Legislature(2001 - 2002)
04/16/2002 03:40 PM STA
* first hearing in first committee of referral
= bill was previously heard/scheduled
= bill was previously heard/scheduled
SJR 13-CONST. AM: PERMANENT FUND JOE BALASH, staff to Senate State Affairs, explained the proposed committee substitute (CS) for SJR 13 differed considerably from the original amendment proposed by the trustees. Rather than describe all income as running into the fund itself and then putting a limit on how much may be appropriated from the fund, all income would be deposited into a separate earnings account. Section 2, subsection (b), establishes that appropriations would be made from the earnings reserve account. The purpose for doing that was to maintain a strict distinction between the earnings appropriations and the principal of the fund. Legal advice indicated the prior language could be problematic in that it used the word principal and restricted what principal could be used for, but then allowed appropriations from the fund. Rather than leave it an open question to be debated in court, they established the separate earnings reserve account within the fund. A second change occurs on page 2, lines 2 through 4. The original proposal relied on a five-year market value for the fund. The CS adds a lag year so that when a governor is beginning to formulate the budget in late November or early December, there will be hard numbers as to how much of the permanent fund will be available for dividends and other uses. The affect would be to reduce the amount that would be available under the formula, but if the assumptions of the trustees were correct, 8.25 percent on an annual basis would result in about 4.5 percent being available for appropriation each year. Section 3 is a transition section. There was a legal question about whether the earnings in the statutorily created earnings reserve account within the fund would be protected under the language proposed by the trustees. Rather than waiting for a court challenge, they propose that the transition section would transfer the amount in the statutorily created earnings reserve into the constitutionally created earnings reserve thereby protecting it and limiting its availability to the state. CHAIRMAN THERRIAULT asked for further discussion on the lag year because Senator Halford was somewhat concerned about the five percent. However, when it all works together it reduces to a little less than five percent. MR. BALASH explained that the amount depends on the assumptions made on whether the earnings amount would be 8 or 8.25 percent. A reasonable estimate for a five-year moving average as proposed by the trustees would result in 4.7 to 4.8 percent available for appropriation. Depending on the actual returns, adding a lag year would result in 4.5 percent to 4.7 percent being available for appropriation. The higher the growth in each subsequent year, the wider the gap would be over the course of the five years, which would reduce the effective payout rate. CHAIRMAN THERRIAULT said the transition section says that money is placed in a category that makes just the five percent averaged draw available. It's not available with a simple majority vote. JIM KELLY, Director of Communications for the Permanent Fund Corporation, said the board hadn't had the opportunity to evaluate the proposed CS so he couldn't speak for the entire board. However, the intent to maintain the prohibition against spending principal as described by Mr. Balash is also the intent of the board and it appears as though the language accomplishes that intent. No problem was immediately apparent, but if a question arose they could discuss it in the next committee of referral. There were no questions and no additional testimony. CHAIRMAN THERRIAULT stated the bill would go to the Judiciary Committee next and as a member of that committee, he intended to continue to work with the trustees. The Version R, Cook committee substitute (CS) was before the committee. There were no amendments offered and there was one $1,500.00 fiscal note. He asked for the will of the committee. SENATOR DAVIS made a motion to move CSSJR 13(STA) and attached fiscal note from committee with individual recommendations (Version R). There being no objection, it was so ordered.