Legislature(1993 - 1994)
01/29/1993 09:20 AM Senate STA
| Audio | Topic |
|---|
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
SENATOR LEMAN introduced SB 29 (APPROP: EARNING RESERVE TO
PF PRINCIPAL) and invited the prime sponsor, SENATOR BERT
SHARP, to join the committee at the table.
SENATOR SHARP explained SB 29 proposes to appropriate $600
million dollars from the Permanent Fund Earnings Reserve for
deposit into the Permanent Fund's Principal Account.
The last special appropriation into the principal of the
fund occurred in 1987 when $1,264,000,000 was moved from the
Permanent Fund Earnings Reserve by the legislature into the
Permanent Fund Principal Account.
SB 29's proposal to move $600,000,000 will leave an
estimated balance of $235,000,000 in the Earnings Reserve
Account.
This balance should prove more than adequate to meet other
needs and be a cushion for assuring that inflation proofing
obligations are met through the 1990's.
Number 175
SENATOR SHARP explained that the $835 million projected
balance got a lot of legislators, administrators and
advocates of various programs eyeballing it pretty strongly
for their various projects. He suggested that appropriating
some funds into the principal balance portion of the reserve
may be a way that the public perception would accept using
some of the other funds for education or whatever.
He said that the projections assume that there would be no
other withdrawals from the earnings reserve and that was a
very optimistic assumption for the next five, six or seven
years.
JIM KELLY, representing the Permanent Fund Corporation,
testified their job is to manage the money, keep it safe,
earn as much income as they can and leave the decisions
about what to do with the use of the earnings up to the
legislature. The only time the Corporation's board of
trustees would take a position is if the legislature were
proposing some kind of a change that was going to adversely
affect the corporation's ability to do it's job.
The analysis that has been provided is strictly the
corporation's best estimate about what the impacts are going
to be on growth principal in the future, what's going to
happen to income if something like this is done, what will
be the impact on the statutory uses that exist for it right
now.
Mr. Kelly said, right now $835 million is the amount that
will be in the fund at yearend. However, that amount is
subject to change with still five months to go.
Number 250
JIM KELLY said the board meets once a year to discuss asset
allocation. Those decisions are based on what the board
thinks the different markets are going to earn over the next
five-year period.
JIM KELLY distributed a packet that included various
reports, charts and miscellaneous information on the
permanent fund.
SENATOR LEMAN asked how the Alaska Permanent Fund ranked in
terms of funds, such as pension funds, etc. When the fund
moves assets around, does it have a significant impact on
the market? JIM KELLY answered that although the fund was
one of the 50 largest funds in the world, when assets were
moved, it did not have a significant impact on the market.
SENATOR LEMAN said, if $600 million is put into the
principal, that will affect inflation proofing because there
is a larger principal to inflation proof and there is a time
coming soon where we are going to have trouble meeting our
inflation proofing. I assume that shifts the date somewhat,
if so, when does it shift and how will if affect future
inflation proofing.
Number 375
JIM KELLY explained that based on the capital market
assumptions, and one he did not mention was what the rate of
inflation would be, the rate of inflation was going to be 4
percent on the average over the next four years. If
inflation is at 4 percent and the fund is able to earn 8 1/2
percent, we should be able to make enough money each year to
do both, even with the $600 million going to principal. If
inflation jumps up dramatically or our earning go down, we
will have to start drawing down that earnings reserve.
SENATOR SHARP said he neglected to mention that there is
some confusion currently where the permanent fund earning
reserve comes into play. Classification under the
constitutional budget reserve statute says all other funds
have to be exhausted before getting into the constitutional
reserve, and according to legislative legal there is a
possibility that the permanent fund earnings are labeled as
other funds. Unless clarified by statute, which he thinks
no matter what we do, we might want to see that that's
clarified depending on the will of the body.
If that's the case he felt that its more imperative than
ever to protect some of the reserves.
| Document Name | Date/Time | Subjects |
|---|