Legislature(2005 - 2006)BELTZ 211
02/15/2005 03:30 PM Senate STATE AFFAIRS
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* first hearing in first committee of referral
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= bill was 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 Development." 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 feasible. 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 reserve. 3:47:58 PM Slide 15 indicates Alaska Permanent Fund history and projections spreadsheet. 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 ERA. 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 time. 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 asserted. 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 vote. 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 tax. 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.