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, 1 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, 2 regardless of what other uses the income is put to Hammond also saw the PFD program as "the most 3 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 4 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 5 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. 1 Jay Hammond, DIAPERING THE DEVIL: A LESSON FOR OIL RICH NATIONS 16, 2d Ed. (2011) (emphasis in original). 2 House Finance Committee, Committee Letter of Intent HCS CSSB 842, Minutes of House Finance Committee, Senate Bill 842, at 736 (May 14, 1982) (emphasis added). 3 Testimony of Governor Hammond before the House Finance Committee (Mar. 15, 1982). 4 Jay Hammond, DIAPERING THE DEVIL: A LESSON FOR OIL RICH NATIONS 16, 2d Ed. (2011). 5 Wielechowski v. State, 403 P.3d 1141, 1152 (Alaska 2017). 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 1. 4:41:47 PM SONJA KAWASAKI, staff, Senator Bill Wielechowski, Alaska State Legislature, Juneau, Alaska, read the sectional analysis for SJR 1: Section 1 Elimination of the Permanent Fund Earnings Account 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 principal. 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 Voters 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.