Legislature(1995 - 1996)
09/28/1995 02:00 PM House LRP
| Audio | Topic |
|---|
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
LONG RANGE FINANCIAL PLANNING COMMISSION
September 28, 1995
Thursday
Anchorage Legislative Information Office
Anchorage, Alaska
2:00 p.m.
BRIAN ROGERS, Chairman of the Commission: We're calling it a work
session because we don't have a quorum and most of it will be in
work session format until we're finished with our work, and then we
finish the session. Everyone should have received the tentative
agenda. I know there's been a lot of interesting meetings
(indisc.), but I'm going to try to -- we'll meet tomorrow night,
but not tonight, since both the Chair and the Vice Chair have other
activities after about 7 o'clock tonight.... But any committees
that want to meet tonight are free to do so. I've left the agenda
relatively unstructured, so that we can move where our interests
suit us; with the goal being to finish by Saturday night. If we
finish Saturday, we won't have to meet Sunday on the plan if we
don't, then we've set aside Sunday as our overflow day. We earlier
tried to set up a video conference with the legislative leadership
and the Governor; that's not going to be possible on Sunday. So,
I wanted to check on people's availability for a Monday video
conference that would have us at both sites, which I think is not
as good as all meeting in one place, but I'd rather have us in
separate places and have the Governor and the President of the
Senate there than have us in one place and have them not there.
Does anyone have constraints on Monday that we need to work around?
MARY NORDALE: I don't think so.
MR. ROGERS: One of the advantages of being here now is (indisc.)
at that time. Do you have any sense of, Pat or Annalee, as to what
time the Governor will be available? I'm thinking 9ish maybe,
something mid-morning.
ANNALEE MCCONNELL, Director, Office of Management & Budget, Office
of the Governor: We could make a call and find out....
CHAIRMAN ROGERS: Legislative Director, Office of the Governor:
I'd like to make it 9:00 or 10:00 - get it out of the way - in the
morning.
UNIDENTIFIED SPEAKER: Why don't you book it for (indisc.) and then
we'll make an hour slot. I'd like to limit it to an hour. I think
that should be able to cover what we need to cover.
JUDY BRADY: Will it be here?
MR. ROGERS: Well, we'll find out once we book the video
conference. If this sites available, I'd like this to be the
Anchorage site, yes.
MS. BRADY: We're going to have to speak out because there's so
much noise from this....
MR. ROGERS: It is a fairly loud air handling system. So, it will
be sometime in the morning as soon as we get a confirmation from
the Governor, Speaker and President, as to what time works for
them. We'll announce it and get word out to other legislators, to
the press and to those community leaders and people who have
identified as wanting us to invite them and want to hear it.
MS. NORDALE: Mr. Chairman, I may be a little late tomorrow
morning. I have a 7:00 a.m. breakfast meeting. I hope I will get
here in time....
MR. ROGERS: I will be late. I have a client meeting that I
couldn't avoid from about 8:30 to 9:30, so Judy will chair for the
first hour tomorrow.
MELISSA FOUSE: So, on we're on the fifth floor....
MR. ROGERS: We're on the fifth floor tomorrow and then the second
floor on Saturday and Sunday. And if everything works on -- once
we're completed, you'll be able to leave at the first floor level,
otherwise, you stay on the second floor until we're done. Is
everybody comfortable with the schedule? Does anyone want to make
schedule changes to this agenda?
MS. BRADY: I feel like I did when I was halfway into my labor with
my first child, when I said I don't think I want to do this
anymore....
CHAIRMAN ROGERS: I think the situation has been -- I like that
analogy. The other one, somebody told me this morning that we're
in the 118th day of the legislative session ... the session
adjourns in three days and predicting exactly what's going to
happen is difficult. Yesterday, Lee Gorsuch and I were on a panel
at the Permanent Fund Economic Forum and there was clearly a lot of
interest in what we're doing. People are anxiously awaiting our
results.
UNIDENTIFIED SPEAKER: What kind of questions did you get?
CHAIRMAN ROGERS: We'll they were all fairly candid. Describe the
fiscal gap and tell us what's going to be in the report, what are
the economic impacts of the different choices...all the questions
had been prepared in advance. There were a couple of audience
questions and the panel, in addition to Lee and I, had some bond
and stock experts and the other questions had to do with asset
allocation issues that (indisc.) sort of bifurcated the panel. So,
in the two hours we probably spent a half hour or 45 minutes on the
long plan. The rest of the time was on the their asset allocation
issue.
MS. NORDALE: Was there any straying over...was there any slop over
when they were talking about asset allocations....
CHAIRMAN ROGERS: Yes.
MS. NORDALE: What were some of the questions?
CHAIRMAN ROGERS: There were some on the issue of what an endowment
payoff rate ought to be and how that might affect asset allocation.
There seems to be high comfort level with a 4 percent payout rate
and rapidly declining interest if you go above that 4 percent. To
get us going, we have the choice of starting with looking at some
new scenarios are working on drafts. What pleasure.....
MS. MCCONNELL: Looking at the schedule for tomorrow on
teleconference, it seems to me that if what we want to discuss with
the Standard and Poor's people is kind of what -- at least
(indisc.) boil down two choices are that we might want to start
with the scenario part rather than with the other. I think they're
probably less interested in the local, state government, or budget
process questions and more in the....
CHAIRMAN ROGERS: Is everybody comfortable with that? Let me lead
off then with...after the discussion with the permanent fund, I
tried to build an endowment scenario model and -- pass out some
versions of it here -- like all of the scenarios, there are a lot
of mix and match pieces in this. The main features of this
projection were, starting with making the permanent fund into an
endowment fund with a fixed annual payout rate of 4 percent through
a constitutional amendment in the 96 election, taking effect at the
end of FY 97. So, if you notice on about the fourth line, we have
permanent fund net earnings for 96 and 97 and also for those two
years, we back out inflation proofing and the transfer to the
earnings reserve. Beginning in 98, we have this 4 percent fixed
payout rate from the permanent fund. Secondly, in this model, the
constitutional budget reserve (CBR) is repealed in the same
amendment and the balance in the CBR, a billion transferred this
year and whatever is left, which according to this would be about
a billion two gets transferred at the end of 97. The earnings
reserve then, is kept and it is where we put all settlement money
and where we covered shortfalls in the plan on the years we've got
a deficit or in the years we have an excess, which in this is from
99 to 07, that money goes into the earnings reserve and the
earnings reserve under this model builds until its balance is equal
to the projected existing general fund sources for the next year.
Effectively, that's the point at which outside of the endowment,
we've reached forward funding and the permanent fund earnings
reserve is that forward -- could serve at that time as the forward
fund if we wanted to do forward funding at that point. But there's
no requirement built into this that there be forward funding. It
is also our oil price volatility reserve and the fund into which
the legislature could dip if we had oil price fluctuations. By
moving to endowment on the permanent fund, we no longer have
investment fluctuations; that's built into the spending rate type
rule and total return. This plan shows cumulative spending cuts
and there's an offset number just about the expenditure line. The
cuts -- it would cut 50 million in current programs in 97; 50 in
98; 30 in 99; and 30 in 00.
MS. NORDALE: So, those are cumulative?
MR. ROGERS: Those are cumulative. However, within those cuts, we
buy back two separate things. First, the increased maintenance and
deferred maintenance spending where we buy back 15 a year until we
reach 60 million and a plugged number, one that I basically made
up, of 50 million for the transferred federal programs. And that
was based on knowing that we're likely to get 100 million in
transferred programs in health and social services alone....
MS. MCCONNELL: In Medicaid alone.
MR. ROGERS: Excuse me, in Medicaid alone. This would provide
somewhere between a quarter and a third ultimately of the federal
program transfers we'd be able to pick up under this plan. But the
net effect then is -- we'd cut 160 million in nominal dollars,
which is about 18 percent in real dollars out of existing programs.
We've picked up a little bit of the federal and we've picked up our
maintenance. This one has permanent fund dividends frozen in
dollar amount per capita for the whole 15 years, and that's
certainly something that could change in that.
MS. NORDALE: That becomes a population-driven program then.
MR. ROGERS: It's a population-driven program until the permanent
fund net earnings -- until it would reach half of the permanent
fund net earnings and so actually in FY 10 -- beginning in FY 10 --
the dividend would continue to grow. But that would really -- the
amount of the dividend versus spending would be up to legislative
decision from year to year. As would -- and there would be a
choice in 02 -- this one puts in an income tax that really hits
fully in FY 03 at a pretty moderate level. It's about 200 --
today's dollars -- about 200 million in income tax. It shows as
277 in the first year because population growth and inflation. But
in today's dollars, today's population, it's about 200 million
which puts it at about 60 percent of the level that we were at 15
years ago. The permanent fund under this grows to 35 billion at
the end of the period. Looking at the real dollar (indisc.--
coughing) the second two sheets, actually if you look at the very
last page of this scenario, per capita spending, on the last page
in real dollars drops from today's $4,000 level to $3,000. Roughly
a 25 percent cut over 15 years with the bulk of the cut coming in
the first four years. Per capita spending with dividends drops
from 4900 to 3600 and the dividend in real dollars drops from the
current $1,000 level to about 650, because what's happening is that
inflation squeezes the dividend value out. One other -- two other
changes I made on the revenue side; one was on the tobacco tax.
Every three years, the tobacco tax goes up by another 25 cents and
on the -- there's a new line after lift ANS export ban which is new
oil production or new oil taxes. And basically this would say that
this the Ludwig/Loescher idea of give the industry an opportunity
to either produce or pay more.
MS. BRADY: (Indisc.) cut the wages on the three tier retirement,
too.
MR. ROGERS: Three tier retirement is probably required as part of
getting to a financial plan anyway in terms of the budget cutting
area. I haven't dealt with -- the spreadsheet doesn't deal with
specific budget changes, but things like that would have to be
dealt with as part of our cuts scenario.... This is....
BRUCE LUDWIG: (Indisc.) dealt with that in the narrative portion
of it, too.
MR. ROGERS: Fifty, fifty, thirty....
MS. BRADY: ...because we could probably get that much out of
changing the way we do business with employees -- state employees,
too on the expenditure side.
MR. ROGERS: The biggest problem with that -- on the retirement is
getting an accurate estimate of what those retirement changes would
yield.
UNIDENTIFIED SPEAKER: (Indisc.).
MR. ROGERS: Now that's another piece. This one doesn't -- you and
I were talking before the meeting -- I don't know why we dropped
off the fisheries from the version. Apparently, Revenue had some
problem with it, but I -- it seems to me we're missing a fish tax.
I think we decided not to raise the aviation fuel, but we ought to
at least index aviation fuel tax to inflation. We haven't done any
omnibus indexing of these. We have no sales tax in the unorganized
borough and no effect of freezing the oil and gas property tax.
And what that might yield to the state over time is now going
to....
MS. BRADY: And no tourism tax. The only one you got again is an
oil tax and you've already got 80 percent of your money coming from
oil. The only one that you mentioned is oil or business tax.
MR. ROGERS: Although the (indisc.) the motor fuel and the marine
motor fuel have a heavy incidence on some businesses. But you're
right, there is not....
MR. LUDWIG: It seems like there's a lot of opportunities to raise
smaller taxes that we aren't taking into consideration at all in
this....
MS. BRADY: Well, I'm just saying that the only one that you've
mentioned -- you're the one that kept mentioning it was that we
need oil taxes. Well, oil is already taxed a lot. In fact, it's
the only business that's taxed a lot. So to put that in here again
is kind of like oh well, business as usual.
CHAIRMAN ROGERS: I guess I think of this as the industry's likely
to get it out of increased oil production....
MS. BRADY: Ya, but you don't need to put that in there as part the
(indisc.) private business -- all businesses are going to try to
get more. We don't have anything on tourism -- tourism tax,
fisheries tax.
UNIDENTIFIED SPEAKER: I'd like to see a fisheries tax in here.
MR. LUDWIG: I'd like to see a way to capture the tourism market.
I would love to see a four-month sales tax (indisc.). They use our
common resources.
MS. NORDALE: But you know (indisc.) the municipal code you could
get -- you know, more municipalities might be interested in
establishing a sales tax and would aid the state/local government
relationship rather than setting up a whole mechanism for tax
collection for four months out of the year which would be an
extremely expensive and burdensome type of thing because what would
you do with the employees the other eight months of the year. I
mean, you've got a -- it's a problem to do something like that.
MR. ROGERS: I guess the -- I think that something like this
endowment scenario could stand a lot of tweaking in terms of the
specific (indisc.) taxes or the specific (indisc.) cuts. What I
saw out of doing this exercise was if to convert to an endowment
plan is possible, it does balance the ten-year period. It begins -
- you can see the beginning in those out years, we could have
trouble unless we have ANWR revenues or gas line revenues; all of
those things are in that last five year period. What I see as the
advantages to this are not as much in the individual elements on
the tax side, but that our current problem of volatility of oil
prices and volatility of permanent fund investment returns, we've
eliminated -- in an endowment payout rate -- we've eliminated the
volatility of investment returns as a component -- that's off the
table -- we don't have a problem with volatility in that area and
we still maintain one fund big enough to handle the volatility of
oil revenues. In this case, I've used the PFER because of the
concerns raised over the constitutional budget reserve. What I see
as negatives on this one -- well, this one does balance within four
years which a number of us felt was a good target. A negative is
we need someway to keep the legislature from raiding the PFER for
anything other than a true drop in oil prices and I think -- I
think what that should -- what we would do under this type of
scenario is to say that if the PFER is raided, it comes out of the
next year's dividend. And that would tend to limit raids.
MS. NORDALE: Mr. Chairman...
MR. ROGERS: Pat, then Mary, then Judy.
PAT POURCHOT: On ... maybe you could just run this by just one
more time on the flow in and out of the ERA? I understand
(indisc.) on your figure (indisc.) permanent fund endowment
earnings. That is net earnings -- or net of inflation proofing...
CHAIRMAN ROGERS: ...permanent fund -- well, use of an endowment
spending rate, basically everything you earn over 4 percent goes
back into principal.
MR. POURCHOT: Gotcha. So....
UNIDENTIFIED SPEAKER: The PFER then, the only money going in or
out of that is your annual budget surplus or your annual budget
deficit.
MR. POURCHOT: But see, you counting up here that -- say in 00 --
$849 million as revenue and then, and then part of expenditures, of
course, is dividends of 602, but then down below when your tracking
your balances....
UNIDENTIFIED SPEAKER: The permanent fund balance?
MR. POURCHOT: Your earnings reserve balance. This is where I
don't follow the math. Where is the additional money coming from
and how....
CHAIRMAN ROGERS: In 00 -- the 72 million?
MR. POURCHOT: Right.
CHAIRMAN ROGERS: That's from having a budget surplus. Go back...
MR. POURCHOT: Okay.
CHAIRMAN ROGERS: Go down to the next group, the permanent fund, we
have a beginning in 00 -- a beginning balance in 00 of 19 million,
800 hundred; we add 263 million from the dedicated revenues gets to
20 million; the net income -- the third line from the bottom -- a
billion, seven, seventeen and that gets split with 849 going to the
general fund, and 868 going into the fund. And that's -- that's
why your fund grows 19.8 -- 20 is the dedicated revenues and 2091,
2059...
MR. POURCHOT: I just wanted to make sure that you're putting
everything above the 4 percent is going into the revenue stream.
CHAIRMAN ROGERS: Everything above the 4 percent is going into the
permanent fund.
MS. NORDALE: Goes into the principal.
UNIDENTIFIED SPEAKER: The principal.
MR. POURCHOT: Everything is excess of 4 percent you're showing as
going into -- to available revenues.
CHAIRMAN ROGERS: No.
MR. POURCHOT: I'm sorry -- I mean -- I'm sorry the 4 percent is
going into revenues.
CHAIRMAN ROGERS: Ya.
MR. POURCHOT: So, ...
CHAIRMAN ROGERS: So, the --- in 00 the excess above the 4 percent
is 868 million.
MR. POURCHOT: So, in times, of course --- so, what happens in
times of big earnings of the permanent fund.
UNIDENTIFIED SPEAKER: All the excess goes into principal and you
have --- you have --- and this is the way most college and
university endowments work. You could have a year where you only
earn 2 percent, you still take 4 percent out in that year.
MR. POURCHOT: Right.
CHAIRMAN ROGERS: And basically, the use of 4 percent is the overs
and unders should exceed inflation and actually in this model,
since the permanent fund has been making 4.79 percent, we were
retaining some of those earnings and building the fund up in those
early years.
MS. MCCONNELL: And so this would be 4 percent measured against
what exactly.
CHAIRMAN ROGERS: Four percent of the previous year's ending
balance. Four percent of the balance....
MS. MCCONNELL: Of the book value because you're starting....
CHAIRMAN ROGERS: Well, this is all running on book value. It
ought to run on market value, but we don't have the market value
numbers.
MS. NORDALE: If I understand what you're saying is that of July
1, in any year, the commencement of is a fiscal year, the drawdown
on the endowment would be 4 percent.
CHAIRMAN ROGERS: Yes.
MS. NORDALE: Okay, and so that would sort of, in effect, forward
fund that portion of the budget. You're using a nominal earnings
rate of 7.94, where did you get that?
CHAIRMAN ROGERS: From the permanent fund historic average.
MS. NORDALE: Okay, and you're relying on real as the 4.79.
CHAIRMAN ROGERS: Correct.
MS. NORDALE: Okay.
CHAIRMAN ROGERS: The difference being the 3.18 inflation rate that
the permanent fund is using in their calculation. And Brad's using
the same 794, 318 and 479 in all of his. Judy.
MS. BRADY: I like this idea. If I --- if I think I understand it
correctly, I like it. What I don't like --- and I know this is a
problem, I know it's a problem --- what we've done is we've said
here's budget, here's what we're going to add back in. There are
a lot of things that those of us around the table would probably
like to add back in, and what we're doing here --- if I'm
understanding this correctly --- we're adding back in this deferred
maintenance stuff. And I know this is a priority for the Governor,
I don't --- see I think this is something that's got to be thought
out in the budget, among the people responsible for the budget and
that we've added a whole bunch of taxes at the top and a whole
bunch of new --- a whole way of doing business -- at the bottom,
we're saying, we're really not going to do flat budget, we're
really going to add in these things because we know they're coming.
And that the big struggle here is going to make this work on a flat
budget. And so for us to say, (indisc.) we already know we can't
do it and add the numbers back in. Instead of doing that I'd be
happier saying let's add more to a flat budget, if we can't do it,
we can't do it. Let's add more and just say it.
CHAIRMAN ROGERS: This isn't a flat budget. This is ---this cuts -
--this is cuts 160.
MS. BRADY: Sort of.
CHAIRMAN ROGERS: And then adds back in for specific things. I
don't think we can get a (indisc.) motor fuel tax if we don't put
more money into maintenance.
MS. BRADY: Well, I think you can and the polls I've seen on it
tell you, you can. Now whether the legislature decides to do that
or not --- see, I'm not at all in the mood to say cut it and then
here's what you have to do with the money. So, if the Governor
wants to do deferred maintenance and the legislature creates a
fund, let 'em do it.
CHAIRMAN ROGERS: It's not --- this isn't just deferred maintenance
-- this is annual maintenance plus deferred maintenance, but....
MS. BRADY: Well, that's fine. But that almost takes a separate
bill because right now that's not how we do business. We would
add this in and they'd use it for whatever they wanted to use it
for. That's between the Governor's office and his commissioners.
It's not --- for us to add that line above all other things, when
there's all kinds of lines we could be adding is, it seems to me,
it's not a good idea.
CHAIRMAN ROGERS: But if we --- I guess I think it's worth doing
because what we're otherwise doing is wasting our capital assets.
We're allowing them to be used up. It's a hidden tax on our
assets.
MS. BRADY: But that's up to the folks running the buildings. Like
in Fairbanks, if they decide they're not going to do their
buildings for ten years --- build new ones --- then that's
Fairbanks' decision. That's --- or it's a legislator's decision to
pass a bill saying don't give anymore money, unless (indisc.) doing
what the Governor's office is doing right now. But for us to make
--- there's all kind of value judgments we could make about wasting
assets and wasting money and that doesn't get on the budget line.
What we're saying is and here's how we're saying you should....
UNIDENTIFIED SPEAKER (female): Mr. Chairman....
CHAIRMAN ROGERS: If I could respond to her, if we don't put a
separate line in for maintenance, it isn't going to happen.
MS. BRADY: It's not happening anyway. That's --- we can make a
recommendation they do that, but I sure don't want to see it on our
main line. We can make a recommendation they pass a law requiring
whatever, but for us to put it on the same line is exactly the same
as us saying (indisc.). Well, the second --- I just think that's
for us to say what they should be doing with the money is --- since
we have decided not to do that on any other --- in any other
instance, is not a good idea. And the second thing is, I would
really --- I like your idea of having a permanent fund quote
dividend amount quote depending on how much is spent. But I don't
like the $1,000 cap. I think for us to be saying --- I mean I
think it should be less --- I think it should be $500 to $1,000
cap. In other words, it could drop down to 500 depending on how
much is needed for .... There may be a time here pretty soon,
especially if we get a huge hit in federal money, where we need
money to pay for welfare or roads or something. And we're gonna --
- and whose ever in office is going to have to sell that to the
(indisc.). But to sit there and add a whole lot of new taxes and
a whole lot of things that have to be done and say oh ya, by the
way we're gonna make sure you get your $1,000 dividend.
UNIDENTIFIED SPEAKER (male): Mary.
MS. NORDALE: Well, Judy, I disagree with you. You know....
CHAIRMAN ROGERS: Oh, I'm sorry.
MS. NORDALE: Oh, I'm sorry.
SENATOR GEORGIANNA LINCOLN: That's okay. Just put me on the list
somewhere again.
CHAIRMAN ROGERS: You were on the list next and I just wasn't
looking at the list.
MS. NORDALE: Go ahead, Georgianna.
SENATOR LINCOLN: Well, I want to echo somewhat of what Judy is
saying plus I had some concerns on this ... I missed the
teleconference so maybe you all went through this before. I'm a
bit disappointed that we're not doing more to taxing the tourist
industry. If we're going to start putting taxes up here, I want to
see the taxation come from that tourism industry which I don't
believe that we have done anything on. We talked about an entry
tax where they may come in through the borders and having some kind
of a user fee...I don't know if we want to call it a tax, but some
kind of a user fee and I don't know if the user fee increases ---
I'm not --- I don't think it's in there --- but I'm not sure what's
in that portion. And I needed somebody to explain again the sales
tax because I don't see it on here anywhere and that's what I
thought we were looking at as a sales tax that would be where we
could have a higher sales tax in certain months and then lower in
the off season. So, that's a concern that I've got. And also, I
think if we're going to put in maintenance and deferred maintenance
spending into the scenario, I'd like a little bit more of an
explanation as to what that is; whether deferred maintenance means
deferred maintenance to the university or if it's deferred
maintenance (indisc.--coughing). I don't know if we've got a
handle on what deferred maintenance is because the deferred
maintenance that we always talk about are the urban areas and I'll
tell you that going around through the smaller communities --- if
we're going to put deferred maintenance in here, it's a big ticket
item; for the schools that need deferred maintenance out in the
rural bush communities; the other state facilities that are out
there, or lack of; and I guess if we're going to show some of these
expenditures, I have to go back to basic services. What is the
state's responsibility? And first and foremost --- and I hear this
over and over again from the general public, from legislators, from
the Executive Branch --- that basic services --- safe water, solid
waste --- and I don't see anything in here on that. We have put
in, I think, $23 million when the need is $1.2 billion in Alaska.
That to me is a very basic service that the state has a
responsibility to provide and we haven't accommodated that. I,
too, and thinking about what I heard in the testimony, I'd like to
see that permanent fund dividend not at the thousand cap, but at a
lower cap and if there's a range there, that would be fine. I
think I've echoed before the 500 as being acceptable and I --- I
don't think that's unacceptable to Alaskans, but I'd like to see it
as somewhat of a range. I think that was --- that's all the
comments I have.
CHAIRMAN ROGERS: The maintenance --- you were asking where that
maintenance number came from --- that was based on the work we did
for the interim report which had number 71 million was based on all
public --- all state owned facilities, (indisc.) with the
university getting a major chunk last year about about two-thirds
(indisc.) 60 or 65 percent state-owned facilities, about 35 percent
university-owned facilities spread throughout the state based on
the work that was done by ....
UNIDENTIFIED SPEAKER (male): (Indisc.)
CHAIRMAN ROGERS: Alaska State Facilities Administrators --- a
group of all the facilities administrators and DOT.
SENATOR LINCOLN: But I don't know if they took into consideration
the Bush....
CHAIRMAN ROGERS: (Indisc.) not --- not schools, no. The schools -
-- this is the state-owned facilities, not the local-owned
facilities. And then basically every building that's on that list
....
SENATOR LINCOLN: If I could follow up --- what do you mean by
local-owned -- I mean if there's a school, a state school there,
what do you mean by local-owned in the unorganized....
CHAIRMAN ROGERS: Those that are that --- the REAAs are owned by
the REAA school districts, I guess and are not on the ASFA list.
None of the schools are on that list, that's only the state-owned,
not the --- it does not include the schools, so.
CHAIRMAN ROGERS: I guess --- Mary, and then Pat and then Bruce.
MS. NORDALE: I've got some real problems with this scenario and I
presume I'll have same kind of problems with Brad's and it's
basically that if the culmination of our work is to come out with
a scenario which basically says we're not recommending any policy
adjustments, only just a little less than what we've been doing
already, I think that we will have failed. And I'm very much
concerned that the report will reflect a reluctance to advise any
kind of change in direction. And I think that this debate about
motor fuel taxes and deferred maintenance is a good example. If
you recall, the testimony of Commissioner Perkins was that if the
motor fuel tax could be raised, the state could meet its obligation
of $1500 a mile for maintenance of class 3 roads. Without that
raise, the state will continue to short localities for maintenance
money. If we don't have a raise, we likewise are going to have
death dealing situations on our highways. The state has already
been sued a number of times for failure to maintain its highway
system adequately. Schools and transportation facilities are
probably the most fundamental of the infrastructure that the state
needs and both are primarily state programs. If we offer no
direction with respect to state programs that are so pervasive, I
suspect that the general public is going to say that the plan is
just more of the same, only less, and we'll say that it was another
bunch of state money poorly spent and is not doing --- is not
responsive to 1) decline of revenues or 2) a perception, I think,
on the part of the general public that some change needs to be made
that nobody seems to be able to identify at this point. And I
would prefer that we have a specification of some (indisc.) and
deal with the issue that Georgianna raised of village safe water
and solid waste so that we can show that we have a recognition of
some of the obligations of the state, working in conjunction with
local governments, to provide a decent safe and sanitary
environment for people in which to live. That ends my speech.
CHAIRMAN ROGERS: Pat, Bruce, Judy.
MR. POURCHOT: I wanted to agree with both of Judy's points. The
first one on the maintenance --- deferred maintenance. I --- when
we were doing our other scenarios, composite scenarios, one of my
points (indisc.) throughout our meeting was I tried to emphasize
that within two or three years, I personally think there's going to
be more need for either increased capital monies or bonding that
has to be based --- that needs to be rolled into the operating
budget on a continuing basis of several tens of millions (indisc.--
coughing) GO debt go to the voters and would include both state
(indisc.) major maintenance stuff as well as new construction,
school construction, state buildings, whatever. And then my
preference is what Judy's alluded to is that ultimately since we
all supposedly know all these elements that go into general fund
spending, we should all know these major pieces that conflict with
each other --- or I should say compete with each other, and that I
think we're just going to have to --- I would recommend we just
duke it out since we've elected not to get into lots of lists of
what the spending consists of including we dropped operating and
capital, two major kinds of components then we're left to duke it
out I think on what are the numbers in that one line, GF spending.
And if we think that you're going to need supplemental GF monies
to replace federal programmatic funding shortfalls or if we need
more GO bonds repayments or more capital due to increased
maintenance, it's part of that number and we've just got to
mentally work those tradeoffs on what people might want to have as
a reduction, pure overall reduction, versus every one of these and
other (indisc.) competing interests. And I just --- I think that's
the way we've kind of set it up now and that's the cards that we're
going to have to work with then. So, that if we think that there's
maintenance deferment, federal programs, then what I would conclude
is we need to take that into account of how much reductions we
think we're going to get out of the total spending each year, which
I will continue to argue is gonna be a lot rougher than trying to
target $100 million --- nominal dollars --- out of the budget,
these things considered. The second point on the dividend, I agree
--- I --- it's almost --- we --- if we all read in the papers ---
wait until you see that same story in the national press coming
back at us. There's --- in addition to the arguments that you guys
made, there's just a psychological thing about a thousand dollars.
And really what we're trying to do, whether through the Rieger plan
or capping or endowment and capping is - you know, how do we use
and get the public to agree, and the legislature to agree, to use
some part of earnings stream off the permanent fund. And my guess
is we if just --- I know we're not --- we're only going to 10 - to
FY 10 just to kind of see where we're headed, but way down the pike
here - 15 years out - if you just draw a circle around what the
dividend might be and then equate it with what the earnings off the
permanent fund would be, on (indisc.), if we continue to pay
dividends, that's only, only $700 million of permanent fund
earnings actually being used 15 years from now. Again, just a
personal opinion, I think that number - the gross number up here of
fourteen --- 4.4 billion is more like the number we're going to
want to use. So, and again, those are just projections out there,
but even if we go back to our --- our 05 and we do that same
subtraction, we're looking at 550 or so million dollars of --- you
know, that's --- that may be on the low side (indisc.) what folks
may end up wanting to use off your earnings stream. So, I guess
I'm nervous about locking in to something... at the same time, that
same criticism could apply to the endowment, in general, at 4
percent. Obviously, that's a limitation of sorts that's prudent,
I think, whether or not we need to go through a constitutional
amendment, an endowment simply to access the permanent fund
earnings stream though --- I don't know, it sounds like a long way
around the block.
CHAIRMAN ROGERS: Just a note on the dividend. The composite and
Rieger plan provides lower dividends between now and 2004 and
substantially higher dividends than this after 2004. In real
dollars, holding it flat at a thousand dollars for 15 years, brings
you down to a $650 real dollar dividend versus the Rieger plan
where the real dollar dividend is $825 at the.... So, really what
this one trades is higher near term for lower out year dividends
and by no means is the endowment scenario solely to get at
permanent fund earnings. The endowment scenario is to stabilize
that revenue stream, which is not stable if you have investment
fluctuations. That's the advantage, too. Otherwise, just
(indisc.) the annual --- if you want to accept the volatility of
investment returns just (indisc.) the annual earnings instead of
the endowment, but you have the possibility for much greater
volatility in your annual budget.
MR. POURCHOT: Just --- just as a rejoinder to that, if you look
back on the five year -- I assume you would always be able to use
a five year averaging mechanism. If you look at the dividends,
which was published in the paper, I was surprised to see actually
how stable the PFD has been, utilizing five year averaging. I'm
not sure that that's accurate to say that .....
TAPE 1, SIDE B
MS. BRADY: ...the only concern I had before about using the
composite was the ability to reach down and grab two years worth of
reserves because we get hit with federal point funds, or we get hit
with whatever. Now you could still pull from the permanent fund
earnings reserve here. But again, maybe if we gave the permanent
fund dividend some kind of a five hundred to a thousand dollar
(indisc.) and if you jumped too far into it, you begin to cut ---
you know, something --- some way to kind of put the skids on
publicly --- how much people spend. I think --- in, in response to
something Mary said, I don't disagree that we have to come out with
--- with some very strong thinking on how we change --- how we look
at the budget. All we're trying to do --- the first thing we're
trying to do is pull the numbers together, and the second thing is
to do is to get some sustainability for awhile, but that doesn't
work unless we change how we do things. This whole idea of
performance based is just (indisc.) some new way of budgeting that
we put together over the next two or three years as well is
extraordinarily important because we can't get by with just kind of
fighting among ourselves about which of our special programs stay,
at the same time that our major programs - our basic programs - are
just slowly kind of fading into the sunset. So, we're going to
have to do something different and I hope that one of our --- I
hope that our plan is here's how we're going to close the budget
gap - here's how you're going to get some sustainability and number
3, as a part of this - as a real important part - we're going to
have to go into a major performance based budget exercise where we
must do things differently. We must do things differently, and if
we don't do that, this plan won't last and no other plan will last
because the pressure to spend will continue to be too much ... too
many scenarios. So, --- but, but I like the idea of taking - taking
some stuff off the table and getting an assured stream, so you can
kind of count on that.
MS. BRADY: How --- what did you envision happening if they spend
too much, if they --- let's say you're really short --- let's say
next year, man, we just get hit really hard in federal pass through
monies, or something, and we haven't done the changing, so
everybody's just fighting for dollars, you know, because we haven't
changed the way we do business. What ---they could --- they could
use the permanent - they could use the earnings reserve, right?
CHAIRMAN ROGERS: I didn't have in mind that if they had spending
problems, they could use (indisc.) had in mind that that was really
tied to revenue problems. That....
MS. BRADY: That's what I mean, if they....
CHAIRMAN ROGERS: If they ran short of revenues, the permanent fund
earnings reserve --- actually for the next two years it would still
be the CBR, but after the constitutional amendment, they earnings
reserve becomes the (indisc.) the volatility reserve.
MS. BRADY: And how prevent them from going into it?
CHAIRMAN ROGERS: I don't have a clear sense of what the best way
to prevent them from going into it would be other than to provide
that if they did, it would affect the next year's dividends. That
basically, they --- they could --- but maybe before they did that,
they would have to spend the dividend down to $500 and then they
could do it. But that --- I don't want to do that in the
Constitution, because I don't want to enshrine the dividend in the
Constitution. Mary.
MS. NORDALE: I've got a real problem with that as a control
mechanism. I know everybody yells for control mechanisms, but
frankly I think the ballot box is where you exercise that kind of
control. But to tie the legislative determinations as to what the
program needs are for the state to the dividend, seems to me both
unfair and quite foolish, because it --- while it has the charm of,
you know, political uproar, there is an invasion of the earnings
reserve. On the other hand, it applies policy constraints to the
legislature that may force very unwise action. The Constitution
that we have now contemplates that the legislature will have full
authority to legislate and tying that authority to something as
ephemeral as the dividend seems to me to be flying in the face of
more of the structure that we have at the present time and
basically saying that the legislature, as a body, has a philosophy
that will never change. I think that apportional processes dynamic
and we should not throw up barriers that cause it to fall into a
very static situation.
CHAIRMAN ROGERS: Judy.
MS. BRADY: Well, I guess something I'd say about that is that the
permanent fund dividend is not something that we have a right to as
individuals under God and country and all that. It's --- the money
belongs to the whole community (indisc.) if we had enough for
schools and roads and all of that, chose as part of the strategy
for various different reasons to give everybody --- you know have
all people act as if it were a private company and we all get a
piece of it. But again, it comes --- it's community money and if
we need it for schools and roads and things, (indisc.) lock in ---
and not --- not to be willing to do that. I would think that
people would be willing to (indisc.) for schools or roads or stuff.
MS. BRADY: So, I don't find --- I don't have any problem at all
with (indisc.) linking it to what we need in terms of --- in fact,
it's trusting the legislature to know that they would only spend it
if they really needed it.
SENATOR LINCOLN: I like the sort a.... (laughter)
MS. BRADY: Well, that's, you know, 51 percent, what....
MS. NORDALE: I can see POMs flying into the legislature by the
ton, don't touch my dividend and ....
MS. BRADY: Well, sure....so what that's....
MS. NORDALE: You know --- that's --- but the legislature's
responsive to that and that's why I think that tying the
legislature's ability to act to the dividend just creates a
(indisc.) environment, which I think will be productive of very bad
things.
MS. MCCONNELL: Over the course of our meeting, it seems like we've
fluctuated between feeling that the dividend should be tied to
permanent fund performance and the dividend should be considered an
element of state spending and those are two --- they're not
necessarily incompatible, but they don't necessarily mesh in that
they come from opposite ends --- maybe in a way, we've started to
look at it too much in the context of - of the spreadsheet and
would --- maybe it would help to just try to get some idea of
whether we think there's a basic policy decision about whether it's
better --- whether there's more long term protection for the future
if we treat it one way versus the other. Maybe there isn't, but
we've really flipped back and forth a lot just as we've looked at
these spreadsheets on that concept difference.
MS. BRADY: It may be that I don't understand, (indisc.) it may be
that I don't understand. I see the permanent fund earnings reserve
--- the permanent fund --- the dividends come out of it -- but
doesn't that whole thing depend on how the --- see I think that I
see that whole thing as moving with how well the fund does. That
all --- that the earnings that come off the permanent fund
fluctuate depending on how well --- the amount of earnings depends
upon how well the permanent fund did. Right? And so it's all kind
of hooked together and so if you're going to use 4 percent that
comes off --- start talking about an endowment theory where you
have a payoff of 4 percent and you're earning --- and your dividend
earning is the part that's going to come out of your dividends are
part of that stream as well as inflation proofing and everything
else --- everything kind of depends on how well the fund does.
And, in fact, legislators will be saying we have so much to spend
this year from our endowment because the permanent fund did this
and this and this.
MS. MCCONNELL: That's true, Judy, if we say that the permanent
fund dividend will be equal to 50 or 30 or some fixed percentage of
the total earnings. Then it is --- you're right, then it's all
kind of flowing together. But if we take the other approach and
say we want the dividends to be capped at a particular level or
tied somehow to spending decisions but where we don't legislate
that percentage, then we're treating it as a --- an item of
spending which does not --- which is discretionary in the sense
that the legislature could adjust it up or down irrespective of the
performance of the fund.
MS. BRADY: Could you do it some way though where the cap was
between --- to give the leeway -- I understand there's got to be
leeway and I'm not disagreeing (indisc.). But to give some leeway
where you say, part of our earnings stream is going to be this 4
1/2 percent that comes down --- this 4 percent that comes down ---
part of our --- must be part of our flexibility (indisc.) that will
kind of go up and down a little bit, not much, depending on
earnings. But the other part of it --- our fail safe, if we need
a bunch of money, we can go to --- if we need a slug of money in
one year, we can go to the permanent fund earnings reserve. But if
we take more than a certain percentage of that, then you've got to
move up into the dividend, and you can take out of the dividend
fund --- let's say the dividend that year would have been $1,000 --
you can take up to 500, but you could --- that last 500 could go if
you had to have the money for community meetings. Or does that mix
it up too much? Is that too complicated?
MS. NORDALE: One of the problems it seems to me, is that we
haven't recognized that whether you tie the dividend to performance
or not, it becomes an entitlement program. It already has the
earmarks --- the political earmarks of an entitlement program and
the problem of eating into those entitlements to fund what might be
considered by a substantial block of voters to be frivolous, seems
to me to be productive of a political controversy that we need not
recommend. The --- making the dividend a fixed amount per capita
is even worse than making it a percentage of a total return. But
Judy, you know, the fund --- the 4 percent would be drawn based on
the total value, so you'd have to have a billion dollars of growth
in order for you to get a substantial increment of income for
spending. You know, it does have that (indisc.) of....
MS. BRADY: Well, I don't understand why you're so concerned people
being mad about part of the dividend being spent (indisc.). You
either got to say --- you can't have it both ways. You worry about
having the --- having the people not like the fact that they're
going to get less dividend because the legislature is spending
frivolously....
MS. NORDALE: Frivolously. Right.
MS. BRADY: Then, you know, the people who are looking at taxes are
saying the same thing. Hey, whoa....
MS. NORDALE: The problem --- I guess I just have a real reluctance
to get into formula type you know -- I disagree with you on this
trigger -- you know, you gotta have this kind of a trigger, that
kind of a trigger and I -- I -- to me, formulas forcing major
political action strike me as being dangerous and I don't like
them. So that's why I'm disagreeing with you on that one.
CHAIRMAN ROGERS: Bruce.
MR. LUDWIG: I understand the need to have some kind of a
performance thing like the permanent fund dividend or something,
but it just occurs to me that whether we hold the budget flat or
whether we're talking a hundred million dollar cut, or absorbing
some of the federal government cuts, that it's going to have a real
market effect on the economy and it seems that if we go after the
permanent fund, then that's one, one of the areas that hurt the
economy the most when you withdraw the money -- at least that's
everything we've seen (indisc.) in the Department of Revenue say
the state budget and the permanent fund are the best --- when you
withdraw the money out of there --- it has the largest effect on
the economy. And I guess I'd rather see some kind of a control ---
I'd rather see an income tax that would vary depending on how the
budget would go for a balanced where maybe -- maybe half the impact
comes out of the permanent fund and half comes out of an income
tax, or something like that. It seems like we're ignoring the
effect on the economy in all this, and it's --- it's gonna contract
no matter what way --- no matter what we do, so we ought to lessen
the impact.
CHAIRMAN ROGERS: The second model we have today is Brad's
composite scenario.
MS. BRADY: Could you --- could you spend five seconds going over
what this scenario is again so, so....
CHAIRMAN ROGERS: This scenario is (indisc.).
MS. BRADY: (Indisc.) not. I still kind of like it (indisc.). A
couple things I'd argue for, but I think it's great. Tell Lee so
he knows.
SENATOR LINCOLN: I hope that you don't pitch it because I think
that it could be tweaked.
MS. BRADY: I do, too. I like the --- I like the concept a lot ---
I do.
CHAIRMAN ROGERS: Lee.
LEE GORSUCH: Let me just --- as I look at these different
alternatives, let me try to share with you my sort of simplistic
rationale. If you look at FY 95, the existing general fund
sources, you see one million, nine hundred, fifty two dollars.
Then you go up to 2010, it's one billion, two hundred. So for me -
-- and that's primarily oil related revenue losses over the 14 year
(indisc.). So, part of this nonsustaining natural resource revenue
is coming from declining oil production, assuming the price is
holding constant. So, one issue is how do we replace this
nonsustaining $700 million revenue loss. The truth of the matter
is it continues dribble on down in the outlying years, but even if
we just use the 14 year period of time, how do we replace something
which will generate $700 million a year in sustaining revenues.
Okay. That's problem number one. Problem number two is we already
have a $500 million deficit. How do we close the current $500
million deficit. When you put the two together, you've got a $1.2
billion problem out 14 years. So, it seems to me that one option
for us, which is to some extent a modification of the endowment
plan is to say let's build up the permanent fund so that it doesn't
earn just the current $1.2 billion minus the $429 million for
inflation -- inflation proofing. Of the $800 million, let's build
up the permanent fund so it can earn an additional $700 million,
and then let's go back at looking at how we cover the deficit --
that is the five hundred and some million dollars by cutting the
budget and raising some taxes. I realize that's --- that's a
dramatic over-simplification of the problem, but for me, at least,
it gets into the magnitude of understandability. And everything
I've seen is there is no other sustaining revenue source. We can
tax the hell out of the population, we can slash the budget, it's
the retained earnings in the permanent fund to build that up that
has its long term potential to give us a sustained revenue flow.
Now in many ways, although Roger got there through the (indisc.)
differently and more sort of pure and of a longer term value,
that's in part what was going on with the (indisc.) natural
resource revenues, because you could assure that base was going to
be sustaining and then you had a draw rate after you reached a
certain level, if it was 10 years or 15 years. You could
arbitrarily set that depending on how fast you wanted to draw it
down. Well, this --- this --- this idea of an endowment plan
that's in front of us, is a modification of that. Now I think that
the endowment build up to $22 billion in real dollars is not enough
because it is only earning us $900 million a year, rather than say,
$1.2 billion a year. But that's manipuable --- I mean, the numbers
can all be ....
UNIDENTIFIED SPEAKER (male): Not much.
MR. GORSUCH: Well, but it depends. I mean, you --- you ---
because the issue is you guys are --- increase your taxes, and move
that forward and then your earnings off the permanent fund are ---
a higher portion are retained or you can cut the budget more and
put less of a draw on, or you can pay less in the way of dividends
and retain a higher portion. I mean, those are the three --- the
three tools we talk about all the time are spending, taxes and
dividends. Those are three big tools. So, you can manipulate this
in almost any way we wish that makes the thing work. And then the
priorities about whether we give a higher priority more taxes
earlier, or fewer taxes later, or bigger dividend cuts now and less
cuts later -- I mean those are all the variables that go into the
question of the timing. But it seems to me that the fix is, we got
to come up with $700 million worth of sustainable revenues because
if we could cut the budget by $200 million, in real dollar terms,
and raise $300 million in taxes, which is not a very heavy income
tax, for example, we've got the $500 million covered and then we
can retain the earnings in the permanent fund and then we've got a
sustaining revenue of $700 million which replaces the declining
revenues in oil. And presumably, at least, we can schedule that in
over a period of time to have these years, you know, balancing out.
But I think whether, whether we do the endowment plan or whether we
do the composite plan, every one of them have to accomplish the
same fundamental objective or we're not going to have a balanced
budget in the year 2010. So, I --- you know, I would certainly
like to try to keep the endowment scenario on the table even though
it does have its -- its drawbacks in the sense of a fixed draw from
the permanent fund. But it has some very strong, positive
attributes to it in terms of stability and a number of other
characteristics that are also highly desirable. And my own feeling
is that the more we can handle the long term -- this idea of the
long term sustainability and the less we have to argue over the
amount of taxes and the amount of cuts and the amount of the
dividends, the better off we are. That is a legislative kind of
give and take that can be thought out. But we can't fight it off.
We -- we can't work the plan unless we solve the $700 million
problem. We can certainly expect that the $500 million problem can
be thought out over the relative priorities of cuts, taxes and
dividends. But we've got to have a retained earnings in the fund;
we've got to build that up in order to achieve the long term
objective. So, that's kind of my take on it.
HUGH MOTLEY: I agree with Lee, but I think we have to go back to
the balance that I still believe is going to be necessary if the
public's going to buy in -- it's one of shared payment. If you
need to cut the five hundred or six hundred million, then you ought
to do it about two hundred from each. You need to cut spending,
you need to raise taxes and you need to cut dividends. But
everybody's going to have to feel it; it's going to have to be fair
or it's just not going to work. Nobody's going to buy it.
UNIDENTIFIED SPEAKER (male): I'll shake on that.
CHAIRMAN ROGERS: The problem I see is, we seem to flip between
whether we're cutting in real terms or nominal terms. What I hear
from you, Hugh, is we have to cut in nominal terms a fairly hefty
amount which in real terms is an amount that gets to the 25 percent
level over four years. The $100 million nominal cut over four
years is about $300 million or a 15 percent cut in real per capita
terms. For you a hundred million isn't enough.
MR. GORSUCH: Well Brian, if I'm looking at this your endowment
spreadsheet correctly, if you look back the real dollar terms, that
is the FY 96 dollars, this shows FY 97 general fund expenditures at
$2.9 billion and the FY 2010 is two billion, seven hundred, seventy
one billion dollars. That is a two hundred and some million dollar
real cut in general fund spending. So that meets the $200 million
cut.
CHAIRMAN ROGERS: No, he was asking for nominal dollar cuts.
MR. MOTLEY: I don't think the public's going to buy all the....
MR. GORSUCH: Ya, but you can do --- you can do -- I mean, we can
do significant nominal cuts in earlier years that average out to be
real cuts longer term.
UNIDENTIFIED SPEAKER (male): I agree.
MR. GORSUCH: All I'm saying is if we could agree to get on to the
back end of this and say we want $200 million of real cuts, in
dividends we want $200 million in real reductions on dividends, and
we want real --- we want $200 million of real dollars in taxes,
then we could talk about how we --- what's the --- how do we phase
that thing? So we could have nominal cuts in early years in the
budget and it allows itself to build back up so that it doesn't
lose more than $200 million in real (indisc.) over a longer period
of time. Taxes might be the other way. You actually (indisc.)
those, but you have a heavier tax coming in a few years later in
order to come up with the same kind of impact.
CHAIRMAN ROGERS: By freezing dividends in nominal dollars, this
one cuts the dividend pool by $100 million in real terms and cuts
the dividend by about $400 in real terms on a per capita basis.
UNIDENTIFIED SPEAKER (male): Right.
CHAIRMAN ROGERS: If we look at the Rieger plan....
MR. GORSUCH: No, but let --- Brian just a
CHAIRMAN ROGERS: ....let me finish. If we look at the Rieger
plan, the dividend pool in real terms goes down and then comes up
to where in year 15 it's bigger than when it started out and the
dividend goes down by $200 as opposed to $400, and so I guess....
MR. GORSUCH: But let's --- let's stay with one set of numbers or
the other. One set of numbers is the aggregate real reduction in
the total and the other is your real dollar reduction in terms of
per individual. So, under the scenarios we've been talking about,
a $200 million real cut in general fund spending, is two hundred
million on top of a $2.4 billion general fund base. That's about
10 percent. But in terms of real per capita reductions, it's a 25
percent reduction. Now the same is going to be true on the
dividend. That is, if you reduce it by 10 percent, real and the
aggregate, but the population grows (indisc.) it's going to be a 25
percent real reduction, as well. But if we stayed with the idea of
two hundred, two hundred and two hundred, just as an approximation,
under this endowment scenario, we'd have to drop the aggregate
distribution of the permanent fund dividend by another $100 million
to get to the $200 million real cut, and then it would be on a
quote parity with the state aggregate budget cut and then we'd look
at the taxes to see whether or not those taxes, and we might decide
to hold out the sin taxes separately from other taxes, because I
think in some ways those sin taxes are budget savers. I mean ---
they're --- from my vantage point, those are in a special category.
I think that's good policy whether --- whether it's trying to be a
part of the fairness of balancing the budget or not. And my guess
is that we would be fairly close on the aggregates. Then when you
come back and talk about timing --- you know which goes first ---
which shows as a nominal cut in one year, but then if you allow
inflation to move it, you could smooth that out over a longer
period of time. And the same would be true on how fast you would
bring down that $200 million on the dividend program.
ROBERT LOESCHER: Mr. Chairman, the last few minutes (indisc.)
deals with mechanics of how you get there. Oh, I don't know how
long ago --- two months ago --- three months ago --- how long have
we been at this --- we had this conversation before when we had ---
and we said to ourselves in order to cover our total problem, we
had to have x millions of dollars in the permanent fund. I forget
what that number was --- 42 million or billion or some number ---
but in the conversation --- or in the points you were making about
the 700 million and the 500 million and the 1.2 billion, what does
it take to get that 700 million net out of the permanent fund.
What would we have to grow that permanent fund to and on what kind
of an incremental schedule, touch points, over time would we have -
- have to grow it.
MR. GORSUCH: Well, I'll just give you a guess right now that if
this number is correct, that 96 we had $1.2 billion worth of net
earnings and $400 million worth of inflation proofing; that means
a real earnings of around 800 million. So, if you could dump to
get another $400 million of earnings, you'd have to increase the
principal by 50 percent, so you'd have 50 percent again more in the
principal to earn another half -- half as much again in terms of
earnings. Brian, am I, is my math correct on this?
MR. GORSUCH: So, we go back down to the FY 96 and we should be
adding approximately $8 billion of additional real dollars into the
permanent fund, so I think we'd yield the net real earnings of 1.2
billion.
MS. BRADY: When should we have 8 billion, now?
MR. GORSUCH: Well, you just -- I mean I don't know -- this as ---
this becomes a mechanical problem in terms of how do you do it.
But if we had the agreement on the objective, then you know, I
think we could go back and pound the scenarios around to see what
would make it work. But I can tell you what it does require is
more pain in the earlier years in order to retain more earnings to
build up that fund in the outlying years.
MR. LOESCHER: Mr. Chairman, just to finish what he was saying. If
--- and I --- you know the numbers are so small, I have a hard time
seeing it, but if we could figure out how much total dollars had to
be in the permanent fund to get out the earnings incrementally
through this schedule to get to the end --- wherever he had the end
--- where we had $1.2 billion shortfall --- if we could see how
that works, it might be doable to do. It depends on how much we
plow back into the permanent fund from all the different sources
that we have and then the mechanics of doing these cuts and
adjustments and what not in the budget. I think it's worth time
doing that what he's saying, but we've got to know what the numbers
are in the permanent fund to make it yield when we need -- when we
need for it to yield.
MR. LUDWIG: How much does the dollar amount come down from
investment philosophy. And if you need eight million based on
current investment philosophy, how much of that could you use by
putting more in equities.
CHAIRMAN ROGERS: It depends on what happens to the markets, and
there was an excellent presentation at the Permanent Fund. I wish
that Gary (indisc.) could make the same presentation to us. What
he did was to show investment performance from 1969 to 1994.
(Indisc.) remember enough of it that (indisc.) and do a little
mini-version of this. He said if you're looking at the old risk
level versus return, that period '69 to '94, that you had a series
of points here that basically, this was emerging markets, and this
was stock, and this was real estate, and this was the treasury.
It's a pattern most people are fairly familiar with it if you think
of the higher risk gives you a higher return. And this was from
(indisc.) 5 percent annually here, 4 percent annually here. But
then he said, let's see what happened within that period. Here's
1969 to '74 and here's 0, on this one here's 0, we have stocks here
and we have real estate here and it was almost perfectly inverted
from what happened over the 25 year period. The next five year
period, that it was sort of all over the place - that was from '74
to '79. And then he went through each five year period and so what
that -- what that says is that anything -- if you try to change
investment policy in the short run, anything can happen. In the
long run, something like a line like this should hold and if you're
not worried about annual volatility, you can move out the risk
level a little bit and capture a little more return. And that's
why a lot of funds of have to endowment type approaches because
you can afford to take a little bit more risk in the short run and
get a little more return over the long run. But you can't do that
if you have an annual need for --- if you're going to peg your
spending annually. That's why the idea of an endowment (indisc.)
so well received in that audience was that you smooth out this --
what they call interim volatility a little bit. The other piece
that came out of that was almost all investments revert to lean and
we've all been used to the last 15 years some great stock market
returns and that won't happen over the long run. We shouldn't be -
- his pitch was don't expect to be earning much more than 7 or 8
percent in the stock market in the next 20 years. Most of us who
have done investing in the last 15 have been used to double digits
in the stock market. That's not ....
MR. LOESCHER: Mr. Chairman, (indisc.) you're talking about
earnings in the market place. What I'm talking about and I think
what he's talking about is -- is adding eight billion more dollars
to the permanent fund as fast as we can.
CHAIRMAN ROGERS: What Bruce said is how much of that could we do
by a different asset allocation strategy. That's what I was
answering....
MR. LOESCHER: Oh, okay. I understand what you're saying and I
understand the policy and all that, but getting back to what makes
a difference here is bulking up that permanent fund as fast as we
can in order for it to have the stream - the earnings and the
fallback to provide us the yields that we need. I was impressed
with the news release that came out the other day that we put $1.2
billion more in to the permanent fund here in just - just this last
year. That's incredible. I mean, and then it looks like, if I
just derive what I'm reading, that we can put four to six hundred
million a year just back in to the permanent fund just from its own
earning potential. And so it's possible that within the time
horizon that we're looking at that we could get to the eight
billion really quickly through multiple sources including its own
earnings. And that intrigues me a lot more than the focus on this
plan.
MS. BRADY: Aren't we doing that in both places -- don't both
places add $8 billion. I mean look at what the bottom line is now
and what it is....
MR. LUDWIG: We need eight billion today. We need to somehow find
$8 billion to drop in the permanent fund to be able to spew out the
revenues 15 years down the road that we need. That was Bob's
question. How much do we need today to be able to produce the
revenues.
MR. GORSUCH: I haven't -- I haven't (indisc.) if you could look
at the spreadsheet with us on the -- in FY 97....
CHAIRMAN ROGERS: Which -- composite or analysis?
MR. GORSUCH: The endowment -- FY 96 dollars.
CHAIRMAN ROGERS: Endowment -- FY 96 dollars.
MR. GORSUCH: And let's look at FY 98 because that's when we do the
-- the permanent fund endowment earnings. What we show -- and
again, I haven't followed this -- but we're earning $714
million....
CHAIRMAN ROGERS: No, that's 4 percent. Four percent of the fund
is 714. We're earning -- the third line from the bottom....
MR. GORSUCH: It doesn't make any difference....
CHAIRMAN ROGERS: (Indisc.) 44....
MR. GORSUCH: If 4 percent of $17 billion is 700 million, how can
4 percent of $22 billion be only 200 million more?
UNIDENTIFIED SPEAKER (male): Which one....
CHAIRMAN ROGERS: It's your math....
MR. GORSUCH: You've increased the endowment base by --- oh, I see,
it's 30 percent. Oh, it's a $5 billion increase.
CHAIRMAN ROGERS: Ya.
MR. GORSUCH: I --- I was (indisc.) using eight. We need to work
the numbers, but I wanted to follow up on Brian's point about the
thing going through with the trustees. The other things that was
important about that -- sort of -- I won't say revelation, but
presentation, was that when you go to the endowment, you lessen the
volatility which allows you take greater risk. And the greater
risk over the long haul gives you a larger return....
CHAIRMAN ROGERS: Larger returned earnings.
MR. GORSUCH: Which means larger returned earnings. And that's
good for us in terms of trying to move this concept forward because
you're -- you're not as concerned about maximizing at say 5 percent
of the performance. You can tolerate these ups and downs and put
your money in the stocks, or a larger share in equities and have a
longer term -- long term gains. That's going to be hard for us to
model because it's not in the permanent fund model as we -- as we
know it. But under this presentation, it could have a -- a very
positive impact in terms of the performance of the fund over that
long period of time.
CHAIRMAN ROGERS: Georgianna.
SENATOR LINCOLN: Well, I want to get back to what Hugh was saying
on the one-third, one-third, one-third on spending, taxes and
dividends. I'm not sure that I would agree that we need one-third
evenly from three and the general public feels that we need to take
one-third from each of the three. I think that we have to look at
what is responsible spending, what's responsible taxes that are --
that Alaskan citizens can absorb, what is responsible on the
dividend pay out, or the permanent fund --- I don't like us to just
look at just a flat 200, 200, 200 because I think that is not
responsible of this group to just arbitrarily take one-third, one-
third, one-third and so, I -- and I see in this endowment scenario
that we have addressed all three those. It's not equal, but we've
addressed all three of those things.
UNIDENTIFIED SPEAKER (male): Why don't we take a 10-minutes break.
TAPE 2, SIDE A
CHAIRMAN ROGERS: ...One would be to take series of proposals in
each of these areas and go through and see which ones we do have
consensus (indisc.) and we've identified some of those of the
revenue side before. There are others for which there not
consensus. Then to go through and individually vote basically on
line items for position -- Mary's forwarded some position papers
that I think are a good way for dealing with some of the non-
spreadsheet issues here, those spreadsheet plan issues on which
there is not an ability to reach consensus. And we have policy
issues and that we would go through those and vote on them
individually and then hope that the net effect of all that voting
is that the final plan can be supported by the majority. I think
it's quite possible, however, in looking at how some of these
different issues split out, that we could see 10/5 and 9/6
majorities on individual line items, tally all those up and have a
report that doesn't have eight votes. And what I'm concerned about
is how we proceed from that point to try and come up with a plan
that does achieve eight votes and I -- I want us to think about
what that voting -- we're not going to vote today because this was
an advertised work session, but tomorrow we should have the full
commission. As we go through and vote on individual lines, if the
sum of all the individual votes is something doesn't get a
majority, what do members of the commission suggest we do?
Georgianna.
SENATOR LINCOLN: Mr. Chairman, the majority being the majority of
those present or the majority of the full body?
CHAIRMAN ROGERS: That's another issue, yes. I....
MR. LUDWIG: Or we could add....
CHAIRMAN ROGERS: I expect that there will be times in which we
don't have all 15. My preference would be that in order for
something to -- to appear in the working draft, that we get eight
votes. And then at the end we see if that working draft, in total,
also has at least eight votes. But it's -- if it doesn't, anyone
have an idea for a procedure to try to get -- and -- and, you know,
we've seen this in the legislature, where you can get majority for
18 amendments to a bill, but it's a different majority for each of
the 18 amendments and the final bill fails. So we need to think
about what to do here.
SENATOR LINCOLN: I think -- well, I agree with you that it should
be eight regardless of who is at the table....
CHAIRMAN ROGERS: Is there any objection to saying eight? Hearing
no objection, that will be the rule.
SENATOR LINCOLN: And I like your idea of going through and finding
out which areas we can agree on and then those areas that we can't
agree on. But see if there is a way we can change maybe the
language or change some figures to agree upon that. I don't know
if we're going to be -- in any of these -- even in the discussion
here today, it sounds like we can come to some kind of a consensus
or the majority of people that could agree upon a given item or
percentage. So, I think that we have to just kind of work through
that. I don't hear any no, you know I'm not going to vote for that
(indisc.). I'd like to first of all --- I don't know if we ever
had a vote on whether to have an endowment.
CHAIRMAN ROGERS: We have not.
SENATOR LINCOLN: Well, that's the part that I would like to see us
vote on rather than have us going through this painstakingly if
there isn't an agreement to have the endowment.
CHAIRMAN ROGERS: Annalee.
MS. MCCONNELL: On any area where we think there isn't consensus or
a majority vote, I think it would be helpful if we got a pretty --
pretty brief description from people about what it is that they are
concerned about in that element, which I think would help with
Georgianna's point of trying to see if there is a way to --- maybe
it's an adjustment that we need -- or in some cases is, one thing
that came up when Judy and I were talking this morning, there's
some cases we may not all have the same understanding (indisc.)
particular provision, particularly when we start getting into some
of these earnings issues and so on, and it may be important to be
sure that the disagreement is --- is truly a disagreement as
opposed to a misunderstanding of a fact or of how something
operates in these models. And that may be something that we have
to do in a smaller group or whatever, but....
MR. LOESCHER: Mr. Chairman, the other thing to add on to what
Annalee is saying is that -- two things in my mind. One is key
assumptions. You know, I look at a line and I learned from you
just by you described what's happening here -- what some of the
assumptions are and I've been writing the assumptions off to the
side. But if there are key assumptions, I'd sure like to see them
-- or key definitions of what a line is. The other thing is, you
know I have a hard time -- you know, there's a lot of good thinking
that's gone into this endowment -- this composite -- alternatives,
and one of the things is if it isn't too hard a task is to lay out
a menu of what it takes to implement a scenario - constitutional
amendment or statutory changes - if there's an abbreviated way to
do that that would also influence my thinking about the hurdles,
you know, and public -- the salability and acceptance. So, those
two points, I'd like to make.
CHAIRMAN ROGERS: Just to answer on the endowment what it would
take, it's about a ten-word change in the existing permanent fund
section of the Constitution would allow this endowment to go. If
we wanted to strength it - one of the things I would like to see --
the current Constitution says at least 25 percent of all mineral
lease royalties, bonuses, federal mineral lease payments shall go
in the permanent fund. The statute then says it's 25 percent on
old fields and 50 percent on new fields. There's no reason we
couldn't go --- if we wanted to ensure that a larger percentage of
say, ANWR or a gasoline went in, that could go into the
Constitution. It's not necessary (indisc.) the existing statute,
but that would help move toward the Cremo-type approach that gets
100 percent of those...
MR. LUDWIG: Has the statute been followed?
CHAIRMAN ROGERS: Yes. In the statute -- we wrote the statute in
about 80, I think, that prompted the 50 percent on future fields.
That's a very small piece right now, but if there were to be -- the
big bump would be ANWR lease bonuses or Dinkum Sands settlement, I
think that would be at 50 percent would go in the permanent fund.
But if we want to keep the constitutional -- keep the Constitution
lean and sparse, the way the framers intended, it's about a ten-
word amendment.
MS. MCCONNELL: Dinkum Sands would not go off to CBR as a
settlement?
CHAIRMAN ROGERS: No, because it's a federal....
MS. NORDALE: No, those are tract settlements....
CHAIRMAN ROGERS: No, and Dinkum Sands is a bonus bid --- is a
bonus bid....
MS. NORDALE: Ya, the permanent fund is rents,
royalties...settlements (indisc.) taxes....
MR. LUDWIG: At stake in Dinkum Sands is about one and a half
billion total, I believe that's the last number I saw that and one-
half would be required to go into the permanent fund.
CHAIRMAN ROGERS: Well, there's one and a half billion at stake
that will be allocated between the federal and state governments
according to whatever the settlement is. And then whatever the
state's share of that 1.5 billion, 50 percent would go in and if
I'm not mistaken....
MR. LUDWIG: (Indisc.) 50/50 (indisc.) now?
CHAIRMAN ROGERS: Well, it's more than that though. The leases are
on disputed land, as to whether it's federal or state. If it's
federal, the state gets 90 percent of it. If it's state, the state
gets 100 percent of it.
MR. LUDWIG: (Indisc.) only 10 percent of it.
CHAIRMAN ROGERS: Well no, excuse me. If it's federal, the state
gets none of it, because it's offshore.
MS. MCCONNELL: I think what Will was talking with us about --
about settlement money, he felt that we were unwisely too
optimistic about what.... We shouldn't build any plan around it, I
think is what said.
MS. NORDALE: Ya, but the master who's in charge of Dinkum Sands,
so I don't think has looked at the case in what 10 - 15 years.
CHAIRMAN ROGERS: The master who's in charge the case will rule
from the grave, if he ever rules. It cries out for political
settlement. And it's almost enough money that one might be able to
convince the President or the Congress that it would be worth
splitting it 50/50 just to get the issue off the table.
MS. NORDALE: The problem is though, that the ongoing royalties
then....
CHAIRMAN ROGERS: If there are any.
MS. NORDALE: ....would be (indisc.) your cup would either be half
full or half empty.
CHAIRMAN ROGERS: But --- but is there --- there's no production --
- does anybody know --- in the room --- know if there's production
likely from those leases?
UNIDENTIFIED SPEAKER (male): I don't think there is.
CHAIRMAN ROGERS: There's none now and there sure could be if there
were oil there....
MS. MCCONNELL: I volunteered tonight to do up a table with a
listing of elements of comparison that we wanted --- that we
outlined last time --- that we wanted to compare any plans --- I
can go ahead and do that. I think I'm more familiar on a lot of
this with the composite than I would be with the endowment, but
I'll do the best I can on the endowment side and maybe we can fill
it in some more tomorrow. But that reminded me that we had also
talked about running these scenarios under a couple of different
revenue assumptions so that we could test some sensitivity and that
we might to take maybe tonight or this afternoon to figure out what
spread we think we should do so that we can assure people that
we've looked at this under what happens if we get more money than
we thought and what happens to the (indisc.) factor, and what
happens if we get less than we thought and how do we cope with
that. And I wondered if maybe it would be helpful today to figure
out what that range should be.
CHAIRMAN ROGERS: I think that would be useful. Again, I don't
think we can make final decisions today unless the rest of the
commission shows up. Brad, why don't you walk us through your
composite.
BRAD PIERCE, SENIOR POLICY ANALYST, OFFICE OF MANAGEMENT AND
BUDGET: Okay. This is basically the same one that we looked at
the other night. Okay, we start out taking the SB 51 would go into
effect in FY 97, be a statutory change and be required to put it
into play. We'd start out taking only $100 million into the
general fund and that would escalate until in FY 05 the plan would
be fully implemented. Under this scenario, I've ratcheted down
dividends from FY 96 level down --- instead of what SB 51 allocates
dividends 50/50 between --- or earnings 50/50 between dividends and
general fund, in this case I've --- in order to smooth the decline
in the dividend, and it does --- it goes down from 565 to 470 if we
just do SB 51 as written. So, what we did was, we took 65 percent
of earnings in 97, 60 in 98, and so forth down to where it went to
50/50 in 01. Let's see, in this one we keep the CBR until we
balance in 2000 and then we deposit everything but 1.5 billion into
the permanent fund. We allow the earnings reserve balance the
money that we aren't taking into the general fund builds up into
the earnings reserve, and we take that into the corpus of the fund
in 2000 as well. And from then on, annual money goes into the
permanent fund corpus from the CBR, and then every five years we
have a dump from the earnings reserve account into the CBR. We
have $100 million in budget cuts under this scenario -- 40/30/30.
CHAIRMAN ROGERS: And the other major difference from the endowment
here is the income tax rate.
MR. PIERCE: Yes.
CHAIRMAN ROGERS: The rates change annually.
MR. PIERCE: Ya, I just --- we used it as plugged number, how much
money do you need to get. Basically, what happens under SB 51, is
after 05 the gap widens significantly without an income tax. And
so, the idea was to implement it gradually at a very low rate and
then use it --- increase the rate as needed.
CHAIRMAN ROGERS: Without an income tax or without further
limitations on the divided.
MR. PIERCE: That's right and this one (indisc.-coughing) if you
look on the --- especially in the real dollar amount here on the
dividend --- the dividend declines until 2000 and then it starts to
grow again. If we could keep it declining, that would be one
(indisc.) and possibly get oh another $100 million or something,
then we could lower that income tax rate on out considerably by
lowering the dividend, so.
UNIDENTIFIED SPEAKER (male): Brad, just for computation purposes,
we're assuming inflation at 3 or 3 1/2 percent?
UNIDENTIFIED SPEAKER (male): 3.18.
MR. PIERCE: 3.18.
MR. GORSUCH: And so taking FY 97, $450 million for permanent fund
inflation proofing should be 15,285,000,000 times 3.1.... I just
want to make sure I understand....
MR. PIERCE: Ya, it should be 3....
UNIDENTIFIED SPEAKER (male): Three point what?
MR. PIERCE: I believe it's 2.99 for 96 and 97 and then 3.18 on
out. It's the Department of Revenue forecast.
MR. GORSUCH: And the composite scenario isn't the same as the
endowment scenario in its presentation because in the endowment we
dropped out the inflation proofing?
MR. PIERCE: That's right. I haven't done that yet.
MR. GORSUCH: So, in this instance, the total expenditures or the
total revenues are overstated by whatever the inflation proofing
amount is and so forth....
MR. PIERCE: Oh ya....
MR. GORSUCH: So, I just wanted to make sure --- these aren't ---
right now these aren't comparable, it's just a question of whether
you show both the arbitrary inflation proofing or not.
CHAIRMAN ROGERS: The other place they're not comparable is that
composite scenario to get the total permanent fund earnings, you
have to add permanent fund net earnings and permanent fund earnings
to G.F.
MS. MCCONNELL: Are we starting with the same permanent fund
principal --- I'm not sure looking at this...
UNIDENTIFIED SPEAKER (male): Yes....
MR. PIERCE: Well, you added 500 million in 96.
CHAIRMAN ROGERS: No, I added...
MS. MCCONNELL: He added a billion in 96.
CHAIRMAN ROGERS: I added a billion. This one adds....
MR. PIERCE: 500. (Indisc.) 500 million difference.
CHAIRMAN ROGERS: I don't know why.
MS. MCCONNELL: Could it be....
MR. LUDWIG: Could it be the 500 million that just --- that just
got put in there?
MS. NORDALE: It should show up in both.
MR. PIERCE: There was a line with 500 million, ya. I believe it
the --- the difference is that Brian deposited $1 billion into the
--- from the CBR into the permanent fund in 96.
UNIDENTIFIED SPEAKER (male): Ya, but why....
MS. MCCONNELL: Why are we ending up....
MS. NORDALE: Oh ya in 96.
CHAIRMAN ROGERS: I think you may be 500 million high. Either
you're 500 million high or (indisc.) 500 million low. Beginning
balance --- so it must be the PF --- beginning balance
(indisc.).....
UNIDENTIFIED SPEAKER (female): Does yours have --- what are you
starting with for your....
MS. NORDALE: What number are you using -- fiscal year beginning or
fiscal year end for 96?
MR. PIERCE: They're both run off the same model, here.
UNIDENTIFIED SPEAKER (male): (Indiscernible).
MR. PIERCE: So, if you look down on the endowment scenario
projection that whole thing with the Alaska permanent fund, that's
the model. I just put it on a different --- didn't show it on this
spreadsheet because it's too hard to read. But you're right....
CHAIRMAN ROGERS: .... you're showing 500 million --- your Rieger
spreadsheet shows a $500 million deposit in 96 (indisc.).
MS. MCCONNELL: ERA into the principal.
CHAIRMAN ROGERS: ERA into the principal.
MS. MCCONNELL: It's just not showing up in here for some reason.
MR. PIERCE: Ya, it's not showing on this slide.
UNIDENTIFIED SPEAKER (female): But still....
CHAIRMAN ROGERS: But why --- where did that come from?
MR. PIERCE: We're assuming that we're going to do (indisc.).
CHAIRMAN ROGERS: But your ERA....
UNIDENTIFIED SPEAKER (male): I know, it doesn't show up on the
balance here.
UNIDENTIFIED SPEAKER (male): No....
MR. PIERCE: It shows up in the principal.
UNIDENTIFIED SPEAKER (male): So, your permanent fund earnings
reserve balance should be 405 then.
MS. MCCONNELL: If this is year end, it should be. If this is all
year end....
MR. LUDWIG: So we ought to change your spreadsheet....
(Indiscernible conversation -- too many people talking at once)
MS. NORDALE: Shouldn't you --- where it says ERA deposit to
principal....
MR. PIERCE: What this is going to make a difference in is in the
ending balance of the permanent fund in 2010.
CHAIRMAN ROGERS: But just --- just for comparability, on your ERA
balance in 2010, that's going to make it everywhere.
MS. MCCONNELL: On -- it should pick up everything on earnings....
CHAIRMAN ROGERS: So this overstates 96 by 500 million, right?
MR. PIERCE: Ya.
CHAIRMAN ROGERS: Shoot. Just a second.
CHAIRMAN ROGERS: ...ERA balance on the Rieger spreadsheet?
MR. PIERCE: Should be.
CHAIRMAN ROGERS: ERA should be 404.
UNIDENTIFIED SPEAKER (male): Because we were going to deposit 500
million in there. I think....
CHAIRMAN ROGERS: But it's in the 15,285.
MR. PIERCE: I know. I think it's just this....
CHAIRMAN ROGERS: You hard numbered the 905.
MR. PIERCE: Ya, ya, no. I think it's this -- this cell here is
missing an entry, is all.
UNIDENTIFIED SPEAKER (male): Ya.
CHAIRMAN ROGERS: But it's in there. But if you change that cell
to 405, it's going to run --- cascade out....
MR. GORSUCH: (Indisc.) endowment to the composite in FY 96....
UNIDENTIFIED SPEAKER (male): ...permanent fund earnings....
MR. GORSUCH: We show FY 96 expenditures of 3 billion (indisc.-
talking) whereas in the composite we show three billion (indisc.).
UNIDENTIFIED SPEAKER (male): I can't recall.
UNIDENTIFIED SPEAKER (male): And the difference isn't just
inflation proofing; that is, there is something else....
MS. MCCONNELL: Transfer to earnings reserve is showing as an
expenditure item -- the other difference....
MR. GORSUCH: Well, that would be it.
MS. MCCONNELL: That's the 600 --- ya, that's right.
CHAIRMAN ROGERS: So, we're going to have to do a re-run on this
because that 500 million cascades through all the numbers, earnings
are based on it....
MS. MCCONNELL: In place in being able to --- the difference in
balancing in 98 versus 99....
(Indiscernible Dialogue)
SENATOR LINCOLN: Brian, that had nothing to do with the settlement
-- the 500 million that's showing up on the settlements has nothing
to do with your differences.
CHAIRMAN ROGERS: No, no, the difference just has to (indisc.).
SENATOR LINCOLN: So, it the total -- the total amount that's off,
not....
CHAIRMAN ROGERS: It's off by 500 million in 96 which is some other
number in '10.
CHAIRMAN ROGERS: Do you want to take a break and try to re-run
that?
MR. PIERCE: Okay, I'll do this (indisc.). Is there anything else
you want?
CHAIRMAN ROGERS: Do you want to do it with or --- do we want to
do it with the 500 million left in the earnings reserve or 500
million moved to the principal?
(Indiscernible Dialogue)
CHAIRMAN ROGERS: So the only change then is that goes down to
fourteen, seven (indisc.). Okay. We went back to this from voting
procedure, was there any -- did anyone have other issues on voting
procedure that they wanted to discuss or avoid.
MR. GORSUCH: I'd like to try to encourage it and see if we
actually have varying points of consensus. And then, where it
begins to fall apart. Some -- I sense this -- that we may have
some degree of consensus in 2010; we may have some degree of
consensus around 97, 98, 99 and where we may disagree is that that
sandwich stuff that goes on in between. Don't think so?
CHAIRMAN ROGERS: Nope. I don't think we have the ability to reach
consensus on the expenditure side in 97, 98 and 99, and the
expenditure side drives the size of the deficit or surplus in all
those out years whether you -- how long you freeze or how much you
cut is the biggest single number change that affects the out years.
UNIDENTIFIED SPEAKER (male): I disagree. I think the....
MS. NORDALE: Then why don't we vote on it....
CHAIRMAN ROGERS: We can't because we don't have everybody here.
MS. NORDALE: I know.
MR. GORSUCH: I think the big divide is on how soon to tax and how
fast to reduce the dividend. I think that's the divide, not the
cuts.
MS. MCCONNELL: Yup, I do, too.
CHAIRMAN ROGERS: We're -- (indisc.) -- where do you think there's
consensus on cuts? What do you think the consensus is on?
MR. GORSUCH: The equivalent of $200 million over a three or four
year period of time.
CHAIRMAN ROGERS: Nominal or real?
UNIDENTIFIED SPEAKER (male): I'll try real.
UNIDENTIFIED SPEAKER (female): (Indisc.) I'll try.
(Laughter)
UNIDENTIFIED SPEAKER (female): You'll never get a consensus on
that one, I'll tell you.
UNIDENTIFIED SPEAKER (male): What?
MS. NORDALE: I said, I don't think you'd get consensus on that.
MR. LUDWIG: You including permanent fund dividends in that figure?
MS. NORDALE: No, you're arguing (indisc.) aren't you?
MR. GORSUCH: Then by --- by the end of the third year, we'll have
200 million.
UNIDENTIFIED SPEAKER (male): In 96 dollars?
MR. GORSUCH: (Indisc.) that's just freezing the budget for three
years.
UNIDENTIFIED SPEAKER (female): Right.
MR. GORSUCH: We can't agree on that?
UNIDENTIFIED SPEAKER (male): As a -- as a minimum or as a maximum?
MR. GORSUCH: As a minimum. I mean, I thought we already agreed
that we had at least a three year freeze and....
SENATOR LINCOLN: Maybe you're too low. (Indisc.) may want 400.
MS. MCCONNELL: Let's also be sure we're counting the same three --
we're talking about from 96 through 99 as the three years -- when
you say freeze for three years, are you talking about the
equivalent (indisc.) a freeze for three years, are you talking
about 96, 97, 98 or between 96 97, 97 98, which (indisc.)?
UNIDENTIFIED SPEAKER (male): Which will you support?
(Laughter)
MR. GORSUCH: I was going from --- I was trying to start out with
96 and say (indisc.) 96 for 97, and for 98 and for 99. A three
year, at 96 levels.
MS. MCCONNELL: Okay.
MR. GORSUCH: I understood that to be about 3 percent, assuming
inflation was 3 percent, I understood that freeze to be the
equivalent of just under 10 percent. Ten percent of $2.4 billion
is $240 million.
MS. MCCONNELL: It's 300 million. It's 310 million in 96 dollars.
I mean if we look on the composite side --- I'm sorry --- you're
talking about freeze....
MR. GORSUCH: All I'm saying is if we hold the budgets at the
current level for three years, it's the equivalent of a 9 percent
budget cut in the general fund budget which comes out to be 9 times
2.4 billion. And that should be right around $200 million.
UNIDENTIFIED SPEAKER (male): I thought that was a general....
MS. MCCONNELL: Going back to the Rieger scenario was one of the
times when we showed it at (indisc.) 9678 and 9; on 96 dollars,
it's 2476 to 2258; so 218....
MR. GORSUCH: Well, I thought we had reached at least that level of
agreement. Because I thought the conversation went no, we need to
have some nominal reductions and maybe move some of these up into
96, but I thought we had agreement that that's at least a level we
could agree to and....
MS. MCCONNELL: (Indisc.) the ceiling. I think we did agree that
was the ceiling, right? There was nobody who wanted to go above
that as I recall.
UNIDENTIFIED SPEAKER (female): The (Indisc.)?
UNIDENTIFIED SPEAKER (female): Ya, that was the ceiling and we
were....
UNIDENTIFIED SPEAKER (male): (Indisc.) expenditures.
UNIDENTIFIED SPEAKER (female): No, nobody wanted....
MR. GORSUCH: That was the minimum amount of (indisc.) we would do.
MS. MCCONNELL: Are we really truly at the one man's ceiling is
another man's floor?
(Laughter)
MS. MCCONNELL: Everybody thought that we should -- that -- that we
at least had to do that much and then the question was just how
much more do we have to do in the way of cuts, right?
There wasn't anybody....
MR. GORSUCH: That's what I thought.
MS. MCCONNELL: That's what I was referring to as the ceiling.
MR. GORSUCH: So, do I have a consensus?
(Laughter)
MS. NORDALE: Well, you have a general understanding.
MR. LUDWIG: Everybody agrees, but nobody is going to consent.
MR. GORSUCH: Because then --- if I could, Mr. Chairman.
CHAIRMAN ROGERS: Go right ahead.
MR. GORSUCH: Then if we agree that the 218 is -- is a consensus
number, then the question -- at least one question I would offer is
we could move that 218 forward into 97; that is, we could have a
$50 million nominal cut in 97 and a $50 million nominal cut in 98
and no cut in 99, and it would still come out to be the 218 real.
So, the next point of whether we can hold the consensus was whether
or not we could try that exercise. Take some nominal cuts earlier
and lighten up a little bit in the third year and still stay within
the target of 218. And then we could talk about is there -- do I
hear more. So, it is a little bit like an auctioneer.
MS. MCCONNELL: I sense that there was a consensus that -- that in
part, because we believe there's an opportunity for some nominal
cuts in 97 and in part because we think the public needs
reassurance that we're really working hard on budget cutting; that
there's not interest in holding it flat between 96 and 97; that 97
should have some nominal cuts.
MS. NORDALE: That was my understanding.
MS. MCCONNELL: Just (indisc.) from where it come from. Is -- is
everybody....
MS. NORDALE: Nominal cuts from the 96 base.
MR. GORSUCH: But my point was, Annalee, you can do that without
necessarily going beyond the 218 real.
MS. MCCONNELL: I understand. Ya, you could shape it a couple
different ways.
UNIDENTIFIED SPEAKER (female): (Indisc.) number 96?
CHAIRMAN ROGERS: This is -- by FY 99, if our -- if we have a
nominal cut of zero, and we have a real cut of 218, if our nominal
cut is 50, our real cut is 263. And so on down to a nominal of 200
is a real cut of 400. So....
MS. NORDALE: Brad, beside the -- the total, over there on the
right in real dollars, could you put nominals?
CHAIRMAN ROGERS: This is nominal, this is the real for each of
those levels of cuts.
MS. NORDALE: Oh, I see what...okay, fine, thank you.
MR. LUDWIG: You know, part of the problem I see with trying to
build a consensus on an issue as narrow as this, is I might be
prepared to say I could see bigger cuts if we could move more
revenues in faster. You know instead of bringing an income tax in
01 or 02, if politically you could move that up two or three years,
and take bigger cuts at the beginning here in the permanent fund,
to bulk up the permanent fund.
CHAIRMAN ROGERS: And the problem we have in doing that is voting -
- either we have to vote on individual lines or whole packages and
I don't sense we can vote on package by package. So, we've got to
try to do it by first approximation voting line by line, then put
it into packages and try to vote on it. But among the nine members
of the commission here, maybe we can find out where we lie on this
issue. How many people see this level here as the ceiling. We've
got nine saying that over three years that they -- that -- that the
cut has to be at least a real of 218 million.
MR. GORSUCH: And that equals 9 percent. What I would like to
suggest is we would take a 5 percent reduction in 97, a 3 percent
reduction in 98, and a 1 percent reduction in 99. That would still
equal the equivalent of the 9 percent overall target. So....
CHAIRMAN ROGERS: You have growth....
MR. GORSUCH: You actually have --- you actually have a 2 percent
nominal increase in 99 whereas you'd have a $50 million reduction
in 97, flat in 98 and a 2 percent nominal in 99.
MR. LUDWIG: And that's where the flat budget....
CHAIRMAN ROGERS: Well, I think....
MR. GORSUCH: I'm just saying that's one way to get at the 218
showing a nominal reduction in -- next year.
MS. MCCONNELL: I'd like to split the question of where we want to
end up in 99 from the phasing of it, because I think it's worth
some conversation about which --- given the nature of the -- many
of the cuts that we're talking about, are they things where we
think we can pick up the money early, are the things that phase in,
and I think it may be helpful to have a little bit of conversation
around those timing issues before -- before we package that aspect
of it.
CHAIRMAN ROGERS: Let's -- let's look at levels and then deal with
timing within levels, etc.
MS. NORDALE: Well, I was going to --- following up on what Annalee
was saying, if we said that -- that the FY 99 number is fixed and
the FY 02 number is fixed, and the FY 05 number is fixed in terms
of target, then I think we achieve much of what Annalee was talking
about and we could use a gradual reduction as an example. But
fixed targets up to 2005, so we arrive at 2005 with a -- with an
agreed upon number.
CHAIRMAN ROGERS: In terms of voting on this, we're assuming that
whatever nominal number is, it includes all GF spending, so
anything that goes into solving federal programs, anything on
maintenance or deferred maintenance, anything on new capital,
anything on new operating -- everything has to be within this
level. So, what I heard is that for nine people this is an
acceptable ceiling. For how many people would this be an
acceptable final number or --- let me put it --- let's do the
reverse. For how many people would this not be an acceptable final
number. One - two - three. So that says....
MR. POURCHOT: You lost me there.
CHAIRMAN ROGERS: Okay. This is a --- okay, in terms of --- it's
an acceptable --- the cuts have to be at least this much.
MARIE WESTFALL: Maximum spending. Why don't we say (indisc.)
spending. Does that clarify it?
CHAIRMAN ROGERS: Okay. We have nine people that agree that
maximum spending should not go above this.
MS. NORDALE: That is the maximum spending (indisc.).
UNIDENTIFIED SPEAKER (female): For 99.
CHAIRMAN ROGERS: For 99. But for some people this is still too
high a maximum. For some people they could not accept a final
report that has this as the 99 spending level. For how many people
is this too high a 99 spending level. Hugh's indicated....
MS. NORDALE: Why? Hugh.
CHAIRMAN ROGERS: Before we get into the why, for everything one
else that --- when we finish everything else we ended up with this
number, they could sign off on is that right? If we were saying
the target for 24 --- the target for 99 is 2476. Eight people in
the room could accept a report that had that as an element.
MR. POURCHOT: (Indisc.) not to confuse (indisc.) I think that's a
different question than originally phrased as far as the nominal
cut (indisc.) budget because you could have a different arrangement
by what Annalee and Lee were saying. And your 99 figure may differ
from the 2476.
UNIDENTIFIED SPEAKER (female): No.
CHAIRMAN ROGERS: No.
MS. MCCONNELL: No.
CHAIRMAN ROGERS: Lee was saying that the 99 figure is 2476, but
the interim cuts could be greater or lesser.
REPRESENTATIVE SEAN PARNELL: And I guess I don't agree with that.
CHAIRMAN ROGERS: So, you think 2476 as the 99 target is too low,
too high?
REPRESENTATIVE PARNELL: It could be different. You could average
out these nominal cuts. It could actually be higher. You could --
- up front more --- you could have a nominal cut between 97 and a
higher 99 number than 2476.
MS. MCCONNELL: If you --- if you took 100 --- just round numbers -
-- $100 million out and you made it 2376 what you're saying is you
could -- another way you could do it would be then allow it to
increase faster and end up at 247 into (indisc.).
CHAIRMAN ROGERS: But the problem is you don't have a real cut
equivalent to that as of that date, so....
MR. POURCHOT: Ya.
CHAIRMAN ROGERS: So, what we're trying to do is to say what the --
- what the real cut is --- nominal and real cut as of 99 and you're
saying that you could see a scenario that if this scenario says for
right here now in nominal dollars, we're going to be right here
then. It would be acceptable to you, Pat, to go like this. Is
that what you're saying?
MR. POURCHOT: Right.
CHAIRMAN ROGERS: Okay. And Hugh, you said that we have to be
lower than this by some amount in 99. Lee.
LEE GORSUCH: My caveat on -- on the idea --- I think that 218 real
might be sufficient. First of all, I want to match it with
dividend reductions and taxes, but secondly if that number is to
absorb deferred maintenance, federal cutbacks and new capital
construction, that's a heavy burden to try to cut out of the
operating budget. And I think it's unrealistic.
CHAIRMAN ROGERS: This is --- this is the total of operating and
capital and debt service breakdown.
LEE GORSUCH: And I'm just saying that 218 plus absorbing all that
would be a one hellacious challenge for the state to absorb in a
single year.
CHAIRMAN ROGERS: So, with the assumption that this is --- that
this number is all GF spending, that's too low a ceiling for you.
LEE GORSUCH: But that is --- that ceiling is fine for me. I sign
off on 218 as a real cut if that includes the absorption of all
this other stuff.
CHAIRMAN ROGERS: Yes.
LEE GORSUCH: If it doesn't have to include the absorption and all
that, then I would -- I would say I'm willing to entertain a -- a
larger....
CHAIRMAN ROGERS: But we're --- the assumption here is, this is
total spending with whatever -- that includes all the existing
programs, any federal transfers, any maintenance, any new CIP, any
new operating. So here's where the reason I believe that we can't
reach consensus on this item is I've got one person up here and one
person down there and others spread between....
MS. MCCONNELL: Pat, are you saying that you feel that we should
take that or just that you could accept it -- when you -- the check
mark style....
MR. POURCHOT: Accept it.
MS. MCCONNELL: Okay, but do you feel comfortable by -- do you feel
equally okay with the idea of holding it flat; not -- not yet
determining how much we cope with each year but just from point A
to point B that we say is 2476 in FY 99.
MR. POURCHOT: Yes.
CHAIRMAN ROGERS: So, you're saying now that you could accept that
level.
UNIDENTIFIED SPEAKER (male): (Indisc.) the 2476 is the target.
MR. POURCHOT: Right. I didn't....
MR. LUDWIG: Now he voted once, does he (indisc.).
(Laughter)
CHAIRMAN ROGERS: (Indisc.) nine people. All nine say that's the
ceiling -- or eight -- they could live with a final report that
said that....
MS. NORDALE: One of the concerns that I have with what Pat was
sort of positing. I think it's more of a prediction of a real
serious problem and that is if the cuts are too severe, we're going
to have a demand for increased spending which will increase the
base.
CHAIRMAN ROGERS: Sean, the voting levels are still open.
(Laughter)
CHAIRMAN ROGERS: Let me --- what we're looking at is, is what
might be the acceptable size of cuts over the three year period
(indisc.) by scenario. This is for all operating capital debt
service, all general fund spending. In nominal dollars....
MS. MCCONNELL: Will you --- will you....
CHAIRMAN ROGERS: Pardon.
MS. MCCONNELL: The federal (indisc.) any impact from federal
budget cuts that we might chose to take on as a state
(indisc.) we may not have to but...it's not federal dollars
(indisc.) replacement of federal dollars if Medicaid were cut and
we felt we had to partially replace that. It's that kind of
federal impact stuff.
CHAIRMAN ROGERS: And we've acknowledged that over that three year
period the budget could go down and then rise back up to that level
or it could be flat across in nominal dollars. The first scenario
of 2476 is zero nominal dollars cut, 218 million real dollars cut,
et cetera. And before you voted, we had all nine in the room say
that's the --- they'd accept that as the ceiling, but for eight -
and for eight, they could accept that as part of the final plan,
but for one, that's too high for the final plan.
REPRESENTATIVE PARNELL: That's definitely too high for me for the
final plan.
CHAIRMAN ROGERS: Okay, so we've got....
REPRESENTATIVE PARNELL: I think it's too high for the public.
CHAIRMAN ROGERS: Okay, second choice was....
REPRESENTATIVE PARNELL: Did I ---did I....
CHAIRMAN ROGERS: Ya.
REPRESENTATIVE PARNELL: Do we --- I'm not sure of the ten....
CHAIRMAN ROGERS: The ten means that you don't want -- that that's
....
MR. LUDWIG: You don't want to spend more than that.
MS. NORDALE: Highest....
REPRESENTATIVE PARNELL: At least that much of a cut.
UNIDENTIFIED SPEAKER (male): Right.
CHAIRMAN ROGERS: For ten people that size cut is okay. For two of
those ten, that's not enough.
REPRESENTATIVE PARNELL: Right.
CHAIRMAN ROGERS: At this level, a 24, 26, which is a $263 million
cut....
TAPE 2, SIDE B
MR. GORSUCH: Unless it's matched with the equivalent reductions in
productions or dividends....
CHAIRMAN ROGERS: Well, you gotta vote on this amendment -- on this
issue.
MR. LUDWIG: It's not fair is it Lee?
CHAIRMAN ROGERS: I can't structure voting to do what you just
asked to do.
MR. GORSUCH: Well, we could. We could say that the group agreed
to....
CHAIRMAN ROGERS: Ya, but I need a three-dimensional blackboard in
order to do that, and I don't have one. We can bring one from the
university, but (indisc.) that way, but right now I only have a
two-dimensional blackboard.
MR. GORSUCH: O.K., I'll do it in my head.
(Laughter)
MS. MCCONNELL: But we can assume that as we proceed through each
step of this, we can modify the conditions so that we will reach
your question of how these things play out against each other.
MR. LUDWIG: Maybe after we get through a series of these consensus
(indisc.-coughing) we can go back and revisit them again.
CHAIRMAN ROGERS: And see that's where -- that's why I laid out
this problem of voting. I think we may end up being able to vote
and get eight votes for every section, but not eight votes for the
composite.... So, your answer was you could accept that assuming
the other elements of the plan were acceptable to you. You could
accept a 50....
MR. LUDWIG: There are circumstances that exist.
UNIDENTIFIED SPEAKER (male): Yup.
CHAIRMAN ROGERS: Okay. Sean, does --- is that enough of a cut for
you?
REPRESENTATIVE PARNELL: No. Why the two hundred? Is that just a
consensus or that just....
MR. LUDWIG: That's a flat budget.
REPRESENTATIVE PARNELL: No, no. Two hundred nominal....
MS. NORDALE: That -- that was the bottom of the (indisc.).
CHAIRMAN ROGERS: Okay. Okay, we may want to go further, we'll
see.
UNIDENTIFIED SPEAKER (male): I don't want to scare you, but I just
-- I wondered if that was (indisc.).
UNIDENTIFIED SPEAKER (male): No, it's just I ran (indisc.).
CHAIRMAN ROGERS: Okay, how many people --- how many people can
accept -- could not accept -- nominal -- total nominal cut of 100
within this scenario?
MR. GORSUCH: For three -- over three years?
MS. MCCONNELL: Could not accept....
CHAIRMAN ROGERS: Could not accept that as the total? I count
five. Okay, and for how many people is that not enough of a cut?
One hundred and fifty -- for how many people is 150 cut too much?
One-two-three-four-five-six-seven (indisc.). And for how many
people is 150 not enough of a cut? Okay, from here on, it's just
how much of a cut is the minimum that you can accept and how much
of a cut is the minimum you can accept.
UNIDENTIFIED SPEAKER (male): I was right in there 150 to 2.
UNIDENTIFIED SPEAKER (male): I was planning on 180, but
roughly....
CHAIRMAN ROGERS: And how many people think consensus is possible
on the report?
(Laughter)
MS. MCCONNELL: Well, we'll take a majority anyway.
CHAIRMAN ROGERS: Do we want look at any finer graduations between
50 and 100, or between an 11 percent and a 14 percent.
MR. GORSUCH: Well, I just think we're kidding ourselves, not even
knowing what the impact is of the federal would be and the number
of years it would take you to get -- figure that out -- change the
state policies to make sure you didn't have to do it, bump people
off, or whatever.... Saying that we'll absorb this when we don't
know what it is, I just think is -- I don't think that's....
UNIDENTIFIED SPEAKER (male): If it were zero, I'd move it up.
MR. MOTLEY: I have some problems with the way it's defined in that
I don't have any doubts in my mind that you can $200 million out of
the budget over the next couple years, because I believe there is
room for the cuts, there are programs that shouldn't be there that
amount to that amount of money. I don't necessarily agree that --
part of my problem is that I don't know that I agree that we ought
to take up all the federal (indisc.).
CHAIRMAN ROGERS: All the federal cuts are take probably 150....
MR. MOTLEY: Well, we --- we don't even have any idea what they
are. Nothing's happened yet. So, I'm having trouble guying into
the scenario. I know with what's there, there's at least $200
million that ought to disappear. If it gets tight three or four
years from now, then the ability to tax and raise the revenues in
order to have them, that's fine. But I think the public wants to
see those programs disappear and -- and you're squeezing me in a
nominal versus real when all I know is nominal. Because I don't
know what the inflation rate is next year or year after. If it's
10 percent, it's a whole different ball game than this is. So, I'm
living in the real world with the programs that I can look at out
there now and there is at least $200 million that needs to appear -
-- disappear immediately and if we don't start the process of
cutting those, then we're gonna just be escalating and running
business as usual. So therein lies my dilemma.
CHAIRMAN ROGERS: And -- and I -- one of the -- I have a similar
dilemma in not knowing how severe the federal transfer of
responsibilities will be and so, voting on this sort of --
including federal -- includes my gut feel for what may happen at
the federal level. But -- and that was why on the endowment
spreadsheet, I tried to lay out the federal line as a separate
line, so we could distinguish between cuts to existing programs,
which are -- is on the down side and federal impacts on the up side
and I feel like if we're going to deal with the federal impacts we
have -- if we're dealing with a ten to 15 year plan, we have to
make some judgment as to what our acceptable federal impacts can
pick up, because you can't leave that out of the plan. The plan
has to make some judgment of what those are or there's a big hole
and you know, even as much as $50 million a year, which is what
that endowment scenario put in, makes a difference on --- makes a
huge difference in the out years because it affects your permanent
fund balance the way these numbers roll through and recompute. I
could accept a higher level of cuts on here if I knew there was an
ability to buy back federal programs. But within this, this was
net of that buy back, so....
MR. GORSUCH: If I could, another one of my concerns is that if
we're going to pass a motor fuel --- if we're going to recommend a
motor fuel, if there's not a commitment to put a chuck of that
motor fuel tax back into road maintenance, I don't think it's going
to pass. I think there's going to have to be some kind of good
faith effort to say as a result of this, we're going to try to keep
the roads better up. If that's true and we stay within the cap, we
got to squeeze that $30 - 40 million out of some other program in
the general fund budget. That is a forced allocation, so, Hugh, I
would argue that comes out of --- that's the equivalent of
squeezing 40 million of programs that you don't think should exist
to reallocate into a program that presumably you would agree should
exist; and that is proper road maintenance. So that's another one
of these caveats that's lodged in here and in terms of my own
position on this, I think you're going to have to give the voters
some confidence that if they're going to start paying for this,
they're going expect to get some kind of improved road repair back.
That -- that's a $40 million item.
MS. MCCONNELL: As you -- Hugh and Sean -- as you look at the
numbers that you feel comfortable with, can you give me an idea of
what are some of the kinds of things that you're thinking about in
terms of programs that can go away immediately. The reason I'm
asking the question is, if I were -- if I felt that the longevity
bonus could go away immediately, there would be a chunk of $80
million -- $79 million which would very much affect my decision
about where those came out, so it would help maybe in understanding
our consensus levels to see if we're using the same assumptions
about some big chunks of change, like -- that's the one came to my
mind.
REPRESENTATIVE PARNELL: Annalee, the same -- same question goes
(indisc.) the whole commission on holding the line, so to speak, is
going to entail some reductions, somewhere. So, I mean you -- are
you saying that -- where are those cuts going to come from and how
do you deal with -- how does the commission deal with that as a
whole. Because we cut before -- depending on how you look at it,
we cut $40 million last year. I know some claim we cut zero; some
claim we cut $7 million; but let's just say we cut the 40 million,
and we did it by picking around the edges. We didn't get rid of
any major programs; RATNET perhaps, but that's been resurrected -
now it's ARCS - it's --- to some measure, but in terms of major
programs -- major dollar programs, we really didn't do anything to
Health & Social Services that I can recall, to Education or to
personal services costs, for instance labor (indisc.) so....
MS. MCCONNELL: Well, that's why I'm wondering -- in trying to see
whether maybe we have more -- more consensus on the --- we'll I
think all of us agree that there is a substantial amount we could
save over time through what you would call the more efficiency-
related and adjustments-to-benefits kinds of things as opposed to
big chunk of change programs, where it ends up having a different
kind of spotlight. And so, that's all I was trying to get at was
to see whether your numbers were assuming some of those big
spotlights. Because RATNET, although there was a change, that's
not of a magnitude...
REPRESENTATIVE PARNELL: That's right.
MS. MCCONNELL: ...of longevity bonus. So, that's all I was trying
to figure out. I wasn't trying to make you go on record for --- I
guess I was just trying to see if we have roughly the same level of
efficiency and other kinds of consolidation kinds stuff.
MR. MOTLEY: My concern lies in exactly the same area that occurred
in the reconciliation that George Bush signed in 1990. Congress,
we're going to balance the budget by reducing these expenditures or
holding them flat. In exchange, we'll increase taxes in order to
finish off the balancing. We'll lo and behold, the taxes got
increased but none of the cuts took place and the public
understands that, they saw that, and if we have a plan that says
let's pass all these taxes now and the budget's going to stay flat,
and the cuts will be real, the response is "Bravo Sierra." They
really won't believe it and that's what I'm saying is, I would have
said flat in my own mind would work, and I did my best to work
that. I have gone back to the folks that I have helped write
platforms for parties over the same number of years and they say
you're out of your mind. We don't believe that and they expect to
see some cuts before they see some taxes. They expect somebody
else -- they believe there are too many state employees -- it's not
personal, it's just that there are more state employees per capita
than we ought to have. We got more government than we ought to
have. So, it's not personal to anything, it's just that how do you
convince the public that you really mean what you say. And I don't
know how to get there. And that's -- therein lies my difficulty.
I don't have -- if I get the nominal cuts, I don't have a problem
with raising the revenues to take care of the necessary items
later, but I -- to raise the revenues now and I'll give you the
cuts -- I don't know how we'll sell it. So, I hate to sign my name
to it. It's not -- it's --- I wouldn't be fair if I said I think
this will sell, because I don't think it will.
MS. MCCONNELL: I think you're right that we are going to have a
credibility problem if we -- if we have implementation dates to
start on taxes and the other part be vague. I think that really is
a problem. I think there's some things that we could do on the
expenditure side that would help in that regard. A couple of
examples would be -- there are a number of pieces of legislation
that have been proposed, for instance, and the longevity bonus is
actually an example of this -- where passing a law happens now but
you don't see the savings, necessarily right away. And for some
people here at the table, the speed with which longevity bonus has
down is not fast enough, but I think everybody has had a sense that
it's a good thing that at least it's being phased out. There's
some other things like the tier three on retirement benefits, where
if we pass some things this year, it's not a question of whether
we'll get savings down the line, because that will -- that will
absolutely require savings. I think it's going to be important
that our report include some recommendations of actions that the
legislature should take now and the Governor, even though some of
them may not produce savings immediately. In addition to that, I
think we have to do some demonstrable immediate savings, but maybe
I'd package it a little bit different than the George Bush
situation.
MR. MOTLEY: I agree (indisc.) and I think those things need to be
done as a matter of policy because there is a significant unfunded
liability out there, if things go on the way they are. In spite of
what we say is happening, there are folks who accumulated a lot of
time in a lot of jobs at a low level and are now in a -- switching
over into a different scenario and there will be big calls that are
not there. So, we gotta do something
with -- with some of those benefits, but it's future not present.
I was not dodging the longevity bonus. I think the longevity bonus
is bad legislation. I believe that the fix will be found to be
unconstitutional. I wish they would hurry, and if that's the case,
I trust that the reductions will take place -- make it disappear.
But I don't think it's --- I don't think that the fix that went on
there is constitutional and (indisc.).
MS. MCCONNELL: But aside from the question of whether it's
constitutional, do you think it's at least preferable that there is
some phasing out plan than if we had done nothing -- it's better
than nothing....
MR. MOTLEY: If the -- if you have to take on a high level federal
program, then one of the programs that ought to disappear are the
non-means tested transfer payments. So, I'm not worried about
where you funding is going to come from there -- it wouldn't make
sense to absorb all these federal cutoffs and have give away
programs that are not based on need. And all this is terribly
complicated and gets wound up in what is politically feasible, as
I see it -- as I understand it. I would be remiss if I didn't
offer to you why I'm going that route. That's why....
CHAIRMAN ROGERS: I think all of us share the problem of maybe
what's right and what's politically feasible at the same time. I
think we're going to run into the same problem when we look at how
far to cut the dividend. And we may run into the same thing on
when to institute a statewide major tax, like the income tax or
sales tax for that matter, that what's right and what's politically
feasible aren't the same. And all of us, I think, are struggling
with how do we balance our view of political feasibility with our
view of what's right or what's possible. I -- you know, I look at
the ability to get greater real dollar savings over a longer period
time as being much more feasible than getting even, you know, the
level that I voted for, which was the 263 million real. I think we
can get a lot more real dollar savings if we're willing to take
time to do it out of some things that involve re-engineering -- out
of some thing, you know -- looking at the welfare programs -- I sat
next to Karen Perdue on the plane coming up this morning from
Juneau, and we were talking about where the dollar savings are
there. Oregon has been the most successful in getting significant
dollar savings and where they've gotten their big savings is
reduced caseloads on welfare. The way they've done that is to get
lots of waivers on the programs and move to a very client-centered
model where rather than well, you're in this program - AFDC, and
you're in that program - food stamps, and you're in that program -
job training, you sort of take the client, put together a program
that works for them, that gets them into a self-sustaining mode off
welfare. But that required three or four years of hefty investment
before they started doing that. It meant re-training all the case
workers to not be - do you fit this mold for this program - but
turning it upside down to a client-centered "How do we help you get
off welfare." And now their caseload growth is one of the lowest
in the country. We can't get there in three years even if we
decided to go there. But in ten years, we could get there. And
that's my problem is -- you know, how quickly can we make real cuts
--- this is to me even at the two hundred -- the fifty million
level two hundred sixty-three, real hard to achieve.
SENATOR LINCOLN: I have to share this with this group here since
you brought that up. When -- you know I've always been a proponent
of local hire -- local hire -- that's going to reduce our programs,
our need for assistance in state programs, if we can get job, jobs,
jobs. The housing authority in Rampart had eight houses to build.
Five days ago, they sent in eight out-of-state workers. One from
California, Washington, D.C., two from South Carolina, Boston --
eight -- one person got hired from Rampart to build houses that
people have been building for centuries on their own. And we ended
up with two from in-state out of Rampart - eight from the Lower 48
- one from Rampart. Now, how are we ever going to come to where we
can say that we will reduce state spending if we don't, somehow,
master this local hire program that we've got. And that's why I
really have been pushing the income tax, too. Here's eight folks
who are complaining about their per diem rate -- they're getting
per diem and they're going to be done with this job and they're
going back to their respective states, not leaving one nickel.
They brought 800 lbs. of food from California -- they didn't even
buy it in Alaska -- shipped 800 lbs. of food from California to
Rampart.
CHAIRMAN ROGERS: Maybe we should make -- you know, the only place
where we can get 100 percent local hire is the legislature -- maybe
we should make every job for the state an elective office; you've
got to be a resident in order to....
MR. GORSUCH: Should use the force account.
MR. LUDWIG: This is what happens when you contract work out.
(Laughter)
SENATOR LINCOLN: Whoever did that.... But I think that we need to
-- I know that it will be a hard sell to the general public to say
flat. I've tried that. To say we're staying flat means we are
going to have a real reduction - and they say sure. Flat means
that you don't....
MR. GORSUCH: It means that we're going to (indisc.) the dividend
flat, and they say "no way in hell."
SENATOR LINCOLN: No, I -- no, what I've heard is I've heard with
that $500 for the dividend and people are saying, "Well, we know we
have to do something." But I hear over and over again -- I know
some of you don't (indisc.-coughing) for the income tax, we've got
to put that income tax in -- we've got to put that income tax in --
and those are coming from urban folks. We've got to put the income
tax back in. So, I think that we're foolish if we sit around here
and say that, you know whether it's -- what's right and what's
politically feasible -- I think we have to say what's right -- what
is right, and then the politically feasible is something that the
legislature is going to have to deal with. But I -- I know that --
Sean, maybe you don't believe that we did have -- that had enough
cuts last year. There were cuts last year, but how do you sell
that to the public. I don't think the public did feel that there
were cuts. I think that they felt that maybe there were increases,
so somehow this body when we're done, we have to show that yes, in
fact, that a 9 percent decrease, or 11 percent decrease in
services. That's going to be the hard sell if we do (indisc.)
flat.
MR. GORSUCH: I'm sure....
SENATOR LINCOLN: Pardon.
MR. GORSUCH: How does the public know. Where do they get their
information. What -- how are they expected to know -- I mean...
SENATOR LINCOLN: Well, I think that if they....
MR. GORSUCH: ....legislators being in session, some of them aren't
sure.
MR. LUDWIG: (Indisc.) there's so much arguing and different
numbers thrown around and.....
SENATOR LINCOLN: I think that's why -- when I say that we have to
sell that to the public -- we have to let them know when we say
flat, what that means. And it doesn't mean that there isn't a
reduction. And I think that's up to this group, or maybe -- well,
I think it is up to this group....
MR. GORSUCH: I think we could show -- I think we could easily show
$100 million reduction in next years budget if we counted reduced
federal funds -- $100 million budget cut. Well, that isn't exactly
what we've been talking about, but it would show $100 million
budget cut, and yet you turn around and say you didn't include the
federal dollars. But you can't have it both ways -- we're trying
to work on state money, not on federal dollars. But again the
public gets confused. They say well the federal -- Senator Stevens
was successful in modifying program x, and we got a little extra
money here in highway dollars so the federal spending went up.
SENATOR LINCOLN: Well, you might just have the opposite happen,
too (indisc.) that when you -- those that would like to see at $200
-- I mean 200 million, that the general public might say you cut
too deep -- what are you doing -- that's my front yard.
MS. MCCONNELL: I think one of the -- one of the -- I think there
are a number of different kinds of measures the public is going to
take as we make progress to implementing whatever plan we come up
with. One of which will be the spending level. I think another
one that we can really focus on that -- that would give the public
some public of where we're headed is some pretty crisp targets on
the amount of the fiscal gap, itself. And people are familiar, I
think, pretty -- pretty much with the half a billion dollar fiscal
gap, and one of the tests, I think we can hold ourselves to, both
in the preparation of the budget and the legislative evaluation of
the budget and as the public saying well, are you living within
your means now, is if we go from 520 million to saying that -- that
the amount should be next year is -- we find it's -- these
scenarios both as coming in around a 300 to 350 level, then we take
it down to 100 or whatever. I think that is a measurement that
could be used to help define whether we are making any progress for
some of these fiscally responsible actions.
MR. GORSUCH: The problem with that Annalee is the gap widens every
year by an additional 50 to $100 million, so you cut 100 million
and the gap is still 500 million, and say you guys didn't make any
progress at all in closing the gap. So I just --- I --- I agree
that that's scenario is for us to focus on, but even that has its
difficulties.
MS. MCCONNELL: I don't think we're going to find any one thing
that will do it all; that's sort of like the same idea of packaging
all the different tools. It's not going to be any one thing that
the public is going to hang us or praise us for.
MR. GORSUCH: By the chairman's persistence to keep us working.
REPRESENTATIVE PARNELL: Brian, is -- are we answering the right
question -- I mean, when you ask us are you willing to live with
budget cuts of x amount (indisc.) the exercise with the dividends,
is that the question we want to ask or do we want to ask what do we
think the public will live with.
MR. GORSUCH: Brian, make it just easy and go down by 10 percent of
each fund.
CHAIRMAN ROGERS: Just go down by 10 percent?
MR. GORSUCH: It's just --- it's an arbitrary, but it's close
enough and it's a magnitude type of thing.
MR. POURCHOT: You know, this is an age-old question though about
what you think the public would live with and I -- I -- everybody's
had an anecdote here and let me tell mine. Coming back on the
plane Monday night, I sat next to a guy who worked for the federal
government -- didn't pay close to attention ostensibly to state
politics. In the course of an hour and 20 minute plane ride, he
went from criticizing the dividend, to loving the dividend, to
blasting an income tax, to recognizing the value of income tax, of
blasting the way we were perceived outside, to reveling in what a
great (indisc.) system we had in Alaska and I mean, he was -- you
know, an educated person and it just reminded me again of I don't
think there is an answer to that, I mean, part of it - it's
cybernetic and some of it is how much is sold and how much comes
back and people are of lots of minds, even the same people have
lots of minds. And it's this whole thing about what leadership is
and, you know how does state government lead people versus how does
state government respond to people. Boy, this is -- if there ever
was a case, I think is it where just like our exercise is trying in
some way to convince the powers that be -- the legislature, the
Administration -- you know, I mean, we're an educating body, we're
an advocacy body and it's not, you know -- it's not just a simple
matter of being a reflection of what (indisc.) think, somebody's
thinking right now, at this point in time. (Indisc.) as people
start to kind of weighing the alternatives, so I guess I'm -- I
think there's some things that (indisc.) as far as taking away
peoples' dividends to zero, and putting an income tax in tomorrow.
But -- but I think there's a lot of education and possibly
accommodations by the public, kind of well, I don't like this but
we concede -- in Judy's words, everybody's got to give up
something.
REPRESENTATIVE PARNELL: I guess -- I think -- I mean you've
illustrated the extreme (indisc.). The extreme is that this body
would be a mirror reflection of public opinion, and yet (indisc.-
coughing) asked to do (indisc.). But the other extreme is to
assume that because we have all this information, that because we
have some knowledge that we can - we have all the answers. And
that our will should be reflected to the detriment of the public.
And I think there's a balance between the two. That's kind of what
I was trying to call attention to was to keep that in mind in this
exercise.
CHAIRMAN ROGERS: I think all of us are -- that it's a balance
between what we think is right (indisc.).
MR. POURCHOT: Ya, and I'd be the first to say that -- that we need
to put whatever our recommendations are through some sort of
political reality.
CHAIRMAN ROGERS: I think -- I guess I think whatever our
conditions go through a political reality from October 1 to May 21.
UNIDENTIFIED SPEAKER (male): Exactly.
CHAIRMAN ROGERS: So, let's try this straw poll....
MR. LOESCHER: The political reality is you got me on stage at the
AFN Convention with you.
Laugher
MR. LOESCHER: And I've been think about what the hell I'm
gonna....
CHAIRMAN ROGERS: I thought I was up there alone. I feel a whole
lot better....
SENATOR LINCOLN: Well, I'm on a panel to answer the questions.
MR. LOESCHER: No, you're moderating, I think. No,...well, anyway,
we're in there. Now Mr. Chairman, I wanted to just say something
about the cuts and this dividend thing. You know, the people --
the people I'm closest to, you know, they don't believe that state
government is anywhere near them - you know in rural Alaska - bush
Alaska and rural Alaska. And you know you go there and you really
-- you struggle to see it, but you know you look at the budget cuts
and I'm having a hard time -- I want to get to where you are, but
I really need to do what Annalee says, what's the list for 200
million. If we could identify a list, you know of areas that the
legislature and the Governor could look at, I'd be more
comfortable, you know, getting closer to where you're at, because
on the flip side of that, we got some real hard needs that we need
-- we need to make sure that even if they're frozen, at least
they're in the game. But if you -- you begin cutting, it may not
be meaningful to us. For instance, power cost equalization -- I
gotta have that. That's a survival issue and it's just there --
and it's just there -- we gotta have energy in our -- in our
communities. The basics -- I gotta have schools -- I gotta have
teachers in rural Alaska. That makes a difference, because we're
not going progress in our segment of the community unless we have
those schools. Our people gotta find a way out or else find a way
to make what we got going there happen. And if education takes a
cut, I got a problem. If it stays the same, we might be able to
survive. But we got to make sure the school buildings are not
going to fall down in the meantime. So, we gotta have some help
there.
UNIDENTIFIED SPEAKER (male): Bob....
MR. LOESCHER: Let me -- let me finish, you know, because it makes
a difference on how I look at the permanent fund and then these
cuts. The cut business -- what I think what our people would say
is you know, we're willing to -- to look at the cuts but we gotta
be guaranteed some kind of a contract here -- a social contract
with the state that certain things are going to be there and
they're not going to get eliminated or cut out of existence or a
meaningful benefit. And if we can say that alright, we're gonna
endure some taxes and we're going to stand behind these statewide
taxes for marine fuel and all these things, we're also gonna -
gonna -- we're gonna have a permanent fund cut, but we're also
going to have this -- we're going to have our schools, we're going
to have our energy, we're going to have, you know, these things
that we need -- we can sell. And our people don't need much --
really we don't. But the things that we need gotta be there. So,
you know, I'm having a hard time getting where you're at, but I
think if we knew what the list was, I think we'd be much more
comfortable at looking at harder cuts. And then the permanent fund
thing, you know our people know that -- that things cost money, but
permanent fund is -- has brought some cash to the rural economy and
it's there, but if it's half of what it's been, I bet you we can
live with it. There may be a lot of crying about it, but -- but
combined with other cash and inputs that are happening to rural
Alaska, I think they can survive. But that's the way, you know, I
think I'm looking at the -- you know, permanent fund dividend as a
way to soften this pattern and have a tradeoff and I think we can
sell it politically and I think that we can sell it in real life,
as well. But I wanted to say those two things because I didn't
want Hugh to feel like we're not trying to get where he's at,
because I don't think -- I think we gotta make some meaningful cuts
if we're gonna get the rest of it.
CHAIRMAN ROGERS: Bob, are you saying that the school
superintendent or corporate executive in bush Alaska needs power
cost equalization?
MR. LOESCHER: Yes. We can't run our schools without energy and
that power cost equalization makes a difference of whether or not
we can get diesel there or have maintenance for the power plant.
It's a survival issue - we gotta have it.
CHAIRMAN ROGERS: And I don't disagree with the need for the
program, but I disagree with you as to whether the program needs to
be -- pass out a public benefit to the affluent. I think if we're
in a position where we're having to trim back, a program that cuts
the power bill of somebody who's making $100,000 a year, in my
book, goes a lot sooner than a lot of things that affect people of
lower income levels. And (indisc.) structure of PCE doesn't allow
affluence testing -- using the new jargon -- or needs basing, based
on the old, but one could craft a power cost equalization program
that did meet the needs of the needy without giving a gift to the
affluent.
MS. NORDALE: Mr. Chairman, the reason the power cost equalization
is set up the way it is, is really to deal with the point that Bob
was making; and that is to ensure that the plant survives -- the
generation plant -- the distribution line survive. In a village,
you may have a few salaries that in an urban area are deemed part
of the affluent society, but they're not enough to sustain a power
plant and I think that if we make recommendations that are likely
to be so destructive of the power plant in these villages, that
we're not making a whole lot of sense. In the same way that the
affluent are getting a subsidy through the entities. Now the state
is funding the railbelt intertie and it means a great deal to the
rates that the ratepayers pay in the railbelt, and you know, maybe
we should say that all of the intertie money should be repaid
through the rate structure if we're going to attack power cost
equalization in the way of structure at this particular point. I
think that you know, we've got a balancing of urban and rural
interests in power through these programs, so I -- you know I -- I
don't want to see all the hits of these budget cuts on people who
have relatively low or almost nonexistent cash incomes. And I
think one of the problems I have -- I'd like to get to the $200
million cut right away, but I have a real problem getting there
because I have a real strong sense that where we would get would be
the cuts in PCE, the cuts in welfare, cuts in schools, cuts in
things that are really quite fundamental not cuts in arts and
humanities, you know, God knows what else we've got going... I like
supports arts and humanities, don't get me wrong, I think they're
wonderful programs, but to me they're not meat and potatoes on the
table.
CHAIRMAN ROGERS: Sean.
REPRESENTATIVE PARNELL: I just want to get back to something you
were saying, Bob (indisc.). You indicated that you wanted to go
you know with Hugh to 200 million, but you wanted to see the list
of cuts to get there because you were afraid that they were going
to fall unfairly or unequally on rural and bush Alaska. And first
my point before with Annalee was we also have to see a list of cuts
for the ceiling here because there will be cuts. And I just
thought of this as you were talking, but it appears to me that
rural or bush Alaska gets hurt more if we keep frittering at the
edges if we cut out as opposed to holding the line at the ceiling
level. I say that because if we have to --- if we say we have to
get 80 million a year, you start looking for an $80 million
program. At that point that would impact people statewide and you
know, I'm not going to suggest this necessarily, but if you get rid
of one program like longevity bonus, for instance, as opposed to
picking away at rural or bush health aides, AFDC benefits, you know
just little -- instead of picking away at the edges, to get the
kind of cuts that you and I have been talking about, you're talking
about a surgical strike on a program -- one program. And then that
gets to Mary's concern, too. Then you get into the balancing --
(indisc.) concerned about PCE definitely, but I also wonder if
picking away at the edges is more discriminative to rural and bush
Alaska, and ultimately to everybody, including urban dwellers.
MR. LOESCHER: Mr. Chairman, you know that's the reason I think
Senator Lincoln came down on the $500 on permanent fund dividend
and you know, I basically feel the same way. You know, picking
away at the edges really hurts us. The way it's been going the
last three years, we feel pain, but you know taking away half of
the dividend - down to $500 - you know, we could live with, but we
can't live without the school and we can't live without the
powerhouse, we can't live -- you know we need some -- you know
maybe we could phase down local government funding and all that,
and have them -- like Mary has a package here for taxes in the
unorganized borough, maybe that can help them in another way. But
-- but, the $500 -- the permanent fund dividend thing is an easy
way for us to absorb the loss, you know, the dollars. It's harder
the other way. It really is difficult and the chairman has a
problem, you know with the -- the concept of the PCE thing, but
it's -- it's a parallel to everything else. Quite frankly, it's
the infrastructure cost for energy facilities. I was a director of
a utility -- (indisc.) Regional Electrical Authority. To meet
government standards and whatnot today, the capital costs that you
have to amortize -- the power lines and the plant and then you have
no (indisc.), and the school and the water and sewer facilities,
which we're so hung up on -- and rightfully so to get installed in
rural Alaska -- that's a large part of a community's power
consumption -- maybe half -- just the school and the water and
sewer plant. So, it's not a matter of the affluent, it's the
infrastructure that we don't have and then what we gotta pay for,
and the PCE thing offsets that infrastructure cost. It really
does. But you can parallel that with -- we've got several other
things that are going on in rural and bush Alaska. But the soft
spot to us is that dividend program. I'd have a hard time going
back to our people and say "hey, they just cut the PCE and they're
gonna cut back on the school, but they increased your dividend."
It don't make any sense. That's the hard part. The soft spot is
that dividend to us.
MS. MCCONNELL: The irony is that the income tax would make all of
the programs needs-based immediately -- to some extent -- I mean,
obviously you've got the exemptions that they'll probably figure
out way to avoid it, but if you wanted to make PCE and longevity
bonus and everything else needs-based, you could (indisc.).
CHAIRMAN ROGERS: Not PCE, but I think the combination of
infrastructure and....
MS. MCCONNELL: Not directly, but in the sense that the person --
the school superintendent who's making more than $100,000 is going
to pick up a bigger share, instead of doing it through a PCE
adjustment and having the administrative cost for making that
needs-based, or longevity bonus -- and trying to make the longevity
bonus needs-based, you effectively needs-base them all at the very
same time with one administrative....
TAPE 3, SIDE A
CHAIRMAN ROGERS: Are we ready to straw poll on this yet?
SENATOR LINCOLN: Ya, I am ready. But before we put our vote up
there, I just want to say that remember that over and over again
what we heard and what was written in also from the general public,
is if we're going to take cuts, there are some cuts that are done
fairly across the board for everybody. And I don't think there is
any program that is more fairly distributed and evenly cut when we
talk about reductions than the PFD. I mean that affects every man,
woman, and child. There isn't anyone who says, but my neighbor got
hit more than I did and -- so, I want us to think about that as
we're voting on this.
CHAIRMAN ROGERS: But I think people have the dividend in a
separate class from other state spending. When they think of
programs, they don't think of the dividend as being government
spending that's....
SENATOR LINCOLN: Well, I'm separating it out as well. I -- I mean
we through the expenditure part....
REPRESENTATIVE PARNELL: And you run into the same thing -- ya, and
you run into the same thing with the income tax. It's the same
thing -- don't reduce my dividend until you get government spending
under control. I mean it's the same -- same argument different....
UNIDENTIFIED SPEAKER (female): Who goes first.
MR. LUDWIG: Get 'em all early.
UNIDENTIFIED SPEAKER (male): Can we talk about voting here for a
second. You know, there's somewhat of a difference here on your
timing. You -- if this is geared to FY 99, it's a different kind
of question than a budget. I think most of us assume budget stuff
-- politically rationally, financially, but this in a lot of
people's mind is reversed. In other words, depending on the
package, the objective -- a lot of people's objective would be how
late -- how late can you delay reducing people's dividend before --
that you -- before you need the money or the combination of monies
to fill the gap. So, I guess I would start out by asking the
question do we want to set this up as FY 99, as opposed to over the
10 years what - what reduction of dividend do you think is
desirable/tolerable -- politically realistic.
CHAIRMAN ROGERS: I think that if you remember the legislation
called for us to have a three year plan, five year and ten year
plan. I think that we probably need to do the same thing at the
five year and ten year level. But because (indisc.) first three
years, because I was trying to parallel what we've just done on the
budget. The Rieger plan (indisc.) if SB 51 had passed would bring
it down to -- what -- Rieger, SB 51 -- Rieger would be -- this is
Rieger with (indisc.). Pure SB 51 brings it down further. That
one would put it right about here, I think....
MR. POURCHOT: One other complication is that there's -- there's
again -- there's -- there's kind of a couple sub-questions here.
One is -- because recognizing now the legislature has had zero
tolerance for touching any permanent fund earnings -- one question
is when and how much and to what extent do you want to use
permanent fund earnings in the budget balancing scenario? That's
not the same question as reducing the dividend; because in the
front -- in some of these years, you could actually use $100, $200
million of earnings without reducing the dividend.
CHAIRMAN ROGERS: So that -- I think that's a separate -- a
separate vote will have to be on what proportion of permanent fund
earnings is acceptable and then we just sort of take all of these
and roll them together to see if the majority package on each one
adds up to.
MS. MCCONNELL: It at least tells us what's off --out of the realm
of possibly and I think that's helpful.
CHAIRMAN ROGERS: And what I'm assuming is that for all of us
there's a range in here -- there's an acceptable range and
that's....
UNIDENTIFIED SPEAKER (male): A tolerance -- a tolerance -- that's
....
MR. POURCHOT: That's why I guess I would to not be too fixated on
FY 99 per se, but you know, recognizing that that could be 00, 01 -
- there's....
MR. MOTLEY: Part of the long term requirements are a larger
permanent fund. Until you -- it's not just that you're cutting
what's going to happen under current law, it mushrooms under
current law. And once you get over $1000 on that first dividend
after growing there's a magic number there that's going to be a
little dangerous, so waiting too long carries risk as well.
UNIDENTIFIED SPEAKER (male): Waiting until next year carries....
CHAIRMAN ROGERS: Next year could very well....
MS. MCCONNELL: Ya. I want to know how many people in this group
went whew when they announced it was under $1000.
(Laughter)
MR. GORSUCH: How many were irate when they announced, period.
This idea that that's independent of the state's financial position
is actually ludicrous in my judgment. To have this as an automatic
distribution with no real consideration about the financial -- the
financial plan is just...
MR. MOTLEY: Some of us found the 18 billion and the 14 1/2 percent
kind of interesting, but....
CHAIRMAN ROGERS: Are you ready to vote?
UNIDENTIFIED SPEAKER (female): Ready.
CHAIRMAN ROGERS: For how many people is $1100 -- the current law
would be about $1100 or a real of about $1042 for the dividend --
oh, Judy gets to vote here, too --
(Laughter and chatter)
CHAIRMAN ROGERS: ...FY 99 permanent fund dividend, Judy -- we've
got these current levels, this current law, we would be paying out
624 million, which is about $1100 or $1042 in today's dollars, and
then if we cut the dividend by 9, 18, 27, 36, 45, or 54 percent to
these levels, that's the (indisc.), the nominal and the real, and
we're seeing for each person -- seeing for how many people -- these
levels are too high and for how many people these levels are too
low to find out what may be the most acceptable range for the
dividend three years from now.
MS. BRADY: Three years from now.
MS. MCCONNELL: Approximately.
MR. POURCHOT: Approximately.
CHAIRMAN ROGERS: So, for how -- we have 11 people voting now, so
for how many people is current law too high? And for how many
people is it too low?
Note: Too many people talking at the same time to discern who is
saying what.
UNIDENTIFIED SPEAKER (male): I didn't vote for that one.
UNIDENTIFIED SPEAKER (female): Okay.
CHAIRMAN ROGERS: What I'm saying is this isn't too high. I could
accept a plan that has that, but it's not too low for me -- that
is, I can accept lower figures than that.
REPRESENTATIVE PARNELL: Ya -- I mean, I'm in that vote, too. I
just didn't understand that.
UNIDENTIFIED SPEAKER (female): Ya, I don't understand that, too.
REPRESENTATIVE PARNELL: Maybe we should do this differently.
CHAIRMAN ROGERS: What I'm assuming is that....
MS. MCCONNELL: What's acceptable?
CHAIRMAN ROGERS: ...that between X and Y, that for each of us
there's a range that's acceptable and....
REPRESENTATIVE PARNELL: Well, that's acceptable. I mean the
current pay out ....
CHAIRMAN ROGERS: Is not too high for you?
REPRESENTATIVE PARNELL: It's -- it's in an acceptable range.
CHAIRMAN ROGERS: Okay, so if it's in the acceptable range....
REPRESENTATIVE PARNELL: What does that mean for too high and too
low, though.
CHAIRMAN ROGERS: Oh, if it's outside your acceptable range because
it's too high, you should vote here. If it's outside your
acceptable because it's too low, you should vote there.
MS. MCCONNELL: So, you're saying if a plan had that, that alone
would be enough to kick the plan into the unacceptable.
CHAIRMAN ROGERS: Right. Ya, in other words if the plan has an
$1100 dividend, for 10 people, the way I thought we were counting
it -- that's too high a dividend and the plan is unacceptable.
MS. BRADY: Because of the fiscal gap. I wouldn't care if we
didn't have a fiscal gap...
UNIDENTIFIED SPEAKER (female): It means that's acceptable for you,
then. This is acceptable.
UNIDENTIFIED SPEAKER (female): You can accept it....
CHAIRMAN ROGERS: Okay. At a $1000, for how many people is that --
is 947 -- for how many people is that too high as part of the plan?
One, two, three, four, five, six, seven, eight. And for how many
people is that too low a dividend to be acceptable in the plan?
For a $500 million pool, a $900 dividend, 852 in today's terms, for
how many people is that too high a dividend to be part of the plan?
One, two, three, four, five, six, seven. For how many people is
that too low a dividend to be part of the plan? Eight hundred
dollars -- for how many too high a dividend to be part of the plan?
One, two, three, four, five. For how many people is that too low
a dividend? A $700 million -- a $700 dividend in three years, for
how many people is that too high a dividend to be part of the plan?
One, two, three, four. For how many people is that too low a
dividend to be part of the plan? A $600 dividend in three years --
for how many people is that too high a dividend to be part of the
plan? One. For how many is that too low to be part of the plan?
One, two, three, four, five. A $500 dividend -- for how many
people is that too high to be part of the plan? And for how many
people is that too low to be part of the plan? One, two, three,
four, five, six.
REPRESENTATIVE PARNELL: Brian, if we already voted in that too low
column, (indisc.) we should be voting now, right?
CHAIRMAN ROGERS: You should be voting in every (indisc.).
REPRESENTATIVE PARNELL: Ya, make it seven then. Sorry about that.
UNIDENTIFIED SPEAKER (male): Seven hundred's too low but five
hundred isn't....
(Laughter)
UNIDENTIFIED SPEAKER (female): Take him off the Finance Committee.
(Laughter)
UNIDENTIFIED SPEAKER (female): Or leave him on....
(Laughter)
UNIDENTIFIED SPEAKER (male): Well, this helps me (indisc.)
reaching consensus there, but it also suggests that there may be a
set point between $700 and $800 that's got the highest number.
MS. MCCONNELL: May I ask a follow-up question which is, if we were
to just take each hundred as a group, just to get a sense of where
people would feel most comfortable...to see if that (indisc.-
coughing) a different piece of information. So, if you thought in
the area of 1,000 to 1,099....
UNIDENTIFIED SPEAKER (male): I'd feel real good about $1500 a
month.
(Laughter)
CHAIRMAN ROGERS: So, it's the hundred -- in this column, it will
be between 1,000 and 1,100 and so on.
MS. MCCONNELL: Which way? Well, let's do it so that in the 900
bracket is 900 to 999. That's a little easier.
MS. BRADY: You know what's interesting about this ... why we're
voting this way. Actually, it's kind of -- are you voting
personally or (indisc.) or are we voting because we think... it's
going to be interesting....
UNIDENTIFIED SPEAKER (male): Sean, is strictly reflecting his
constituency.
(Laughter)
UNIDENTIFIED SPEAKER (female): Are you up for re-election.
MS. BRADY: I was listening to my kids -- you know the radio said
it was going to be 1,400 -- one of the radio stations started that
rumor, so we had a bunch of 20 to 24-year-olds at my house drinking
beer....
UNIDENTIFIED SPEAKER (male): Celebrating?
MS. BRADY: You know, no -- no -- talking about it -- they actually
thought the dividends were pretty dumb. I mean they were glad to
get it. They're all making 12 - 14 bucks an hour, but they kind of
know --- now I don't know what they actually say if you tried to
take it away from them, but (indisc.-laughter) talk about it, they
know that no one else gets this and this is kind of just
essentially....
MS. MCCONNELL: (Indisc.) going to be sober when we take it away
because the alcohol tax will....
(Laughter)
MS. BRADY: I don't think they'd mind a bit -- they thought that
was a great idea. Did not bother them a bit....
CHAIRMAN ROGERS: Okay, most comfortable. How many people would
they be most comfortable in that range? Nine hundred to a thousand
-- most comfortable. Eight hundred to nine hundred -- most
comfortable.
SENATOR LINCOLN: This is in a three-year period?
CHAIRMAN ROGERS: Three years from now.
UNIDENTIFIED SPEAKER (male): Three years.
MS. NORDALE: Make it two.
UNIDENTIFIED SPEAKER (male): What?
MS. NORDALE: I didn't put my hand up.
CHAIRMAN ROGERS: Which one were you?
UNIDENTIFIED SPEAKER (male): Eight/nine.
CHAIRMAN ROGERS: Eight to nine? Seven hundred to eight hundred.
Three and a half.
UNIDENTIFIED SPEAKER (male): Four.
CHAIRMAN ROGERS: Six hundred to seven hundred. One, two, three,
four -- so Hugh, you were in that last one?
MR. MOTLEY: Ya.
CHAIRMAN ROGERS: Eleven -- anybody not vote (indisc.)?
UNIDENTIFIED SPEAKER (female): Mr. Chairman..
CHAIRMAN ROGERS: Yes.
MS. MCCONNELL: (Indisc.) those two together (indisc.) idea that
the seven to eight hundred range....
UNIDENTIFIED SPEAKER (male): Or at least six hundred to eight
hundred.
UNIDENTIFIED SPEAKER (female): Six to eight....
CHAIRMAN ROGERS: So, we're looking at probably somewhere around a
30 percent cut in the dividend in real terms.
MS. NORDALE: I would be most comfortable if we fixed the dividend
(indisc.) and simply put a lid as I had proposed a couple of months
ago. I (indisc.-coughing) most comfortable seeing the dividend
then decline as the population demand against the fund grew.
CHAIRMAN ROGERS: I think we have a separate set of voting....
MS. NORDALE: Exactly. Exactly, but I just wanted to explain why
I felt most comfortable in that 800 to 900 group.
CHAIRMAN ROGERS: This gives us a sense of where to go...do we want
to do the same thing for ten years out.
MR. LUDWIG: I'd have a different answer.
CHAIRMAN ROGERS: I think most everybody would have a different
answer, I think ten years out.
UNIDENTIFIED SPEAKER (female): How much more money does that give
us then to solve the fiscal gap?
CHAIRMAN ROGERS: Well, we -- 150 million.
MR. GORSUCH: It's 150 million that compounds each year back into
the principal unless we're spending more (indisc.-chatter).
Note: Too many people talking at the same time.
CHAIRMAN ROGERS: We're going out to 05 and under current law, the
dividend would be $1500 in nominal terms and it would be....
UNIDENTIFIED SPEAKER (male): Why don't we just do the comfort
thing up there -- same question.
CHAIRMAN ROGERS: Twelve hundred (indisc.) -- that's where we are
(indisc.).
Indiscernible chatter.
MS. BRADY: You know what would be the best thing to do -- as I
walked out of the office, my secretary just handed me this thing
that says that if you put $2,000 a year in your savings account
that 21, 22, 23, 24, 25, 26 -- by the time you're 65 years old,
you've got $470,000 in the bank. You know what we should be doing
for every Alaskan is doing that and that's it -- put it in the bank
and when they get to be 65 years old, they're rich and we don't
have -- I mean -- I mean, for $6,000 and they can't touch it see
until they're 65 -- literally we could have from now on we would
have no poor people, we would have no -- I mean there would be
(indisc.) -- that's amazing....
MR. POURCHOT: We'd run it like the teachers fund (indisc.) let the
state....
Note: Too much chatter to discern who is saying what.
UNIDENTIFIED SPEAKER (male): And they'd just figure they'd be dirt
poor until they're 65....
MS. BRADY: Well no they don't, because they could probably....
SENATOR LINCOLN: What they'll say, Judy, is I'll decide how to
invest that money. If I want to put it in the bank, I'll put it in
the bank. Or if I want to spend it, I'll spend it. You don't
decide for me.
MS. BRADY: I couldn't believe this -- I don't believe this. How
could -- why did I do that -- what is the matter with me?
Note: Indiscernible Chatter
MS. MCCONNELL: While Brian is doing that, the Department of
Revenue took the -- we had a lot of questions when they did their
presentations about the economic effects of various measures and
people had pointed out some things that didn't look right. They
have done a recalculation and some of the -- these are the new
charts that -- that would go into what had previously received from
them, and their explanations actually look quite logical for the
difference they -- they had.... Some of it came from -- there it
is -- some of it came from misunderstanding the ISER Report which
had combined the effect of cutting the longevity bonus with the
permanent fund dividend, so they had to split that out in order to
clean it up to be just the dividend impact. And the other thing
that changed on the sales tax was the original study that was done
had some different assumptions about what would be exempted from
what we had asked them to do and so when they re-ran it with
different exemptions to conform to our request that slightly
changed the impacts on the -- on the -- on the sales -- the sales
tax. So those were the two reasons why these charts changed.
MS. MCCONNELL: We asked them to compare $300 million all the way
across, since 24 million of that relates to (indisc.) that means
that Alaskans would -- would have 276 -- there'd be less in the
Alaska economy because we would be paying (indisc.) sales tax
instead of paying to (indisc.).
UNIDENTIFIED SPEAKER (female): Oh, oh, oh.
MS. MCCONNELL: The rest of the impact -- the 24 -- is the amount
that we would (indisc.) to the visitors in terms of purchasing
power.
Note: Conversations are indiscernible.
MS. MCCONNELL: I see what you're saying. Ya, the 24 would be in
the Alaska economy in that it's collected by local governments or
by the state.
MS. BRADY: Brian, what do you want me to just do first thing in
the morning and is anybody going to be here at 8:30 in the morning.
CHAIRMAN ROGERS: I assume everybody's going to be here.
MS. BRADY: Well, you're not going to be here.
CHAIRMAN ROGERS: Except me. I'll be here by 9:30.
MS. BRADY: Is everybody going to be here at 8:30 in the morning?
What do you want us to do first thing in the morning?
CHAIRMAN ROGERS: I would say do some editing, take Lee's.
(Indisc.).
MS. BRADY: Do we have any other documents?
CHAIRMAN ROGERS: Are you ready to vote on FY 05 dividends. Let's
get it over with.
UNIDENTIFIED SPEAKER (female): Yes, yes, yes.
CHAIRMAN ROGERS: Okay, what we've got is if we do nothing
(indisc.-coughing) the dividend would be $1500 in FY 05, which is
$1150 in real terms. For how many people is that too high a
dividend? Fifteen hundred would be okay out there?
REPRESENTATIVE PARNEll: I'm just going to vote on what's too low
at this point.
CHAIRMAN ROGERS: Okay. So how many people would 1,000 nominal,
766 real be too high? Nine hundred too high? Seven hundred real -
- one, two, three, four, five, six, seven. Oh, I should have
asked, is this too low for anybody? Eight hundred nominal, 613
real is that -- for how many people is that too high? One, two,
three, four. For how many people is that too low. Nominal dollar
of 700, real dollar 536; for how many is that too high? For how
many is that too low? Nominal 600, real 460; for how many is that
too high? For how many is that too low?
MS. BRADY: Remember what your income tax looked (indisc.).
CHAIRMAN ROGERS: Nominal 500, real 383; for how many is that too
high? For how many is that too low? Okay, that gives us a rough
idea of what our target on the dividend pool might be. We start
losing people again between the $700 and $800 nominal. Okay,
going back to what the most comfortable level is for people, how
many is 900 to 1,000 most comfortable? Eight hundred to nine
hundred, using nominal dollars most comfortable? Seven hundred to
eight hundred most comfortable? Six hundred to seven hundred most
comfortable? Five hundred to six hundred most comfortable? So
again, we seem to be right around the same spot.
MS. BRADY: Ya, but more numbers (indisc.) this time.
CHAIRMAN ROGERS: Pardon.
UNIDENTIFIED SPEAKER (female): More down than up this time.
MR. LUDWIG: (Indisc.) other way, except I got confused on the real
and nominal (indisc.) stuff.
CHAIRMAN ROGERS: Okay, we've reached 6 o'clock. How many people
want to keep going? While we're on a roll (indisc.) do we want
to keep going for a little bit longer, or....
MS. BRADY: I'm outa here. I'm giving a speech on Anchorage ten
years from now.
(Laughter)
MS. BRADY: ....I went into this thing about how the Fiscal
Planning Commission had come out with their report ten years ago
and it's hilarious.
CHAIRMAN ROGERS: Let me try one more straw poll just to see where
we are. That's on the issue of permanent fund endowment at 4
percent. And the question is, for how many people would that --
would a plan that had permanent fund made into an endowment fund
with an annual 4 percent rate -- for how many people is this --
could they accept a plan with that and for how many people could
they not accept a plan for that.
SENATOR LINCOLN: Which is the scenario that we've got before us.
CHAIRMAN ROGERS: Which is an element of the scenario before you.
MS. BRADY: Are we not -- are we not accepting -- I mean are we
going just to use -- just is it the 4 percent we're voting on or
the whole concept?
CHAIRMAN ROGERS: The concept of -- maybe we ought to....
UNIDENTIFIED SPEAKER (male): Ya, let's back up.
CHAIRMAN ROGERS: The concept of permanent fund as an endowment
fund with an annual pay out rate.
MR. GORSUCH: That combined with other measures closes the gap.
Note: Indiscernible -- too many people talking at the same time.
CHAIRMAN ROGERS: But how many people would an endowment plan for
the permanent fund be acceptable in the final report? One, two,
three, four, five, six, seven, eight, nine, ten. And for how many
people is that not okay? Had enough voting for the night?
Note: Several individuals responded in the affirmative.
CHAIRMAN ROGERS: I need a count -- I didn't hear a majority on
that -- we just lost Lee. For how many people a plan without an
endowment? For how many people does a plan that does not have an
endowment potentially acceptable?
MR. LUDWIG: Is an endowment a constitutional issue or just....
Note: Several individuals responded in the affirmative.
CHAIRMAN ROGERS: For how many people would it be acceptable to
have a plan without an endowment? One, two, three, four, five,
six. And how many people is it unacceptable to have a plan without
an endowment? One, two, three, four. I think that tells us more
than the first vote by itself.
MS. FOUSE: We'll be on the fifth floor tomorrow, so take your
stuff.
Note: Indiscernible chatter to the end of the tape.
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