Legislature(2003 - 2004)
05/13/2003 01:40 PM Senate STA
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* first hearing in first committee of referral
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+ teleconferenced
= bill was previously heard/scheduled
SJR 19-CONST. AM: PERMANENT FUND INCOME
SENATOR GEORGIANNA LINCOLN, bill sponsor, advised that HJR 3 was
the companion bill and she had aide Mark Gnadt with her to
answer technical questions. She paraphrased from the sponsor
statement.
SJR 19 proposes a constitutional amendment that would
give constitutional protection to the dividend program
of the Alaska Permanent Fund. It ensures the Permanent
Fund Dividend will endure.
This resolution is a reiteration of the popular
initiative proposed by former Governor Jay Hammond
late last year. SJR 19 would require a majority vote
by Alaskans before the Legislature could spend any of
the Permanent Fund earnings that currently go to the
dividend or to inflation proof the fund.
The Resolution would also maintain the distribution
formulas used to calculate the dividend that were in
place on July 21, 2002. This will further guarantee
the Permanent Fund Dividend Program will remain
intact.
It has been said that permanently protecting the
dividend program might make the fund susceptible to
federal taxation. Section 3 of SJR 19 will immediately
repeal Sections 1 and 2 if the IRS determines the fund
is taxable.
The Permanent Fund dividend represents approximately
one-eighth of Alaska's economy, and is the most direct
link between the people of Alaska and the resources
they own. With the ongoing budget deficit, it is in
the interest of Alaskans to constitutionally protect
our dividend on which many people depend and with
which they contribute to a healthy economy.
She noted the fiscal note from the Division of Elections shows
an expenditure of $1,500 in 2005 to add the information to the
Official Election Pamphlet. She discussed the sectional analysis
prepared by Tamara Cook. [Copy in bill file.]
CHAIR GARY STEVENS asked her to comment on the IRS issues.
MARK GNADT, aide to Representative Eric Croft, explained that
certain people are concerned that if the dividend were placed in
statute thereby removing the appropriation power from the
Legislature, then the dividend would become more like a
corporate dividend as opposed to a dividend for the public good.
The IRS has made no specific findings in that regard and
although there is some history that substantiates both sides,
none are closely related to the Alaska Permanent Fund. The
sponsors believe the IRS is waiting for the state to make a move
before they make any determination. That's why they put the
provision in Section 3, which would suspend the amendments
immediately if the IRS were to initially determine that any or
all of the fund is taxable. If the final judgment finds that the
fund is not taxable, the suspension terminates. If it finds that
the fund is taxable, the suspension remains in effect.
SENATOR JOHN COWDERY said the dividend was never considered an
entitlement to the fund and should never be considered as such.
He asked whether a tax attorney had been consulted.
SENATOR LINCOLN replied they asked legislative legal to respond.
SENATOR COWDERY advised this is a high-risk gamble and there are
other options that would assure a dividend and not risk
taxation.
SENATOR LINCOLN said the point is well taken.
BOB BARTHOLOMEW, Chief Operating Officer with the Alaska
Permanent Fund Corporation, advised he had three comments.
· Historically, the trustees have been concerned about the
tax-exempt status of the fund. Enclosed in the committee
packets is the 1998 opinion from the Attorney General's
Office related to the tax-exempt status of the fund. With
regard to the clause to repeal the amendment, he cautioned
that once the process is started there is no guarantee the
IRS wouldn't look at the current status of the fund and
current issues unrelated to the constitutional amendment.
· They appreciate that SJR 19 is a proposal that is separate
from the Board of Trustee proposal that deals with
modernizing distribution of the fund related to the
investment management perspective. They encourage continued
separation of the issues.
· As the policy debate continues regarding protecting the
dividend, they encourage looking at the best way to do that
mechanically. This proposal is to use existing statutory
language, but the corporation believes the existing
statutes cause problems because they were designed for an
investment fund of 20 years ago, which is completely
different that the fund they guide today. Part of the
board's recommendation is to update the statutes.
SENATOR GRETCHEN GUESS asked for verification that changing the
constitution to POMV [percent of market value] doesn't guarantee
the dividend program it is simply a different management payout.
MR. BARTHOLOMEW explained that the current proposal in the
Senate and House would guarantee an annual distribution from the
permanent fund, not what the distribution would be used for.
SENATOR GUESS asked if there had been any communication with the
IRS.
MR. BARTHOLOMEW said it is his understanding that they have had
no direct communication with the IRS.
PETRIA FALKENBERG from Kenai testified via teleconference in
support of SJR 19 because it protects the PFD. The PFD belongs
to the people and they should have a say in how the government
spends its resources.
JAMES PRICE testified via teleconference in support of SJR 19.
He said it's important to give the people a chance to vote on
this important issue.
FRED STURMAN, testified via teleconference that this would take
money out of legislators hands and he was in favor of that.
ROGER SHANNON testified via teleconference and said he agreed
with the other speakers and urged passage of SJR 19.
LORI CHURCHILL testified via teleconference to urge passage of
SJR 19. She advised she was sending written testimony as well.
RUBY KIME from Ninilchik testified via teleconference in support
of SJR 19. She said she favored restricting the amount of money
available to the Legislature.
SENATOR COWDERY asked that information regarding how far back
the IRS would look if they decided the fund was taxable be
passed to the Judiciary Committee.
SENATOR LINCOLN said she would look for that information.
SENATOR GUESS made a motion to move SJR 19 and attached fiscal
notes from committee with individual recommendations. There
being no objection, it was so ordered.
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