go to  the government.  The                                                               
people  receive  25  percent  of  the  state's  royalties.  Since                                                               
royalties  are  typically  set at  12.5  percent,  Alaskans  only                                                               
receive  3.125 percent  of Alaska's  oil value  deposited to  the                                                               
permanent  fund.  While  Alaskans  received  50  percent  of  the                                                               
earnings  generated  from  those   contributions,  the  rest  was                                                               
available  for the  government. The  current PFD  law included  a                                                               
letter of intent  stating that "The people should  have the first                                                               
call on the  earnings of the permanent fund."  However, in recent                                                               
years, the people have gotten the scraps.                                                                                       
2:42:59 PM                                                                                                                    
SENATOR WIELECHOWSKI  said that SJR  1 will honor  the historical                                                               
formula. Thus,  the people will see  the first call not  the last                                                               
call over  the fund  income. The government  will still  have the                                                               
authority  to  use  a  portion  of the  permanent  fund  to  fund                                                               
government.  However,  the  government   must  look  to  generate                                                               
revenue in the same way that every other state does.                                                                            
He offered  his view that the  only way to protect  the permanent                                                               
fund dividend  is to put it  in the constitution. SJR  1 does not                                                               
specifically authorize  the PFD in the  constitution. However, it                                                               
would allow  the people to vote  and decide if the  PFD should be                                                               
protected  in the  Alaska Constitution.  Those who  oppose SJR  1                                                               
will have  a full and  fair opportunity  to argue against  it. He                                                               
said an issue  as critically important as this  should be decided                                                               
in an election.  He reiterated the need to let  the people decide                                                               
this issue once and for all. He urged members to support SJR 1.                                                                 
2:43:49 PM                                                                                                                    
CHAIR REINBOLD remarked that she has  never voted to cut the PFD.                                                               
She  related her  political struggles  due to  supporting a  full                                                               
permanent fund dividend.                                                                                                        
CHAIR  REINBOLD  stated   that  it  will  be   necessary  to  cut                                                               
government or  institute taxes to  pay a  full PFD. She  said she                                                               
favors cutting  government. She asked  if the sponsor  is willing                                                               
to  cut government  spending and  if so,  to identify  where cuts                                                               
should be made.                                                                                                                 
SENATOR  WIELECHOWSKI responded  that he  had proposed  dozens of                                                               
cuts during his time in the  legislature. He said he did not wish                                                               
to debate  how to accomplish  budgetary solutions.  Everyone will                                                               
have different  ideas and  approaches to  tackle this.  The state                                                               
has approximately $75 billion in  the permanent fund. The average                                                               
generally accepted  accounting value is  $70 billion in  the last                                                               
five years.  He pointed  out that paying  the full  dividend will                                                               
cost  $2  billion. Some  people  argue  that  a  safe draw  is  4                                                               
percent; others  believe 5  percent is  sustainable. A  5 percent                                                               
draw would  make $1.5  billion available  for the  government. He                                                               
offered his view that oil  tax credits should be eliminated, that                                                               
Alaska has  the lowest  oil tax  rates in the  world yet  the oil                                                               
industry is harvesting  money from Alaska and using  it to invest                                                               
in other places in the world.                                                                                                   
2:47:40 PM                                                                                                                    
CHAIR REINBOLD  recalled she agreed  not to debate oil  tax rates                                                               
with the  sponsor, which is  better left to the  Senate Resources                                                               
Committee.  She  argued that  the  business  environment must  be                                                               
competitive.  She said  her husband  was  laid off  from the  oil                                                               
SENATOR WIELECHOWSKI  said the  state has  a legal  obligation to                                                               
achieve a  reasonable profit. He  argued that Alaska is  the most                                                               
profitable place in the world for oil companies.                                                                                
CHAIR  REINBOLD suggested  she could  use charts  to support  her                                                               
2:48:47 PM                                                                                                                    
At ease                                                                                                                         
2:49:09 PM                                                                                                                    
CHAIR REINBOLD  reconvened the meeting.  She maintained  that she                                                               
could  bring  in  economists'  charts.   She  related  that  this                                                               
discussion  should  focus on  the  permanent  fund dividend.  She                                                               
remarked that she supports the PFD program.                                                                                     
2:49:48 PM                                                                                                                    
SENATOR  MYERS  agreed  that  the people  own  the  resources  in                                                               
Alaska.  He said  he  noticed  that SJR  1  does  not change  the                                                               
percentage of royalties going to  the permanent fund. He asked if                                                               
the state should maintain its current rate on royalties.                                                                        
SENATOR  WIELECHOWSKI  said  that  SJR 1  retains  the  statutory                                                               
formula his  constituents favored.  Some have  advocated changing                                                               
the formula by  going to a percentage of market  value (POMV). He                                                               
acknowledged  that the  legislature could  debate whether  to use                                                               
POMV. However, it is not in this resolution.                                                                                    
2:51:04 PM                                                                                                                    
CHAIR REINBOLD offered her view  that the private sector is taxed                                                               
at a rate  that is three times the national  average. The oil and                                                               
gas  industry offers  much  more than  providing  revenue to  the                                                               
state since it provides jobs.                                                                                                   
2:52:13 PM                                                                                                                    
SENATOR KIEHL  reminded members that the  constitution's preamble                                                               
says, "We the people do  ordain and establish this Constitution."                                                               
The notion that government is  something other than the people is                                                               
unwarranted. He said  he would also argue  that Alaskans received                                                               
value in  other ways.  The people got  educated, had  their roads                                                               
plowed and  their fish  counted. He said  he has  questions about                                                               
the resolution.                                                                                                                 
2:53:07 PM                                                                                                                    
CHAIR REINBOLD turned to invited testimony.                                                                                     
2:53:37 PM                                                                                                                    
CLEM  TILLION, Chair,  Permanent  Fund  Defenders, Halibut  Cove,                                                               
Alaska,  said he  would  like  the existing  law  related to  the                                                               
permanent  fund  dividend  put  into  the  constitution  so  that                                                               
Alaskans  are protected.  This law  has worked  for 40  years, he                                                               
said.  However,   the  Alaska   Supreme  Court  ruled   that  the                                                               
legislature does  not need  to obey  that law.  He said  he would                                                               
like a  constitutional amendment that makes  the legislature obey                                                               
the law.                                                                                                                        
He expressed concern that people  working in the fishing industry                                                               
in Dutch  Harbor do not pay  any taxes since they  come to Alaska                                                               
from the lower 48. He said he is  not opposed to taxes, but he is                                                               
against  excessive government,  so he  would like  to see  severe                                                               
cuts. He  recommended that the legislature  decide which services                                                               
it will  no longer  provide. He reminded  members that  Alaska is                                                               
the  only land  grant state  in  the nation,  having received  an                                                               
endowment  of 100  million acres.  At the  time, Alaska  selected                                                               
land it felt was valuable, including oil fields and wells.                                                                      
MR. TILLION  suggested that the  tax debate could be  held later.                                                               
He  recalled a  territorial legislator  who said  if you  cut the                                                               
government by 20 percent, it  will cripple the territory forever.                                                               
However, cutting  20 percent  of the  employees will  balance the                                                               
2:56:31 PM                                                                                                                    
MR. TILLION recalled  when the permanent fund  was established it                                                               
was necessary to call upon the  Alaska State Troopers to bring in                                                               
two senators to  vote. He lamented that the dividend  was not put                                                               
into  the constitution  at  that time.  First  and foremost,  the                                                               
money  should be  protected, he  said. The  state should  not pay                                                               
dividends when  it has bad  years. He  urged members to  move the                                                               
resolution to the finance committee.                                                                                            
CHAIR REINBOLD  agreed that the legislature  must cut government.                                                               
She also agreed  that Lower 48 fishermen not  paying taxes should                                                               
be  addressed. She  said  legislators need  to  work together  to                                                               
determine budget cuts.                                                                                                          
2:59:50 PM                                                                                                                    
JOE  GELDHOF, Attorney;  Member,  Board  of Directors,  Permanent                                                               
Fund Defenders,  Juneau, Alaska,  stated he  serves on  the board                                                               
with   Jack  Hickel,   Roselynn  Cacy,   Rick  Halford,   Juanita                                                               
Cassellius  and  Jim  Sykes.  The   board  keeps  in  touch  with                                                               
economists throughout  the state. The board's  primary mission is                                                               
to  protect   the  permanent   fund,  including   protecting  the                                                               
permanent fund  dividend. He emphasized  that the  permanent fund                                                               
dividend ties every  Alaskan to the funds in  the permanent fund.                                                               
He   expressed  concern   that  the   permanent  fund   would  be                                                               
3:00:56 PM                                                                                                                    
MR.  GELDHOF  characterized  the  permanent fund  dividend  as  a                                                               
vexing problem that the legislature  has grappled with resolving.                                                               
He supported  allowing the people  to vote on the  permanent fund                                                               
dividend issue and  resolve it. This will  enable the legislators                                                               
to focus on the critical needs of cuts and revenue enhancement.                                                                 
He said that  if the legislature uses POMV, it  will shift from a                                                               
permanent fund to an annuity or  endowment. He said that the POMV                                                               
methodology  must be  prudent  and  conservative. Otherwise,  the                                                               
state risks  over harvesting  on a  percentage basis,  which will                                                               
jeopardize  the corpus  of the  fund. He  suggested that  members                                                               
listen to  Callen &  Associates who  testified before  the Senate                                                               
Finance  Committee  that  using  5  percent  POMV  will  put  the                                                               
permanent fund  in jeopardy. He  said that the board  prefers the                                                               
current  statutory  process  in the  constitution.  However,  the                                                               
legislature should  use 4 percent and  a 50:50 split if  it moves                                                               
to a percentage of market value (POMV).                                                                                         
[SJR 1 was held in committee.]                                                                                                  

Document Name Date/Time Subjects
SB 9 ver B.pdf SJUD 3/29/2021 1:00:00 PM
SB 9
SB9 Ver B
SB 9 Sponsor Statement ver B.pdf SFIN 5/3/2021 9:00:00 AM
SJUD 3/29/2021 1:00:00 PM
SB 9
SB9 Sponsor Statement
SB 9 Sectional Analysis version B 2.10.21.pdf SFIN 5/3/2021 9:00:00 AM
SJUD 3/29/2021 1:00:00 PM
SB 9
SB9 Sectional Analysis Version B
SB 9 Letters of Support 2.10.21 complete.pdf SJUD 3/29/2021 1:00:00 PM
SB 9
SB 9 Summary of previous support letters (SB52).pdf SJUD 3/29/2021 1:00:00 PM
SB 9
SB 52
SB 9 Title 4 Review Report 02.2019.pdf SJUD 3/29/2021 1:00:00 PM
SB 9
SB 9_Title4Pres_Senate_JUD_3.2021.1.pdf SJUD 3/29/2021 1:00:00 PM
SB 9
SJR001A.PDF SJUD 3/29/2021 1:00:00 PM
SJR1 Version A
SJR 1 Sponsor Statement 2.8.21.pdf SJUD 3/29/2021 1:00:00 PM
SJR1 Version A Sponsor Statement
SJR 1 Sectional Analysis 2.8.21.pdf SJUD 3/29/2021 1:00:00 PM
SJR1 Version A Sectional Analysis
SJR 1 Leg History 1982 SB842 HFIN_Letter of Intent Al Adams 5-14-82 .pdf SJUD 3/29/2021 1:00:00 PM
SB 842