Legislature(1993 - 1994)
02/04/1994 09:09 AM STA
* first hearing in first committee of referral
= bill was previously heard/scheduled
= bill was previously heard/scheduled
CHAIRMAN LEMAN brings up SJR 38 (RESTRUCTURE PERMANENT FUND) as the next order of business before the committee. The chairman invites Mr. Stastny to comment on SJR 38. Number 492 SHELBY STASTNY, Director, Office of Management & Budget (OMB), Governor's Office, states OMB has spent some time reviewing Mr. Cremo's proposal (SJR 38). While OMB would like to believe SJR 38 would solve the state's fiscal problems, it doesn't appear that it would, at least in the short term, fifteen to twenty years. OMB shares the concerns many people have regarding the amount of revenues that will come to the state. If one excludes for current use the resources we have in our reserve funds, then it appears this proposal would exacerbate the current budget gap to the tune of 200 to 300 million dollars a year. OMB bases these projections on mid-case scenarios of the Department of Revenue projections. It could be even more if based on low-case scenarios. So it certainly would put great pressure on the budget. Mr. Stastny thinks that by the year 2000 the state would be dealing with a total appropriations budget of about the 2.4 billion dollar range, which would be a significant reduction from today's budget. This range would be equivalent to taking about 700 million dollars out of our current budget. If we could live with that reduction for ten or fifteen years, there is a period of time where we would cross the line and there would be more money available under the Cremo plan than there would be under the current revenue projections. Number 540 MR. STASTNY says one of the constraints from the type of plan in SJR 38 is that we would have difficulties investing in revenue raising matters. One argument for SJR 38 is we would be able to bond for projects, but the question that always comes up is if you've got money available, should you be bonding? OMB does not believe the state could live within the constraints of SJR 38 for the period of time we would have to until we reached the point in which we were in a better position with cash flow. Mr. Stastny does not believe the state can save ourselves rich, and he thinks that's what SJR 38 will try to do. He thinks the state will better be able to invest its' money in income-producing resources in the future, and will be able to make the state rich by using the resources of the state. Number 564 CHAIRMAN LEMAN comments that the state cannot spend itself rich either. Number 566 MR. STASTNY asks if the state could invest itself rich. Number 570 CHAIRMAN LEMAN calls Representative Hanley as the next witness. Number 579 REPRESENTATIVE HANLEY states he has set up the Alaska Permanent Fund Corporation's numbers, as well as Mr. Cremo's plan in his computer. TAPE 94-6, SIDE B Number 582 REPRESENTATIVE HANLEY continues, saying the January 27th run that he did is based on mid-case scenarios. The Alaska Permanent Fund Corporation, as well as the Governor's Office use the low-case scenario for their revenue projections. So he then changed his chart to show the low-case scenario as well as the percentage of the first year withdrawal has been reduced from 20% to 16.4%, with a geometric progression down to the 6% numbers. Number 572 SENATOR ELLIS asks Representative Hanley if the figures on his chart are in nominal dollars. Number 570 REPRESENTATIVE HANLEY replies that the figures on his chart are in nominal dollars. Those are the basic changes that were made at the request of the committee. The chart was developed in order to come up with an apples to apples comparison. Representative Hanley says his numbers come out pretty comparable to Mr. Stastny's numbers. Another addition to the chart was a net withdrawal percentage. Representative Hanley continues with his explanation of his chart on "Traditional vs Cremo Budgeting". Number 559 CHAIRMAN LEMAN asks Representative Hanley if SJR 38 has been double-checked to make sure the language in it is very clear. Number 547 REPRESENTATIVE HANLEY states he has suggested House Finance Committee look at the spreadsheets and fiscal aspects of SJR 38, and then send the resolution back to the House Judiciary Committee to double-check the language. There are some questions in regards to clarifying some of the definitions, for instance, a definition for the term "biological marine resource". Every single word in SJR 38 needs to be defined for the record so that it is very clear in the future as to what was intended. Number 532 CHAIRMAN LEMAN thanks Representative Hanley for his testimony and calls Mr. Cremo to testify. Number 530 ROGER CREMO, testifying from Hawaii, states he does not share Mr. Stastny's concerns. Mr. Stastny's characterization of SJR 38 as a savings plan is incorrect. It is merely an attempt to convert the fluctuating revenues that the state has now into revenues that fluctuate less or not at all. The permanent fund now seems to be an income fund. Mr. Cremo questions whether the Alaska Permanent Fund Corporation has the authority to even invest 40% in stocks. He questions whether it has the authority to invest in real estate. He questions whether it has the authority to buy and invest in currency. Number 500 MR. CREMO thinks it is important that in the proposed fund, the withdrawal is taken from a twelve quarter average of fund value. This means the withdrawal is less than a nominal 6%. Mr. Cremo does not agree with the comments made by Mr. Kelly, Mr. Goldsmith, or Mr. Stastny. Mr. Cremo goes on to detail his disagreement with their comments. One of the reasons he disagrees with the comments of Mr. Kelly is because the Alaska Permanent Fund Corporation uses extremely conservative figures. He continues his analysis of permanent fund corporation practices and inflation proofing of the fund. He believes his plan, SJR 38, would solidify the inflation proofing of the permanent fund. Number 368 MR. CREMO doubts the correctness of some of the points made by Mr. Goldsmith. One point of disagreement is that Mr. Goldsmith thinks SJR 38 is too complicated, while Mr. Cremo thinks SJR 38 is a very simple plan. He disagrees on another point: saying the earnings reserve account is not part of the permanent fund, but simply another general fund. Mr. Cremo summarizes by saying he finds it difficult to agree with much of what he is hearing. Number 288 CHAIRMAN LEMAN thanks Mr. Cremo for his testimony and asks if anyone else wishes to testify. Number 284 MR. KELLY clarifies for the committee that when he referred to real withdrawals from the fund, he was including the oil revenues that are added in that category. Number 272 CHAIRMAN LEMAN states there is some tinkering to be done on SJR 38, but he doesn't necessarily thinks the resolution needs to be kept in the committee to do it, and so is not opposed to moving it out of committee. Number 260 SENATOR ELLIS says work on SJR 38 will continue; he would like to see the bill move on. Senator Ellis makes a motion to discharge SJR 38 from the Senate State Affairs Committee with individual recommendations. Number 249 CHAIRMAN LEMAN, hearing no objection, orders that SJR 38 be discharged from committee with individual recommendations.