Legislature(2005 - 2006)BELTZ 211

02/15/2005 03:30 PM Senate STATE AFFAIRS

Download Mp3. <- Right click and save file as

* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
Heard & Held
Heard & Held
Moved SCR 2 Out of Committee
Bills Previously Heard/Scheduled
        SB  88-POLICY ON GENERAL FUND REVENUE SHORTFALL                                                                     
3:34:39 PM                                                                                                                    
CHAIR THERRIAULT  announced the first  order of business  to come                                                               
before the committee  was SB 88. He asked Senator  Wilken to come                                                               
forward and give an overview.                                                                                                   
3:35:56 PM                                                                                                                  
SENATOR GARY WILKEN, sponsor of SB  88, explained he would give a                                                               
power point  presentation that would include  the historical view                                                               
of the fiscal  situation and a suggestion on how  to fund revenue                                                               
shortfalls. "There's  no question  in my mind...  that we  have a                                                               
structural deficit in our general fund spending in this state."                                                                 
The  following   highlights  the   presentation,  "A   Bridge  to                                                               
3:37:16 PM                                                                                                                    
Slide  2   -  AS  37.07.010  provides   procedures  for  covering                                                               
projected   shortfalls   by   appropriating  equally   from   the                                                               
Constitutional Budget Reserve and the Earnings Reserve Account.                                                                 
3:37:36 PM                                                                                                                    
Slide 3 shows FY 06 Operating & Capital Budgets - $7.6 billion                                                                  
The budget  is comprised  of 33 percent  federal funds,  about 20                                                               
percent  Permanent Fund  spending,  and 34  percent general  fund                                                               
spending, which  is the "home  of the fiscal  gap." Historically,                                                               
between  68 and  90 percent  of general  fund revenues  have come                                                               
from oil and gas tax revenues.                                                                                                  
3:38:57 PM                                                                                                                    
Slide 4 shows  a bar chart indicating, "General  fund revenue can                                                               
be less than general fund expenditures."                                                                                        
3:40:13 PM                                                                                                                    
Slide  5 shows  the relationship  between  the price  of oil  per                                                               
barrel and the unrestricted general  fund revenue. If oil were at                                                               
$25 per barrel  there is a fiscal  gap in FY 06,  but there would                                                               
be a small surplus at $50 per barrel.                                                                                           
3:41:59 PM                                                                                                                    
Slide 6 -  In 1990 voters approved an amendment  to Article IX to                                                               
establish the Budget Reserve Fund (CBR) to fill a fiscal gap.                                                                   
3:42:36 PM                                                                                                                    
Slide 7  indicates a chart  from FY 94 -  when the CBR  was first                                                               
tapped - to FY 05.                                                                                                              
3:43:48 PM                                                                                                                    
Slide 8 indicates Alaska is a resource state.                                                                                   
3:44:18 PM                                                                                                                    
Slide 9 indicates  a bridge is needed until  potential future oil                                                               
and gas revenues are developed.                                                                                                 
3:45:06 PM                                                                                                                    
Slide 10 shows  seven ways to bridge the gap.  Using the earnings                                                               
reserve from the Permanent Fund is the seventh way.                                                                             
3:46:06 PM                                                                                                                    
Slide 11  shows why continuing  to rely  solely on the  CBR isn't                                                               
3:46:46 PM                                                                                                                    
Slide 12  suggests splitting future  fiscal gaps between  the CBR                                                               
and Permanent Fund earnings reserve - SB 88.                                                                                    
3:47:13 PM                                                                                                                    
Slide  14 asks  whether we  can use  the Permanent  Fund earnings                                                               
3:47:58 PM                                                                                                                    
Slide 15 indicates Alaska Permanent  Fund history and projections                                                               
3:49:27 PM                                                                                                                    
Slide 16 indicates that there  is a difference between the Alaska                                                               
Permanent Fund principal and the Earnings Reserve Account (ERA).                                                                
3:51:06 PM                                                                                                                    
Slide  17 indicates  Alaska's Crown  Jewels are  the CBR  and the                                                               
3:53:03 PM                                                                                                                    
Slide  18 addresses  what would  happen to  a person's  Permanent                                                               
Fund check if the ERA were used.                                                                                                
3:55:21 PM                                                                                                                    
SENATOR  KIM ELTON  questioned whether  the  chart indicates  the                                                               
impact per check per year or  the cumulative impact for years two                                                               
and beyond.                                                                                                                     
SENATOR WILKEN said it's cumulative.                                                                                            
CHAIR THERRIAULT  clarified that  if $250 million  were withdrawn                                                               
from the ERA for five  years running, the cumulative impact would                                                               
be $30 total and not $30 per year.                                                                                              
SENATOR WILKEN agreed.                                                                                                          
3:56:57 PM                                                                                                                    
Slide 19 will be reworked given the previous discussion.                                                                        
3:57:35 PM                                                                                                                    
Slide 20 compares alternative revenue sources.                                                                                  
3:58:54 PM                                                                                                                    
Slide 21 indicates  the cumulative cost to a family  of four over                                                               
3:59:55 PM                                                                                                                    
Slide 22 questions whether this helps the CBR.                                                                                  
4:00:33 PM                                                                                                                    
Slide 23 - SB 88 demands spending accountability.                                                                               
4:03:05 PM                                                                                                                    
Slides 24 and 25 offer a summary.                                                                                               
4:04:44 PM                                                                                                                    
SENATOR WILKEN said he was available to answer questions.                                                                       
4:04:55 PM                                                                                                                    
CHAIR THERRIAULT noted  that Senator Elton had to step  out for a                                                               
sub-committee meeting.                                                                                                          
He asked Senator  Wilken whether the bill is  necessary since the                                                               
Legislature can  access the ERA  with a simple majority  vote and                                                               
the CBR with a three quarters vote.                                                                                             
4:05:49 PM                                                                                                                    
SENATOR WILKEN agreed that the  policy could be ignored, but it's                                                               
worthwhile  talking about  the  future when  times  are good,  he                                                               
CHAIR  THERRIAULT  commented  that  earlier today  he  was  asked                                                               
whether the  Legislature was working  on the fiscal issue  and he                                                               
referenced SB  88, the POMV, and  other plans. He noted  that  SB
88  was initiated  last  year and  he was  curious  what kind  of                                                               
questions Senator Wilken fielded in the interim.                                                                                
SENATOR  WILKEN replied  he found  the  concept was  surprisingly                                                               
well received. Touching the ERA  wasn't treated as the third rail                                                               
issue as it had been previously.                                                                                                
4:10:42 PM                                                                                                                    
CHAIR  THERRIAULT brought  up unintended  consequences and  noted                                                               
that although the three quarters vote  on the CBR was a mechanism                                                               
to keep  spending down, it hasn't  in fact worked that  way. Have                                                               
you thought about the potential downside, he asked                                                                              
SENATOR WILKEN replied it depends on  the stock market to a great                                                               
extent. From a  political standpoint he admitted  he's never been                                                               
a fan  of the  CBR. Just  as the  "Halford decision"  changed the                                                               
original concept of the CBR,  the CBR changed the budget process.                                                               
But, he  remarked, the Minority  are still players in  the budget                                                               
process because of the CBR.                                                                                                     
CHAIR THERRIAULT  said the  issue of  low oil  prices and  a bear                                                               
stock market  would constrain  the money you  have, but  it would                                                               
self correct. "It's  not like you would be able  to get access to                                                               
additional earnings that are not there," he said.                                                                               
SENATOR WILKEN replied that could and did happen in 1999.                                                                       
4:15:06 PM                                                                                                                    
CHAIR THERRIAULT noted  the Permanent Fund has  rebounded to over                                                               
$30 billion.                                                                                                                    
SENATOR WAGONER  pointed out there  isn't a loss until  you sell,                                                               
but the  thing he doesn't like  about SB 88 is  it doesn't negate                                                               
the  ability  of the  Minority  using  the  CBR to  increase  the                                                               
expenditure on  the budget each  year. He  said he would  like to                                                               
eliminate the CBR  and never have to deal  with the three-quarter                                                               
SENATOR HUGGINS said he doesn't  necessarily support the concept,                                                               
but  is pleased  that the  conversation is  started. He  said his                                                               
primary concern is that over time  the default might be an income                                                               
SENATOR WILKEN said  some characterize his proposal as  a raid on                                                               
the  Permanent  Fund,  but  he's  ready  to  fight  through  that                                                               
argument to focus on the earnings.                                                                                              
CHAIR THERRIAULT asked whether he  had any additional information                                                               
to highlight.                                                                                                                   
SENATOR WILKEN  announced the new plan  would be on his  web site                                                               
by the  end of the week  and he was  willing to talk about  it in                                                               
any venue.                                                                                                                      
4:20:54 PM                                                                                                                    
CHAIR THERRIAULT announced he would hold SB 88 in committee.                                                                    

Document Name Date/Time Subjects