Legislature(2021 - 2022)BUTROVICH 205
02/09/2021 03:30 PM Senate STATE AFFAIRS
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| Audio | Topic |
|---|---|
| Start | |
| SB53|| SJR6 | |
| SJR1 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| += | SB 53 | TELECONFERENCED | |
| += | SJR 6 | TELECONFERENCED | |
| *+ | SJR 1 | TELECONFERENCED | |
| += | SB 39 | TELECONFERENCED | |
| + | TELECONFERENCED |
SJR 1-CONST AM: GUARANTEE PERM FUND DIVIDEND
4:26:39 PM
CHAIR SHOWER 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.
4:26:57 PM
SENATOR BILL WIELECHOWSKI, Alaska State Legislature, Juneau,
Alaska, sponsor of SJR 1, said Senator Costello keyed in on the
problem with the governor's permanent fund bills; they do not
require payment of a permanent fund dividend (PFD). The language
is permissive and says the legislature "may" appropriate. He
said that was the Alaska Supreme Court interpretation even
though the permanent fund laws use the term "shall." He opined
that [SB 53 and SJR 6] do not fix the problem and SJR 1 proposes
a better way.
4:28:32 PM
SENATOR WIELECHOWSKI explained that SJR 1 proposes that the
people of Alaska vote on whether to enshrine the permanent fund
dividend program in the Alaska Constitution. That is the only
true way to protect the dividend, he said. He pointed out that
in 2018 the legislature restructured the program, but the
dividends have continued to shrink. He said the permanent fund
statutes are very clear, but the Alaska Supreme Court has said
that the plain language of the statutes can be ignored.
SENATOR WIELECHOWSKI said the governor can veto the PFD to the
level he or she chooses and future legislatures can set the PFD
at any level it chooses. He noted that some legislators have
advocated for setting the dividend at zero. He said businesses
and organizations have demanded predictability, stability, and
consistency in the taxing structure and he believes that
Alaskans deserve the same predictability, stability, and
consistency with their PFDs.
4:30:23 PM
SENATOR WIELECHOWSKI described the PFD program as one of the
most successful and popular programs in American history for
individual Alaskans and businesses. He cited the UAA Institute
of Social and Economic Research (ISER) that reported that tens
of thousands of Alaskans were elevated from poverty every year
because of the statutory PFD. For many years Alaska has had the
lowest income inequality in the US, largely due to the PFD. He
noted that ISER has also reported that the PFD creates thousands
of jobs each year for Alaskans.
4:31:55 PM
SENATOR WIELECHOWSKI continued the introduction of SJR 1
highlighting excerpts from the following sponsor statement:
In 1976 Alaskans voted to establish the Alaska
Permanent Fund in the Alaska Constitution. Under the
Permanent Fund Clause, the Fund would automatically
receive at least twenty-five percent of the state's
mineral resource royalties, rents, and bonuses. While
the principle of the Fund was to be locked from use
and left for investment purposes only, Governor Jay
Hammond and the Alaska Legislature expected that the
income generated by the Fund could be used by the
state, including the prospect of earnings distributed
as dividends to Alaskans.
4:33:19 PM
Following the Fund's creation, Alaska policymakers
began observing that special interests and the
politically connected were reaping more benefit from
the Fund earnings through government spending than
average Alaskans. This concern provided significant
impetus for the legislature's establishment of the
Permanent Fund Dividend by law in 1982, providing a
definitive statutory formula for its calculation.
The PFD was consequently meant to represent every
Alaskan's small, equal share of the resource wealth we
collectively own under Article IX, section 2 of the
Alaska Constitution, which states: "The legislature
shall 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."
As Governor Hammond saw it, a dividend was "the best,
perhaps the only, way to meet our constitutional
mandate to manage our natural resources for the
maximum benefit of all the people," because it
"grant[s] each citizen an ownership share in Alaska's
resource wealth to be used as they, not government,
1
felt was for their maximum benefit."
4:35:06 PM
Representative Al Adams, Chair of the House Finance
Committee, explained the committee's intent for the
new program: "[T]he payment of dividends shall have
first call" on the Fund's income available for use,
2
regardless of what other uses the income is put to
Hammond also saw the PFD program as "the most
3
effective way of curbing excessive government growth"
and envisioned that the PFD would protect the Fund
from "invasion by politicians by creating a militant
ring of dividend recipients who would resist any such
4
usage if it affected their dividends."
Under these sound policy rationales, the PFD was
distributed to Alaskans for 34 years in accordance
with its statutory transfer requirement in AS
37.12.145(b). But in 2016 Governor Bill Walker vetoed
the legislature's full funding for the PFD by about
one-half. Subsequently, the Alaska Supreme Court ruled
that the governor's veto was not illegal, declaring
that, "Absent another constitutional amendment, the
Permanent Fund dividend program must compete for
annual legislative funding just as other state
5
programs." Since that ruling, the legislature itself
has acted to reduce the PFD; every Alaskan has
experienced nearly $7,000 in PFD cuts over the last
five years.
4:35:30 PM
Senate Joint Resolution 1 aims to enshrine the PFD
program in the Alaska Constitution to effect the fair
and prudent policy rationales for which the program
was intended to achieve. It would protect overspending
the Fund by moving the balance of the Earnings Reserve
Account, which currently holds the Fund's investment
earnings, into the Fund corpus, where all future
earnings will be retained and thereby safeguarded from
access. SJR 1 then limits the permissible draw from
the Fund to five percent (5%) of a five-year averaged
market value. The people would then be apportioned
either fifty percent (50%) of the draw value or the
amount of the historic calculation formulawhichever
is greater. In this way, the people will always
receive first call on the earnings of the Fund, ahead
of government.
Failing to constitutionalize the PFD would enable a
disproportionate distribution of Alaska's oil wealth
to those most able to leverage political influence to
persuade lawmakers to fund their endeavors, at the
expense of average Alaskans. Neglecting to
constitutionalize the PFD would permit lawmakers to
continue avoiding their obligation to address other
revenue measures than the Fund earnings, placing the
Permanent Fund at grave risk.
Please join me in supporting SJR 1 to constitutionally
enshrine the Permanent Fund Dividend to provide for
the maximum benefit of all Alaskans and ensure the
prosperity of the Permanent Fund for generations of
Alaskans to come.
1
Jay Hammond, DIAPERING THE DEVIL: A LESSON FOR OIL
RICH NATIONS 16, 2d Ed. (2011) (emphasis in original).
2
House Finance Committee, Committee Letter of Intent
HCS CSSB 842, Minutes of House Finance Committee,
Senate Bill 842, at 736 (May 14, 1982) (emphasis
added).
3
Testimony of Governor Hammond before the House
Finance Committee (Mar. 15, 1982).
4
Jay Hammond, DIAPERING THE DEVIL: A LESSON FOR OIL
RICH NATIONS 16, 2d Ed. (2011).
5
Wielechowski v. State, 403 P.3d 1141, 1152 (Alaska
2017).
SENATOR WIELECHOWSKI advised that SJR 1 honors the historic
formula and it allows the people to vote on whether or not to
protect the PFD in the constitution.
4:36:44 PM
SENATOR COSTELLO expressed appreciation that the committee was
hearing the governor's bills, [SB 53 and SJR 5,] and SJR 1 in
the same meeting. She pointed out that the governor's bills put
faith and trust in the legislature to make annual appropriations
whereas SJR 1 places faith and trust in the constitution. She
stated her preference for the latter, noting that SJR 1 also
takes care of Alaskans first and government second.
CHAIR SHOWER said he heard some of the same arguments two years
ago when a previous version of the bill was introduced. He
commented on the general reluctance to change the constitution
and the recognition that it may be the only way to set the bar
high enough to actually provide protection. He cautioned that
without a high bar of protection, the PFD will not be available
for future generations. He also pointed out that putting the PFD
in the constitution necessarily would drive actions to balance
the books. That could mean reducing government services or
creating more taxes. All options are on the table to find a
balanced approach, he said.
He asked Ms. Kawasaki to present the sectional analysis for SJR
1.
4:41:47 PM
SONJA KAWASAKI, staff, Senator Bill Wielechowski, Alaska State
Legislature, Juneau, Alaska, read the sectional analysis for SJR
1:
Section 1 Elimination of the Permanent Fund Earnings
Account
Under Article IX, section 15 of the Alaska
Constitution the Permanent Fund is comprised of a
principal that may not be accessed for government
spending. The income from investments of the principal
may be provided for by law. Currently, all earnings of
the Fund are deposited in the Earning Reserve Account
as established by law. SJR 1 Section 1 would foreclose
the possibility of an earnings holding account; any
future earnings would be retained as non-spendable
principal.
4:42:46 PM
Section 2 Establishment of the POMV & PFD Payment
Formula in the Constitution
This section provides for a constitutionalized percent
of market value (POMV) draw from the Permanent Fund
that is set at five percent (5%) and is based on the
average value of the Fund over five fiscal years.
Section 2 then establishes that payments of dividends
to Alaskans will be either by the calculation set by
the historic statutory formula, as constitutionalized,
or fifty percent (50%) of the POMV, whichever would
produce a dividend of greater value.
Section 3 Providing for Transition Provisions
Article XV of the Alaska Constitution would be amended
to provide for transition implementation and the
timing necessary to effect the material provisions of
SJR 1, upon approval of the voters. The balance of the
Earnings Reserve Account would be deposited into the
corpus of the Fund at the end of Fiscal Year 2023, and
the material provisions of SJR 1 would become
effective for state budgeting purposes during Fiscal
Year 2024.
Section 4 Placement of the Proposal Before the
Voters
Pursuant to Article XIII, section 1, amendments to the
Alaska Constitution must be presented to the voters
for approval, which is only permissible during a state
general election. Under SJR 1 Section 4, the proposal
would therefore be placed before the voters on
November 8, 2022.
4:44:20 PM
CHAIR SHOWER asked the sponsor to comment on how it happened
that the language changed from DGF to UGF in 2017.
SENATOR WIELECHOWSKI answered the statute is written to require
the Permanent Fund Corporation to transfer funds from the
permanent fund to the Department of Revenue (DOR) so they can
calculate how much has to be paid under the dividend formula. He
noted that the transfer was automatic initially, but that
changed and the legislature has appropriated the money for the
dividend for many years.
CHAIR SHOWER recalled that before 2017 the appropriation was
designated general funds (DGF). The legislature made the
appropriation but did not touch it. The statutory language
changed in 2017 to undesignated general funds (UGF), which he
characterized as top cover to allow the legislature to do what
it wanted with the funds.
SENATOR WIELECHOWSKI said his office researched that thoroughly
and would follow up with the details.
CHAIR SHOWER said that was not necessary but he wanted the
record to reflect that the legislature did change things to make
it easier to set the size of the dividend every year. He
described it as a game of chance. He also maintained that the
argument that taking part of the PFD was to pay for government
services was an apples to oranges comparison.
4:50:48 PM
SENATOR WIELECHOWSKI said people have different interpretations
of why there is a dividend. He offered his perspective that when
the permanent fund was created there was no universal agreement
on what to do with the funds. When the state received $900
million from the lease of Prudhoe Bay, the money was spent
within five or six years, which was frustrating to Alaskans of
all political persuasions. The permanent fund was created with
the idea of giving some of it to the people and saving some for
future generations. The consensus gradually developed to ensure
that every Alaskan gets some share of the resource wealth. He
noted that the letter of intent attached to the permanent fund
bill clarified that Alaskans, not government, were to get first
call on the earnings from the permanent fund.
He pointed out that SJR 1 does not try to prevent government
from using some of the permanent fund earnings. It sets up a
POMV structure so that some permanent fund earnings can be used
for government while also ensuring that the people continue to
get their share of the resource wealth.
CHAIR SHOWER restated that everything should be on the table.
SENATOR HOLLAND questioned maintaining both the 5 percent POMV
and the historic dividend formula. He asked if there was a
scenario in which the 5 percent POMV could produce a dividend
larger than the formula.
4:57:54 PM
SENATOR WIELECHOWSKI answered that SJR 1 is a brilliant solution
to the issue of the legislature potentially spending the
earnings reserve down to zero. It also provides a funding
mechanism for government and a funding mechanism for the people
to get their dividend. The legislation also tries to address the
issue of a potentially smaller dividend in market downturns
combined with low oil revenues. He said his team tried to
address all the issues associated with eliminating the earnings
reserve and continuing with the existing structure. He opined
that SJR 1 does this.
CHAIR SHOWER held SJR 1 in committee for future consideration.