Legislature(2021 - 2022)ANCH LIO DENALI Rm

06/02/2021 01:00 PM House JUDICIARY

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01:01:43 PM Start
01:03:04 PM HJR7
02:35:41 PM Adjourn
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
-- Please Note Location Change --
Heard & Held
-- Testimony <Invitation Only> --
+ Bills Previously Heard/Scheduled TELECONFERENCED
                    ALASKA STATE LEGISLATURE                                                                                  
               HOUSE JUDICIARY STANDING COMMITTEE                                                                             
                       Anchorage, Alaska                                                                                        
                          June 2, 2021                                                                                          
                           1:01 p.m.                                                                                            
MEMBERS PRESENT                                                                                                               
Representative Matt Claman, Chair                                                                                               
Representative Liz Snyder, Vice Chair                                                                                           
Representative Harriet Drummond (via teleconference)                                                                            
Representative David Eastman (via teleconference)                                                                               
Representative Christopher Kurka (via teleconference)                                                                           
Representative Sarah Vance (via teleconference)                                                                                 
MEMBERS ABSENT                                                                                                                
Representative Jonathan Kreiss-Tomkins                                                                                          
COMMITTEE CALENDAR                                                                                                            
HOUSE JOINT RESOLUTION NO. 7                                                                                                    
Proposing amendments to the Constitution of the State of Alaska                                                                 
relating to the Alaska permanent fund, appropriations from the                                                                  
permanent fund, and the permanent fund dividend.                                                                                
     - HEARD & HELD                                                                                                             
PREVIOUS COMMITTEE ACTION                                                                                                     
BILL: HJR  7                                                                                                                  
SHORT TITLE: CONST. AM: PERM FUND & PFDS                                                                                        
SPONSOR(s): RULES BY REQUEST OF THE GOVERNOR                                                                                    
02/18/21       (H)       READ THE FIRST TIME - REFERRALS                                                                        
02/18/21       (H)       STA, JUD, FIN                                                                                          
04/20/21       (H)       STA AT 3:00 PM GRUENBERG 120                                                                           
04/20/21       (H)       Heard & Held                                                                                           
04/20/21       (H)       MINUTE(STA)                                                                                            
05/04/21       (H)       STA AT 3:00 PM GRUENBERG 120                                                                           
05/04/21       (H)       Heard & Held                                                                                           
05/04/21       (H)       MINUTE(STA)                                                                                            
05/06/21       (H)       STA AT 3:00 PM GRUENBERG 120                                                                           
05/06/21       (H)       Moved CSHJR 7(STA) Out of Committee                                                                    
05/06/21       (H)       MINUTE(STA)                                                                                            
05/10/21       (H)       STA RPT CS(STA) 4DNP 2NR 1AM                                                                           
05/10/21       (H)       DNP: CLAMAN, EASTMAN, VANCE, TARR                                                                      
05/10/21       (H)       NR: STORY, KREISS-TOMKINS                                                                              
05/10/21       (H)       AM: KAUFMAN                                                                                            
05/14/21       (H)       FIRST SPECIAL SESSION BILL                                                                             
05/14/21       (S)       FIRST SPECIAL SESSION BILL                                                                             
05/24/21       (H)       JUD AT 1:00 PM GRUENBERG 120                                                                           
05/24/21       (H)       Heard & Held                                                                                           
05/24/21       (H)       MINUTE(JUD)                                                                                            
05/26/21       (H)       JUD AT 1:00 PM GRUENBERG 120                                                                           
05/26/21       (H)       Heard & Held                                                                                           
05/26/21       (H)       MINUTE(JUD)                                                                                            
06/02/21       (H)       JUD AT 1:00 PM ANCH LIO DENALI Rm                                                                      
WITNESS REGISTER                                                                                                              
COMMISSIONER LUCIA MAHONEY, Commissioner                                                                                        
Department of Revenue                                                                                                           
Juneau, Alaska                                                                                                                  
POSITION  STATEMENT:    Answered questions  pertaining  to  CSHJR
MIKE BARNHILL, Deputy Commissioner                                                                                              
Department of Revenue                                                                                                           
Juneau, Alaska                                                                                                                  
POSITION  STATEMENT:    Answered questions  pertaining  to  CSHJR
ALEXEI PAINTER, Legislative Fiscal Analysist                                                                                    
Legislative Finance Division                                                                                                    
Juneau, Alaska                                                                                                                  
POSITION STATEMENT:  Offered  a PowerPoint presentation entitled,                                                             
"Analysis of Governor's Fiscal Plan."                                                                                           
ACTION NARRATIVE                                                                                                              
1:01:43 PM                                                                                                                    
CHAIR MATT  CLAMAN called the House  Judiciary Standing Committee                                                             
meeting to  order at 1:01  p.m.  Representatives  Claman, Snyder,                                                               
Eastman  (via teleconference),  Kurka  (via teleconference),  and                                                               
Drummond (via teleconference) were present  at the call to order.                                                               
Representatives  Vance   (via  teleconference)  arrived   as  the                                                               
meeting was in progress.                                                                                                        
               HJR 7-CONST. AM: PERM FUND & PFDS                                                                            
[Contains discussion of SJR 6.]                                                                                                 
1:03:04 PM                                                                                                                    
CHAIR CLAMAN announced  that the only order of  business would be                                                               
HOUSE  JOINT  RESOLUTION  NO.  7,  Proposing  amendments  to  the                                                               
Constitution  of  the State  of  Alaska  relating to  the  Alaska                                                               
permanent fund,  appropriations from the permanent  fund, and the                                                               
permanent  fund  dividend.    [Before  the  committee  was  CSHJR
CHAIR  CLAMAN   informed  the  committee   that  he   spoke  with                                                               
Commissioner Mahony about  the Harvard model.  He  noted that the                                                               
Department of  Revenue (DOR) provided  an article published  by a                                                               
Harvard publication,  The Harvard  Crimson, titled  "Harvard Will                                                               
Draw  Further  from the  Endowment  FY2022  Than Planned,  Citing                                                               
Strong  Market  Returns" [hard  copy  included  in the  committee                                                               
packet].   Additionally,  DOR provided  a page  from the  Harvard                                                               
Endowment that reported the actual  amount that Harvard relies on                                                               
for its  endowment -  37 percent -  which differs  from testimony                                                               
from a previous hearing.                                                                                                        
1:05:06 PM                                                                                                                    
REPRESENTATIVE SNYDER referred to  a presentation from a previous                                                               
meeting.  She pointed out  that according to the governor's plan,                                                               
revenue generation would begin in  2024 using bridge funding from                                                               
the  Earnings Reserve  Account  (ERA).   She  questioned why  the                                                               
operations are presented in that  order and suggested that rather                                                               
than overdraw  significantly from the  ERA, it would  be fiscally                                                               
advantageous  to  "bite the  bullet"  and  address the  need  for                                                               
revenue generation  sooner rather  than "kick  that ...  can down                                                               
the road" for three to four years.                                                                                              
1:06:45 PM                                                                                                                    
[Due to technical  difficulties, invited testifiers participating                                                               
via Microsoft Teams were inaudible.]                                                                                            
1:09:28 PM                                                                                                                    
The committee took a brief at-ease.                                                                                             
1:10:11 PM                                                                                                                    
[Due to technical  difficulties, invited testifiers participating                                                               
via Microsoft Teams were inaudible.]                                                                                            
1:11:53 PM                                                                                                                    
The committee took an at-ease from 1:11 p.m. to 1:18 p.m.                                                                       
1:18:55 PM                                                                                                                    
CHAIR  CLAMAN  reminded  the  committee  that  the  question  was                                                               
directed to Commissioner Mahoney.                                                                                               
1:19:39 PM                                                                                                                    
REPRESENTATIVE SNYDER  restated her  question, noting  that after                                                               
having  a chance  to  think  on the  information  from the  first                                                               
hearing, she  noticed that the  governor's plan would  need large                                                               
cuts  and additional  revenue; however,  new revenue  wouldn't be                                                               
added until  three years  later.   She asked why  that is  a more                                                               
fiscally  responsible  position  than  "biting  the  bullet"  and                                                               
initiating revenue  generation as  soon as possible,  which would                                                               
reduce the need for a large draw on the ERA.                                                                                    
1:21:14 PM                                                                                                                    
COMMISSIONER LUCIA MAHONEY,  Commissioner, Department of Revenue,                                                               
said the  department recognizes  that it will  take time  for the                                                               
legislature and the  administration to decide and  agree upon new                                                               
revenue.  She added that it  could take another year to implement                                                               
that revenue.   She conveyed  that the  purpose is to  reflect on                                                               
the timeframe that is required.                                                                                                 
REPRESENTATIVE   SNYDER   thanked   her   for   recognizing   the                                                               
possibility [of moving forward with  new revenue solutions].  She                                                               
asked  if DOR  had  recommendations on  new  revenue options  and                                                               
asked about existing revenue ideas.                                                                                             
COMMISSIONER MAHONEY  responded that the department  is exploring                                                               
some new tax-type  revenue measures; however, she  said she could                                                               
not  go into  details at  this time  because they  have not  been                                                               
reviewed by the Department of Law (DOL).                                                                                        
REPRESENTATIVE  SNYDER noted  that in  previous presentations  on                                                               
this  topic, the  additional $150  million in  2024 and  the $300                                                               
million in 2025  and subsequent years were  presented as possibly                                                               
being  achieved through  cuts.    She asked  if  Ms. Mahoney  had                                                               
recommendations on where the cuts might come from.                                                                              
COMMISSIONER  MAHONEY   explained  that  it  is   the  governor's                                                               
position that the administration  would constantly be looking for                                                               
opportunities to  reduce spending and identify  opportunities for                                                               
improvement.  She referenced her  previous presentation and noted                                                               
that  there   could  be  potential   reduction  in   the  state's                                                               
contribution   to  retirement   accounts.     Additionally,   she                                                               
mentioned  that DOR  had reviewed  the DLWD  population estimates                                                               
and  found the  state population  is declining.   She  added that                                                               
because  some  of  the  formulas   incorporate  population  as  a                                                               
variable, those programs could also see reduction.                                                                              
1:26:08 PM                                                                                                                    
CHAIR CLAMAN invited questions from the committee.                                                                              
1:26:41 PM                                                                                                                    
CHAIR CLAMAN inquired about the  possibility of a measure to make                                                               
revenue from  state gaming.   He questioned  whether there  was a                                                               
proposal  for  a  gaming  change  to  statute  that  would  allow                                                               
gambling beyond pull-tabs and how much that could generate.                                                                     
1:27:18 PM                                                                                                                    
COMMISSIONER  MAHONEY  relayed  that  they  are  working  with  a                                                               
consultant   who  is   working   with   stakeholders  to   gather                                                               
information  about   potential  gaming  in   Alaska  communities.                                                               
Regarding the revenue estimate,  she said that the administration                                                               
is awaiting information from the consultant.                                                                                    
CHAIR  CLAMAN  asked if  there  is  presently a  revenue  measure                                                               
before the legislature that was proposed by the governor.                                                                       
COMMISSIONER MAHONEY said she is not aware of any.                                                                              
CHAIR  CLAMAN asked  if the  legislature could  anticipate seeing                                                               
one  or  more revenue  measures  introduced  by the  governor  in                                                               
advance of the second special session.                                                                                          
COMMISSIONER  MAHONEY reported  that  revenue  measures would  be                                                               
included in the  agenda items for the special  session in August.                                                               
She  stated  she would  need  to  consult  with the  governor  to                                                               
confirm the direction.                                                                                                          
CHAIR CLAMAN said he is aware of  those measures on the call.  He                                                               
shared his understanding that Commissioner  Mahoney could not say                                                               
whether there  would be  any proposals from  the governor  by the                                                               
August special session.                                                                                                         
COMMISSIONER  MAHONEY   answered  that  she  is   hopeful  [those                                                               
measures] would be discussed, adding  that decision would be part                                                               
of the overall plan for the [special] session.                                                                                  
1:29:39 PM                                                                                                                    
REPRESENTATIVE  KURKA stated  his understanding  that one  of the                                                               
items is  a proposal  for a  constitutional amendment  that would                                                               
require  any new  tax  to be  approved by  the  voters, which  is                                                               
similar  to the  proposal that  would require  voter approval  to                                                               
change   the  PFD   formula.     He  suggested   combining  these                                                               
discussions and proposals into the same amendment.                                                                              
1:31:10 PM                                                                                                                    
COMMISSIONER  MAHONEY   pointed  out   that  there   are  several                                                               
constitutional  amendments  that are  on  the  call, including  a                                                               
constitutional  amendment that  would establish  an appropriation                                                               
limit, a  constitutional amendment that would  prohibit new state                                                               
taxes  without  a  vote  of  the  people,  and  a  constitutional                                                               
amendment pertaining to the Permanent  Fund.  She said the intent                                                               
is to  include all these  amendments in a comprehensive  plan and                                                               
to discuss them in tandem.                                                                                                      
REPRESENTATIVE  KURKA suggested  including  a  discussion on  the                                                               
proposal to require  voter approval to change  the PFD [Permanent                                                               
Fund Dividend] formula.                                                                                                         
COMMISSIONER  MAHONEY   responded  that  the   amendment  changes                                                               
regarding  the PFD  formula that  the governor  recently proposed                                                               
would be considered as part of the call.                                                                                        
REPRESENTATIVE KURKA  sought to  clarify that if  the legislature                                                               
does not address these items  during the current special session,                                                               
they would be discussed in the second special session.                                                                          
COMMISSIONER MAHONEY answered yes.                                                                                              
1:33:08 PM                                                                                                                    
REPRESENTATIVE  EASTMAN   asked  whether  all  portions   of  the                                                               
governor's  plan   could  be  brought  together   into  a  single                                                               
Amendment Resolution.                                                                                                           
COMMISSIONER MAHONEY deferred the question to Mr. Barnhill.                                                                     
1:33:57 PM                                                                                                                    
MIKE BARNHILL, Deputy Commissioner,  Department of Revenue, noted                                                               
that the Committee Substitute (CS)  for SJR 6(JUD) represents all                                                               
portions  of the  plan coming  together.   He said  that proposal                                                               
would  constitutionalize  the  percent  of  market  value  (POMV)                                                               
formula  at no  more  than  5 percent  of  the five-year  lagging                                                               
market  average.   Additionally, it  would constitutionalize  the                                                               
allocation between the PFD and  government spending, a dedication                                                               
to Power  Cost Equalization  (PCE), and to  place the  balance of                                                               
the PCE  fund into the permanent  fund.  He clarified  that those                                                               
elements could be  considered if the committee were  to prepare a                                                               
new CS for CSHJR 7(STA) [similar to CSSJR 6(JUD)].                                                                              
1:36:13 PM                                                                                                                    
REPRESENTATIVE  EASTMAN  referred to  a  question  that had  been                                                               
addressed  in a  previous hearing.   He  stated his  concern that                                                               
even if  the constitutional  language were to  go forward  and be                                                               
put into law, at some  point, the future Alaska State Legislature                                                               
could potentially  say, "yeah,  we just don't  want to  do that,"                                                               
and not enforce  the language.  He said  that future legislatures                                                               
could determine  that PCE is not  a priority.  He  asked what the                                                               
governor's position is on that today.                                                                                           
COMMISSIONER MAHONEY deferred the question to Mr. Barnhill.                                                                     
1:37:40 PM                                                                                                                    
MR. BARNHILL referred to CSSJR  6(JUD), and directed attention to                                                               
language on page 2 [lines 7-11], which read as follows:                                                                         
     (d)  Each year,  the  legislature  shall appropriate  a                                                                    
     portion of  the amount  appropriated under (b)  of this                                                                    
     section  for   power  cost  equalization.   The  amount                                                                    
     appropriated shall be the  amount necessary to equalize                                                                    
     the  cost of  power in  the State,  according to  State                                                                    
     law, but  may not  exceed fifty  percent of  the amount                                                                    
     appropriated under (b) of this section.                                                                                    
MR.  BARNHILL  noted that  the  proposal  for the  phrase  "shall                                                               
appropriate" to be inserted into  the constitution should address                                                               
Representative Eastman's  question.  He shared  his understanding                                                               
that  future legislatures  shouldn't be  able to  circumvent that                                                               
language if  inserted into the  constitution.  He noted  that the                                                               
word "shall"  was used twice  and probably reflects  an intention                                                               
to limit, if not make  impossible, the ability of the legislature                                                               
to circumvent making an appropriation for PCE.                                                                                  
1:39:15 PM                                                                                                                    
CHAIR CLAMAN shared his understanding  that Mr. Barnhill had said                                                               
that  CSSJR 6(JUD)  has all  the  components of  the fiscal  plan                                                               
going forward,  but Chair Claman  noted that it doesn't  have any                                                               
revenue component.  He said  that his understanding is that there                                                               
are  four parts  to the  plan, one  of which  being revenue,  and                                                               
asked  Mr. Barnhill  whether  it  isn't fair  to  say that  CSSJR
6(JUD) doesn't have any revenue components.                                                                                     
MR. BARNHILL answered  that is correct.  He  clarified that CSSJR
6(JUD)  contains   all  the  constitutional  components   of  the                                                               
governor's  plan.    He  said   there  remains  a  role  for  the                                                               
legislature  in that  revenues don't  materialize  in the  amount                                                               
forecasted in  the scenario placed  before the committee  in ten,                                                               
twenty, or even  five years.  The legislature  will always retain                                                               
its ability  to enact  statutes to  raise revenue,  he explained.                                                               
Similarly, with respect to PCE,  he said that the legislature has                                                               
the role through statute of deciding  how to equalize the cost of                                                               
power  throughout the  state.   He concluded  that those  are two                                                               
elements   of  the   government's  plan   that  are   not  in   a                                                               
constitutional  resolution because  discretion  is preserved  for                                                               
the legislature to legislate on those matters.                                                                                  
CHAIR CLAMAN surmised  that the legislature would have  to make a                                                               
proposal  that,   regarding  revenue,   the  governor   has  been                                                               
unwilling to do.                                                                                                                
1:41:02 PM                                                                                                                    
REPRESENTATIVE  EASTMAN   asked  Mr.   Barnhill,  based   on  the                                                               
drafter's  intent of  the  word  "shall" in  the  bill, what  the                                                               
remedy is if the legislature  decided not to follow that language                                                               
and appropriate a minimal amount.                                                                                               
MR.  BARNHILL said  this  conversation is  starting  to get  into                                                               
DOL's  territory.   He  shared  his  understanding that  whenever                                                               
there's  a  possible  constitutional  violation,  the  people  of                                                               
Alaska can  bring litigation to enforce  the constitution, adding                                                               
that the people do so with some frequency.                                                                                      
1:42:37 PM                                                                                                                    
CHAIR CLAMAN announced that the  committee would now be hearing a                                                               
presentation on the governor's financial plan.                                                                                  
1:43:37 PM                                                                                                                    
ALEXEI   PAINTER,  Legislative   Fiscal  Analysist,   Legislative                                                               
Finance  Division, offered  a  PowerPoint presentation  entitled,                                                               
"Analysis  of Governor's  Fiscal Plan."    He began  on slide  2,                                                               
"Overview  of  LFD  Fiscal  Modeling,"   which  read  as  follows                                                               
[original punctuation provided]:                                                                                                
     ?  Legislative Finance's  fiscal model  is designed  to                                                                    
     show  policy makers  the longer-term  impact of  fiscal                                                                    
     policy decisions                                                                                                           
     ?  The baseline  assumptions  are  that current  budget                                                                    
     levels  are maintained,  adjusted  for inflation.  This                                                                    
     allows legislators  to see the  impact of  their policy                                                                    
     ?  All  long-term  models are  extremely  sensitive  to                                                                    
     assumptions and inputs                                                                                                     
1:47:28 PM                                                                                                                    
MR. PAINTER proceeded  to slide 3, "Overview of  LFD Fiscal Model                                                               
(cont.)," which read as follows [original punctuation provided]:                                                                
     Revenue Assumptions                                                                                                        
     ?   LFD's   baseline   revenue  assumptions   are   the                                                                    
     Department of Revenue's Spring  Revenue Forecast   This                                                                    
     assumes  $61 oil  in FY22,  growing  with inflation  in                                                                    
     future  years    DNR oil  production forecast  projects                                                                    
     that Alaska  North Slope production will  increase from                                                                    
     459.7  thousand  barrels  per  day  in  FY22  to  565.5                                                                    
     thousand barrels per day in FY30                                                                                           
     ?  For  the  Permanent  Fund,  we  assume  actual  FY21                                                                    
     returns  through  the  April   30  APFC  statement  and                                                                    
     Callan's 6.20% assumption for FY22 and beyond                                                                              
MR.  PAINTER moved  to slide  4,  "Overview of  LFD Fiscal  Model                                                               
(cont.)," which read as follows [original punctuation provided]:                                                                
     Spending Assumptions                                                                                                       
     ?  For agency  operations, we  are currently  using the                                                                    
     Senate's  first committee  substitute  as our  baseline                                                                    
     ($3,872.7 million UGF), growing  with inflation of 2.0%                                                                    
       This  budget is used  because it did not  include any                                                                    
     one-time fund sources present in  other versions of the                                                                    
     budget, so  it represents a reasonable  starting point.                                                                    
     ? For statewide  items, our baseline is  to assume that                                                                    
     all items are  funded to their statutory  levels   This                                                                    
     includes  School  Debt  Reimbursement, the  REAA  Fund,                                                                    
     Community Assistance, and  the PFD   We  also include a                                                                    
     baseline  Fund  Transfers  amount that  represents  the                                                                    
     ongoing  cost of  DEC's Spill  Prevention and  Response                                                                    
     ? For the capital budget,  we assume the Senate's first                                                                    
     committee substitute ($176.7  million UGF) growing with                                                                    
     inflation  of 2.0%    This  budget is  used because  it                                                                    
     represents  the  Governor's  original  amended  request                                                                    
     without one-time fund sources                                                                                              
     ? For  supplementals we assume $50.0  million per year.                                                                    
     This  is based  on the  average amount  of supplemental                                                                    
     appropriations minus lapsing funds each year                                                                               
1:51:17 PM                                                                                                                    
MR.  PAINTER  proceeded  to  slide   5,  "LFD  Baseline  Spending                                                               
Assumptions,"  which depicted  a table  of the  baseline spending                                                               
assumptions.  He noted that  the funding spikes and falls because                                                               
of oil tax credits based on the spring forecast.                                                                                
1:52:13 PM                                                                                                                    
CHAIR CLAMAN  asked for  clarification that  the oil  tax credits                                                               
will show on the "Statewide (full  funding)" line of the table as                                                               
opposed to the "Agency Ops (SCS1)" line of the table.                                                                           
MR. PAINTER answered yes.                                                                                                       
1:52:28 PM                                                                                                                    
MR. PAINTER  continued explaining  slide 5.   He said  that total                                                               
budget is $4.7  billion in F Y22, and overall,  it grows a little                                                               
slower than  inflation because  of the  tax credits  falling off.                                                               
He explained that this table is the starting point.                                                                             
MR. PAINTER proceeded  to slide 6, "Comparison  of Governor's 10-                                                               
Year  Plan  to  LFD  Baselines,"  which  depicted  a  table  that                                                               
compares the division's baseline  to the governor's 10-year plan.                                                               
He explained  that for FY 22,  the two plans are  close but there                                                               
are some differences, such as the Agency Operations.                                                                            
MR. PAINTED advanced  to slide 7, "Comparison of  LFD Baseline to                                                               
Governor's  10-Year   Plan  (cont.),"   which  read   as  follows                                                               
[original punctuation provided]:                                                                                                
     ? Governor's plan calls  for permanently funding School                                                                    
     Debt Reimbursement and REAA  Fund capitalization at 50%                                                                    
     of statutory levels                                                                                                        
     ? Calls  for $65.7  million less UGF  agency operations                                                                    
     spending  in FY22  than  original  Senate budget,  plus                                                                    
     $100 million  of additional reductions in  each of FY23                                                                    
     and FY24                                                                                                                   
     ?  Uses 1.5%  growth in  agency operations  versus 2.0%                                                                    
     inflation beyond FY24                                                                                                      
     ? No assumed supplementals or fund transfers                                                                               
     ? This level of  budget reductions is not unattainable,                                                                    
     but  would   require  significant  policy   choices  to                                                                    
1:57:10 PM                                                                                                                    
REPRESENTATIVE  SNYDER asked  for confirmation  that on  slide 6,                                                               
which  refers to  the differences  between the  two plans,  these                                                               
differences are not assuming any  revenue generation, but instead                                                               
relying on reductions.                                                                                                          
MR. PAITNER responded  that slide 6 is just  depicting the budget                                                               
side, not revenue.                                                                                                              
REPRESENTATIVE  SNYDER   asked  Mr.  Painter  to   speak  on  the                                                               
difference between 1.5 percent and  2 percent inflation beyond FY                                                               
24.   She  asked what  is driving  the difference,  what is  more                                                               
realistic, and  what factors play  in to  seeing one and  not the                                                               
MR.  PAINTER responded  that the  governor's 10-year  plan is  to                                                               
hold  the  growth  of  agency   operations  below  the  level  of                                                               
inflation.   This has been  achieved over the  past 5 or  6 years                                                               
and the  FY 22  budget in  both bodies' versions  as well  as the                                                               
governor's  version are  comparable to,  for example,  the FY  18                                                               
budget in  nominal terms.  The  assumption, he said, is  that the                                                               
budget  would  be  reduced,  and   growth  would  be  held  below                                                               
inflation, which  would require  either holding large  items such                                                               
as Medicaid  below inflation, holding the  education budget below                                                               
inflation, or holding the Agency Operations below inflation.                                                                    
REPRESENTATIVE   SNYDER  shared   her   understanding  that   the                                                               
committee  had   been  reassured  that  [the   budget]  would  be                                                               
increased  according  to  inflation  at  least  to  achieve  that                                                               
"flatness".    She asked  Mr.  Painter  to clarify  whether  that                                                               
understanding is correct.                                                                                                       
MR. PAINTER said yes, adding that  the governor's plan is to hold                                                               
spending growth slightly below inflation.                                                                                       
2:01:08 PM                                                                                                                    
REPRESENTATIVE  EASTMAN  recalled  that   the  House  and  Senate                                                               
versions  of  the  budget   differ  significantly  regarding  the                                                               
reverse sweep.   He asked Mr. Painter that if  the senate version                                                               
of  the  budget  omitted  that language  [regarding  the  reverse                                                               
sweep], could it then contain  appropriations from funds that may                                                               
not necessarily  be capitalized upon  if the reverse  sweep isn't                                                               
included in the final version of the budget.                                                                                    
MR. PAINTER responded that the  reverse sweep was included in the                                                               
House  version of  the budget  but the  vote on  it failed.   The                                                               
Senate's  version did  not include  that  language and  therefore                                                               
there was no vote taken.   He explained that that language can be                                                               
added in  conference committee, but  if it  is not added  and not                                                               
voted on,  it's possible that  some of those  appropriations that                                                               
are  in both  versions of  the budget  from "sweepable"  accounts                                                               
could not take effect.                                                                                                          
REPRESENTATIVE  EASTMAN  said  he  wanted  to  confirm  that  the                                                               
passage  of   the  reverse   sweep  is   a  foundation   of  this                                                               
2:03:04 PM                                                                                                                    
CHAIR  CLAMAN asked  Mr.  Painter  about the  2  percent and  1.5                                                               
percent inflation  rate.  He  questioned how  Legislative Finance                                                               
Division (LFD) came up with the 2 percent figure.                                                                               
MR. PAINTER stated  that the 2 percent is  the officially adopted                                                               
inflation  rate   from  Callan  and  Associates,   which  is  the                                                               
investment consultant the  state uses for the PFD.   He said that                                                               
that number  has been  2.25 percent  for several  years; however,                                                               
it's being reduced.   He shared that that number  is in line with                                                               
the  federal  targets and  the  division  feels  that that  is  a                                                               
reasonable assumption to use.                                                                                                   
CHAIR CLAMAN  asked Mr. Painter  if inflation rates did  pick up,                                                               
whether that would cause a similar change in the overall number.                                                                
MR. PAINTER  answered yes, in  the division's modeling  that uses                                                               
inflation  as  a  basic  growth  rate,  if  there  was  a  higher                                                               
inflation assumption,  it would increase the  baseline for future                                                               
CHAIR CLAMAN  referenced slide 6  of Mr.  Painter's presentation.                                                               
He noted  that the Agency  Operations figure  on the top  line of                                                               
the table changes from $65.7 million  in FY 22 to $182 million in                                                               
FY  23.   He  shared  his  understanding  that it  reflects  "the                                                               
governor's  goal  of  reducing   by  another  approximately  $150                                                               
million for the FY 23 budget."                                                                                                  
MR. PAINTER said  it's about $100 million reduction.   The reason                                                               
it differs is because the  baseline is increasing with inflation,                                                               
so not only is the governor  decreasing the budget, but it's also                                                               
not growing from inflation as well.                                                                                             
CHAIR  CLAMAN asked  Mr. Painter,  moving from  FY 23  to FY  24,                                                               
whether that reflects another $150 million reduction.                                                                           
MR. PAINTER conveyed  that it is truly $100 million  but also not                                                               
doing the  inflationary growth.   He said  that it is  a semantic                                                               
question  of, "are  you reducing  it by  $100 million  below last                                                               
year's level, or  are you reducing it by $150  million below last                                                               
year's level adjusted for inflation."   He shared that either one                                                               
would be an accurate description of the governor's plan.                                                                        
CHAIR CLAMAN asked for clarification  on whether the $150 million                                                               
reduction can  be thought of as  a reduction from the  prior year                                                               
adjusted  upward for  inflation, or  $100 million  reduction also                                                               
adjusted for inflation.                                                                                                         
MR. PAINTER said that is how the comparisons appear.                                                                            
CHAIR  CLAMAN asked  whether the  $150 million  is all  in Agency                                                               
Operations or if it is the  statewide capital or any of the other                                                               
MR. PAINTER said  he understands that to be true  but declined to                                                               
speak for the administration on that matter.                                                                                    
CHAIR CLAMAN asked  whether it's true based on  the analysis that                                                               
LFD is working with.                                                                                                            
MR. PAINTER answered yes.                                                                                                       
CHAIR CLAMAN  asked whether that means,  for FY 23 and  FY 24, if                                                               
the  state was  unable to  achieve  those reductions  in each  of                                                               
those years  and also add  in the  revenue proposals that  are in                                                               
some  of the  governor's  plans, the  state would  be  at a  $500                                                               
million  to  $600  million  revenue   need  to  keep  the  budget                                                               
balanced, not a $300 million revenue need.                                                                                      
MR. PAINTER  stated that that is  correct.  If the  budget is not                                                               
reduced   as  the   governor  is   proposing  and   the  PFD   is                                                               
constitutionalized so that it is no  longer "a lever" that can be                                                               
used  to  balance the  budget,  it  would  come down  to  revenue                                                               
increases of that size in order to balance the budget.                                                                          
2:08:03 PM                                                                                                                    
MR.  PAINTER  continued  on  slide  8,  "Analysis  of  Governor's                                                               
Comprehensive  Fiscal  Plan,"  which read  as  follows  [original                                                               
punctuation provided]:                                                                                                          
      ? Governor uses OMB 10-year plan for spending, which                                                                      
     has nearly $5 billion less spending over FY22-30 than                                                                      
     current policies reflected in LFD baseline                                                                                 
       ? Adds $300 million in new revenue (or additional                                                                        
     budget reductions) beginning midway through FY24                                                                           
     ? Constitutionalizes PFD at 50% of POMV draw                                                                               
MR. PAINTER  advanced to  slide 9,  "Fiscal Model:  Governor's PF                                                               
Plan  with LFD's  Baseline Spending  Assumptions," and  explained                                                               
that  this shows  some results  of the  fiscal modeling  that has                                                               
been done.   He explained that  the graphs on the  slide depict a                                                               
situation in  which only  the revenue  portion of  the governor's                                                               
plan  and not  the  spending  side.   He  explained that  without                                                               
spending reductions, there would  still be a significant deficit.                                                               
The graph  on the right  relates to budget reserve  balances, and                                                               
the  graph on  the left  compares the  unrestricted general  fund                                                               
(UGF) to  the budget, he  said.  In  this scenario, if  there are                                                               
not budget  reductions, it  would result  in an  "unfilled budget                                                               
hole" in FY25 and beyond.                                                                                                       
2:10:37 PM                                                                                                                    
CHAIR CLAMAN asked  Mr. Painter for clarification  on whether the                                                               
dotted line that  reflects the budget that  includes the dividend                                                               
is  assuming the  50/50  split dividend  that's  estimated to  be                                                               
MR.  PAINTER  responded yes,  that  represents  the $300  million                                                               
revenue, but not the spending.                                                                                                  
2:11:12 PM                                                                                                                    
MR. PAINTER continued  on slide 10, "Fiscal  Model: Governor's PF                                                               
Plan with Governor's Spending Plan,"  which depicted numbers that                                                               
are very similar  to those from the administration, he  said.  He                                                               
explained that  the graphs  on this slide  show a  scenario where                                                               
the governor's spending reduction  is implemented, in addition to                                                               
spending reductions.  The surplus  deficit numbers start out with                                                               
deficit of  $1.4 billion but  shrink rapidly towards  achieving a                                                               
balanced budget in FY27.  He  explained that the CBR balance seen                                                               
on the  graph on  the right  starts growing  as the  surplus goes                                                               
into  the CBR  in  those years.   He  noted  that the  division's                                                               
modeling   matches   the   administration's  numbers   when   the                                                               
aforementioned assumptions are also considered.                                                                                 
MR. PAINTER continued  to slide 11, "Fiscal  Model: Governor's PF                                                               
Plan  with  Governor's Spending  Plan,"  and  explained that  the                                                               
governor's  plan  works  fiscally  if the  budget  reductions  in                                                               
revenue are  agreed upon based  on the current  revenue forecast.                                                               
The division's  modeling on slide  10 shows that if  those things                                                               
occur, the  50/50 dividend and  constitutionalizing the  PCE plan                                                               
balance the budget.   He added that if oil  revenue is lower than                                                               
the  spring  forecast,  there  would   need  to  be  more  budget                                                               
reductions or more new revenue  to balance the budget as compared                                                               
to what  is seen in the  governor's plan.  He  continued that the                                                               
state  is unable  to  achieve the  spending  reductions that  the                                                               
governor is proposing, more revenue  would need to be included in                                                               
order to make  up for it.  He explained  that the legislature has                                                               
four  main levers  to balance  the budget:  drawing from  savings                                                               
accounts,  reduce  the  PFD,  reduce   the  budget,  or  increase                                                               
revenue.  The governor's plan removes  the first two options.  If                                                               
there  is reduced  plan below  the  forecast, he  said, then  the                                                               
latter two  options would  be the only  ones available.   Without                                                               
ERA  access  or  significant savings  balances,  the  legislature                                                               
would be forced  to act swiftly to resolve  any fiscal imbalances                                                               
in the future.                                                                                                                  
MR. PAINTER made  a correction that slide 9 does  not include the                                                               
$300 million in  new revenue, but it simply  represents the 50/50                                                               
plan with no other policy intervention.                                                                                         
2:15:53 PM                                                                                                                    
REPRESENTATIVE   SNYDER   pointed   out  that   in   a   previous                                                               
presentation by the commissioner,  the projected surplus was $393                                                               
million by FY 30; she asked  if that surplus corresponds with the                                                               
projections provided by LFD's models.   Additionally, she offered                                                               
her understanding that the calculation  of $393 million was based                                                               
off the  assumption that  some existing debt  would be  paid off,                                                               
including school  bond debt and  oil tax credits.   She predicted                                                               
that there may  be future debt that would eat  into that surplus.                                                               
She  asked  if it's  reasonable  to  expect  a surplus  based  on                                                               
historical accumulation of debt.                                                                                                
MR. PAINTER said with the  governor's spending assumptions, LFD's                                                               
modeling  shows a  surplus of  $395 million  in FY  30, which  is                                                               
almost exactly the  same.  Regarding debt, he  clarified that new                                                               
credit  cannot be  earned for  oil tax  credits, so  it's just  a                                                               
matter  of when  that's  paid  off.   He  explained  that in  the                                                               
baseline assumption,  which assumes that the  statute is followed                                                               
and $114 million is paid this  year followed by $117 million next                                                               
year and so forth,  [the oil tax credit] would be  paid off in FY                                                               
27.   Regarding  school  debt reimbursement,  he  noted that  the                                                               
moratorium  on  new  debt  was   extended  through  FY  25.    He                                                               
acknowledged  that LFD's  modeling is  low for  school bond  debt                                                               
reimbursement due  to the  assumption that no  new debt  comes in                                                               
after  the moratorium  is  lifted.   He  speculated  that if  the                                                               
moratorium is allowed  to lift in FY 25, there  would be new debt                                                               
added on  in future years.   Nonetheless, he pointed out  that in                                                               
the  governor's plan,  the legislature  would only  fund half  of                                                               
that, so  the amount would  be relatively small.   Another factor                                                               
that has been discussed by  the administration, he said, is using                                                               
bonding to  make up for  restrained capital budgets,  which would                                                               
also reduce the surplus.                                                                                                        
2:20:24 PM                                                                                                                    
CHAIR CLAMAN returned to slide 9 and remarked                                                                                   
     So, the  difference between the governor's  budget line                                                                    
     and the revenue projections, if  we had $300 million in                                                                    
     new  revenue  starting  in  FY  25,  would  that  be  a                                                                    
     balanced budget on this slide?                                                                                             
MR. PAINTER responded no, there would still be a deficit.                                                                       
CHAIR  CLAMAN questioned  whether  the current  amount that  [the                                                               
legislature] owes to the CBR is $11-12 billion.                                                                                 
MR.  PAINTER said  after  the  books are  closed  on  FY 21,  the                                                               
current estimate is $11 billion  or $12 billion assuming that the                                                               
sweep is reversed.                                                                                                              
CHAIR  CLAMAN in  reference  to  Representative Snyder's  earlier                                                               
question to DOR about the  $3 million bridge draw, inquired about                                                               
the pros and  cons to passing revenue first from  a fiscal policy                                                               
MR.   PAINTER  relayed   from  a   purely  fiscal,   nonpolitical                                                               
perspective,  the sooner  any intervention  is  done the  better,                                                               
because more  would be left in  savings.  He opined  that waiting                                                               
would be  a political call  not a  fiscal call.   Nonetheless, he                                                               
said  [the legislature]  would  not  want to  balance  the FY  22                                                               
budget given  the delay in revenue  coming on.  He  added that if                                                               
something  were passed  now,  it could  "come  online" by  midway                                                               
through  FY 23,  versus postponing  for another  year or  two and                                                               
waiting even longer for the revenue.                                                                                            
2:24:10 PM                                                                                                                    
MR. PAINTER  noted that the  joint document, titled "OMB  and LFD                                                               
Fiscal Model Assumptions" [included  in the committee packet], is                                                               
a "handy" reference  to see the differences that  the governor is                                                               
proposing in terms of spending.   He added that the document lays                                                               
out  all   the  assumptions,  which  clearly   illustrates  those                                                               
differences against the baseline.                                                                                               
2:24:48 PM                                                                                                                    
CHAIR CLAMAN directed attention to  the last row on that document                                                               
and asked  Mr. Painter to  highlight the key  differences between                                                               
LFD assumptions and DOR assumptions pertaining to the dividend.                                                                 
MR. PAINTER  responded that  he is not  aware of  any significant                                                               
differences.     He  noted  that   on  the  number   of  eligible                                                               
applicants,  LFD  has  been  assuming that  the  same  number  of                                                               
applicants  received  the  dividend  in   FY  22  as  in  FY  21.                                                               
Additionally,  LFD is  assuming that  the Department  of Labor  &                                                               
Workforce  Development's  (DLWD's)   population  growth  forecast                                                               
holds true in subsequent years.  He  said he's not sure if DOR is                                                               
using DOL's forecast, as it is slightly dated.                                                                                  
CHAIR CLAMAN  pointed out that  there is an  actuarial evaluation                                                               
on retirement  as of September 2020  on OMB and December  2020 on                                                               
LFD.  He asked if there is a significant difference in those.                                                                   
MR. PAINTER  confirmed that there is  [a significant difference.]                                                               
He explained that  in FY 20, there were  actuarial losses because                                                               
the earnings were about 2  percent versus the actuarially assumed                                                               
7.3  percent;  therefore,  using  the draft  numbers  that  would                                                               
likely be  adopted in  two weeks  of the  ARM Board  meeting, the                                                               
numbers end up being the same in  FY 22, very close in FY 23, and                                                               
farther apart in FY  24-30 - about $40 million in  FY 24 to $66.8                                                               
million higher in FY 30.                                                                                                        
CHAIR CLAMAN asked which number is higher.                                                                                      
MR. PAINTER reported  that LFD's number is higher  because LFD is                                                               
incorporating the FY 20 actuarial loss.                                                                                         
CHAIR  CLAMAN  sought verification  that  LFD's  [model] shows  a                                                               
better picture of retirement than OMB.                                                                                          
MR. PAINTER clarified that LFD is  using draft numbers and OMB is                                                               
using official  numbers, which  means that  currently, LFD  has a                                                               
less optimistic  picture that shows  more spending.  If  the same                                                               
pattern held  true with  the FY 21  actuarial results,  which are                                                               
going  to  be  positive,  OMB   would  have  a  more  pessimistic                                                               
assumption  and  in   December,  LFD  would  switch   to  a  more                                                               
optimistic assumption.   He emphasized that LFD's  ability to use                                                               
unofficial  numbers indicates  that LFD's  numbers are  currently                                                               
higher; however, he offered his  belief that next year that would                                                               
be in the opposite.                                                                                                             
2:28:49 PM                                                                                                                    
CHAIR CLAMAN invited comments or observations from DOR.                                                                         
2:29:10 PM                                                                                                                    
COMMISSIONER   MAHONEY   acknowledged   that  the   majority   of                                                               
differences between the  two models relate to  the spending plan.                                                               
She relayed that the governor  is focused on continuing to reduce                                                               
spending.    Additionally, she  pointed  out  that in  regard  to                                                               
calculating   the   POMV  revenue,   both   LFD   and  DOR   used                                                               
approximately  $77.6  billion.   She  noted  that yesterday  that                                                               
number was $80.6  billion, which indicates that it  is already up                                                               
$3 billion from the end of  April, which suggests that when these                                                               
numbers are  recalculated, the POMV  would continue  to increase.                                                               
Furthermore, she  recognized that  there are differences  in some                                                               
non-policy-related assumptions.   Her plan, she said,  is to work                                                               
with both  OMB and LFD  to come to  a consensus on  some [smaller                                                               
item] assumptions, such as inflation,  to "take the noise" out of                                                               
this  analysis, so  that in  the future,  conversations could  be                                                               
focused more on the policy aspect of the governor's plans.                                                                      
2:31:29 PM                                                                                                                    
CHAIR  CLAMAN  returned  to  the statement  that  70  percent  of                                                               
Harvard University is funded through  its endowment.  He asked if                                                               
Commissioner Mahoney  had performed  additional research  on that                                                               
COMMISSIONER MAHONEY  acknowledged that  she had  speculated that                                                               
the Harvard  endowment funded 70 percent  of Harvard University's                                                               
operating budget;  however, this  past year,  it was  37 percent.                                                               
She directed attention  to a document, titled  "Harvard Will Draw                                                               
Further  from Endowment  in FY20222  Than Planned,  Citing Strong                                                               
Market  Returns" [hard  copy included  in the  committee packet],                                                               
which  addresses the  reasons  why Harvard  decided  to make  the                                                               
overdraw.    She  expounded  that  the  article  recognizes  that                                                               
Harvard,  like many  colleges,  experienced  deficits during  the                                                               
pandemic,  but the  objective  of increasing  their  draw to  2.5                                                               
percent more was  about strong market returns.  She  said the CFO                                                               
and  VP  of  Finance  were   quoted  saying  that  the  draw  "is                                                               
consistent  with their  intent on  distributing as  much as  they                                                               
responsibly can  of the endowment  to support all of  the endowed                                                               
research and  teaching activities  vital to  their mission."   In                                                               
closing,  she  maintained that  the  unstructured  draw from  the                                                               
Permanent  Fund,  which  the  governor  is  proposing,  does  not                                                               
compromise the principal or the inflation proofing of the fund.                                                                 
2:33:53 PM                                                                                                                    
CHAIR CLAMAN announced that CSHJR 7(STA) was held over.                                                                         
2:35:41 PM                                                                                                                    
There being no  further business before the  committee, the House                                                               
Judiciary Standing Committee meeting was adjourned at 2:35 p.m.                                                                 

Document Name Date/Time Subjects
HJR 7 v. B 5.10.2021.PDF HJUD 5/24/2021 1:00:00 PM
HJUD 6/2/2021 1:00:00 PM
HJR 7 Transmittal Letter 1.19.2021.pdf HJUD 5/24/2021 1:00:00 PM
HJUD 6/2/2021 1:00:00 PM
HJR 7 Sectional Analysis v. B 5.24.2021.pdf HJUD 5/24/2021 1:00:00 PM
HJUD 6/2/2021 1:00:00 PM
HJR 7 Fiscal Note OOG-DOE 1.8.2021.pdf HJUD 5/24/2021 1:00:00 PM
HJUD 6/2/2021 1:00:00 PM
HJR 7 PowerPoint Presentation 5.24.2021.pdf HJUD 5/24/2021 1:00:00 PM
HJUD 6/2/2021 1:00:00 PM
Legislative Finance Division Analysis of Governor's Fiscal Plan PowerPoint Presentation 6.2.2021.pdf HJUD 6/2/2021 1:00:00 PM
HJR 7 Additional Document - OMB and LFD Fiscal Model Assumption Comparison 6.2.2021.pdf HJUD 6/2/2021 1:00:00 PM
HJR 7 Additional Document - Harvard's Endowment (Distributed by HJUD Committee) 6.2.2021.pdf HJUD 6/2/2021 1:00:00 PM
HJR 7 Additional Document - Harvard Will Draw Further From Endowment in FY2022 Than Planned, Citing Strong Market Returns 5.3.2021.pdf HJUD 6/2/2021 1:00:00 PM