Legislature(2021 - 2022)BUTROVICH 205

02/09/2021 03:30 PM Senate STATE AFFAIRS

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          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,                                                                    
     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,                                                                    
      regardless of what other  uses the income is put to                                                                       
     Hammond  also   saw  the  PFD  program   as  "the  most                                                                    
     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                                                                    
     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                                                                    
     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.                                                                                                          
       Jay Hammond, DIAPERING THE DEVIL: A LESSON FOR OIL                                                                       
     RICH NATIONS 16, 2d Ed. (2011) (emphasis in original).                                                                     
      House Finance Committee, Committee Letter of Intent                                                                       
       HCS CSSB 842, Minutes of House Finance Committee,                                                                        
        Senate Bill 842, at 736 (May 14, 1982) (emphasis                                                                        
         Testimony of Governor Hammond before the House                                                                         
     Finance Committee (Mar. 15, 1982).                                                                                         
       Jay Hammond, DIAPERING THE DEVIL: A LESSON FOR OIL                                                                       
     RICH NATIONS 16, 2d Ed. (2011).                                                                                            
       Wielechowski v. State, 403 P.3d 1141, 1152 (Alaska                                                                       
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
4:41:47 PM                                                                                                                    
SONJA KAWASAKI,  staff, Senator  Bill Wielechowski,  Alaska State                                                               
Legislature, Juneau, Alaska, read  the sectional analysis for SJR
     Section 1   Elimination  of the Permanent Fund Earnings                                                                
     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                                                                    
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                                                                
     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.                                                                  

Document Name Date/Time Subjects
SB 53 Bill.PDF SSTA 2/9/2021 3:30:00 PM
SB 53
SB 53 Fiscal Note 21-GOV-Y.PDF SSTA 2/9/2021 3:30:00 PM
SB 53
SB 53 Fiscal Note 981-REV-N.PDF SSTA 2/9/2021 3:30:00 PM
SB 53
SB 53 Fiscal Note 2616-REV-Y.PDF SSTA 2/9/2021 3:30:00 PM
SB 53
SB 53 Sponsor Statement Permanent Fund; Dividend TL.pdf SSTA 2/9/2021 3:30:00 PM
SB 53
SJR 6 Bill.PDF SSTA 2/9/2021 3:30:00 PM
SJR 6 Fiscal Note GOV-N.PDF SSTA 2/9/2021 3:30:00 PM
SJR 6 Sectional Analysis.pdf SSTA 2/9/2021 3:30:00 PM
SJR 1 Bill.PDF SSTA 2/9/2021 3:30:00 PM
SJR 1 Fact Sheet How PFDs Reduce Poverty in Alaska_December 2016.pdf SSTA 2/9/2021 3:30:00 PM
SJR 1 Leg History 1976 HJR39 HFIN & HJUD_Letter of Intent Malone & Gardiner 3-24-76.pdf SSTA 2/9/2021 3:30:00 PM
HJR 39
SJR 1 Leg History 1976 HJR39 State Investment Advisory Committee_Dividend Statements 8-26-76.pdf SSTA 2/9/2021 3:30:00 PM
HJR 39
SJR 1 Sectional Analysis.pdf SSTA 2/9/2021 3:30:00 PM
SJR 1 Sponsor Statement.pdf SSTA 2/9/2021 3:30:00 PM
SJR 1 Leg History 1982 HFIN_Letter of Intent Al Adams 5-14-82.pdf SSTA 2/9/2021 3:30:00 PM