01/28/2008 01:00 PM House JUDICIARY
| Audio | Topic |
|---|---|
| Start | |
| HCR15 | |
| HJR28 | |
| Adjourn |
+ teleconferenced
= bill was previously heard/scheduled
| *+ | HJR 27 | TELECONFERENCED | |
| *+ | HCR 15 | TELECONFERENCED | |
| + | TELECONFERENCED | ||
| *+ | HJR 28 | TELECONFERENCED | |
ALASKA STATE LEGISLATURE
HOUSE JUDICIARY STANDING COMMITTEE
January 28, 2008
1:06 p.m.
MEMBERS PRESENT
Representative Jay Ramras, Chair
Representative Nancy Dahlstrom, Vice Chair
Representative John Coghill
Representative Ralph Samuels
Representative Lindsey Holmes
MEMBERS ABSENT
Representative Bob Lynn
Representative Max Gruenberg
OTHER LEGISLATORS PRESENT
Representative Mike Kelly
COMMITTEE CALENDAR
HOUSE CONCURRENT RESOLUTION NO. 15
Urging the governor to direct the attorney general to file an
amicus curiae brief with the United States Supreme Court in the
case of Parker v. District of Columbia, supporting the
individual right to keep and bear arms under the Second
Amendment to the United States Constitution.
- MOVED CSHCR 15(JUD) OUT OF COMMITTEE
HOUSE JOINT RESOLUTION NO. 28
Proposing an amendment to the Constitution of the State of
Alaska relating to the production tax revenue fund, dedicating a
portion of the petroleum production tax to the fund, and
limiting appropriations from the fund.
- HEARD AND HELD
HOUSE JOINT RESOLUTION NO. 27
Proposing an amendment to the Constitution of the State of
Alaska authorizing a contractual limitation on taxes related to
the production of gas for the purpose of providing fiscal
certainty for the construction of a natural gas pipeline.
- BILL HEARING CANCELED
PREVIOUS COMMITTEE ACTION
BILL: HCR 15
SHORT TITLE: AMICUS BRIEF REGARDING RIGHT TO BEAR ARMS
SPONSOR(S): REPRESENTATIVE(S) HARRIS
01/15/08 (H) READ THE FIRST TIME - REFERRALS
01/15/08 (H) JUD
01/28/08 (H) JUD AT 1:00 PM CAPITOL 120
BILL: HJR 28
SHORT TITLE: CONST. AM: PRODUCTION TAX REVENUE FUND
SPONSOR(S): REPRESENTATIVE(S) SAMUELS
01/11/08 (H) PREFILE RELEASED 1/11/08
01/15/08 (H) READ THE FIRST TIME - REFERRALS
01/15/08 (H) JUD, FIN
01/25/08 (H) JUD AT 1:00 PM CAPITOL 120
01/25/08 (H) -- MEETING CANCELED --
01/28/08 (H) JUD AT 1:00 PM CAPITOL 120
WITNESS REGISTER
JOHN MANLY, Communications Assistant
House Majority Office
Alaska State Legislature
Juneau, Alaska
POSITION STATEMENT: Presented HCR 15 on behalf of the sponsor,
Representative John Harris.
EDWARD GRASSER
House/Senate Majority
Alaska State Legislature
Anchorage, Alaska
POSITION STATEMENT: Provided comments during discussion of
HCR 15.
CHERYL NIENHUIS, Petroleum Economist I
Economic Research Group
Tax Division
Department of Revenue (DOR)
Juneau, Alaska
POSITION STATEMENT: Responded to questions during discussion of
HJR 28.
JERRY BURNETT, Director
Administrative Services Division
Department of Revenue (DOR)
Juneau, Alaska
POSITION STATEMENT: Responded to questions during discussion of
HJR 28.
LAURA ACHEE, Research and Communications Liaison
Alaska Permanent Fund Corporation (APFC)
Department of Revenue (DOR)
Juneau, Alaska
POSITION STATEMENT: Responded to a question during discussion
of HJR 28.
ACTION NARRATIVE
CHAIR JAY RAMRAS called the House Judiciary Standing Committee
meeting to order at 1:06:50 PM. Representatives Coghill,
Samuels, Holmes, Dahlstrom, and Ramras were present at the call
to order. Representative Kelly was also in attendance.
HCR 15 - AMICUS BRIEF REGARDING RIGHT TO BEAR ARMS
1:07:49 PM
CHAIR RAMRAS announced that the first order of business would be
HOUSE CONCURRENT RESOLUTION NO. 15, Urging the governor to
direct the attorney general to file an amicus curiae brief with
the United States Supreme Court in the case of Parker v.
District of Columbia, supporting the individual right to keep
and bear arms under the Second Amendment to the United States
Constitution.
REPRESENTATIVE DAHLSTROM moved to adopt the proposed committee
substitute (CS) for HCR 15, Version 25-LS1314\E, Luckhaupt,
1/24/08, as the work draft. There being no objection, Version E
was before the committee.
1:09:06 PM
JOHN MANLY, Communications Assistant, House Majority Office,
Alaska State Legislature, explained on behalf of Representative
John Harris, sponsor, that HCR 15 asks the governor to direct
the attorney general to file an [amicus curiae] brief with the
[U.S. Supreme Court in District of Columbia v. Heller], a "gun
rights case" which is hoped will delineate that the right
provided by the Second Amendment is an individual right to keep
and bear arms and not a collective right that can be easily
regulated by government. He offered his understanding that the
attorney general does intend to sign onto the amicus curiae
brief being brought by the State of Texas, but offered his
belief that it is still important to go forth with HCR 15
because it makes an important statement. In conclusion, he
posited that the sponsor would be amenable to any amendment that
would assist the attorney general in his endeavors regarding
this issue.
1:11:18 PM
EDWARD GRASSER, House/Senate Majority, Alaska State Legislature,
added that Heller is a landmark lawsuit that's been going
through the courts; the District of Columbia has appealed the
district court opinion that the District of Columbia doesn't
have the right to unilaterally take all guns away from its
citizens - which it had been doing - because of the right
granted by the Second Amendment. Many who support the Second
Amendment have been looking forward to this case, believing that
it will in part lay to rest the question of whether the Second
Amendment supports the individual's right to keep and bear arms.
In conclusion, he said: "It's important to note that this is an
idea that's supported quite heavily in the state of Alaska; if
you'll recall, the 1994 constitutional amendment passed
overwhelming, making it clear that in ... the [Alaska State
Constitution], the right to keep and bear arms is an individual
right."
REPRESENTATIVE COGHILL asked for clarification regarding what
the administration has done so far and "how we might operate in
the language of this particular thing to make it work properly."
He then relayed that he'd just received a note and would be
giving what it said further consideration.
1:13:54 PM
CHAIR RAMRAS, after ascertaining that no one else wished to
testify, closed public testimony on HCR 15.
REPRESENTATIVE DAHLSTROM moved to report the proposed CS for
HCR 15, Version 25-LS1314\E, Luckhaupt, 1/24/08, out of
committee with individual recommendations [and the accompanying
fiscal notes].
REPRESENTATIVE COGHILL objected, remarked "If, in fact, there is
something moving, I might ask for it to come to [the House Rules
Standing Committee] to amend the resolve section ...," and then
removed his objection.
CHAIR RAMRAS, indicating that there were no further objections,
announced that CSHCR 15(JUD) was reported from the House
Judiciary Standing Committee.
HJR 28 - CONST. AM: PRODUCTION TAX REVENUE FUND
1:14:42 PM
CHAIR RAMRAS announced that the final order of business would be
HOUSE JOINT RESOLUTION NO. 28, Proposing an amendment to the
Constitution of the State of Alaska relating to the production
tax revenue fund, dedicating a portion of the petroleum
production tax to the fund, and limiting appropriations from the
fund.
REPRESENTATIVE SAMUELS, speaking as the sponsor of HJR 28,
offered that his philosophy regarding HJR 28 is that everyone -
whether they be legislators or members of the public - is
cognizant of the current "largess of money" and believes that it
should be saved. Politics being what they are, budgets tend to
go up - the needs tend to keep increasing - and his fear, he
relayed, is that if that money is not saved for long-term cash
flow, eventually it will just be spent. House Joint Resolution
28, he remarked, is truly a long-term savings plan that will
"spin out" cash flow - it's a long-term cash flow mechanism -
and if the voters decide to adopt this proposed constitutional
amendment, "we would take all of the money that is the
progressivity tax on the severance tax right now." Currently,
HJR 28 provides for a maximum payout rate of 4.5 percent of the
total in the proposed production tax revenue fund, though what
that percentage should ultimately be could still be debated; for
example, a lot of large endowments are required by federal law
to pay out at 5 percent.
REPRESENTATIVE SAMUELS offered that with the payout methodology
provided for via HJR 28, if the market in which the investments
are held is really good, the payout will be up slightly, and if
it isn't, the payout will be a little bit less, and the payout
will always go into the general fund (GF). The proposed
constitutional amendment does not, however, say what that money
will be spent on - that will be up to future legislatures to
decide. One downside to putting the aforementioned production
tax revenue into the Constitutional Budget Reserve Fund (CBRF)
is that it will only be saved until it is needed, and ultimately
it will be spent along with the rest of the CBRF, though putting
the money into the CBRF would not be a bad thing. If the
production tax revenue is simply allowed to remain in the GF, he
cautioned, it could result in budget increases. He offered his
belief that the governor has proposed legislation similar to
what HJR 28 is proposing, but opined that it doesn't go far
enough because it would statutorily put the production tax
revenue into an account that the legislature has access to.
REPRESENTATIVE SAMUELS proffered that under HJR 28, the
principal of the production tax revenue will always be protected
and there will also be a steady cash flow, though small. The
only downside to HJR 28's proposal, he surmised, is that as
production continues to decline, it might get to the point where
the money on the progressive portion of the oil tax is needed to
balance the budget, thereby raising the question of whether
legislators would want to be putting money into a "savings
account" while the "checking account" is running dry. One
alternative that could address that question would be to add a
sunset clause such that after five or six years, the legislature
wouldn't be constitutionally obligated to keep putting
production tax revenue into the proposed fund. Referring to
that proposed account, he relayed that other legislation moving
though the process will address issues such as who manages the
fund. Also, language could be added [to that other legislation]
that would allow the legislature to put other monies into the
proposed fund if the legislature so chooses.
REPRESENTATIVE SAMUELS noted that one question he's heard is,
why not simply restructure the CBRF such that "you could
actually start spinning some cash off," but because he likes the
idea of having a diversified portfolio for the state, he would
rather start the proposed fund, put some money into it, and then
let the next legislature decide what to do with the CBRF, the
proposed fund, and whether to continue putting money into it.
1:23:32 PM
REPRESENTATIVE DAHLSTROM asked Representative Samuels whether
his intent is for the legislature to first pay back what is owed
to the CBRF and then start putting the production tax revenue
into the proposed fund.
REPRESENTATIVE SAMUELS said no; if, after the fund "spun off
cash," the legislature wanted to appropriate that money into the
CBRF, it could then do so. The proposal being offered via
HJR 28 would start a separate fund for long-term cash flow.
CHAIR RAMRAS asked how much the "progressivity" portion would be
and which fiscal year would be affected if this proposed
constitutional amendment is approved.
REPRESENTATIVE SAMUELS offered his understanding that production
tax revenue for this year would amount to roughly $1 billion,
and the change to the Alaska State Constitution would be
retroactive to June 30, 2007. He posited that none of this
year's production tax revenue would be needed for this year's
budget.
1:25:37 PM
CHERYL NIENHUIS, Petroleum Economist I, Economic Research Group,
Tax Division, Department of Revenue (DOR), concurred that the
amount the division forecast for fiscal year 2008 (FY 08) is
about $950 million, and pointed out that the division's fiscal
note illustrates that it would be about $350-$400 million per
year, at least until 2014.
JERRY BURNETT, Director, Administrative Services Division,
Department of Revenue (DOR), in response to a question, pointed
out that the department has submitted two fiscal notes, one from
the Tax Division and one from the Treasury Division. The Tax
Division's fiscal note pertains to the progressivity surcharge,
and shows as a zero-revenue effect with a change from GF to a
constitutional dedicated revenue source, and the Treasury
Division's fiscal note shows the estimated investment cost of
managing the money. This estimate is based on those deposits to
the fund, from the Tax Division's fiscal note, at an approximate
management cost of 10 basis points - approximately half the cost
of managing the permanent fund; the assumption is that the
proposed fund could be managed at a lower cost because there
wouldn't be costs associated with having a board of directors,
for example. Looking at the balance going forward, based on
some estimates that include a lot of assumptions, by 2014 the
proposed fund would have approximately a $3.1 billion balance
and, at 4.5 percent, would "spin off" about $152 million that
year. He mentioned that these assumptions are based on earnings
at the same rate as the Public Employees' Retirement System
(PERS) for the last 10 years - 9.51 percent annual earnings.
CHAIR RAMRAS noted that 100 basis points equal 1 percent and 10
basis points equal .1 percent, and that even .1 percent of $4
billion is a significant sum of money. He questioned whether it
would be fair to equate the aforementioned management costs with
fees a bank might charge for maintaining a client's savings
account.
MR. BURNETT pointed out, though, that a bank wouldn't indicate
to its client in its monthly statements what it is charging to
maintain the client's savings account. The administration, on
the other hand, would have to show costs for managing the
proposed production tax revenue fund.
1:31:09 PM
REPRESENTATIVE SAMUELS asked whether the costs would come out of
the fund.
MR. BURNETT explained that the Treasury Division would ask for
an appropriation from those funds each year to pay the
management costs; this would be similar to how other funds are
now dealt with.
REPRESENTATIVE SAMUELS surmised, then, that the proposed fund's
rate of return would merely be .1 percent less.
MR. BURNETT concurred, and noted that it would show in the
budget as a budgeted amount each year.
REPRESENTATIVE HOLMES asked whether the language in HJR 28 will
allow for the appropriation of the management costs,
particularly given that proposed subsection (c) currently says
in part that no appropriations other than 4.5 percent of the
fund's market value may be made from the fund.
MR. BURNETT said he assumes that the department could "manage it
internally" and have the management costs "netted out" of the
earnings. He acknowledged that in that case, the management
costs might not show up in the budget - it might just be an
unbudgeted amount. In any event, the department would still be
showing the costs in the fiscal notes.
CHAIR RAMRAS surmised that if production tax revenue were simply
put into the GF, there wouldn't be any management costs, and the
legislature could access all of it.
MR. BURNETT clarified that if that money were placed into the
GF, it would not be invested in the same manner; instead, it
would be invested in short term instruments or cash equivalents
so that it would be available for appropriation and spending at
all times. The GF and "other non-segregated investments" are
probably earning 3-4 percent per year, whereas long-term
accounts such as the subaccount for the CBRF earn higher rates.
CHAIR RAMRAS said, "So if we accept the premise that it will
enjoy the same returns as the permanent fund, then arguably
these funds would enjoy 500 basis points to the good less
whatever the management fee is."
MR. BURNETT said that is essentially correct unless the money
were segregated in the GF and invested long term, though the
department probably would not be making that choice knowing that
the money could be spent at any time and be necessary to use for
cash flow.
CHAIR RAMRAS asked whether the legislature has ever segregated a
portion of the GF into a higher earning asset class.
MR. BURNETT said he is not aware of any such instance - nothing
beyond a one-year investment. With regard to the CBRF, however,
the legislature did segregate a portion out for a longer term
investment in 1999.
CHAIR RAMRAS offered his understanding that short term treasury
notes are currently earning 2-2.5 percent, and surmised that
that is what the production tax revenue would be earning if it
were placed in the GF.
MR. BURNETT concurred.
1:36:32 PM
REPRESENTATIVE DAHLSTROM offered her understanding that there
was a commitment made that the money that was borrowed from the
CBRF would be paid back, though without a specific timeframe.
She surmised that if it weren't for the fact that the state is
both the lender and the borrower in this instance, "we would
already be dinged pretty heavily for not having started making
some movement towards paying some of this money back."
REPRESENTATIVE SAMUELS acknowledged that he, too, understood
that such a commitment was made. However, he added, "If you
talk about the philosophy of it, I'm proposing that we put, over
the next five years, ... $4 billion into a savings account,"
regardless of whether that account ends up being the CBRF. He
again offered his belief that the people of Alaska just want the
money saved.
REPRESENTATIVE DAHLSTROM said she can see the need for having
both accounts: the CBRF and the proposed production tax revenue
fund. However, she relayed, she is not sure that she can walk
away from what she feels was a very strong commitment to pay the
CBRF back before establishing another fund. "I don't see why we
can't do both ...," she added.
REPRESENTATIVE SAMUELS indicated that his fear is that if they
first pay the CBRF back, as production continues to decline, the
CBRF will still be needed to pay current bills and they will
just run out of that money sooner. Instead there should be both
a short-term cash flow account and a long-term cash flow
account. He then offered his understanding that under the
proposed change, the "cash flow spinout" for the first year
would be roughly $50 million and that if that money isn't needed
the first year, it could either be put into the CBRF or
reinvested in the proposed fund where it could accrue more
interest.
1:40:01 PM
MR. BURNETT added that if in fact the 4.5 percent payout is
reinvested, that would increase the available payout every year.
REPRESENTATIVE SAMUELS proffered that every year the legislature
could then choose to reinvest that payout in the proposed fund,
or choose to put it into the CBRF. Furthermore, the legislature
could choose to pay back the CBRF via other mechanisms at its
disposal. He estimated that 20 years from now, even with a
decline in production, the proposed fund will be "spinning out"
$300 million per year without there having been any reinvestment
and at a price of $70-$72 per barrel.
MS. NIENHUIS acknowledged that the division is estimating the
price to be at $72 per barrel.
REPRESENTATIVE DAHLSTROM asked Representative Samuels whether he
intends that the money in the proposed fund be invested only in
Alaska or instead invested wherever it will earn the greatest
return.
REPRESENTATIVE SAMUELS said his thought is that the money would
be invested in the same manner that the department invests its
other funds.
1:42:23 PM
REPRESENTATIVE COGHILL noted that whatever the amount owed to
the CBRF, it is expected that that amount will be paid back;
"that's why we have the 'sweep' every year that we have to deal
with" when considering appropriations and "that's how we install
it by law." If the legislature simply uses one fund to pay the
other fund back, he surmised, Alaskans will see the legislature
moving large sums of money around without there being any
benefit. He said he kind of likes the idea of combining the
CBRF with "the program we have" because the more money being
invested, the greater the potential return, but it's not a point
he would be willing to argue about. On a different point, he
said he is not too sure he likes the idea of inserting a
statutory reference into the Alaska State Constitution, and
asked Representative Samuels whether that issue came up during
drafting.
REPRESENTATIVE SAMUELS said that that was one of his concerns as
well since the referenced statute could get changed in the
future, but his bigger concern centered on having to watch the
decline in production, and so he would prefer that the
legislature be mandated by the Alaska State Constitution to put
that money in a savings account, adding that he is assuming that
the progressive nature of the existing tax law won't change over
the next few years. Having a constitutional deadline on when
the money should be placed in the account is a good idea, he
remarked.
REPRESENTATIVE COGHILL offered his understanding that should the
proposed constitutional amendment be approved by the voters as
it's currently written, it will be the first time a statute is
referenced in the Alaska State Constitution; even the
constitutional provision pertaining to the CBRF doesn't
reference a specific statute. Statutes should be driven by the
constitution, rather than the constitution being driven by
statutes, he opined.
REPRESENTATIVE SAMUELS said he'd had the bill drafted without
first speaking with either the DOR or the Alaska Permanent Fund
Corporation (APFC), and doesn't know whether there would be a
way to reference the production tax revenue without referring to
a specific statute.
CHAIR RAMRAS acknowledged that that is an important point to
consider.
REPRESENTATIVE HOLMES said she concurs with Representative
Coghill. She then referred to proposed subsection (b),
characterized it as somewhat of a sunset clause, and questioned
whether it would go into effect even if an amendment made to the
referenced statute only effected a minor grammatical change, for
example. She also asked which fund any monies received from
litigation regarding the progressivity tax would go into - the
proposed fund or the CBRF.
REPRESENTATIVE SAMUELS indicated that perhaps someone else could
better address those questions.
1:52:27 PM
REPRESENTATIVE HOLMES then said she is not sure whether they
would be able, constitutionally, to move CBRF funds into the
proposed fund.
REPRESENTATIVE SAMUELS acknowledged that another constitutional
amendment would be necessary in order to do that. He also
acknowledged that if production tax revenue is placed into the
CBRF and then appropriated out via a three-quarter vote, there
will simply be more money owed to the CBRF. Referring to a
chart illustrating estimated earnings payouts, he offered his
understanding that it indicates that when the proposed fund is
at $4 billion - the amount in the CBRF - a 4.5 percent payout
would put $200 million into the GF. If that payout wasn't
needed at that time, he reiterated, the money could be
reinvested. He indicated that he'd been reluctant to begin
discussions about combining the proposed fund and the CBRF; even
though doing something along those lines would simply be a
restructuring of the savings account, people might view it as
destroying the existing savings account.
CHAIR RAMRAS asked how the word "savings" is defined.
REPRESENTATIVE SAMUELS offered that "savings" means "something
you're going to earn today that you'll be able to live off into
perpetuity."
CHAIR RAMRAS asked whether HJR 28 is in essence a five-year
savings plan.
REPRESENTATIVE SAMUELS said that is a good characterization,
adding that the legislature would always be able to "spinoff"
cash without there being a political argument over accessing it.
He predicted that future legislatures will be happy that the
present legislature created the proposed fund.
1:58:20 PM
CHAIR RAMRAS questioned whether HJR 28 is taking the approach
that it is better to start saving a small amount earlier than to
start saving a larger amount later.
REPRESENTATIVE SAMUELS indicated that it is.
REPRESENTATIVE HOLMES, referring to subsection (c), asked
whether they would be better off looking at perhaps a four- or
five-year average.
MR. BURNETT said that it is typical in endowment funds to "look
at some kind of back-looking average." This protects the funds
against years in which the stock market fluctuates wildly. For
example, the PFD payout is based on five years' worth of
earnings. What an entity is trying to achieve with a particular
payout percentage, he offered, is an inflation-adjusted rate of
return over time. This way, the real value of a fund is
maintained even if no more deposits are made.
REPRESENTATIVE SAMUELS said he is amenable to "whatever the best
mechanism is to work the way that an endowment works."
REPRESENTATIVE COGHILL noted that the legislature has discussed
percent of market value regarding the permanent fund, which
isn't endowed, and that they would have to think of how they
could institute HJR 28 with its current reference to statute.
He said he likes the idea of endowing the CBRF, but noted that
the earnings would then become a "majority vote" issue. And
although the three-quarter vote requirement has engendered
debate, it hasn't saved any money, he opined.
REPRESENTATIVE COGHILL surmised that if the change proposed by
HJR 28 is incorporated into the Alaska State Constitution and
the legislature then later tries to combine [the CBRF and the
propose fund], people will view such a proposal with distrust.
He added: "If there's a way that we can describe the revenue
stream from the revenue stream that you've proposed here, that
becomes a steady revenue stream into [an] ... endowment fund
that would swallow up the [CBRF]; I think people would be
disposed to that as long they could see it clearly."
REPRESENTATIVE SAMUELS said he'd tried to keep [the CBRF and the
proposed fund] separate because he is not sure that the
legislature could "swallow it all at one time," though "having
both" would have advantages.
REPRESENTATIVE COGHILL surmised that people know that under the
Alaska State Constitution, the legislature has several funds and
a spending limit. The CBRF is not being paid back and the
spending limit is ineffectual, he remarked, and people deserve
having integrity in the Alaska State Constitution and being able
to "see it as simply as they can."
REPRESENTATIVE SAMUELS opined that it is not a bad thing to have
different mechanisms for different purposes; HJR 28 is simply a
"cash flow mechanism." He acknowledged that the legislation
could be altered to specify that for the first five years the
amount paid out from the proposed fund be put into the CBRF, but
warned that that could result in a future legislature wishing
that wasn't the case. He surmised that doing away with the CBRF
altogether would cause the public discomfort.
2:07:18 PM
REPRESENTATIVE COGHILL said he is merely thinking in terms of
what the payout would be based on a larger principal amount.
REPRESENTATIVE SAMUELS offered his belief that for the next two
years, the legislature won't need either funds from the CBRF or
the payout from the proposed fund, but acknowledged that
problems could arise should that money be invested differently.
MR. BURNETT explained that the CBRF is separated into two
accounts: the subaccount - which is invested long term - and
the main account. Managing the CBRF as two separate accounts
ensures cash flow and maximum return.
REPRESENTATIVE COGHILL again indicated that he has a problem
with HJR 28's proposal to include a statutory reference in the
Alaska State Constitution.
REPRESENTATIVE SAMUELS acknowledged that it could be somewhat
problematic, and thus he would like to find a way to do the same
thing without including the statutory reference.
CHAIR RAMRAS characterized HJR 28 as a desperate attempt at
forcing the legislature to save money, and remarked on the
growth of government. Because the legislature won't know what
problems it will face in the future, it might be better to save
money for the next five years and then create an annuity that
pays out for the following ten years. In this way, the money
that doesn't get spent on infrastructure or social service
projects could provide a second revenue stream fifteen years
down the road. The difficulty with HJR 28, he acknowledged, is
that it treats the State of Alaska as a trust fund recipient
that can never be trusted with the principal, and this is
somewhat cynical in its construction. Some people estimate that
the CBRF will be exhausted over the next several years, and so
the committee ought to approach the issue as way of solving a
particular problem rather than just the state's inability to
save money.
2:15:54 PM
REPRESENTATIVE SAMUELS said his fear is that in a few years, if
the money is available to be spent, it will be, even if it is
not needed. Adopting the approach proposed by HJR 28 could make
financial issues a bit tougher for a few years, but not adopting
this approach could result in all of the production tax revenue
being spent in a few years. The proposal embodied in HJR 28 is
just good financial planning.
CHAIR RAMRAS clarified that the aforementioned chart is non-
sophisticated and only reflects the production tax revenue going
into the proposed fund for the first five years, and no attempt
was made to "match cash flows exactly" - it's a very simplistic
model.
REPRESENTATIVE HOLMES, referring to the retroactive aspect of
the bill, noted that the production tax revenue might already be
spent by the time the proposed constitutional amendment is
approved by the voters.
REPRESENTATIVE SAMUELS offered his belief that the DOR will
simply set the production tax revenue aside until it is known
whether the proposed constitutional amendment gets approved by
the voters.
CHAIR RAMRAS relayed that he is a supporter of HJR 28, and
characterized it as indicative of the legislature's inability to
be good stewards of "the immediate resource."
REPRESENTATIVE COGHILL said he wouldn't characterize it as such,
and opined that it is still worth considering.
REPRESENTATIVE SAMUELS relayed that he would research whether
the current statutory reference could be phrased in a different
fashion. He then asked what the range of payouts is for other
types of funds.
2:22:43 PM
LAURA ACHEE, Research and Communications Liaison, Alaska
Permanent Fund Corporation (APFC), Department of Revenue (DOR),
relayed that every foundation in the U.S. is required by the
Internal Revenue Service (IRS) to pay out 5 percent each year;
that collages have a range of payouts; and that the APFC at one
point had looked at information regarding the long-term effects
of different spending rates. It's a balance between how much
money is being sought early on as opposed to how much will be
sought long term. "If you start out at 4 percent, you get much
more out of the fund over its life than you do if you start off
at 6 percent even though you don't get as much on the front
end," so it's simply a policy question for the legislature to
determine, she remarked, as are questions regarding how
conservative the payouts should be and whether they should be
averaged.
CHAIR RAMRAS relayed that HJR 28 will be held over with public
testimony remaining open, and indicated that a committee
substitute (CS) would be brought forth that addresses some of
the issues raised thus far.
ADJOURNMENT
There being no further business before the committee, the House
Judiciary Standing Committee meeting was adjourned at 2:26 p.m.
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