Legislature(1999 - 2000)
05/23/1999 12:40 PM House FIN
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* first hearing in first committee of referral
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= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| * | HB1001 | ||
HOUSE FINANCE COMMITTEE
SPECIAL SESSION
May 23, 1999
12:40 P.M.
TAPE HFC SS 99 - 3, Side 1.
CALL TO ORDER
Co-Chair Mulder called the House Finance Committee meeting
to order at 12:40 P.M.
PRESENT
Co-Chair Mulder Representative Foster
Co-Chair Therriault Representative Grussendorf
Representative Austerman Representative Kohring
Representative Bunde Representative G. Davis
Representative J. Davies Representative Williams
Representative Moses was not present for the meeting.
ALSO PRESENT
Phillip Okeson, Budget Analyst, Division of Legislative
Finance; Representative Harold Smalley; Representative
Reggie Joule; Representative Ethan Berkowitz; Representative
Bill Hudson; Representative Jim Whitaker; Representative
John Cowdery; Representative Beth Kerttula; Senator John
Torgerson.
SUMMARY
HB 1001 An Act authorizing an advisory vote on a long-term
financial plan for the state; and providing for an
effective date.
HB 1001 was HELD in Committee for further
consideration.
HOUSE BILL NO. 1001
"An Act authorizing an advisory vote on a long term
financial plan for the state; and providing for an
effective date."
Co-Chair Mulder highlighted the changes to the workdraft CS
HB 1001(FIN), 1-LS1022\G, Cook, 5/23/99. He pointed out
that the proposed bill was similar to HB 231.
Section (1) Contained in HB 231
Section (2) Contained in HB 231 with the exception of the
5.88% payout. Subsection (B) indicates that
50% was transferred from the Income Account.
Section (3) Contained in HB 231
Section (4) Contained in HB 231
Section (5) Contained in HB 231
Section (6) Places the dividend for 1999 at $1540 (same
as last year)
Section (7) Contained in HB 231
REPRESENTATIVE JOHN COWDERY explained that the Permanent
Fund currently relies on a "float" system, predicated on a
five-year balance. Co-Chair Mulder explained that the major
difference between the proposed approach and the status quo
approach is that the payout is based on earnings, whereas in
the proposed approach, the payout would be based on
percentage of market value. He believed that would be a
more stable base.
Representative Cowdery questioned if last year's payout
equaled $940 million dollars. Co-Chair Mulder stated it was
approximately that amount.
Representative Bunde advised that on the Page 3 reference
for FY2000, FY2001 and FY2002, the percentage of payout was
not beyond the amount indicated in Section 6. Co-Chair
Mulder explained that allowed for a "rolling average"
procedure to be used.
Co-Chair Mulder overviewed the composition of the proposed
bill:
Section (8) Speaks to the one-question advisory vote
language
Representative J. Davies asked if consideration had been
made for the vote to be mailed-in. Co-Chair Mulder replied
it had been discussed, however, given the importance of the
response, the accuracy is extremely important. Preference
is that it be an in-person vote.
Co-Chair Mulder continued:
Section (9) The effective date was changed to July 2,
1999.
Section (10) The effective date of Sections 6 & 8 will
take effect immediately.
Representative Austerman pointed out that the proposed bill
does not have the mineral rental lease language from HB 231.
Co-Chair Mulder noted that he had made a judgement call
regarding that because he thought including those provisions
would require an expanded title.
Representative Bunde asked further discussion regarding the
earliest date which an in-person vote could occur before the
effective date be established. Co-Chair Mulder pointed out
that there had been concern voiced by the Division of
Elections and agreed that it is important to establish a
date for the election in order to establish the amount of
the dividend. Representative Bunde added that it would be
an illusive target and perhaps a repealler should be added.
Representative Cowdery read a passage from the Alaska State
Constitution regarding public concern with the Legislature
spending the Permanent Fund. He read:
"All income from the Permanent Fund shall be deposited
in the general fund unless otherwise provided by law."
Co-Chair Mulder inquired if Mr. Okeson had created a chart
illustrating the difference of the two approaches and how
they would affect the dividend.
PHIL OKESON, BUDGET ANALYST, DIVISION OF LEGISLATIVE
FINANCE, offered to provide such a chart.
Representative Bunde commented that the discussed plans do
not spend any earnings of the Permanent Fund, currently
placed into dividends. The Legislature proposes that a
portion of the earnings, which traditionally have gone to
dividends, now be reinvested into an income account that
would provide dividends and funding for State government.
In response to concerns voiced by Representative Williams,
Co-Chair Mulder indicated that it was his intent to discuss
only the work draft before the Committee.
REPRESENTATIVE BILL HUDSON acknowledged that he had found
the proposed work draft to be quite inclusive. He
referenced Page 5, Line 2, which would establish the
balanced budget task force. He supported that they be
responsible for exploring and further reducing options to
limiting State spending as well as identifying appropriate
future revenue sources. He requested that the Committee
consider adding the language after "sources", "specific
programming deficiencies". He believed that language would
provide a broader voice to the public. Co-Chair Mulder
voiced concern with how much work a task force could
complete in one year.
Representative Grussendorf commented that "flat funding"
will not always work. He recommended that other options be
explored.
Co-Chair Therriault asked why Sections 1-7 would take place
on July 7th and not after the vote of the people. Co-Chair
Mulder commented that was an oversight and that the draft
should state September 30th as the effective date.
Co-Chair Therriault asked if Section 6 would become
effective on September 30th. Co-Chair Mulder replied it
would and that Section 8 would take effect immediately. Co-
Chair Therriault questioned if a repealler section had been
considered. He noted that if the public voted "no", the
changes would be made automatically, and if they voted
"yes", the public would most likely support the Legislature
meeting. Co-Chair Therriault believed that it would cause
suspicion and criticism without addition of that language.
Co-Chair Mulder listed the issues which need to be
considered:
* Amount
* Timing
* Effective date
Co-Chair Mulder acknowledged that the public does not
understand the full ramifications of this legislation.
Representative Cowdery asked if the issues were realistic,
questioning if the assumption of oil cost return was
reliable enough to base the legislation on. Co-Chair Mulder
replied that the assumptions from which the model was built
largely reflect those assumptions brought forward by the
Office of the Governor. It has been calculated that the
State will receive a return of approximately 8.13%. He
acknowledged assumption to be conservative, however, it
mirrors what the Department of Revenue sees as realistic.
Representative J. Davies pointed out that any allowances
made for inflation or population growth had been done at 1/2
the estimate provided by the Department of Labor. Co-Chair
Mulder agreed that the proposal before the Committee was
conservative. He added that the "blue print" would be a
model for the future and not "set in stone". There will be
an annual pressure of necessary growth in some areas and
potential reductions in others.
Representative J. Davies reminded members that both
estimates are historically low numbers. Co-Chair Mulder
reiterated that these numbers are realistic.
Co-Chair Therriault questioned the language contained in the
deposit mechanism for the Alaska Income Account when that
value becomes more than 1/3 of total State savings. Co-
Chair Mulder acknowledged that language was not included
that he was working with Legislative Legal on the issue to
guarantee that was the correct number. The intention is to
provide features not outlined in the bill.
* Pro-rated growth in both the Permanent Fund and
the Income Account
* That one does not grow at a rate much larger than
the other does
* Sweep language
Representative J. Davies counseled "caution" in drafting
that language. He recommended that it be offered as
legislative intent, stating that it is not critical it be
included. He re-emphasized the importance that wording be
correct. Co-Chair Mulder agreed.
Representative Bunde added that legislative history should
be instructive. He understood the only use for the Earnings
Reserve Account was to be deposited back into the corpus of
the Permanent Fund. Constitutionally, that money is
available to be deposited into the general fund. The
Legislature chose to put it into the corpus of the Permanent
Fund.
Representative Grussendorf addressed the sweep provision.
Co-Chair Mulder responded that Legal Counsel has indicated
that language would only work if it were changed
constitutionally.
HB 1001 was HELD in Committee for further discussion.
ADJOURNMENT
The meeting adjourned at 1:15 P.M.
H.F.C. Special Session 5 5/23/99
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