Legislature(2003 - 2004)
06/23/2004 03:43 PM House FIN
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
HOUSE FINANCE COMMITTEE
June 23, 2004
3:43 P.M.
TAPE HFC 04 - 1, Side A
TAPE HFC 04 - 1, Side B
CALL TO ORDER
Co-Chair Williams called the House Finance Committee meeting
to order at 3:43 P.M.
MEMBERS PRESENT
Representative John Harris, Co-Chair
Representative Bill Williams, Co-Chair
Representative Kevin Meyer, Vice-Chair
Representative Mike Chenault
Representative Eric Croft
Representative Hugh Fate
Representative Richard Foster
Representative Mike Hawker
Representative Reggie Joule
Representative Carl Moses
Representative Bill Stoltze
MEMBERS ABSENT
None
ALSO PRESENT
Representative Ethan Berkowitz, Representative Nick
Stepovich; Cheryl Frasca, Director, Division of Management &
Budget, Office of the Governor; Robert D. Storer, Executive
Director, Alaska Permanent Fund Corporation, Department of
Revenue;
PRESENT VIA TELECONFERENCE
There were no teleconference testifiers.
SUMMARY
HJR 101 Proposing amendments to the Constitution of the
State of Alaska relating to and limiting
appropriations from the Alaska permanent fund
based on an averaged percent of the fund market
value.
HJR 101 was reported out of Committee with a "no
recommendation" and a fiscal impact note by the
Office of Lieutenant Governor.
HJR 102 Proposing amendments to the Constitution of the
State of Alaska relating to and limiting
appropriations from the Alaska permanent fund
based on an averaged percent of the fund market
value and relating to permanent fund dividend
payments.
HJR 102 was REPORTED out of Committee with a "do
not pass" recommendation and with a zero fiscal
note by the Department of Revenue and a fiscal
impact note by the Office of the Lieutenant
Governor.
HJR 103 Proposing amendments to the Constitution of the
State of Alaska relating to an appropriation
limit.
HJR 103 was reported out of Committee with a "no
recommendation" and a fiscal impact note by the
Office of the Lieutenant Governor.
HB 1003 An Act relating to the income of and
appropriations from the Alaska permanent fund
under art. IX, sec. 15(b), Constitution of the
State of Alaska, and making conforming amendments;
relating to permanent fund dividend payments of at
least $1,000; relating to the determination of net
income of the mental health trust fund; and
providing for an effective date.
HB 1003 was REPORTED out of Committee with a "do
not pass" recommendation and with a zero fiscal
note by the Department of Revenue.
HOUSE JOINT RESOLUTION NO. 101
Proposing amendments to the Constitution of the State
of Alaska relating to and limiting appropriations from
the Alaska permanent fund based on an averaged percent
of the fund market value.
Co-Chair Williams noted that the identical legislation
[HJR26] had come before the Committee during the regular
session and asked if members would like to ask questions. No
questions were asked.
Representative Foster MOVED to report HJR 101 out of
Committee with individual recommendations and with the
accompanying fiscal note.
There being NO OBJECTION, it was so ordered.
HJR 101 was reported out of Committee with a "no
recommendation" and a fiscal impact note by the Lt.
Governor's Office.
HOUSE JOINT RESOLUTION NO. 103
Proposing amendments to the Constitution of the State
of Alaska relating to an appropriation limit.
Co-Chair Williams noted that the identical legislation
[HJR9] had come before the Committee during the regular
session and asked if members would like to ask questions. No
questions were asked.
Representative Foster MOVED to report HJR 103 out of
Committee with individual recommendations and with the
accompanying fiscal note.
Representative Croft OBJECTED. He felt that a spending limit
would be a major mistake. He spoke in support of a tax cap.
"The best spending cap is not letting government get into
the dividend." He observed that future growth could
necessitate additional state spending and concluded that it
would be inappropriate to constraint future legislatures.
Representative Stoltze spoke in support of the legislation.
A roll call vote was taken on the motion.
IN FAVOR: Chenault, Foster, Hawker, Meyer, Stoltze, Williams
OPPOSED: Croft, Fate, Joule
Co-Chair Harris and Moses were absent from the vote.
The MOTION PASSED (6-3).
HJR 103 was reported out of Committee with a "no
recommendation" and a fiscal impact note by the Office of
the Lieutenant Governor.
HOUSE JOINT RESOLUTION NO. 102
Proposing amendments to the Constitution of the State
of Alaska relating to and limiting appropriations from
the Alaska permanent fund based on an averaged percent
of the fund market value and relating to permanent fund
dividend payments.
Representative Foster MOVED to report HJR 102 out of
Committee with individual recommendations and with the
accompanying fiscal notes. There was objection for purpose
of discussion.
CHERYL FRASCA, DIRECTOR, DIVISION OF MANAGEMENT & BUDGET,
OFFICE OF THE GOVERNOR, explained the bill, which would
provide a constitutional distribution of 5 Percent of the
Market Value (POMV) of the Permanent Fund: 50% to dividends,
45% to education and 5% as a community dividend. There would
be a ten-year sunset provision. Ms. Frasca noted, "it would
be up to a legislature a decade from now to decide what it
wanted to bring back to the voters."
Representative Stoltze stated that he had a problem putting
a sunset provision into the Alaska Constitution. He felt
that it would erode public confidence and pointed out that
any Committee Chair could "obliterate" all the plans and
protections [provided under the legislation] through the
legislative process.
Representative Joule MOVED to ADOPT a conceptual amendment
changing the distribution to: 60% to dividends, 32.5% to
state functions, and 7.5% to municipalities. Co-Chair
Williams OBJECTED.
Co-Chair Williams referred to the constitutional approach
and noted that it would take two years to implement due to
voting requirement.
In response to a question by Representative Croft, Ms.
Frasca clarified that the legislation was drafted with a
sunset. A future legislature would have to place on the
ballot either the same proposal or a new proposal. "The idea
was, is that, when we look forward over a decade, in ten
years we don't know what Alaska is going to be like." Future
revenues are anticipated from resource development. The
Administration felt it was important to give a future
legislature the latitude to determine what is the best fit
for the circumstances at that time. A ratification approach
would only allow the continuation of the process that was in
place in 2004.
Representative Croft concluded that the entire committee
process would have to [be repeated] in 2014 [under the
constitutional approach].
Representative Hawker pointed out that the ballot initiative
to establish the Permanent Fund stressed that the Fund would
be used to establish stable state funding when oil and gas
revenues were gone. He observed that the proposal would take
50% of these funds off the table for dividends.
Ms. Frasca responded that the creation of the dividend
expanded the use of the Fund. The interpretation that a use
of the Fund should be for dividends is supported by the
statutory actions of the legislature. The legislation would
put into the Constitution what has become practice in terms
of dividends and education.
Representative Hawker questioned if the Administration was
comfortable in placing dividends as the top priority of
state funding.
Ms. Frasca noted that the Administration is comfortable with
the use of funds for dividends and education. The 5 percent
payout for municipalities establishes a new program.
REPRESENTATIVE ETHAN BERKOWITZ questioned if anyone had
looked at increasing the 25 percent [deposit into the Fund]
from mineral leases to 50 to 100 percent.
ROBERT D. STORER, EXECUTIVE DIRECTOR, ALASKA PERMANENT FUND
CORPORATION, DEPARTMENT OF REVENUE, stated that he could
provide the information, but speculated that the Fund size
and income from the Fund would increase.
In response to a question by Representative Berkowitz, Ms.
Frasca was not aware of any proposals by the Administration
to increase the deposit amount [from mineral leases]. She
questioned if the suggestion by Representative Berkowitz
would be for all revenues to go into the Permanent Fund.
Representative Berkowitz stated that he wanted to consider a
change and asked for additional information, which Mr.
Storer promised to provide.
Representative Joule reiterated his conceptual amendment for
distribution of a 5 percent POMV: 60 personal dividend, 35.2
percent to state spending, and 7.5 for municipalities.
Representative Hawker stated that he would be in favor of an
increased municipal dividend with a 50 percent dividend
payout.
Representative Joule noted that constituents seem to favor a
distribution of 60 percent to dividends. He spoke in support
of the amendment.
Vice-Chair Meyer spoke in support of a 50 percent dividend
and a 10 percent municipal dividend.
Representative Croft spoke in support of the amendment. He
noted that a third of the payout would be upwards of $425
million dollars [for state spending]. Communities would
receive approximately $105 million dollars, which is close
to the amount paid by the municipal assistance program
before reductions.
A roll call vote was taken on the motion by Representative
Joule to change the distribution amounts.
IN FAVOR: Croft, Foster, Joule, Moses, Stotlze
OPPOSED: Fate, Hawker, Meyer, Chenault, Williams
Co-Chair Harris was absent from the vote.
The MOTION FAILED (5-5).
Representative Foster MOVED to report HJR 102 out of
Committee with the accompanying fiscal notes. Representative
Fate OBJECTED. He spoke against eroding the power of the
legislature.
Vice-Chair Meyer stressed the importance of the POMV
approach. He felt that it merited further debate on the
House Floor.
Representative Stoltze and Representative Hawker agreed with
the remarks of Vice-Chair Meyer.
Representative Joule noted that the public needs to be
convinced of the importance of the POMV.
REPRESENTATIVE NICK STEPOVICH pointed out that the public is
wary of the way the legislature spends its money.
A roll call vote was taken on the motion to move the bill
from Committee.
IN FAVOR: Foster, Hawker, Joule, Meyer, Stoltze, Williams
OPPOSED: Fate, Chenault, Croft, Moses
Co-Chair Harris was absent from the vote.
The MOTION PASSED (6-4).
HJR 102 was REPORTED out of Committee with a "do not pass"
recommendation and with a zero fiscal note by the Department
of Revenue and a fiscal impact note by the Office of the
Lieutenant Governor.
HOUSE BILL NO. 1003
An Act relating to the income of and appropriations
from the Alaska permanent fund under art. IX, sec.
15(b), Constitution of the State of Alaska, and making
conforming amendments; relating to permanent fund
dividend payments of at least $1,000; relating to the
determination of net income of the mental health trust
fund; and providing for an effective date.
CHERYL FRASCA, DIRECTOR, DIVISION OF MANAGEMENT & BUDGET,
OFFICE OF THE GOVERNOR, observed that the legislation would
provide for a dividend that is equal to 50% of the annual
POMV income or a $1,000 dollar dividend, whichever is
greater.
ROBERT D. STORER, EXECUTIVE DIRECTOR, ALASKA PERMANENT FUND
CORPORATION, DEPARTMENT OF REVENUE, explained that the
income from the Amerada Hess settlement may not be
distributed as a dividend under current law. Income from the
settlement can only go into the principal of the Fund. These
funds are a component within the Fund, which has continued
to grow. The legislation would change this status and allow
the funds to be considered in the calculation of dividends.
In response to a question by Representative Croft, Mr.
Storer felt that the change could be made within the limits
of the settlement. He did not have a legal opinion to
substantiate this opinion [Mr. Storer later notes that the
legislation would not include this change.]
Representative Hawker corrected the previous statements by
Mr. Storer and pointed out that language in the original
version (HB 298) made the income available. He observed that
HB 1003 would hold the status quo and the income would not
be available for distribution.
Mr. Storer acknowledged that the distinction would remain
the same as under current statute.
Representative Joule MOVED to ADOPT conceptual Amendment #1
for the distribution: 7.5 percent for municipalities, 32.5
percent to public education and 60 percent to dividends.
Co-Chair Williams OBJECTED.
Representative Hawker suggested that the amendment would
place dividends at a higher priority to education.
Representative Joule disagreed and pointed out that there is
a formula for education, regardless of the funding source.
The amendment is a switch in the fund source.
Representative Hawker asked if Representative Joule would
support a reduction of the dividend payout to 50%.
Representative Joule did not support the change.
A roll call vote was taken on the motion.
IN FAVOR: Foster, Joule, Moses, Stoltze, Croft
OPPOSED: Hawker, Meyer, Chenault, Fate, Williams
Co-Chair Harris was absent from the vote.
The MOTION FAILED (5-5).
Representative Chenault asked what would happen if the
Permanent Fund did not have a market gain in a period of
time.
Ms. Frasca pointed to page 3, line 26: if funds were
insufficient to meet the $1,000 [dividend] minimum, the
other percentages would be reduced accordingly with the
anticipation that the legislature would back fill to fully
fund the 45 and 5 percent payouts [to education and
municipalities.]
Mr. Storer explained that the POMV approach allows a 5
percent payout with any distribution. Under the proposal a
$1,000 dividend would be given priority; as long as 5
percent of the average of the Fund equal to $1,000 [times
the number of dividend recipients] is available, the
dividend would be paid. The Fund size would have to average
around $14 billion to [pay a $1,000 dividend]. He observed
that during the past three year's bear market the Fund went
from $28 billion to $21 billion, which still allowed for
inflation proofing and full funding of the dividend.
Statistically there is a small possibility [that the Fund
would drop below the level needed to fund a $1,000
dividend]. There would have to be an extremely severe bear
market in the stock market.
Ms. Frasca pointed out that the legislation would provide a
statutory change. The legislature would have the latitude to
amend the statute.
In response to a question by Vice-Chair Meyer, Ms. Frasca
reiterated that the $1,000 minimum provision was added by
the Governor and was not in the version passed by the House
[HB 298].
TAPE HFC 04 - 1, Side B
Representative Foster MOVED to report HB 1003 out of
Committee with the accompanying fiscal note. There being NO
OBJECTION, it was so ordered.
HB 1003 was REPORTED out of Committee with a "do not pass"
recommendation and with a zero fiscal note by the Department
of Revenue.
ADJOURNMENT
The meeting was adjourned at 4:32 PM
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