Legislature(1999 - 2000)

05/12/1999 06:15 PM FIN

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
txt
           HOUSE FINANCE COMMITTEE                                                                                              
              May 12, 1999                                                                                                      
                 6:15 P.M.                                                                                                      
                                                                                                                                
TAPE HFC 99 - 131, Side 1 (Tape lost)                                                                                           
TAPE HFC 99 - 131, Side 2                                                                                                       
TAPE HFC 99 - 132, Side 1                                                                                                       
TAPE HFC 99 - 132, Side 2                                                                                                       
TAPE HFC 99 - 133, Side 1                                                                                                       
                                                                                                                                
CALL TO ORDER                                                                                                                   
                                                                                                                                
Co-Chair Mulder called the House Finance Committee meeting                                                                      
to order at 6:15 p.m.                                                                                                           
                                                                                                                                
PRESENT                                                                                                                         
                                                                                                                                
Co-Chair Therriault   Representative Foster                                                                                     
Co-Chair Mulder    Representative Grussendorf                                                                                   
Representative Austerman   Representative Kohring                                                                               
Representative Bunde   Representative Moses                                                                                     
Representative J. Davies   Representative Williams                                                                              
Representative G. Davis                                                                                                         
                                                                                                                                
ALSO PRESENT                                                                                                                    
                                                                                                                                
Representative Sharon Cissna; Representative Ethan                                                                              
Berkowitz; Scott Goldsmith, Institute for Social and                                                                            
Economic Research; Mike Navarre, President, Alaska                                                                              
Conference of Mayors; Ms. Cheryl Frasca, Fiscal Policy                                                                          
Council; Ken Freeman, Executive Director, Resource                                                                              
Development Council; April Jensen, President, Anchorage                                                                         
Chamber of Commerce; Carl Rose, Executive Director, Alaska                                                                      
School Board Association, Juneau; John Cyr, President, NEA-                                                                     
Alaska, Juneau; Pam LaBolle, President, Alaska State Chamber                                                                    
of Commerce, Juneau; Pat Carter, Staff, Senator Pearce; Mark                                                                    
Chryson, Chairman, Alaska Independence Party, Matsu; David                                                                      
McGraw, Alaska Libertian Party, Matsu; Mike Milligan,                                                                           
Kodiak; Mike Tibbles, Staff, Representative Therriault.                                                                         
                                                                                                                                
TESTIFIED VIA TELECONFERENCE                                                                                                    
                                                                                                                                
                                                                                                                                
SUMMARY                                                                                                                         
                                                                                                                                
HB 231 "An Act relating to income of the Alaska permanent                                                                       
fund, to the Alaska Income Account, and to                                                                                      
permanent fund dividends; and providing for an                                                                                  
effective date."                                                                                                                
                                                                                                                                
 HB 231 was HELD in Committee for further                                                                                       
consideration.                                                                                                                  
                                                                                                                                
HB 232 "An Act making a special appropriation from the                                                                          
budget reserve fund under art. IX, sec. 17(c),                                                                                  
Constitution of the State of Alaska, to the Alaska                                                                              
Income Account; and providing for an effective                                                                                  
date."                                                                                                                          
                                                                                                                                
 HB 232 was HELD in Committee for further                                                                                       
consideration.                                                                                                                  
                                                                                                                                
CSSB 133(RLS) am                                                                                                                
"An Act creating and relating to the Regulatory                                                                                 
Commission of Alaska and transferring to it                                                                                     
certain powers and duties of the Alaska Public                                                                                  
Utilities Commission; repealing the Alaska Public                                                                               
Utilities Commission; relating to the powers of                                                                                 
the chair of the Regulatory Commission of Alaska;                                                                               
relating to regulatory cost charges for public                                                                                  
utilities and pipelines; relating to the appellate                                                                              
procedures of the Regulatory Commission of Alaska;                                                                              
relating to the Alaska Oil and Gas Conservation                                                                                 
Commission; and providing for an effective date."                                                                               
                                                                                                                                
                                                                                                                                
CSSB 133(RLS) am was REPORTED out of Committee                                                                                  
with a "do pass" recommendation and with two new                                                                                
fiscal impact notes, one by the Department of                                                                                   
Commerce and one by the Economic Development and                                                                                
Department of Administration.                                                                                                   
                                                                                                                                
CSSB 134(RLS)                                                                                                                   
"An Act authorizing the Alaska Oil and Gas                                                                                      
Conservation Commission to determine the amount of                                                                              
and to collect a charge for operating wells                                                                                     
subject to the commission's jurisdiction, and to                                                                                
allocate expenses of investigation and hearing;                                                                                 
authorizing the commission to employ additional                                                                                 
professional staff; repealing the oil and gas                                                                                   
conservation tax; and providing for an effective                                                                                
date."                                                                                                                          
                                                                                                                                
CSSB 134(RLS) was REPORTED out of Committee with                                                                                
"no recommendation" and one new fiscal impact note                                                                              
by the Department of Administration, and one                                                                                    
fiscal impact note by the Department of Revenue,                                                                                
published dated 4/23/99.                                                                                                        
HOUSE BILL NO. 231                                                                                                              
                                                                                                                                
"An Act relating to income of the Alaska permanent                                                                              
fund, to the Alaska Income Account, and to permanent                                                                            
fund dividends; and providing for an effective date."                                                                           
                                                                                                                                
HOUSE BILL NO. 232                                                                                                              
                                                                                                                                
"An Act making a special appropriation from the budget                                                                          
reserve fund under art. IX, sec. 17(c), Constitution of                                                                         
the State of Alaska, to the Alaska Income Account; and                                                                          
providing for an effective date."                                                                                               
                                                                                                                                
SCOTT GOLDSMITH, INSTITUTE FOR SOCIAL AND ECONOMIC RESEARCH                                                                     
stressed that the Healthy Alaska Plan is not a raid on the                                                                      
permanent fund. He maintained that the poor would not suffer                                                                    
under the plan. Mr. Goldsmith acknowledged that no one will                                                                     
agree with all the assumptions and elements of the Healthy                                                                      
Alaska Plan, but emphasized that support should be given to                                                                     
those elements in the plan that make sense. Constructive                                                                        
criticism should be given in areas that need improvement.                                                                       
                                                                                                                                
Mr. Goldsmith discussed four criticisms of the Health Alaska                                                                    
Plan:                                                                                                                           
                                                                                                                                
1. It is a raid on the Permanent Fund. The corpus of                                                                            
the fund is protected by the constitution and cannot be                                                                         
spent. The value of the fund would continue to be                                                                               
protected by automatic inflation proofing.                                                                                      
                                                                                                                                
2. This plan endows a growing state government.                                                                                 
Revenues to pay for government will fall short by over                                                                          
$1 billion in FY 99. The gap will widen as oil revenues                                                                         
continue to fall. Some permanent mechanism is needed to                                                                         
help fill it. Unfortunately the earnings will not be                                                                            
large enough to do the job in the out years which is                                                                            
why this plan projects a continued decline in real                                                                              
state spending in spite of population growth. The                                                                               
crafters of this plan want continued budget cuts to be                                                                          
part of the solution.                                                                                                           
                                                                                                                                
3. The burden falls on those with the least ability to                                                                          
pay. It is true that the immediate impact of rolling                                                                            
back the dividend from the extraordinarily high levels                                                                          
of the last 3 years hits lower income households the                                                                            
hardest. But if implementing a plan maintains important                                                                         
public services like quality schools, lower income                                                                              
household's benefit. And if a rollback in the dividend                                                                          
reduces the inflow of new residents, who collect a                                                                              
dividend and use public services without contributing                                                                           
in taxes, lower income household's benefit. Most                                                                                
importantly the reality is that the fiscal gap is big                                                                           
enough that all Alaskans will get to share in the                                                                               
burden of filling it, if not now under this plan, Then                                                                          
in the new future. This plan is a step toward full                                                                              
sharing of the burden just as was the soon to be                                                                                
finished decade of budget cutting.                                                                                              
                                                                                                                                
4. Non-residents should be the first to pay. Aside from                                                                         
the curious notion that when people merely visit Alaska                                                                         
they should pay for the privilege, but when they settle                                                                         
here they should be exempt, the reality is that we                                                                              
would be able to collect a trivial amount from non-                                                                             
residents relative to the size of our gap. Of course it                                                                         
is a good idea to keep an eye on the profits from oil                                                                           
production to make sure we get our fair share. I think                                                                          
it is extremely difficult to expect legislators to                                                                              
craft and. bureaucrats to implement a tax and royalty                                                                           
structure that manages to skim off every dollar of                                                                              
profit without also taking that extra dollar that                                                                               
convinces the industry to look elsewhere. Is it not                                                                             
better to err on the side of caution? Let the industry                                                                          
walk away with a modest profit rather than go elsewhere                                                                         
with all the profit and all the jobs?                                                                                           
                                                                                                                                
Mr. Goldsmith maintained that the Health Alaska Plan is                                                                         
absolutely critical to any strategy for addressing our                                                                          
fiscal problems. He noted that the Health Alaska Plan does                                                                      
the following:                                                                                                                  
                                                                                                                                
1. It sustains the real value of our financial assets.                                                                          
Financial earnings will generate twice the revenue from                                                                         
oil this year and their dominance will continue to                                                                              
grow. Since there is no replacement revenue source on                                                                           
the horizon we would be dead in the water if we let our                                                                         
financial assets waste away. (It doer, this by                                                                                  
inflation proofing the entire portfolio.)                                                                                       
                                                                                                                                
2. It provides a basis for getting the maximum return                                                                           
on our financial earnings. The portfolio can be managed                                                                         
for maximum long run real return consistent with a                                                                              
predetermined level of risk without the need to assure                                                                          
a constant annual flow of income.                                                                                               
                                                                                                                                
3. It provides a stable, predictable, and growing                                                                               
revenue source from our financial assets. This frees                                                                            
the state for the first time since big oil from the                                                                             
annual uncertainty about how much money will be                                                                                 
available to pay for government.                                                                                                
                                                                                                                                
4. It uses a portion of that revenue stream to pay for                                                                          
government. As anticipated when the permanent fund was                                                                          
established, falling oil and other revenues are no                                                                              
longer large enough to pay for government. We have                                                                              
relied on reserves and budget cuts to reduce the size                                                                           
of the gap. Taxes and economic development will also be                                                                         
necessary. It is time also use a portion of Permanent                                                                           
Fund earnings,                                                                                                                  
                                                                                                                                
5. It breaks the cycle of unbounded permanent fund                                                                              
dividend growth. The longer the dividend is allowed to                                                                          
grow above the level that is sustainable, the more                                                                              
difficult it becomes to get our fiscal affairs in                                                                               
order. Re-establishing realistic expectations about the                                                                         
dividend size Alaska can afford to distribute is                                                                                
critical to any fiscal plan.                                                                                                    
                                                                                                                                
6. It recognizes that taxes will be necessary as part                                                                           
of a solution.                                                                                                                  
                                                                                                                                
7. It puts in place flexible fiscal structures that can                                                                         
be adjusted as changing conditions warrant.                                                                                     
                                                                                                                                
Mr. Goldsmith gave the following suggestions:                                                                                   
                                                                                                                                
1. Give careful consideration to the mechanism for                                                                              
determining and protecting the annual withdrawal rate                                                                           
from financial assets, It would be the first line of                                                                            
defense against eating into assets and Pressure to                                                                              
spend more would concentrate there.                                                                                             
                                                                                                                                
2. Offset declining oil revenues with continued                                                                                 
additions to financial assets. Sustaining the value of                                                                          
total state assets, not just our financial assets,                                                                              
requires "depletion proofing' them.                                                                                             
                                                                                                                                
3. Retain a reduced Constitutional Budget Reserve to                                                                            
perform its mandated function of acting as a shock                                                                              
absorber against fluctuating oil prices and to provide                                                                          
a safety valve against pressure to increase the                                                                                 
financial asset draw.                                                                                                           
                                                                                                                                
4. Periodically sweeps inflation proofing into the                                                                              
permanent fund corpus from the Alaska Income Account.                                                                           
The constitutional shelter of the Permanent Fund                                                                                
provides further protection of financial assets.                                                                                
                                                                                                                                
5. Do not earmark the earnings flow. Let each                                                                                   
legislature determine the highest and beat current use                                                                          
of available revenues.                                                                                                          
                                                                                                                                
6. Explicitly recognize that taxes are a necessary part                                                                         
of the solution since inflation and population growth                                                                           
will defeat the budget cutting strategy.                                                                                        
Re-establishing the link between economic development                                                                           
and revenues (overcoming the "Alaska disconnect) argues                                                                         
for a personal income tax.                                                                                                      
                                                                                                                                
7. Tell your story to the public honestly. Credibility                                                                          
is essential to acceptance.                                                                                                     
                                                                                                                                
Mr. Goldsmith reviewed information he felt was key to                                                                           
present to the public:                                                                                                          
                                                                                                                                
1. We have cut the budget - the general funds are $1                                                                            
billion below what it would be today if it had grown                                                                            
with inflation and population. Nominal growth that does                                                                         
not keep pace with inflation is a real cut.                                                                                     
                                                                                                                                
2. All must share in the burden of closing the gap.                                                                             
                                                                                                                                
3. This plan is a critical stop toward closing the gap,                                                                         
but it is not the entire solution. We will need to                                                                              
continue to work to achieve a Healthy Alaska.                                                                                   
                                                                                                                                
Mr. Goldsmith compared the Healthy Alaska plan to the                                                                           
Knowles plan. He stated that the main difference is that the                                                                    
Knowles plan maintains a higher dividend through the                                                                            
personal income tax, Important similarities are the notion                                                                      
of using fund earnings to pay for government and the goal of                                                                    
using the real value of financial assets. He noted technical                                                                    
differences; the Knowles plan is not an endowment, does not                                                                     
inflation proof all financial assets, and maintains the                                                                         
Constitutional Budget Reserve with dual functions. It does                                                                      
result in more sharing of the burden through an income tax                                                                      
and it does not earmark financial earnings for either the                                                                       
dividend or general funds spending.                                                                                             
                                                                                                                                
Mr. Goldsmith addressed arguments that non-residents should                                                                     
pay. He pointed out that the amount that would be collected                                                                     
from non-residents would be minor.                                                                                              
                                                                                                                                
Mr. Goldsmith noted that the general fund is about $1                                                                           
billion dollars less than real inflation. He stressed that                                                                      
not funding inflation means real cuts. The current level of                                                                     
the dividend is not sustainable. It is critical that we make                                                                    
the break from large dividends sooner than later. The plan                                                                      
is flexible, in that it can be adjusted later on. He                                                                            
maintained that it is critical to give consideration to the                                                                     
draw rate of 5.35 percent. He noted that there would be                                                                         
continuous pressure to adjust this amount upwards. He                                                                           
cautioned not to earmark the earnings flow.                                                                                     
                                                                                                                                
In response to a question by Co-Chair Mulder, Mr. Goldsmith                                                                     
noted that the savings accumulated and translated to several                                                                    
billion dollars.                                                                                                                
                                                                                                                                
Representative G. Davis asked why the dividend should be                                                                        
halted. Mr. Goldsmith explained that the problem is that if                                                                     
the dividend continues at an increasing rate other                                                                              
government functions would suffer. He pointed out that it is                                                                    
the only source of revenue the state has to fund public                                                                         
programs. As the dividend becomes larger it will attract                                                                        
people to the state.                                                                                                            
                                                                                                                                
Representative Grussendorf questioned where the                                                                                 
Constitutional Budget Reserve funds should be placed. He                                                                        
pointed out that inflation proofing is the state's buffer.                                                                      
Mr. Goldsmith acknowledged the need for a buffer. He stated                                                                     
that a large buffer is needed against oil price fluctuations                                                                    
                                                                                                                                
Representative Austerman observed that it is difficult to                                                                       
explain that the permanent fund dividend will not continue                                                                      
forever. Mr. Goldsmith stressed that the public can be                                                                          
educated.  He noted that the level of skepticism seems to be                                                                    
related to the length of residency in the state.                                                                                
                                                                                                                                
MS. CHERYL FRASCA, FISCAL POLICY COUNCIL, ANCHORAGE added                                                                       
that the survey asked person's if they agreed with the                                                                          
statement that the original purpose of the permanent fund                                                                       
was to save money for a decrease in oil revenues. Only 49                                                                       
percent agreed with the statement. Of these two-thirds                                                                          
approved of the use of the fund to support government                                                                           
services.                                                                                                                       
                                                                                                                                
Co-Chair Mulder provided members with a report by Callan                                                                        
Associates, Inc (copy on file). The report concluded that                                                                       
there is a 25 percent chance that the permanent fund                                                                            
dividend would be zero with the Governor's approach. The                                                                        
report also concluded that there is not enough money to pay                                                                     
inflation proofing in the future.                                                                                               
                                                                                                                                
MIKE NAVARRE, PRESIDENT, ALASKA CONFERENCE OF MAYORS                                                                            
provided members with a resolution from the Alaska                                                                              
Conference of Mayors, Resolution 99-03 (copy on file). He                                                                       
pointed out that it would be necessary to use earnings of                                                                       
the permanent fund to support state government. It will also                                                                    
be necessary to implement a broad-based tax. He observed                                                                        
that the Healthy Alaska Plan recognizes that inflation is                                                                       
real.                                                                                                                           
                                                                                                                                
The Alaska Municipal League and Alaska Conference of Mayors                                                                     
do not support the inclusion of further reductions. He                                                                          
pointed out that reductions have occurred in the form                                                                           
inflation. He stressed that other plans should be                                                                               
deliberated. He asked the economic impact of the permanent                                                                      
fund dividend. He noted there are increased retail sales at                                                                     
the time the state faces a deficit.  He questioned which mix                                                                    
has the least onerous impact on Alaskan residents. He noted                                                                     
that there is a reduction of oil and gas related jobs. He                                                                       
expressed concern with the accumulative impacts of the plan.                                                                    
He observed that there have been public hearings to discuss                                                                     
the need for a budget plan.                                                                                                     
                                                                                                                                
Representative Austerman noted that there are concerns                                                                          
regarding the affect of taxes.                                                                                                  
                                                                                                                                
In response to a question by Representative Austerman, Mayor                                                                    
Navarre pointed out that a state income tax would be                                                                            
credited against federal taxes. He reiterated that all                                                                          
aspects need to be weighed. He maintained that another look                                                                     
needs to be taken on taxes.                                                                                                     
                                                                                                                                
Representative Williams asked how Mayor Navarre would fill                                                                      
the gap if there were no more reductions. Mayor Navarre                                                                         
noted that there has been a tremendous impact from not                                                                          
funding inflation. He stressed that additional hearings are                                                                     
needed. He noted that a lot of money has been spent out of                                                                      
reserves. He stressed that the public wants to have a say.                                                                      
He noted that the criticism and analysis is just starting to                                                                    
percolate. He reiterated that there should be discussions in                                                                    
member's communities before the discussion is finalized in a                                                                    
special session. He emphasized that this is one of the most                                                                     
important decisions of the decade.                                                                                              
                                                                                                                                
(Tape Change, HFC 99  - 131, Side 2)                                                                                            
                                                                                                                                
KEN FREEMAN, EXECUTIVE DIRECTOR, RESOURCE DEVELOPMENT                                                                           
COUNCIL (RDC) testified via teleconference in support of the                                                                    
Healthy Alaska Plan. He observed that the original intent of                                                                    
the permanent fund was to pay for some state government                                                                         
services. He maintained that now is the time to begin using                                                                     
the earnings in order to bring stability to the budget                                                                          
process. He stressed that the Health Alaska Plan is well                                                                        
balanced because it recognizes the role the dividend pays in                                                                    
a local and state economy, while using the earnings to                                                                          
maintain the essential services and government                                                                                  
infrastructure. He felt that the state could generate new                                                                       
revenues through the promotion of programs to encourage the                                                                     
development of Alaska's economy. He stated that RDC would                                                                       
support, as a last resort, the use of a broad-based tax to                                                                      
close the fiscal gap. He pointed out that new or increased                                                                      
taxes on industry is not the answer. He maintained that                                                                         
increased taxes on industry could shake the confidence of                                                                       
investments.                                                                                                                    
                                                                                                                                
Representative Foster observed that the RDC does not support                                                                    
taxes on industry. Mr. Freeman pointed out that industry is                                                                     
already taxed. He stated that tax would be a last resort.                                                                       
                                                                                                                                
APRIL JENSEN, PRESIDENT, ANCHORAGE CHAMBER OF COMMERCE                                                                          
testified via teleconference in support of a long-term                                                                          
fiscal plan. She reiterated that they would like to see the                                                                     
problem handled this session.                                                                                                   
                                                                                                                                
Representative Foster questioned Ms. Jensen's position on a                                                                     
broad-based tax. Ms. Jensen stated that they would support a                                                                    
broad-based tax if all other avenues were addressed.                                                                            
                                                                                                                                
CARL ROSE, EXECUTIVE DIRECTOR, ALASKA SCHOOL BOARD                                                                              
ASSOCIATION, JUNEAU testified in support of further                                                                             
discussions on a long-term fiscal plan. He noted that                                                                           
members are concerned about the long-term economy of the                                                                        
state of Alaska. He observed that the long-term viability of                                                                    
Alaska would depend on a lot of things. He stressed vision                                                                      
should drive the plan not politics. He noted that there is a                                                                    
sense of urgency and importance. He encouraged the use of a                                                                     
special session to allow the population time to digest the                                                                      
plan. He noted that there are some difference of opinion                                                                        
among the leadership and administration. He maintained that                                                                     
the public understands the problem and is willing to pay                                                                        
taxes. He stressed that attention should be focused on what                                                                     
the plan should look like.                                                                                                      
                                                                                                                                
Representative Foster observed that school districts have                                                                       
not come forth with a solution to the problem. Mr. Rose                                                                         
reiterated that the issues need to be framed to enhance                                                                         
discussions in the communities.                                                                                                 
                                                                                                                                
Representative G. Davis echoed the importance of a long-                                                                        
range vision.                                                                                                                   
                                                                                                                                
JOHN CYR, PRESIDENT, NEA-ALASKA, JUNEAU testified in support                                                                    
of a long-term fiscal plan. He emphasized that the plan                                                                         
needs to consider educational needs. He maintained that the                                                                     
state needs a curriculum that does more than meet the                                                                           
basics. He pointed out that there has been an increasing                                                                        
burden placed on public schools. He maintained that in order                                                                    
to achieve the mission placed on them by the legislature,                                                                       
they must be protected from student and economic inflation.                                                                     
He stressed that the real issue is how quality schools can                                                                      
be judged. He stated that if education is not funded with                                                                       
goals in mind that students would be shortchanged. He                                                                           
emphasized that class size, teacher expertise, salary                                                                           
levels, professional preparation and opportunities for                                                                          
direct teacher/student interaction are the key resources for                                                                    
student learning. The quality and quantify of student                                                                           
interactions is influenced by these factors. He recommended                                                                     
that schools be protected against student and economic                                                                          
inflation, education mandates be fully fund, class size                                                                         
reductions and curriculum testing be put into place, and                                                                        
attention placed on student technology and strategies to                                                                        
make schools safe. He maintained that the public supports                                                                       
use of the earnings reserve for education. He spoke in                                                                          
support of a broad-based tax. He expressed concern with the                                                                     
affect of the plan on local government. He spoke in support                                                                     
of removing the cap for local education contribution.                                                                           
                                                                                                                                
Representative Foster asked if Mr. Cyr would support the                                                                        
plan without the inclusion of taxes. Mr. Cyr responded that                                                                     
he could not state that NEA-Alaska is in 100 percent of the                                                                     
Healthy Alaska Plan. He stated that some kind of broad-based                                                                    
tax should be built into the plan.                                                                                              
                                                                                                                                
Representative Grussendorf summarized that NEA-Alaska wants                                                                     
100 percent funding. He emphasized that NEA-Alaska's help                                                                       
will be needed to education the public and promote the plan.                                                                    
Mr. Cyr committed to assisting a plan that supports                                                                             
education and solves the long-range economic problems.                                                                          
                                                                                                                                
(Tape ended)                                                                                                                    
                                                                                                                                
Mr. Cyr stressed that the plan needs to be supported by the                                                                     
entire legislature.  Vice-Chair Bunde noted that the public                                                                     
does not support the income tax and pointed out that the                                                                        
body reflects the public.                                                                                                       
                                                                                                                                
Representative J. Davies disagreed that the public would not                                                                    
approve an income tax. He stressed that the answer should                                                                       
not be prejudged without asking the question.                                                                                   
                                                                                                                                
Representative Foster stressed that this is the most                                                                            
important issue that he has seen the legislature address in                                                                     
his six terms. Mr. Cyr pointed out that he did not object to                                                                    
the use of the earnings reserve. He emphasized that the                                                                         
state cannot go forward with a billion-dollar deficit. He                                                                       
stressed that "we need to do what we can".                                                                                      
                                                                                                                                
Representative Austerman maintained that the endowment is                                                                       
the crucial aspect of the plan. Vice-Chair Bunde agreed that                                                                    
doing nothing is not an option.                                                                                                 
                                                                                                                                
PAM LABOLLE, PRESIDENT, ALASKA STATE CHAMBER OF COMMERCE,                                                                       
JUNEAU testified in support of a long-term fiscal plan.                                                                         
Criteria for a long-range fiscal plan have been the top                                                                         
priority for the State Chamber.  To do nothing is not an                                                                        
option.  The chamber also wants to see further reductions in                                                                    
the size of Alaska's government.  She observed that                                                                             
residents are unwilling to give up dividends or pay taxes to                                                                    
maintain the status quo.  She suggested the use of                                                                              
investment earnings.  The current plan does meet the                                                                            
criteria of the Chamber.                                                                                                        
                                                                                                                                
Ms. LaBolle stated that the plan could address Alaska's                                                                         
future.  The Chamber believes that the Legislature should                                                                       
make the decision.  It is important that the information is                                                                     
put out to inform the membership of the final outcome.                                                                          
                                                                                                                                
Ms. LaBolle noted that according to an analysis by the State                                                                    
Chamber of Commerce that the overall spending has increased                                                                     
in the last 20 years.                                                                                                           
                                                                                                                                
Co-Chair Mulder asked if the analysis incorporated all                                                                          
spending.  Ms. LaBolle stated that it did include all                                                                           
spending and 3.2% for inflation cost.                                                                                           
                                                                                                                                
(TAPE CHANGE, HFC 99-132, Side 1)                                                                                               
                                                                                                                                
Co-Chair Mulder thought that it is misleading to say that                                                                       
overall spending has increased.  It has increased because                                                                       
the population has increased.  Ms. LaBolle stated that the                                                                      
dividend was not included in the analysis.  When the                                                                            
analysis was done, it was done in a logic manner and                                                                            
included the inflation factors and did recognize that there                                                                     
are things that are not obvious to the general public.  It                                                                      
was a simple approach.                                                                                                          
                                                                                                                                
Representative J. Davies maintained that with adjustments                                                                       
for population and inflation that the per capita spending is                                                                    
less now than in years passed.  The amount of government                                                                        
that we have now is favorably equivalent.  The size of the                                                                      
economy has increased dramatically in the past 20 years.                                                                        
The rate of expansion in the economy has increased more                                                                         
rapidly than the population.  He emphasized that government                                                                     
has been cut.  He countered the idea of cutting                                                                                 
expenditures.  He concluded that "we have come to the bottom                                                                    
of the barrel." There are no big-ticket items that can be                                                                       
reduced and keep doing the adequate work of the State.  He                                                                      
maintained that consideration must be given to a broad-based                                                                    
tax or the use of the earning revenues. He supported a                                                                          
combination of a broad-based tax or the use of the earning                                                                      
revenues.                                                                                                                       
                                                                                                                                
Ms. LaBolle observed that government is not a profit                                                                            
organization.                                                                                                                   
                                                                                                                                
Vice-Chair Bunde observed that federal funds have increased                                                                     
in the state of Alaska.  Ms. LaBolle suggested that there                                                                       
are items that can no longer be afforded.  Vice-Chair Bunde                                                                     
countered that the "wants" and "needs" have become confused.                                                                    
The quality of life is better now than it was 30 years ago.                                                                     
                                                                                                                                
Representative Grussendorf asked what areas the State                                                                           
Chamber would fund. Ms. LaBolle expressed support for                                                                           
education, transportation, and public safety. She observed                                                                      
that these are constitutionally mandated items.                                                                                 
Representative Grussendorf pointed out that transportation                                                                      
is important and expensive.  Ms. LaBolle spoke in support of                                                                    
the Task Force on Privatization.                                                                                                
                                                                                                                                
Representative Moses asked if the average income of the                                                                         
State Chamber membership. He suggested that middle to high-                                                                     
income households would rather give up their dividend check                                                                     
than pay an income tax.                                                                                                         
                                                                                                                                
Ms. LaBolle responded that the dividend created a "monster."                                                                    
People think of the dividend as entitlement. State services                                                                     
need to be supported.                                                                                                           
                                                                                                                                
Representative G. Davis spoke to the petition circulating                                                                       
Kenai Peninsula (against any reduction to the permanent fund                                                                    
dividend).  He acknowledged that a reduction in permanent                                                                       
fund dividends would adversely affect businesses.  He voiced                                                                    
concern in how to educate business about the affect of not                                                                      
acting.  Ms. LaBolle was surprised that there are so many                                                                       
people in the state that don't recognize the seriousness of                                                                     
the problem.  The biggest battle is to get beyond the media.                                                                    
the public must be educated regarding the state's dilemma.                                                                      
                                                                                                                                
Vice-Chair Bunde suggested that there is no difference                                                                          
between taking $500 hundred dollars out of the economy                                                                          
through a reduction in dividends or through paying taxes.                                                                       
                                                                                                                                
Representative Kohring expressed concern with the Healthy                                                                       
Alaska Plan. He expressed fear that it would reduce the                                                                         
incentive for further reductions to government spending. He                                                                     
spoke in support of an advisory vote on the issue of                                                                            
spending permanent fund dollars to support government. He                                                                       
expressed concern with the transfer of dollars from the                                                                         
private to the public sector.                                                                                                   
                                                                                                                                
MARK CHRYSON, CHAIRMAN, ALASKA INDEPENDANCE PARTY, MATSU                                                                        
testified via teleconference against use of the permanent                                                                       
fund without a vote of the people. He spoke in support of                                                                       
public contact. He spoke in support of moving public land                                                                       
into the private sector as a manner to increase municipal                                                                       
income. He observed that rural areas would be negatively                                                                        
impacted by the reduction of permanent fund dividends.                                                                          
                                                                                                                                
Representative Kohring stressed that it takes courage to                                                                        
place a plan on the table.                                                                                                      
                                                                                                                                
Representative Austerman questioned how giving a million                                                                        
acres away would help the state. Mr. Chryson responded that                                                                     
the plan should not be on the table without a vote of the                                                                       
people. He pointed out that Alaskans are not allowed to own                                                                     
their resources. He maintained that the permanent fund                                                                          
dividend is a payoff for not owning the resource. He                                                                            
stressed that public land is like a bank and should be                                                                          
disposed before new taxes or a reduction of permanent fund                                                                      
dividends. He maintained that there should be more land in                                                                      
private ownership.                                                                                                              
                                                                                                                                
Representative Austerman emphasized that the legislative                                                                        
process is necessary to place something on the table.                                                                           
                                                                                                                                
Mr. Chryson suggested that land could be exchanged for an                                                                       
agreement not to collect their permanent fund dividend check                                                                    
for 10 years.                                                                                                                   
                                                                                                                                
Vice-Chair Bunde pointed out that most of the desirable land                                                                    
in the Matsu belongs to the borough. He disagreed that land                                                                     
should be given away. He observed that the addition of small                                                                    
residences would create more demand on state services.                                                                          
                                                                                                                                
Co-Chair Mulder concluded that there has been an attempt to                                                                     
integrate ideas. He stressed that the future of the dividend                                                                    
is at risk if nothing is done. He emphasized the need to                                                                        
take preventative action in order to protect the long-term                                                                      
value and substance of the dividend overtime.                                                                                   
                                                                                                                                
Representative J. Davies observed that the Division of Lands                                                                    
in the Department of Natural Resources has been reduced. Mr.                                                                    
Chryson noted that there is only one person in the Division                                                                     
of Land to dispose land.                                                                                                        
                                                                                                                                
DAVID MCGRAW, ALASKA LIBERTIAN PARTY, MATSU testified via                                                                       
teleconference against reductions to the permanent fund                                                                         
dividend without an equal reduction to government.                                                                              
                                                                                                                                
Representative Austerman asked if Mr. McGraw recognized the                                                                     
$200 million dollar reductions the legislature has made to                                                                      
government or the reduction for inflation. Mr. McGraw did                                                                       
not equate the curtail in the growth of government as a cut.                                                                    
                                                                                                                                
Vice-Chair Bunde pointed out that residents of the Matsu                                                                        
Valley felt that they did not get sufficient funding in SB
36. He concluded that some people in the Matsu Valley would                                                                     
feel that government has been cut.                                                                                              
                                                                                                                                
(Tape Change, HFC 99  - 132, Side 2)                                                                                            
                                                                                                                                
MIKE MILLIGAN, KODIAK testified via teleconference. He                                                                          
expressed concern with the Healthy Alaska Plan. He                                                                              
maintained that everything should be on the table. He noted                                                                     
that Fairbanks had a sales tax when he moved to the state.                                                                      
He maintained that the purpose of the permanent fund                                                                            
dividend was to keep the money out of the hands of                                                                              
government. He spoke in support of diversification of the                                                                       
tax base. He pointed out that tourists, out-of-state                                                                            
workers, and retired residents living out-of-state do not                                                                       
contribute through taxes. He asserted that the use of the                                                                       
permanent fund punishes the residents of Alaska. He                                                                             
concluded that there should be a greater variety of taxes.                                                                      
He stressed that an income tax or sales tax would lessen the                                                                    
affect on the permanent fund.                                                                                                   
                                                                                                                                
Co-Chair Mulder noted that there have been discussions                                                                          
regarding the creation of the permanent fund. He read the                                                                       
ballot question from the 1976 election pamphlet:  "Now is                                                                       
the time to ask ourselves the question, when the oil and gas                                                                    
is depleted, where will the funds to feed government come                                                                       
from, the answer the permanent fund."                                                                                           
                                                                                                                                
Representative J. Davies added that the dividend program was                                                                    
not part of the original plan to create a permanent fund.                                                                       
                                                                                                                                
Mr. Chryson stressed that government provides services. He                                                                      
maintained that most of the money goes to government                                                                            
workers. He observed that the important issue for non-                                                                          
government workers is health care.                                                                                              
                                                                                                                                
Representative Austerman stressed that it takes something on                                                                    
the table to begin the discussions.                                                                                             
                                                                                                                                
Co-Chair Mulder pointed out the Healthy Alaska Plan is a                                                                        
starting point. It does not preclude the discussion of                                                                          
taxes. Taxes can be used to offset a higher dividend or more                                                                    
services.                                                                                                                       
                                                                                                                                
Representative Foster observed that demands are made on                                                                         
daily bases for cuts to government, but added that no one                                                                       
wants the cuts to come from them.                                                                                               
                                                                                                                                
HB 231 and HB 232 were held in Committee.                                                                                       
CS FOR SENATE BILL NO. 133(RLS) am                                                                                              
                                                                                                                                
"An Act creating and relating to the Regulatory                                                                                 
Commission of Alaska and transferring to it certain                                                                             
powers and duties of the Alaska Public Utilities                                                                                
Commission; repealing the Alaska Public Utilities                                                                               
Commission; relating to the powers of the chair of the                                                                          
Regulatory Commission of Alaska; relating to regulatory                                                                         
cost charges for public utilities and pipelines;                                                                                
relating to the appellate procedures of the Regulatory                                                                          
Commission of Alaska; relating to the Alaska Oil and                                                                            
Gas Conservation Commission; and providing for an                                                                               
effective date."                                                                                                                
                                                                                                                                
Co-Chair Therriault MOVED to ADOPT Amendment 2 (copy on                                                                         
file). Representative Grussendorf OBJECTED.                                                                                     
                                                                                                                                
PAT CARTER, STAFF, SENATOR PEARCE explained Amendment 2. He                                                                     
observed that the amendment removes section 28, which                                                                           
authorizes the new Regulatory Commission of Alaska to employ                                                                    
one additional hearing office. He noted that this position                                                                      
is in the operating budget as passed by both bodies. The                                                                        
language is redundant.                                                                                                          
                                                                                                                                
There being NO OBJECTION, Amendment 2 was adopted.                                                                              
                                                                                                                                
Amendment 3 was WITHDRAWN.                                                                                                      
                                                                                                                                
Representative J. Davies MOVED to ADOPT Amendment 4 (copy on                                                                    
file). The amendment would add the following language in                                                                        
section 7:                                                                                                                      
                                                                                                                                
"A party may file a petition for reconsideration of, or                                                                         
an administrative appeal of, a decision by a hearing                                                                            
officer, an arbitrator, or an administrative law judge                                                                          
that has been approved by the commission, or a decision                                                                         
of a hearing panel.  The full commission shall act on                                                                           
the petition for reconsideration or the appeal."                                                                                
                                                                                                                                
There being NO OBJECTION, Amendment 4 was adopted.                                                                              
                                                                                                                                
Co-Chair Therriault MOVED to ADOPT Amendment 5 (copy on                                                                         
file). Amendment 5 would change the sunset date from the                                                                        
year 2004 to 2002. It was the intent of Co-Chair Therriault                                                                     
that the legislature review the transition of APUC.                                                                             
                                                                                                                                
There being NO OBJECTION, it was so ordered.                                                                                    
                                                                                                                                
Co-Chair Therriault MOVED to ADOPT the following House                                                                          
Finance Committee Letter of Intent:                                                                                             
                                                                                                                                
SB 133 repeals the Alaska Public Utilities Commission                                                                           
and creates the Regulatory Commission of Alaska. In                                                                             
making this change to public utility regulation, it is                                                                          
the intent of the Legislature to respond to                                                                                     
recommendations in legislative audits conducted in                                                                              
1979, 1985 and 1989, and an audit performed by the                                                                              
National Regulatory Research Institute (NRRI) in 1998.                                                                          
The task of regulating public utilities has changed                                                                             
dramatically as the utility industry has moved from                                                                             
total regulation to regulated competition. The 21st                                                                             
Alaska Legislature is creating the Regulatory                                                                                   
Commission of Alaska to address these changes in the                                                                            
utility industry on behalf of the people of the state                                                                           
of Alaska.                                                                                                                      
                                                                                                                                
The Regulatory Commission of Alaska is better equipped                                                                          
than the APUC to respond to industry proposals for                                                                              
changes in utility services, and to protect the                                                                                 
interests of ratepayers in the wake of these changes.                                                                           
SB 133 gives the chair authority over administrative                                                                            
matters, leaving the other commissioners free to                                                                                
resolve substantive issues. To address the problem of                                                                           
the APUC's case backlog and time-consuming                                                                                      
decision-making process, SB 133 allows panels of three                                                                          
commissioners, hearing officers or arbitrators to                                                                               
resolve cases where appropriate. It also requires the                                                                           
RCA to adopt regulations setting procedural timelines.                                                                          
To address the problems created by changing APUC                                                                                
staff's role between advocate and advisor, it                                                                                   
establishes a separate public advocacy section within                                                                           
the RCA.                                                                                                                        
                                                                                                                                
SB 133 will improve this agency's accountability to the                                                                         
public. The RCA is required to establish a Management                                                                           
Information System, similar to the Legislature's BASIS                                                                          
system so that the public and industry can be better                                                                            
informed about the RCA's proceedings. It requires the                                                                           
RCA to implement a time management system to record the                                                                         
amount of time spent on filings from different                                                                                  
industries, so that the Regulatory Cost Charge can be                                                                           
more fairly assessed.                                                                                                           
                                                                                                                                
This year is an opportune time to make these changes.                                                                           
The Alaska Public Utilities Commission would begin                                                                              
winding down on June 30, 1999 under the sunset law. SB
133 requires the governor to appoint, and the                                                                                   
Legislature to confirm, five commissioners who will                                                                             
represent the interests of the public.                                                                                          
                                                                                                                                
SB 133 provides for a study of the possibility of                                                                               
combining the functions of the Regulatory Commission of                                                                         
Alaska and the Alaska Oil and Gas Conservation                                                                                  
Commission.  The results of a study by the Legislative                                                                          
Budget and Audit Committee will be presented to the                                                                             
next session of this Legislature.  If the Legislature                                                                           
decides to combine the two agencies' functions, the                                                                             
challenge of making that transition will be                                                                                     
significantly eased by the creation and operating                                                                               
experience of the RCA under SB 133.                                                                                             
                                                                                                                                
Mr. Carter observed that the letter of intent sets into the                                                                     
record all the reasons for establishing a new commission and                                                                    
the structure changes.                                                                                                          
                                                                                                                                
There being NO OBJECTION, the letter of intent was adopted.                                                                     
                                                                                                                                
Mr. Carter noted that Alaska Regulatory Commission should be                                                                    
the Regulatory Commission of Alaska.                                                                                            
                                                                                                                                
Representative Foster expressed concern with the performance                                                                    
of the past executive director of the APUC. Mr. Carter                                                                          
reiterated that the intent is to clarify that staff takes                                                                       
direction from the chairman of the commission.                                                                                  
                                                                                                                                
MIKE TIBBLES, STAFF, REPRESENTATIVE THERRIAULT reviewed the                                                                     
fiscal note for the Alaska Oil and Gas Conservation                                                                             
Commission (AOGCC) fiscal note. There is a $147 thousand                                                                        
dollar general fund request in the contractual line for                                                                         
lease costs. There is a $321.9 thousand dollar capital                                                                          
request for moving costs.                                                                                                       
                                                                                                                                
Co-Chair Therriault explained that the SB 133 fiscal note                                                                       
would be zeroed out in the conference committee if SB 134                                                                       
and SB 133 pass.                                                                                                                
                                                                                                                                
Representative J. Davies observed that the intent is to fund                                                                    
the request.                                                                                                                    
                                                                                                                                
Mr. Carter explained that the fiscal note reflects the                                                                          
changes to the legislation.                                                                                                     
                                                                                                                                
Representative J. Davies MOVED to ADOPT Amendment 6 (copy on                                                                    
file).  Co-Chair Therriault OBJECTED. Representative J.                                                                         
Davies explained that the amendment would add a person to                                                                       
represent the interest of the public.                                                                                           
                                                                                                                                
Co-Chair Therriault spoke against the amendment. He                                                                             
emphasized that all of the members are present to represent                                                                     
the consumer. There is also a separate public advocacy                                                                          
section. Mr. Carter added that every audit reaffirms that                                                                       
APUC was created to protect the interests of the public. Co-                                                                    
Chair Therriault noted that the current language is                                                                             
acceptable to the Administration. Representatives                                                                               
Grussendorf and J. Davies argued in support of the                                                                              
amendment. Vice-Chair Bunde spoke against the amendment.                                                                        
                                                                                                                                
A roll call vote was taken on the motion.                                                                                       
                                                                                                                                
IN FAVOR: Davies, Grussendorf                                                                                                   
OPPOSED: Bunde, Davis, Foster, Kohring, Austerman,                                                                              
Therriault, Mulder                                                                                                              
                                                                                                                                
Representatives Williams and Moses were absent from the                                                                         
vote.                                                                                                                           
                                                                                                                                
The MOTION FAILED (2-7).                                                                                                        
                                                                                                                                
Representative Foster MOVED to report HCS CSSB 133 (FIN) out                                                                    
of Committee with the accompanying fiscal notes. There being                                                                    
NO OBJECTION, it was so ordered.                                                                                                
                                                                                                                                
CSSB 133(RLS) am was REPORTED out of Committee with a "do                                                                       
pass" recommendation and with two new fiscal impact notes,                                                                      
one by the Department of Commerce and one by the Economic                                                                       
Development and Department of Administration.                                                                                   
CS FOR SENATE BILL NO. 134(RLS)                                                                                                 
                                                                                                                                
"An Act authorizing the Alaska Oil and Gas Conservation                                                                         
Commission to determine the amount of and to collect a                                                                          
charge for operating wells subject to the commission's                                                                          
jurisdiction, and to allocate expenses of investigation                                                                         
and hearing; authorizing the commission to employ                                                                               
additional professional staff; repealing the oil and                                                                            
gas conservation tax; and providing for an effective                                                                            
date."                                                                                                                          
                                                                                                                                
Mr. Tibbles discussed a proposed fiscal note for SB 134 by                                                                      
the Department of Administration (copy on file). The fiscal                                                                     
note includes $147 thousand dollars for lease costs and                                                                         
$321.9 thousand capital dollars for moving costs. Mr. Carter                                                                    
explained that the money is needed for additional staff.                                                                        
                                                                                                                                
(Tape Change, HFC 99 - 133, Side 1)                                                                                             
                                                                                                                                
Mr. Carter explained that there are no positions directly                                                                       
tied to the oil and gas conservation tax.                                                                                       
                                                                                                                                
Representative Foster MOVED to report HCS CSSB 133 (FIN) out                                                                    
of Committee with the accompanying fiscal notes. There being                                                                    
NO OBJECTION, it was so ordered.                                                                                                
                                                                                                                                
CSSB 134(RLS) was REPORTED out of Committee with "no                                                                            
recommendation" and one new fiscal impact note by the                                                                           
Department of Administration, and one fiscal impact note by                                                                     
the Department of Revenue, published dated 4/23/99.                                                                             
ADJOURNMENT                                                                                                                     
                                                                                                                                
The meeting adjourned at 9:20 p.m.                                                                                              
House Finance Committee 18                                                                                                      

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