Legislature(2019 - 2020)ADAMS ROOM 519
05/06/2019 01:30 PM House FINANCE
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| Audio | Topic |
|---|---|
| Start | |
| HB68 | |
| HB31 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| + | TELECONFERENCED | ||
| += | HB 68 | TELECONFERENCED | |
| += | HB 31 | TELECONFERENCED | |
HOUSE FINANCE COMMITTEE
May 6, 2019
2:35 p.m.
2:35:12 PM
CALL TO ORDER
Co-Chair Wilson called the House Finance Committee meeting
to order at 2:35 p.m.
MEMBERS PRESENT
Representative Neal Foster, Co-Chair
Representative Tammie Wilson, Co-Chair
Representative Jennifer Johnston, Vice-Chair
Representative Dan Ortiz, Vice-Chair
Representative Ben Carpenter
Representative Andy Josephson
Representative Gary Knopp
Representative Bart LeBon
Representative Kelly Merrick
Representative Colleen Sullivan-Leonard
Representative Cathy Tilton
MEMBERS ABSENT
None
ALSO PRESENT
Grey Mitchell, Director, Worker's Compensation Division,
Department of Labor and Workforce Development; Lynn Gattis,
Staff, Representative Tammie Wilson; Paloma Harbour,
Administrative Services Director, Department of Labor and
Workforce Development, Office of Management and Budget;
Representative Jonathan Kreiss-Tompkins, Bill Sponsor;
David Teal, Director, Legislative Finance Division.
PRESENT VIA TELECONFERENCE
None
SUMMARY
HB 31 APPROP: EARNINGS RESERVE TO PERM FUND
CSHB 31(FIN) was REPORTED out of committee with
four "do pass" recommendations, one "do not pass"
recommendation, two "no recommendation"
recommendations, and four "amend"
recommendations.
HB 68 LABOR STDRS/SAFETY; WORKER COMPENSATION
HB 68 was HEARD and HELD in committee for further
consideration.
HOUSE BILL NO. 68
"An Act relating to the division of labor standards
and safety; relating to the division of workers'
compensation; establishing the division of workers'
safety and compensation; and providing for an
effective date."
2:35:55 PM
Vice-Chair Johnston MOVED to ADOPT proposed committee
substitute for HB 68, Work Draft 31-GH1049\U(Marx,
05/03/19) (copy on file).
There being NO OBJECTION, it was so ordered.
Co-Chair Wilson invited the department to the testifier
table. The committee would hear from the department and a
review of the committee substitute would follow.
2:36:29 PM
GREY MITCHELL, DIRECTOR, WORKER'S COMPENSATION DIVISION,
DEPARTMENT OF LABOR AND WORKFORCE DEVELOPMENT, relayed that
the bill merged the Division of Worker's Compensation
together with the Division of Labor Standards and Safety.
The divisions shared complimentary missions and functions.
One division worked to prevent accidents, and the other
worked to provide compensation for lost wages and medical
costs if there was an injury. Merging the two divisions
made good sense in many ways. The department was cognizant
of the critical rolls each division played. The merger bill
would not impact any of the legal or regulatory duties of
either division. He aimed to take advantage of position
vacancies and explore opportunities to streamline processes
wherever possible.
Mr. Mitchell continued that the fiscal note reflected
streamlining in a couple of areas. The merger would flatten
the management structure and labor standards and safety by
reclassifying the division director to a deputy director
position. The new position would focus on the new
division's inspection, consultation, and enforcement
functions. It would allow for a middle management reduction
in the Alaska Occupational Safety Health (OSHA) component.
He expected to see additional opportunities to consolidate
and share administrative duties between the division as the
merger matured. The merger would not happen over night but
would be carefully developed over time. The bill did not
propose to change any of the functions of the two
divisions. He expected it to produce opportunities as the
year progressed to share resources and to be more efficient
and effective moving forward delivering the services of the
two divisions.
Co-Chair Wilson asked her staff to further discuss the
bill.
2:39:01 PM
LYNN GATTIS, STAFF, REPRESENTATIVE TAMMIE WILSON, review
the changes in the bill. On page 7, lines 20-22,
"grandparent" was added to AS 23.10.330(a) - exempted
employment which would allow a child to work in a business
that was owned and operated by a parent or a grandparent
under the section. She referred next to page 7, line 26.
The number "17" was changed to "16" to remove authorization
of a work requirement for a 16 year old. On page 8, line 3
"5:00 a.m. to 9:00 p.m." was changed to "7:00 a.m. to
9:00 p.m." defining the time during the day that a 14 year
old or 15 year old child could perform work outside of
school hours. She continued to page 8, lines 8-15 which
added a new section to redefine the conditions and hours
during a day that a 14 year old or 15 year old child could
perform work between June 1 and ending the first Monday of
September of each year as 7:00 a.m. to 10:00 p.m. She
completed reviewing the changes.
Representative Knopp asked about the period beginning
June 1 and ending on the first Monday of September each
year. He clarified that kids would not be allowed to work
starting in September. Co-Chair Wilson indicated there were
two times designated for youth ages 14-15 to be able to
work during school. They would be able to work from 7:00
a.m. to 9:00 p.m. When they were not in school they would
be allowed to work from 7:00 a.m. to 10 p.m.
Representative Knopp did not understand the need for
defining the hours. Co-Chair Wilson explained that defined
times were necessary because of the Fair Labor Standards
act.
Representative LeBon asked if there would be an advantage
to moving the dates back to May 20th. Most high school
graduation dates fell before May 20th. Co-Chair Wilson
relayed that the federal government would not allow it.
2:43:06 PM
Co-Chair Wilson OPENED Public Testimony.
2:43:15 PM
Co-Chair Wilson CLOSED Public Testimony.
Co-Chair Wilson invited the department to review the fiscal
notes.
2:43:43 PM
PALOMA HARBOUR, ADMINISTRATIVE SERVICES DIRECTOR,
DEPARTMENT OF LABOR AND WORKFORCE DEVELOPMENT, OFFICE OF
MANAGEMENT AND BUDGET, relayed that fiscal note 1 was for
the Workers' Compensation component. It was a zero fiscal
note. The department did not anticipate immediate savings
in Workers' Compensation as a part of the merger, but it
expected out years savings not presently identified. Fiscal
note 2 was for the OSHA component where the department was
finding savings in some administrative support and some
mid-level management. The total savings was $283,000 of
Workers' Safety Compensation Administration account funds.
Representative Knopp was curious about the reduction of
$283,000 in the personal services line. He highlighted that
the funds were listed as DGF. He asked if the savings was
from inter-agency receipts or program receipts. He asked
what would happen to the savings.
Ms. Harbour responded that the funds were designated
general funds from the Workers' Safety Compensation
Administration account. It was a fee on insurance premiums
that went into a DGF account and could go towards Workers'
Compensation and safety program administration. It would be
a savings to the account and would stay in the account for
future year spending.
Representative Knopp asked if there would be any reductions
in employer premiums. Ms. Harbour replied that the cost
savings would not result in premium savings. However, there
had been premium savings which resulted in the revenue
going into the account being lower. She indicated the bill
would help the state to stay at the lower revenue amount.
Co-Chair Wilson indicated amendments were due to the
co-chair's office by May 7, 2019 at 9:00 a.m.
Representative Knopp appreciated the bill, as it
represented the department's efforts towards true
consolidation and efficiencies.
HB 68 was HEARD and HELD in committee for further
consideration.
HOUSE BILL NO. 31
"An Act making a special appropriation to the Alaska
permanent fund; and providing for an effective date."
2:46:41 PM
Co-Chair Wilson MOVED to ADOPT Amendment 1 (copy on file):
Page 1, line 4:
Delete "5,500,000,000"
Insert "9,610,000,000"
Adjust funding information accordingly.
Vice-Chair Johnston OBJECTED for discussion.
Co-Chair Wilson deferred to the bill sponsor.
2:47:12 PM
REPRESENTATIVE JONATHAN KREISS-TOMPKINS, BILL SPONSOR,
explained the amendment. The amendment would change the
transfer from the Earnings Reserve Account (ERA) to the
principle to $9.61 billion. There were supporting materials
that he had tried to disperse to all members. Effectively,
the $9.61 billion figure was premised on the notion of
keeping three times the 5.25 percent POMV [percent of
market value] draw in the ERA and transferring the
remaining cash in the ERA to the principle.
Representative Tilton asked about modeling scenarios from
the previous day. She wondered if the amendment was
reflected in a new model.
Representative Kreiss-Tompkins responded that two of the
models from the moderate bear market represented an
$8 billion transfer and another represented a $12 billion
transfer. He clarified that $9.61 billion was not
specifically modeled but fell between the two.
Representative Josephson referred to the presentation from
the bill's previous hearing [A presentation by
Representative Kreiss-Tomkins to the House Finance
Committee on 4/29/19: "HB 31: $5.5 billion transfer from
the ERA to the Corpus"]. He referred to page 7 of the
previous presentation. Representative Kreiss-Tomkins had
noted that in a moderate bear market spanning 3 years with
an $8 billion transfer, one scenario reached an amount of
$5 billion. He thought the number would be lower because
the transfer would increase by $1.6 billion. He asked if
the legislature should be concerned. He suggested that the
dip in the model had to be lower.
Representative Kreiss-Tompkins concurred that the dip would
be lower than the $8 billion model and would be
substantially higher than the $12 billion model from the
slide in question. He explained that the thinking behind an
amount equal to three times the draw was that it protected
a substantial amount of cash forever in the Permanent Fund
which he thought was broadly a goal of the legislature. It
also struck a balance by leaving significant shock
absorption in the ERA. He noted that the third of the 3
supporting documents the committee had charted the balance
of the ERA through time from 2000 to 2019. He indicated
that the chart was created by his counterpart in the
Senate. It showed what the balance of the ERA had been
through time. If $9.6 billion was transferred from the ERA,
approximately $9 billion would remain in the ERA - well
North of the average from 2000 to 2019. He argued that the
amount was North of average and the state had done okay
through time. He conveyed his thinking in striking a
balance. He noted that the ERA had been in the $2 billion,
$3 billion, and $5 billion range in the ERA through time.
Co-Chair Wilson mentioned that someone from the Legislative
Finance Division was available for questions.
2:52:13 PM
Representative Josephson asked how the bill sponsor arrived
at the $9.61 billion figure. Representative Kreiss-Tompkins
relayed that the amount was derived with the help of other
committee members and broadly consistent with the POMV
approach. He pointed to slide 2 of his slide deck: "HB 31 3
Slides." that showed the math behind the amount of $9.61
billion. He explained that $8.79 billion was 3 times the
5.25 percent of market value draw based on the FY 20 POMV
draw. If it was the amount the legislature wanted to leave
in the ERA as a shock absorber (the minimum sufficient
balance), everything else would go to the principle of the
fund. According to the current account balance for the ERA
from the Alaska Permanent Fund Corporation (APFC) the
amount would be $9.61 billion.
Vice-Chair Ortiz supported the idea of putting money into
the corpus of the Alaska Permanent Fund. He was aware the
number had been derived in consultation with members of the
body. He asked if worst-case-scenarios had been reviewed
when looking at the new amount. Representative Kreiss-
Tompkins replied that he had been cognizant of the
potential for market corrections similar to the great
depression. The impact would be significant.
Co-Chair Wilson thought Vice-Chair Ortiz wanted more detail
about the reason for the number.
Vice-Chair Ortiz clarified his question. He wondered, if
the state were to see a significant correction similar to
recent major corrections in the market, whether the
movement of the $9.61 billion into the corpus would limit
the legislature's ability to pay out a Permanent Fund
Dividend (PFD).
Representative Kreiss-Tompkins thought it would be helpful
to hear from LFD. He suggested that there would always be
the potential [for a major correction in the market] as
long as the state had a permanent fund that was structured
with an ERA and a principle. The heart of the question was
about finding the right balance. He suggested having a true
endowment was much safer and sustainable for the state of
Alaska. He asserted the reason there was a problem was the
same reason he thought the state should move away from the
current structure of the Permanent Fund. He continued that
unless the state was committed to protect the fund from
bottoming out in any scenario, the North Star principle for
managing the fund, the legislature should always leave as
much cash in the ERA as possible. The downside was that the
fund could be raided in the future.
Co-Chair Wilson was unsure who would raid it. She asked Mr.
Teal to come to the testifier table to address a smaller
amount versus a larger amount.
2:58:17 PM
DAVID TEAL, DIRECTOR, LEGISLATIVE FINANCE DIVISION, thought
Representative Kreiss-Tompkins had answered the question
well when he suggested that no one actually knew. He
reminded members in 2008 or 2009 the state nearly ran out
of earnings reserves which would have meant no dividends
would have been paid. It was not until June of that year
that it was clear dividends would be paid. It was not
merely a remote possibility of running out of money in the
ERA. It depended on the earnings.
Mr. Teal relayed that, currently, the ERA balance was very
high for a couple of reasons. First, the state had had an
earnings recovery period, roughly a 10-year bull market.
Also, the state did not inflation-proof for 3 years which
was a contributing factor in the high balance of the ERA.
He argued that with the current balance the danger was
fairly low of running out of reserve balance and of not
being able to pay out dividends in the near future.
However, the more money taken from the ERA to protect the
principle of the fund, the more dangerous it would be for
the state to run out of money. There was a risk of not
being able to pay out dividends or the POMV draw to the
general fund. The consequences of an error would be fairly
substantial.
Mr. Teal pointed to the slide with an ERA balance of
$18.4 billion which also included unrealized earnings. He
indicated that for the last several years the unrealized
gains had been assigned in proportion to principle and to
the ERA. He estimated that roughly $4 billion of the
balance was unrealized gains. He explained that because the
$4 billion was unrealized, it could not be spent. He
reported that the proper starting point was about
$16.6 billion. He referred to the slide which moved $9.6
billion. If the legislature was going to move funding over,
he thought it should remove the unrealized balance from the
amount. He estimated that only $7.8 billion could be moved.
He elaborated that when $7.8 billion was moved over to the
corpus the unrealized gains assigned to the cash moved with
it. He suggested it was important to understand that
legislators should look at realized earnings rather than
the total value of the ERA. He suspected the amendment
moved $2 billion more than Representative Kreiss-Tompkins
might want to move. He conveyed the discussion had not
occurred. He was unsure about the assignment of unrealized
gains.
Mr. Teal also suggested that when money was moved from the
ERA to the corpus it would require additional inflation
proofing. Mr. Teal asserted that moving money over would
increase the amount of inflation proofing by approximately
$100 million to $150 million in the future. In answer to
the original question, the more money that was moved into
the corpus, the more unsafe it was. He could not predict
what the market would do. He had seen the ERA respond to
down-turns in the market.
Vice-Chair Johnston suggested that saying the legislature
could not divest itself of the realized gains and the ERA
perhaps went too far. She supposed that in a spend-thrifty
market if there was interest in the funds, the state could
divest itself of the realized gains. She asked if she was
correct.
3:05:07 PM
Mr. Teal indicated that it was not the legislature's
decision to make, rather it was up to the Alaska Permanent
Fund Corporation. It was possible that they could turn
unrealized gains into realized gains.
Vice-Chair Johnston asserted that when there was a
structured draw the APFC looked at its portfolio and
decided how to address the draw. She supposed sometimes it
was taking from realized gains and sometimes it was taking
from cash. She thought one of the best things about having
a structured draw was that the corporation had an
opportunity to plan the draw. She noted that anytime the
legislature could draw from the ERA with a basic majority
vote, APFC had to respond to it to find the cash. She
wanted to make clear that once the legislature decided how
much it wanted to draw from the ERA, it was up to APFC to
come up with the funds, and they needed to come from the
ERA.
Mr. Teal suggested that it was possible to do it the way
Vice-Chair Johnston stated. However, he thought the law
limited the draw to the cash available. Current law stated
that dividends would be paid if there was money in the ERA.
The Permanent Fund could realize gains, similar to 2008.
However, there was not sufficient cash to pay dividends. It
was possible that in the last months of the year the
corporation might have sold off things making the gains and
having available cash. He continued that the way the law
read, if there was not sufficient cash in the ERA to pay
out the dividends and the POMV draw, the payouts would not
occur. The Alaska Permanent Fund Corporation managed cash
in realized gains versus unrealized gains.
Vice-Chair Johnston suggested that because of the state's
diversified portfolio, there were assets that would be
difficult to liquidate for quick access to cash. She
thought there was a risk associated with what the
legislature was asking of the funds. She asked the maker of
the amendment about using 3 times the draw as a measure.
She thought that because the market had performed well the
following year would be better. She wondered if it would be
a good idea to amend the amendment such that 3 times the
draw was kept in the ERA ($9 billion) putting the remainder
in the corpus of the fund.
3:10:09 PM
Representative Kreiss-Tompkins viewed the conceptual
amendment as a friendly amendment. He would ultimately
defer to the wisdom of the committee. He felt good about
the general range of how the cash in the ERA was divided
between cash kept in the ERA and cash moved to the
principle for future generations. He also noted that under
SB 26 [Legislation passed in 2018 having to do with the
Permanent Fund, the dividend, and the earnings of the
Permanent Fund] the size of the draw would get
proportionately smaller down to 5 percent.
Representative Carpenter was in agreement with adding to
the corpus. He thought it made sense to put money into
savings. He thought it was important to consider the timing
and the amount. He believed it was impossible to assess the
risk without answering some other questions concerning
spending and revenues in the future - things that would be
addressed in a comprehensive fiscal plan. He wondered how
the bill fit into a comprehensive fiscal plan for the
state.
Representative Kreiss-Tompkins did not think Representative
Carpenter's question was unfair. He suggested that in
thinking about how many times of a POMV draw might be kept
in the ERA, the premise was that the legislature would not
take any unstructured draws in the future. Overspending the
draw would run crosswise to his thinking. He suggested that
if the legislature started thinking it might take more than
5.25 percent of POMV out of the Permanent Fund in the
future, it would affect the current conversation and create
many other future conversations. He reiterated that his
assumption or premise in the current year or in future
years, regardless of how it spent it, was that the
legislature would not take more than the POMV set forth in
SB 26.
Representative Carpenter relayed that the legislature did
not have a long-term fiscal plan. The legislature was
looking at a snapshot of the current year. In the following
year it would be looked at in the same way. He thought the
legislature was swinging at a best guess.
Co-Chair Wilson had been looking for a plan for 9 years
without finding one. She believed the bill was in front of
the committee because there was not a plan in place. The
past plan had been to utilize the state's savings no matter
how much they dwindled.
3:14:32 PM
Vice-Chair Johnston MOVED to ADOPT Conceptual Amendment 1
to Amendment 1 (copy on file).
Co-Chair Wilson OBJECTED for discussion.
Vice-Chair Johnston explained that instead of inserting
$9.61 billion she wanted to insert $8.9 billion.
Co-Chair Wilson spoke to her objection. She did not think
anyone felt safe with any amount. She suggested that Vice-
Chair Johnston withdraw her motion.
Vice-Chair Johnston WITHDREW Conceptual Amendment 1 to
Amendment 1.
Representative LeBon asked Mr. Teal if the risk profile for
the Permanent Fund had changed much over the previous 10
years. He was aware that the fund had grown. However, he
wondered about the mix and whether the state was managing
the fund basically the same way as 10 years prior.
Mr. Teal responded was aware that certain things had been
changed about 4 or 5 years prior. The corporation had an
investment manager that had changed asset allocations which
changed the state's risk profile. The Alaska Permanent Fund
Corporation was currently more invested in privately placed
investments and still had several real estate investments
in other non-liquid investments. He could not answer
whether the profile was riskier or less risky. He confirmed
that the profile had changed to a certain degree.
Representative LeBon admitted his question was not fair. He
asserted he was more comfortable with $8 billion.
Co-Chair Wilson agreed with Representative LeBon's figure.
Mr. Teal suggested that the risk involved could be
controlled by the legislature to a great extent because it
had control over inflation proofing. If there was a down
market, the legislature could skip inflation proofing the
fund in any given year immediately increasing the ERA
balance by about $1 billion. It was a dynamic situation
that legislators could control as long as a crash did not
happen all in one year. He suggested that if a crash
occurred all in one year, it would be too late for the
legislature to respond.
Representative Sullivan-Leonard asked about inflation
proofing. She thought the legislature had put in $950
million for inflation proofing in the prior year. She asked
if Mr. Teal recalled the amount being proposed in the
current year. Mr. Teal replied that the current year's
inflation-proofing amount was estimated to be about $943
million.
Representative Sullivan-Leonard commented that she had been
comfortable with $5.5 billion. She was not comfortable with
$9.61 billion. She would be comfortable with adding $943
million to $5.5 billion.
Vice-Chair Ortiz thought, based on the wide variation of
figures that had been looked at, the real issues were
protecting the Permanent Fund for future generations and
distributing a PFD. He thought the best course of action
would be to merge the two funds and limit the legislature
to a constitutional POMV draw. He thought there would be
significant discussion as to what percentage of the draw
would go to services versus the PFD.
Co-Chair Wilson responded that, although she appreciated
Vice-Chair Ortiz's suggestion, it was not the bill before
the committee currently. Co-Chair Wilson clarified that the
proposal was a one-time move of funds into the corpus.
Representative Kreiss-Tomkins responded affirmatively.
Co-Chair Wilson asked if there was a figure members around
the table were comfortable with.
3:21:59 PM
Representative LeBon MOVED to ADOPT Conceptual Amendment 1
[Conceptual Amendment 2] to Amendment 1.
Representative Josephson OBJECTED.
Representative LeBon explained Conceptual Amendment 2 to
Amendment 1 which would insert $8 billion rather than $9.61
billion on line 3 of Amendment 1.
Representative Josephson explained that he would be more
comfortable with the figure of $7 billion after hearing
comments from Representative Sullivan-Leonard regarding
inflation proofing.
Co-Chair Wilson argued that inflation proofing could be
taken out of the operating budget if the amendment passed
which would result in the same $8 billion figure. She
thought it would be the intent of the legislature that if
the bill passed, it would no longer be looking at the
combined amount.
Representative Josephson MAINTAINED his OBJECTION.
A roll call vote was taken on the motion.
IN FAVOR: Johnston, Knopp, LeBon, Ortiz, Wilson, Foster
OPPOSED: Josephson, Merrick, Sullivan-Leonard, Tilton,
Carpenter
The MOTION PASSED (6/5). Conceptual Amendment 2 to
Amendment 1 was ADOPTED.
Co-Chair Wilson indicated that Amendment 1 as amended was
before the committee.
Representative Carpenter OBJECTED.
A roll call vote was taken on the motion.
IN FAVOR: Johnston, Knopp, LeBon, Ortiz, Sullivan-Leonard,
Josephson, Foster, Wilson
OPPOSED: Merrick, Tilton, Carpenter
The MOTION PASSED (8/3). Amendment 1 as amended was
ADOPTED.
Vice-Chair Johnston MOVED to report CSHB 31(FIN) out of
Committee with individual recommendations and the
accompanying fiscal note.
Representative Carpenter OBJECTED.
A roll call vote was taken on the motion.
IN FAVOR: Knopp, LeBon, Ortiz, Sullivan-Leonard, Josephson,
Johnston, Wilson, Foster
OPPOSED: Tilton, Carpenter, Merrick
The MOTION PASSED (8/3).
CSHB 31(FIN) was REPORTED out of committee with four "do
pass" recommendations, one "do not pass" recommendation,
two "no recommendation" recommendations, and four "amend"
recommendations.
Co-Chair Wilson reviewed the agenda for the following day
at 9:00 a.m.
ADJOURNMENT
3:26:07 PM
The meeting was adjourned at 3:26 p.m.
| Document Name | Date/Time | Subjects |
|---|---|---|
| HB 31 3 SLIDES.pdf |
HFIN 5/6/2019 1:30:00 PM |
HB 31 |
| HB031 Amendment 1 Wilson 5.6.19.pdf |
HFIN 5/6/2019 1:30:00 PM |
HB 31 |