Legislature(1995 - 1996)
09/29/1995 09:20 AM 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
Friday, September 29, 1995
9:20 a.m.
Anchorage Legislative Information Office
Anchorage, Alaska
TAPE 1, SIDE A
SENATOR GEORGIANNA LINCOLN: ...of the commission on such and such
because the legislature is not -- can pick and choose and more than
likely will pick and choose through the list of op... -- not
options but the list that would be provided and I don't know how
administration would do. But I didn't hear an income tax in there
and I really do feel that one of the big pieces of the pie is an
income tax. I don't want to say slash sales tax because I think
that's a separate issue, but I think an income tax and sales tax
should be at least placed up there on the list of actions.
JUDY BRADY: We had talked about doing an income tax after the
budget was brought into line and that we could -- I know that Mary
doesn't like triggers very much...
SENATOR LINCOLN: It's on the I think 1902...
UNIDENTIFIED SPEAKER (Male): 2002
MS. BRADY: Depending on which one you look at.
MARY NORDALE: You know, we've got the stuff that Pat did and he's
made revenue raising principles and recommendations and I think
that we can draw - we can add to the list that - Annalee is putting
up there on the board as we go through these documents to determine
what is and I think income tax is one of them.
SENATOR LINCOLN: And I still would like to discuss that income tax
a little bit more. Is the income tax out there so far and I think
02 is too far out. Is it out there because of political
repercussions?
MS. NORDALE: It's out there because it isn't needed.
PAT POURCHOT (Male): It depends on your definition of "needed."
SENATOR LINCOLN: But if -- ya, it depends on whether we're going
to take Hugh's 200, 200, 200 scenario or what the mix is going to
be.
MS. BRADY: Well, for the same reason -- you know for political
reasons. Everything is for political reasons. We say we can't cut
the budget for political reasons or we can't cut the dividend
because people are used to it and we can't -- I mean we're running
(indisc.). We could say the same thing about everything we try and
do here.
MS. NORDALE: That's why we've been at such a standstill and that's
why we have have to take some rather - make some rather harsh
recommendations.
MS. BRADY: The other thing to keep in mind when we say the lowest
20 percent of income people, those are the people who also get --
and it's usually even lower than that -- they get a tremendous
amount of state money siphoned toward them. And it's a personal
(indisc.). We've got all kinds of -- every time we want a study
about this, people are always (indisc.) the amount of money that
would go per person. And I - so I guess to say - I guess we have
to be a little careful about always say were gonna get the rich
because really the majority of the state are not the rich. They're
the middle people that are making, you know the $14 thousand a year
and up and around $25 to $30 thousand a year. Other people were
talking about taxing and people were talking about (indisc.). So
we've got to be real careful about that too. (Indisc.) just to get
the rich. It's not the poor person or the oil company executive.
Those are both ends, it's all those folks in the middle that work
in service stations and work in Walmarts and work -- you know
managers in stores. They're the ones who are talking about taxing
so (indisc.). The oil company executives so we don't have to worry
about it.
MS. NORDALE: (Indisc.) the interesting thing is that (indisc.--
coughing) I heard testifying in favor of the income tax are those
middle people, the ones that usually are very vicious in their
arguments opposed to income taxes (indisc.).
MS. BRADY: Well again, we've heard 15 people. People don't mind
state income tax as long as you can cut the budget but you think...
MS. NORDALE: People have been talking to me for the last ten years
about this -- from all walks of life.
SENATOR LINCOLN: I think we're fooling ourselves when we say that
people -- I keep hearing that people don't want an income tax and
with my bill -- I mean people have been writing, people have sent
POMs, people have been contacting me from all over Alaska
(indisc.).
MS. BRADY: Again, when people see that, you know, if we - if we
cut the dividend, if we cut the budget and if (indisc.) dividend,
income tax it'll work and work. But if people just think they're
gonna have to pay more and nothing else is gonna happen they're
gonna say "Well, I'm sorry."
UNIDENTIFIED SPEAKER (Male): Right.
UNIDENTIFIED SPEAKER (Female): Don't think so.
UNIDENTIFIED SPEAKER (Male): Not.
MS. BRADY: (Indisc.) package is people seeing everything at once
and they'll (indisc.).
SENATOR LINCOLN: It goes back to what should this state be
providing its citizens? What's the basic services? I mean we go
from one spectrum of this scale to the other. But what should the
state be providing to its citizens in the state of Alaska. That's
what we have to focus on. And than all these other things that are
around this table, some might feel are frivolous or unnecessary or
not a part of our charge. Then those are things that we need to
address -- that there are basic services that we have a
responsibility to the citizens in this state.
BRUCE LUDWIG: Now you're sounding like Hugh now.
SENATOR LINCOLN: Education, education, (indisc.)
MS. NORDALE: The constitution mandates education, local
government, natural resources, administration, courts legislature
you know. That's the skeleton.
SENATOR LINCOLN: UNIDENTIFIED SPEAKER (Female): Basic health.
MS. NORDALE: Well, it doesn't (indisc.). It just says provide....
You do those things that you don't impair. Health programs are
really add ons to the basic fundamental structure. I'm not saying
that that's bad, you know, but the constitution is (indisc.) sets
out the scope.
ANNALEE MCCONNELL: I added a couple of these. I thought if we
could do one loan fund that would be a significant indicator that
this idea of not just tackling the things that have been within the
general fund budget that we would take.... One of the
recommendations we've had in this section there on budget process
was that to set a three year time frame for having made a major
policy review of different -- where people have called the off
budget funds and to do that within three years so could have a full
evaluation, not just the efficiency (indisc.) that question of the
entire purposes is something we want to continue doing. So I
thought if we picked one and actually did that in this session,
there are a couple that we're working on now but just to be looking
at (indisc.). So that was one I added from what (indisc.) off to.
And then something about increasing maintenance Fairbanks such a
critical (indisc.) talked about that we should make the
Administration and legislature show that (indisc.) something
through....
MR. BRADY: I don't know if they should increase it but I think
they should require it which means you do tradeoffs.
UNIDENTIFIED SPEAKER (Male): (Indisc.)
MS. BRADY: Well, I know but I mean...
UNIDENTIFIED SPEAKER (Male): ...the budget...
MS. NORDALE: That means they don't get to do something else.
UNIDENTIFIED SPEAKER (Female): You have to do it.
MS. MCCONNELL: Well, maybe than I should say, "Within the budget
limit" or something like that to clarify.
MR. LUDWIG: I would be worried if we didn't address that at all.
That'll just take another hit again (indisc.) you know we're back
to the same old same old.
SENATOR LINCOLN: I'm not sure I would support leaving that on
there either.
MS. NORDALE: Support what?
SENATOR LINCOLN: (Indisc.).
UNIDENTIFIED SPEAKER (Female): Leaving (indisc.). Leaving this
thing on.
SENATOR LINCOLN: Well, increase the maintenance and deferred
maintenance.
MS. NORDALE: I would say perform maintenance (indisc.) rather than
increase it because were starting at almost at ground zero anyway.
MS. BRADY: You might want to -- and that might take legislation
because you don't -- you know if you come in every time and show us
-- you start carrying on your books what your deferred maintenance
is and...
MS. NORDALE: Your ongoing maintenance.
MS. BRADY: On your ongoing maintenance.
MR. LUDWIG: Well, several years ago I thought you had to do a five
year -- the fiscal note had to show five years out what the impact
of the capital project was (indisc.) that was part of the
legislative process but it never get incorporated into the budget
process. I mean they're like two separate....
MS. BRADY: No (indisc.)
MS. NORDALE: Well, there's been a lot of talk about doing life
cycle programming on capital improvements and that includes not
only the debt retirement but maintenance as well. What the problem
is that you need to have an appropriation to do the maintenance.
(Indisc.) well obviously you have to have debt service too but the
legal constraints on the state -- your maintenance (indisc.). They
are debt retirement.
MS. BRADY: Let me ask everybody on -- and I have this thing I want
us to do -- I think I want us to do (indisc.) budget. But I still
really don't know what that means. I don't know what requires a
legislature to differently than they do now. I don't know what it
requires and so (indisc.) started -- I'd like to start it but I
don't -- How do we figure out what it means for us? How do we...
UNIDENTIFIED SPEAKER (Female): (Indisc.) the best approach for
budget...
MS. BRADY: Obviously, we need to do something differently but I
don't know how to get to -- I don't know how to make the
recommendation that move (indisc.). And that's one where I was
saying maybe another group or maybe the governor and legislature
set up a second group to take a look at how we get to outcome. And
I don't even know how you do it. I don't know what was...
MS. MCCONNELL: There is a whole range of ways that it's done in
other places and that it can be done. It doesn't necessarily mean
we have change our budgeting system, but it does mean we at least,
at a minimum, have to provide different management information to
the Executive and Legislative Branches so that instead of --
instead of measuring things by just how many -- how many clients do
we have on Medicaid, we instead use as our management information
for decision makers things like what percentage of the caseload who
is off welfare into productive work. That kind of thing as opposed
to just counting bodies or how many times -- how many phone calls
does a particular office answer which is what -- driving me up the
wall but that's (indisc.) measure. So even within the state's
current budgeting system, you could provide different management
information to help people see whether the way in which we're doing
business is producing results with one and -- at a minimum that is
where I'd at least like to start regardless of whether we go into
any major changes about looking at program budgeting or whatever.
I think we have to insist that departments begin giving us that
info.
MS. BRADY: How do we get to where we say, "We want you to reduce
alcohol related crimes(?) by 10 percent," and that becomes the --
How do you get to that kind of thing where you really would then
be, you know, do all the things the task force had recommended --
the different kinds of task forces. There have been guys that Art
Snowden talked about. We could have the -- I mean they had talked
about a number of things. There have been all kinds of task
forces. The question is, "How do you implement?" And you
implement by saying the legislature and the governor -- at least
the governor needs to say, "This is what I want you to accomplish
and this is how I'm gonna judge whether or not you stay as
commissioner or director. I want you to do this, accomplish this
and tell me how we're gonna do it in a four year period." When you
get to what you want to have happen rather than just...
MR. LUDWIG: ...fix it.
MS. BRADY: ...ten people off the -- we don't even try to fix it
because when you doing business as usual.
MARY NORDALE: You know you can jigger the statistics any way you
want to and you can come up with an answer to either -- it doesn't
necessarily mean that its even addressed the problem. If we make
a recommendation like that, it seems to me that what we ought to do
is to require that lets say the Office of Alcohol Abuse, or
whatever the name of the place is, comes up with a proposal after
studying the problem of how to coordinate these things. This is
the way the state is going to address the alcoholism issue and it
will reduce crime related or alcohol related crimes by estimated
whatever percentage and this is the way we're going to perform.
Then the legislature has to enact that legislation.
MS. NORDALE: At this particular time we don't have the legislative
authority -- the statutory authority to do the kind of program that
you're talking about and... What bothers me is that we have a lot
of laws on the books that were enacted in a different time under
different circumstances. We haven't looked at those to see whether
or not they even make sense anymore. And I think that zero based
budgeting and zero based program analysis should be done
concurrently so that you not only get your financial rewards or
punishments, but we also see what we can do to make the overall
funding function.
HUGH MOTLEY: My impression is (indisc.) mistaken there is not even
the counting system that will accumulate this state as (indisc.)
information is not (indisc.) the fashion that lets you pull
together the cost of programs and the various things it would
encompass - compensation for employees who are performing the
service or pull together the outside social agencies that are doing
the work. We really don't have idea what individual items are
costing. We have an accounting system. We're in a great world of
doing any kind of performance based budget (indisc.) but as the
data is -- as money is spent, the data is recorded. My impression
is that accounting system doesn't exist that has this kind of
summary or this kind of capability within it, or if it did, it
certainly just needs program (indisc.).
MR. LUDWIG: They did a new accounting system about two years ago.
MS. MCCONNELL: It's not a problem with -- you know we are
accurately tracking expenditures and so on. It's not set up now to
aggregate information from different in so if you wanted to look at
the whole -- the alcohol area and draw the different elements...
MR. MOTLEY: There is nothing ties them together?
MS. MCCONNELL: It's real good at saying here is the accounting in
the correctional institutions or the grants for alcohol abuse or
whatever, but not in looking at the whole picture. I don't yet
know how major an overhaul it is to get the kind of thing you're
talking about. They're doing some significant improvements in the
reporting capabilities - speed and timeliness of information. But
I think we do have to add that element on tie this programming....
MR. MOTLEY: (Indisc.) you have the data you can't sort it.
MS. NORDALE: There is no option counting ability.
MS. MCCONNELL: But I'm not sure that it's that far - we're that
far away from being able to have it. I mean it does have a
flexibility to set some things up - you know different kinds of
coating that I think we can look at so that if we wanted to
aggregate the information about alcohol things or whatever - that
we could I think perhaps be able to do that within the current
system. I don't know yet. The other piece of the accounting that
has not been in place that I'm gonna put in as part of our
automated budget if it's not possible to do it easily within the
state accounting system is better tracking -- better ability to
track progress in one year based on seasonal fluctuations so that
we don't just divide by 12 and assume gee I'm doing well, I'm
three-twelves of the way through my year, but tie it to some
reality as far as what expenditure patterns are in the state. Were
also (indisc.) type of information we don't currently have across
the board (indisc.)
MS. NORDALE: Well, (indisc.) money management. It would tie in
with your cash management system if you did have that. It's more
discrete type of information that you'd have - rises in welfare
roles of one kind.
MS. MCCONNELL: And it's going to be important as we make major --
I mean now they can do it based on historical trends but if we make
some fairly significant changes in how we do business, which is our
intention, then we have to have the capability for managers to say,
"Well this what it's going to look like next year," and track
against that as opposed to the old way of doing business. They
have made a lot improvements in the cash management. They're doing
it -- they're able to manage much closer now than they were before.
But that piece that you're talking about is absolutely critical.
MR. LUDWIG: They're -- at least several years ago when they did
the budget, they did it by general categories like criminal
(indisc.). And you can see Health and Social Services in a half a
dozen increments and decrements from agencies. I don't think that
you're totally without that.
MS. MCCONNELL: They did used to do what -- they called it program
budgeting and the legislature didn't like it because they found it,
as I understand it - I mean I wasn't around then, but as I
understand it they didn't like -- it was easier for the legislature
to do it along departmental lines. They didn't like having three
commissioners come in to talk about the different areas (indisc.)
to their department. We're trying to accomplish some of those
improvements by -- it's my personal opinion that we spend a lot of
time coordinating efforts now. Coordinating is better than not
having people talk to each other but even better than coordinating
is getting into one place so that you don't have to do all the
interdepartmental stuff and that doesn't work in every area, but
there are a number of areas that we've identified where we think
that it's possible to bring this stuff together and we're starting
with job training. Those programs have been scattered to seven
different departments. We're bringing it all together and we will
show a consolidated budget for that activity even though the pieces
will, for now, will still rest on individual departments until
we... But at least we'll be able to say, "Here's all the job
training money, here's how we're spending it and here are the
outcomes we want from that job training money that (indisc.) Human
Resources Investment Council." So it's gonna come a little late in
this year's budget process to be as good as I'd like it but it'll
be a start. By next year it should be much more consolidated.
MS. BRADY: And the frustrating thing is a lot of time you take a
little of what you've got so you try to do outcome space (indisc.)
on how things are set up at the time. It's just too much of a
hassle to try to -- because of union contracts, it depends on how
departments are set up. I mean because those bureaucracies have
tremendous ties both to (indisc.) groups and to legislators. You
say, "Well, O.K." and then you try to do what you can with what
you've got. I don't know who can change that because, again, there
is too much money on the table If we really didn't have any
money, we could change it. We'd have to change it and everybody
would agree with the "have to." Our big sell is going to be not
this year and not next year, but after that do we really need this
much money in the permanent fund. Are we really taking this much
money off the table with this. You know it's the state because -
because - because it's gonna be so hard to change how we spend.
We're going to continue to spend the same way. (Indisc.) is going
to continue.
MS. MCCONNELL: Well, I think under either plan that we're
proposing now, once you start to show an income from the permanent
fund. We can make that -- use that as a way of changing some of
that dynamic because in the past the way people have viewed, I
think, things like the constitutional budget reserve is that that
is the source of money sort of vaguely for the out years and for
things that need to be done, but it has gotten garbled up with the
ability to fill a fiscal gap. And I think if we split that off, I
think it's gonna be possible to help structure different
conversation about - about that whole reserve issue.
MS. BRADY: I think it's good to know it's coming in and stop
fooling around with it and pretend that you've still got both
(indisc.) other pockets to go to and so you never intend to hold
the (indisc.) other pocket (indisc.).
MS. MCCONNELL: Does anybody have any other things that could go on
this list.
CHAIRMAN ROGERS: Patrick.
MS. NORDALE: Georgianna, on legislation wanted...
SENATOR LINCOLN: Well, but I didn't realize that this is just for
the first year and (indisc.--coughing) think that hopefully we're
going to do this for year two or year three, year five, year ten,
because just to have for the first year is not enough.
MS. BRADY: That's a good idea to do - to do the package and these
things are -- now see the thing is these aren't our main thing.
These are our things that will begin to group this. When you do
the whole plan, you secure the pieces like that and then you say,
"O.K., this is our first year." So it would be planed -- and I had
done this....
MARIE WESTFALL: I had walked away for coffee.
MS. BRADY: But this kind of thing -- this is when we were still
talking about the - and I tried this on my office and the first
sign -- does this plan close the fiscal gap? Yes, by the year
2000. Does the plan cut the budget? Yes.
UNIDENTIFIED SPEAKER: (Indisc.).
MS. BRADY: Yes, by a hundred million in three years or whatever
that figure is. Will I have to pay an income tax? Yes, but not
until the fiscal gap is closed and the budget is cut. Will I still
get my permanent fund dividend? Yes, but if the income tax is
passed, the total dividend amount will be capped and in later years
the amount (indisc.) less or whatever it is - whatever we decide.
Will I have to pay some user fees - other taxes. Yes, but user
fees on additional things for - like cigarettes and alcohol and
still lower the (indisc.). Does the permanent fund (indisc.)?
Yes, or whatever it is you want to ask. What you want to do is get
to yes. So I tried this on my office and they all said, "Oh that's
great. How much income tax? Oh that's great. How much less
dividend?" So -- and you say - so you say fine. Look and see page
three and they get into it right away. But what you want to do is
get to yes for everybody, but then you get to this fairness issue
and ask -- answer the key question that each constituency wants to
ask. So that -- you know that's... And then - and we had some
other ideas about about -- you know when you can just put this
together different ways. This one just explains a little more -
How does the plan work? What are the keys to making the plan work?
Will state government have to offer any differently? What
legislative action will be required? And whatever it is, you just
work through in those simple ways.
SENATOR LINCOLN: I meant to bring this up a little bit earlier and
I just remembered it again so I thought I'd better state it now or
I'll forget it later. The user fees, I think we have to be real
careful on the repercussions when we put in a user fee for certain
areas. I - We passed I think it was last year or year before, we
increased our user fees from I think it was $3 to $6 for the parks.
I think it was. Anyway it's up to $6, and I think it was from $3
or maybe it was $4 to $6. And I thought that's reasonable, I voted
for it. I thought (indisc.) $6 to go in and use a campground and
have water and garbage disposal. That's no problem. Well, I have
a lot of those campgrounds in my district, and so this summer I
stopped in a lot of them on the highway system from Valdez to Big
Delta. And what I found out is that the campgrounds were not used
as much this year as they were in previous years because we
increased that user fee. And instead of them paying $6 they said,
"I can go down the street here and get for $9 a shower. So for an
additional $3, why should I stay here? So our revenue dropped off.
I think it's going to show that our revenue -- if that's any
indication of that whole area that I visited. The revenue will
have dropped off for the user fee instead of what we had
anticipated that it would increase. We have to -- when put a user
fee, what's the downside of it and....
MS. BRADY: That's interesting. It'll be interesting to see what
happens in the bigger parks. (Indisc.)
MR. LUDWIG: We've got a lot of Forest Service cabins in southeast
and they used to cost $3 a night. It's clear up to $25, but you
can't get a cabin.
MS. NORDALE: Ya, you have reserve it for in advance.
MS. BRADY: If you have facilities, (indisc.) facilities, they'll
pay more.
MR. LUDWIG: And there was just an article in the Juneau paper the
other night about our (indisc.). We're set, you have to wait a
year or something, on bigger boats three or four years. And
they're talking about, I can't remember percentages, 30 or 50
percent increase in the harbor rates would then give you enough
harbor space because enough people would say, "Well, I'll take mine
and trailer it."
MS. BRADY: But you guys -- every harbor in this state pays less
than anybody any place else. People buy when (indisc.) harbor
rates earn nothing.
SENATOR LINCOLN: And if there is options for an individual, then
the user fee changes.
MS. BRADY: Or if the place isn't kept up and you're paying the
money and you can get -- you know for $4 more you can take a shower
(indisc.).
CHAIRMAN BRIAN ROGERS: The a -- A similar thing happens on the
taxes and one of the (indisc.--coughing) I've got a little bit of
concern one on the tobacco tax we figured what the decline and
demand would be, but I don't think we've done that on the alcohol
tax. And I got some information about the effects of federal
taxation on hard liquor - and they raised it from $10 a gallon to
$12.50 to $13.50 over a period of seven years. Total tax
collection didn't change at all over that seven year period.
Consumption went down and basically shifted from the still spirits
over to beer and wine which have a lower tax rate nationally as
well as in Alaska. That makes me -- I'm a little concerned about
what our - how we deal with the the price sensitivity of the taxes.
Whether that happens on some of the other user fees as well, I'm
not sure.
MS. BRADY: But the only thing -- I've heard that argument because
you know every time the Chamber goes for an alcohol tax, and they
all come and take you to dinner.
SENATOR LINCOLN: And drinks.
MS. BRADY: And drinks. But whole ship, I've heard that argument
before, but that was that whole time where drinking, drunk driving,
that whole heavy thing came on. People started switching and
parties and fund raisers and everything else, away from hard liquor
to wine and beer. There was a serious shift away from that.
CHAIRMAN ROGERS: We don't know how much of that's cause and
effect.
MS. NORDALE: Right.
MR. LUDWIG: But I thought with both of those sin taxes weren't
there to necessarily to generate the revenue but were there more
expend - to cut the expenses on the budget side.
CHAIRMAN ROGERS: I (indisc.) tobacco (indisc.).
MS. BRADY: I really would like to do an outcome based thing on the
alcohol for one year and say - that's not for us to say but to let
a contract if somebody don't get paid until (indisc.) do drop and
get paid a lot (indisc.).
MR. LUDWIG: That's the law and you take that risk.
MS. BRADY: Oh hell yes, of course. An if I were a (indisc.)
change public activity.
UNIDENTIFIED SPEAKER (Male): (Indisc.)
UNIDENTIFIED SPEAKER (Male): You just (indisc.).
MS. MCCONNELL: Yes, right. We a -- (indisc.) how much of these
things (indisc.) where we can see where there's other items that
can be put on. And as Georgianna pointed out should probably do
something similar for -- maybe we should do it as a three year and
five year - five and third year plan (indisc.).
MS. BRADY: O.K., well we've decided and ready to go home.
CHAIRMAN ROGERS: Oh good. Well in that case we'll take a recess
for ten minutes. We will have some breaks today where we break
into small groups to work or break into, as individuals, to read.
MS. MCCONNELL: What's the second one you were referring to?
CHAIRMAN ROGERS: Pieces of the budget puzzle and revenue raising
principles and recommendations.
UNIDENTIFIED SPEAKER (Female): Oh, O.K. that's (indisc.)
UNIDENTIFIED SPEAKER (Female): Why don't we work on -- you know we
don't care about (indisc.)
(Sounds like a break is taking place as there is a lot of
discussion going on at one time).
UNIDENTIFIED SPEAKER (Male): This development instead of new oil
production
UNIDENTIFIED SPEAKER (Female): Ya, because that's where you
concern me.
UNIDENTIFIED SPEAKER (Male): That could be (indisc.) but but to
put the num -- there's no -- if it's not oil, you don't get $100
million.
UNIDENTIFIED SPEAKER (Female): Not under the current - under the
current, but what we could say is that out of a mixture of new oil
a taxes on minerals, timber, et cetera, that it's not unreasonable
to believe that by that time we could be bringing in a hundred
million from a combination of new...
CHAIRMAN ROGERS: If it's not oil, it's unreasonable to figure a
hundred million. We could put in...
SENATOR LINCOLN: But it could be oil plus. So actually that
figure should be the minimum. I mean if you're saying "new
resources," then its the 25 would be your minimum amount.
CHAIRMAN ROGERS: I'd rather leave it out and show a deficit and
(indisc.) deficit myself. Mike.
MR. O'CONNER: Our task was 3, 5 and 10. So we're going 15 because
I think we ought to spread it out further.
MR. LUDWIG: Well this (indisc.) with your 9.
MS. NORDALE: 5, wasn't 5 our target?
UNIDENTIFIED SPEAKER (Male): 3, 5 and 10 was (indisc.)
MS. MCCONNELL: We don't need it in year 5 because we have a
surplus.
UNIDENTIFIED SPEAKER (Male): (Indisc.) should put 0 on the 5.
CHAIRMAN ROGERS: So that means just take it out in terms of
anything we publish.
MR. LUDWIG: I'm concerned about the credibility of the report if
we don't have something there. I mean we're asking that everybody
share this and we're taking money out of the budget, taking out
services or money out of individual's pockets. We're talking about
increasing taxes which is going to effect everybody. The people
are going to say, "What (indisc.) oil? Are you guys just stooges
for oil?"
MS. BRADY: Oil is the one already paying tax.
MS. NORDALE: Ya, they're the only taxpayer right now.
MS. BRADY: See the whole point is that we're trying to get people
who are not now paying. They are already paying - they are already
paying more than what they're paying in other states. We just
found a whole bunch of studies about that. So it's not if they're
the only ones who are already paying up to what the standards are.
MR. LUDWIG: I disagree with you. I'm saying it's a perception
people are going to have and it's going to bring credibility to the
the report.
MR. MOTLEY: Lets have a very brief education on what oil
production is really looking like out there. Do you have any idea
how much more activity, how many more people, how much has to be
done as you're producing the same water and gas over and over and
over. The cost of oil production by the time you get out there is
gonna double and now you're gonna -- that's just to keep this level
we've got right here -- and to say then you -- you're saying you
want to tax those folks out there. I'm saying that that's the best
way you can get a faster decline in oil is when you say at tail end
of the field, you want it to be increasing and production ain't --
and you can't get there. And if you want to increase the taxes,
then what you're doing is saying, "We don't want anybody around.
We want to shut it down." I think it's a mistake to have it out
there and I don't hear this crime that you're talking about
except from a single source.
MR. LUDWIG: Every -- least it's my understanding that every
projection that the oil companies have made on what kind of
production is gonna come out have been understated in the obvious
and nobody is saying that's intentional. But technology improves
and you have meaning of different ways to getting more oil out of
the ground and what's to say that's is going to stop.
MR. MOTLEY: That top line has every one of those in there. Those
are not the oil industries projections. Those are the state's own
projection and, in fact, I will assure you that some of the state's
projections in this first three or four - five years are high.
REPRESENTATIVE MIKE NAVARRE: You know the Governor's Oil and Gas
Policy Council is examining the state's policy on oil and gas - the
oil and gas tax structure. I think that if we want to do anything,
we can put a paragraph in there that says that the commission
recognizes that the evaluation is being done now on oil and gas tax
policies. That needs to be factored into this equation because of
the revenues that are provided currently by oil and gas and what
impacts changes to the tax structure might have, either positive or
negative. Does that satisfy you or does that create any problems?
MR. MOTLEY: This is not consistent with the narrative we have in
the text already.
MS. BRADY: I think that's fine. We already said we were not going
to do, you know, the oil and gas figures already include (indisc.)
to include some new production which means, you know, at the
current tax rates. And for us to put in more money - I mean more
money thinking -- that resource money, that would be fine. I don't
know if, you know, you know if (indisc.).
MR. LUDWIG: I like Mary's idea about adding in a resource line.
MS. NORDALE: Ya, I just think, a hundred million -- I think Brian
is right that it's too high. If we mean to apply my (indisc.)...
MS. BRADY: Well again, it's the only number that we don't have any
backup for.
CHAIRMAN ROGERS: Can I ask if for the purposes for meeting a 12:00
deadline for our teleconference that we temporarily defer further
discussion as to whether that line is in or out or what it is and
focus more on the difference between the two models and then come
back. I think it's an issue that deserve - merits further
discussion as do the other resource taxation issues. But in terms
of trying to show what the difference between the two projections
are and to intelligently talk with Standard and Poors that we
defer. Is that acceptable?
MS. BRADY: Ya.
CHAIRMAN ROGERS: Let me run through the rest of - the rest of
this. This endowment projection, I made a change at least
suggestion that the pay out rate be set half a percentage lower for
the first ten years in order to build up the fund faster so instead
of using a 4 percent endowment pay out rate, this uses 3.5 percent
from 98 to 08, and then uses 4 percent after away.
MR. LUDWIG: What's that 3.5 by itself there?
MS. BRADY: That's because -- that actually should be off. That's
a cell that is used in a calculation. So I should have put it off
spread sheet but I...
MS. NORDALE: It's (indisc.)
UNIDENTIFIED SPEAKER (Male): Do you want any comments on that?
CHAIRMAN ROGERS: I just want to explain what's here because this
is -- these are the two sheets of standard and (indisc.) tax. So
this one continues the elimination of CBR - the repeal of CBR with
the passage of the endowment constitutional amendment if that's
adopted. It keeps the permanent fund earnings reserve and deposits
any GF surplus over our spending level into the permanent fund
earnings reserve until the permanent fund earnings reserve grows to
a point at which the ending balance in the earnings reserve is
equal to the next year's general fund sources. So that -- you know
that formula can change and I think that there is some discussion,
but that's why beginning in 04 some of the earnings reserve starts
dumping further into some principal. And some principal grows to
38 billion nominal, 24 billion real. This also sets the dividend
at $700 per capita until -- and it's set to calculate so that once
the dividend equaled one quarter of the permanent fund net earnings
is greater than 700, we would pay out at that level. That doesn't
hit the whole 15 year. So basically it's a flat $700 nominal
dividend for 15 years. In the second scenario, this is deposit
scenario projections September 29, this has all the same revenues
except that this keeps this -- this follows a Senate Bill 51 like
approach to the permanent fund. All in -- which we show all the
net earnings and then we show a inflation proofing and in the
excess funds over the amount of permanent fund earnings that are
used for general fund programs goes into the earnings reserve.
This keeps the CBR but dumps all balances in the CBR over $1.5
billion into the permanent fund and it dumps permanent fund
earnings reserve into the permanent fund in a similar fashion to
what the previous one does - if the balance in the permanent fund
earnings reserve is greater than the next year's projection for
general fund sources. So in terms of spending -- and those of
these have an income tax in 03 starting in actually calendar year
2003 it really hits fully, you know, for -- at a $200 million
current dollar level. So the significant differences between the
two are one has the -- the first one eliminated the CBR, the second
one keeps it. The first one has a flat dividend at $700 nominal.
The second one the dividend is higher based on the SB 51 formula.
So we're paying out higher dividends in every year from --
throughout.
MR. LUDWIG: Do you have any idea what impact it would have is you
used the single quar -- the quarter of earnings on the dividend?
CHAIRMAN ROGERS: No. And permanent fund (indisc.) -- and because
of the dividend pay out under the SB 51 type approach, the
permanent fund is somewhat lower. In real terms, it's about $2.5
billion lower....
TAPE 1, SIDE B
SENATOR STEVE RIEGER: ....additional deposits because of the
imposition on the personal income tax, and if those deposits
weren't made, you's actually make it all the way to FY 10 without
a personal income tax. And I'm gonna have heartburn with raising
taxes when the net effect is so that we can add more money to the
permanent fund principal. It's just gonna be a (indisc.). I can
still see it, we're going to have problems.
CHAIRMAN ROGERS: However, unless we, under an endowment scenario,
unless we build permanent fund principal, we don't have the
earnings off the permanent fund to replace the lost oil revenue.
And a lot of philosophy behind the endowment scenario is to build
the permanent fund to the point of which it can replace the lost
oil revenues.
SENATOR RIEGER: But it's used even in the composite scenario.
MS. MCCONNELL: That's actually true under both scenarios because
under the composite as well, we have to have the higher earnings in
the out years and I think one of the advantages that we've gained
by showing at least taking a little farther out beyond the ten year
time period is, you know, the curve continues to go down absent any
new Prudhoe Bay. So you're right, Steve, it is saying that we have
do some of the actions today in order to create a more stable
future.
SENATOR RIEGER: (Indisc.) that you can go all the way -- instead
of ten years, even going 15 years. You don't have to do a tax, you
know, if you didn't want to. But - and the only reason for a tax
is to raise more revenue, the sole purpose of which is to add money
to the permanent fund for what might happen in the year 2011
through 2015. And that's so far out I think there is real big
unknowns out there both on revenues and also what the feds might do
to us about the permanent fund or what might else happen. It's
kind of even beyond my time (indisc.). Where - at least it's nice
to plan ahead but not to the extent where you're doing something as
significant as a significant personal income tax for that purpose.
If we were just trying to be prudent and provide for that time,
that's one thing. You know, we're going beyond that dictating the
most - perhaps most paying now action in law for an unknown
contingency beyond 15 years out.
MS. MCCONNELL: Which is I think the other reason for doing a 1999
reassessment when we do have more information about what goes out
of your oil revenues look like and the federal impacts, et cetera,
et cetera.
LEE GORSUCH: These get revised every year and I don't see what the
danger is when you're moving out -- you look at it again in 97 and
you look at it again 98, you look at it again 99. But in the mean
time unless you've got some other magic rabbit in the hat, these
are the way the numbers tend to come out in terms of trying to have
a sustainable source of revenue.
SENATOR RIEGER: (Indisc.) I mean the composite scenario kind of
emerged after the consensus points that were listed about a month
ago. I mean you could take out that line that says income tax at
$200 million M9095 population growth and make the appropriate
adjustment into the amount of transfer down below and you'd still
have the exact same a recessment(?) every year and the exact same
type of dynamics going on. But you're not on record of saying that
in the year FY 04 we're going to (indisc.) out of the blue, we're
going to collect $291 million dollars in income taxes, but that
same year we're going to deposit $268 million from the
constitutional budget reserve to the principal because we don't
need it for other purposes and another $246 million of the
permanent fund earning reserves to the (indisc.) because we don't
need it. Now that -- how can you with a straight face say we're
gonna raise almost $300 million of taxes because we want to make
$500 million of extra deposits to the permanent fund that year?
MS. BRADY: And we're also not willing to change the way we spend.
When we say we need money in the out years, we're still assuming
that - that we're going to do some cuts but we're still - we're
still spending the same way we're spending now.
MS. MCCONNELL: Actually, that's not true because we're going from
per capita spending of $4,000 per year now to $3,074. So that will
-- we will have to do things very differently. That's under the
endowment. I think it's about the same under (indisc.)
MS. BRADY: Nominal or real?
MS. MCCONNELL: That's real dollars. Ya, $4,020 down to $3,074 or
so. We will definitely -- that will put a great deal of impetus
behind doing things very differently to get that level of spending.
CHAIRMAN ROGERS: Over a ten year period, I don't have this over
15, we're taking $1.8 billion out of the dividends and if we don't
have an income tax, what you're doing is taking the largest
percentage of the lowest income and you're not hitting the upper
income. You're hardly hitting at all in terms of change from
today.
MS. BRADY: The difference between free money and work money is
just -- and I'm willing to put a little bit of a tax in and take a
little dollar (indisc.) provided that, but I think to continue to
talk as if -- I mean we are getting right down to the all the
philosophic differences that we run into in this state. When we
try to talk about taxes they way you do in other states, when we
try to talk about, you know, anything the way they do in the other
states, we are just so different. We all get trapped, myself
included, into talking about (indisc.) the same thing. And we all
are gonna have to give some things as we close this - try to close
this but boy we are very different and the longer you work with
this, you see how very different we are - even how we write about
taxes. I noticed Pat wrote about taxes and about how we wrote
about taxes. One of the problems is that we don't have big taxes,
you know, so you -- as you have more employment to show wouldn't
make any difference. If we had personal income tax, we'd just be
$300 million more in debt than we are now because we'd just spend
that much and we'd still be using the reserves as long as they're
there. I mean we wouldn't have no fiscal gap if we weren't doing
taxes (indisc.)
CHAIRMAN ROGERS: To me, there is another key issue on having an
income tax or perhaps a sales tax involved and that is we have
nothing that off sets it all - the population growth in Alaska in
terms of allowing the budget adjust to popula... -- allowing
revenues to adjust to population (indisc.) so oil dependent but
which doesn't -- isn't population growth impacted at all and one of
the biggest cost drivers in government is population growth and
within certain demographic areas - over 65, the over 85 in
particular. Major drivers of our cost and yet we have -- other
than perhaps the motor fuel tax has has a relationship with
(indisc.) a couple of these under a hundred million dollar total
taxes. Without an income tax or sales tax, we have nothing that
compensates for population growth, and to have services that are
driven by population growth and not have revenues is an
unsustainable situation.
MS. BRADY: Let me suggest something else and how we talk about -
how we talk about this in new scenario two. We keep saying that
we'd got here because of population growth. We didn't get here
because of populations growth entirely, in fact mostly. We got
here because our budget went from about $300 million in one year to
a billion and a half to four billion dollars and we just - except
for the stuff that went to the permanent fund - just started
spending everything we could spend during those big oil years.
CHAIRMAN ROGERS: Three hundred to a billion dollars.
MS. BRADY: No. It went to three hundred to six hundred to nine
hundred to... then it went -- and when it went from one to two and
a half it just went (indisc.--noise made with mouth) and we spent
money on everything. And then as population started to move, we
just kept the everything and we're still trying to keep the
everything and we were able to do it as oil dropped because we had
the reserves underneath. And so it's not because we didn't have
taxes. It's not because -- it's because we just spent all the
money that was there except for permanent fund and we're still
trying to spend all the money that's there. And so incomes not,
you know, I don't know.
MS. NORDALE: But, you know -- One of the things I think we ought
to remember is that before the oil money came out, there were an
enormous number of unmet needs really. And so a lot of the money
went into meeting some of those needs which other states can meet
in the normal course of business, (indisc.) economy was at such a
low point that we simply did not have the revenues. So I'm not
willing to buy totally into your argument Judy. I think that what
happened, in large measure, was a recognition that we begin to
afford the needs of some of those needs. But I'm with Brian on
this problem with the income tax because there is little
justification for stimulating economic development where all it's
going to do is to pose greater and greater burdens on declining
revenues rather than producing anything that supports (indisc.).
MS. BRADY: But if you're not supporting (indisc.) if you're just
putting into the permanent fund, then you're lose that argument --
that connection right away. And that, again, we have not lived on
income tax for a long time because we've had oil. So we can't even
-- and again even if we had income tax now do you think we would
not have a fiscal gap as long as we have reserves to spend? We
would just have spent -- it would be the same place except we would
be spending income tax along with everything else.
MS. NORDALE: We don't really know the answer to that question. We
might or might not have
CHAIRMAN ROGERS: Georgianna.
SENATOR LINCOLN: Thank you. You know I look at this scenario
projection and that's all it is is a projection. If the
legislature does everything that we around this table are
recommending, and that the governor does everything that we are
recommending around the state - if everything goes accordingly,
this is where we're going to end up. That's a fairy tale. I mean
we're hoping for this. But I think we have to put in provisions
that would buffer those areas where reality check takes place. I
question why the income taxes out there so far. I want to push it
further to maybe 99, 98, and not out there to 03. And I think in
one scenario it was 04.
CHAIRMAN ROGERS: Both of these have -- I made them the same and
they don't necessarily (indisc.).
SENATOR LINCOLN: I don't believe that we would just because there
is an income tax because there is more revenue coming in that we
would spend more. Perhaps in the past that might have been the
case but I think everybody is well aware in the legislature that we
have a fiscal gap and how we got there. So I don't see that it's
the spend, spend, spend. But what I'm concerned about is in the
expenditures that we're going to see if we don't have this buffer.
But as Sean I think said yesterday, that we've been cutting around
the fringes, that we haven't really taken real hits but it's been
around the fringes, that if we don't have an income stream coming
in, and I believe that we have to reduce government. But we're
going to see hits and hits the people that are already hurting and
it's up to 60 people to decide in the majority and minority and all
of that, as to where those come from. In fairness, I don't believe
that there is going to be a fairness on where these cuts are going
to occur. That's just the nature of the beast. We have to buffer
this. We have to have in here -- already we -- Judy has said well,
"No, I don't like that because the oil industry is already paying.
Cut back." Now it's "Well, by golly, my constituents don't like
the taxes cut back." Where are we going to take these real tough
decisions? When are we going to make these tough decisions? They
have to be made now. There is going to be checkpoints along the
way. The income tax gives the people of Alaska an ownership of
this government - a sense of ownership which I don't believe they
have now. So I'm not afraid of putting that income tax in. I'm
not afraid, I haven't been afraid of putting my name on it. I
don't think we should fear them.
UNIDENTIFIED SPEAKER (Male): (Indisc.)
REPRESENTATIVE NAVARRE: I just wanted to offer a couple of
comments with respect to a suggestion that we've always spent it
all because one of the things that I did a few years ago was try to
analyze where the growth is in the operating budget particularly.
Education is a huge growth area in terms of the dollar increase and
part of that is due to student population increases and part of
it's not. Some of it is inflationary (indisc.). That's a huge
part of where the increases come from. And the suggestion that the
legislature is going to be able to reduce education spending
without some fundamental changes, it's impossible. For example,
there is no state school construction policy. Some people will
suggest that there is, but what we have is local control with state
spending. We have a formula program that is designed to meet the
individual schools. And so you have some local areas have decided
not to have small schools versus bigger schools. There is no
policy. If you set up a policy, it's going to impact rural areas
but also some of the urban areas in terms of what you can fund.
And federal program changes such as Medicaid and AFDC increase in
who's eligible for the programs. And also with Medicaid, in the
late 70s early 80s, the Medicaid Program at the federal level gave
90 percent of the program and the federal government looked to cut.
They've been reducing them down and the state's been taking it. So
that's where a huge part has come. And then there's a direct
correlation between the "Get tough on crime," that we've had in
this state and the prison - Correction's system costs. And then
what portion is attributable to employee's salaries and benefit
increases? I don't know. But -- for sure I don't know, but if
we're going to change that out in the future, there has to be a
dialogue with labor groups and a policy put in place that can be
implemented, because otherwise, you through that out the window
because otherwise you're staying right where you're at. At the
worst -- I mean the best case scenario, you're staying where you're
at. Fairness and equity is in the eye of the beholder. That's a
word that's tossed around every year in the legislature and you
can't have everybody viewing equity the same way. Rural Alaska
where there are a lot of still (indisc.) with respect the capital
allocations. At the present time, some areas in rural Alaska we're
over expending for other items and because they're such a huge part
of the rural economy, it's difficult to change that. For example,
higher education at the university level could probably be provided
more efficiently than the way it's being provided now in many of
the rural communities, but there are a lot of economic impacts in
those areas. At the same time, they're inefficiencies there, they
are requests for a lot of different (indisc.) in rural Alaska - K
through 12 education area or sanitation needs in rural Alaska.
School budget, if it's going to continue to grow unless the
legislature puts a policy in place (indisc.). And the last thing
I want to say with respect to all of these projections, unless
they're all depending on the legislature to some degree or another
- biting the bullet. Eliminating all programs except the needs
based. Politically, that's a tough bite for the legislature
because - because some are more important - very popular. And if
the legislature doesn't bite the bullet on those, then our whole
projection scenario falls down. My concern is that the unmet needs
that we're talking about, deferred maintenance, highways
particularly, but also our building maintenance, there's no -
nothing built into this or not adequately built into this to
address those types of needs. So - I mean that's just the genuine
of mine and those two are dependent on the legislature - keeping
the budget flat and transferring from other sources into those
areas of need, and I'm just -- historically, that has not happened.
I don't hold out a great deal of hope that it will happen in the
upcoming legislative session.
CHAIRMAN ROGERS: Bruce.
BRUCE LUDWIG: Five or six years ago, I kind of had a personal
clarity of vision. Got into the deferred comp. I kinda saw where
I was going and knew I didn't have resources to be able to get - do
what I wanted to. And I was willing to take part of what I could
use right now and put it for the future, and I look at doing income
tax the same way. I'd like my grandson to be able to go the
university. I'd like him to have a ferry system that he could get
on and a road system that doesn't have all kinds of pot holes in
it. I'd like him to have and infrastructure that's usable. And
when I see the revenues gone off the map at the age where he's
gonna gone to college and everything, I don't see us being able to
provide that stuff. I'm willing to invest right now so that we can
have the infrastructure in the future to take care of our kids and
grand kids, and you know, I don't think we can just look three or
four years out. And I think that the public can be educated,
without a lot of hardship, to come to that same realization. I
mean those are qualities we all aspire to and we value these kinds
of things - putting off something today that we'd be able to plan
for tomorrow.
CHAIRMAN ROGERS: Annalee.
MS. MCCONNELL: One of the issues that we had talked about earlier
was diversifying our - our income so that we weren't as heavily oil
dependent so that there isn't the kind of pressure that when we -
when we look at our future. We're looking only to oil. So I think
there is a good reason for us to consider diversification of our
revenue sources. We are the only state that doesn't have either an
income tax or a sales tax so that we don't have any of the tools.
So if we're looking to get rid some of things that other states
don't have like longevity bonus or other - you know, permanent fund
dividends and so on. We also have to look at, I think at the
revenue side. So I think there are some reasons why - how we can
make a good case that if we don't have either a higher dependence
on oil or some kind of a "spread the load tax" like an income or a
sales tax, that we'll just continue on this road that we're on now
which puts more pressure on the oil industry and I think -- at
least that I've heard the oil industry wanting to have. And one
small adjustment that we had talked about at one point earlier that
we might want to look at under either scenario is on the alcohol
taxes - doing something similar to the tobacco tax and that is
making a more significant increase in every three years or
something like that as opposed to a gradual indexing.
CHAIRMAN ROGERS: Steve.
SENATOR RIEGER: (Indisc.) a couple of responses to the arguments
made but, you know, one of the values of having a general fund is
that you can juxtapose oppose things against each other and, in
fact, the tradeoff exists between those two if you want to do it.
The argument that we should have an income tax to provide services
might be a reasonable question if that was the right juxtaposition
a position. The question is, "Are we doing the income tax in order
to maintain services, or are we doing an income tax in order to
either (a) as these scenarios say put more money into the principal
of the permanent fund. Or another way you could look at it - are
we doing an income tax to avoid eliminating a non-youth based
program and the permanent fund dividend, which is the principal
(indisc.) putting forward in this. You know, dividend seems to be
held kind of in a special status. And the reason it's so
objectionable is because those juxtapositions can be put out there
when they're still absurd in my view. I think that in the earlier
scenarios, a month ago or so, the income tax wasn't off the table
and out of the question. It was out there when it was needed
because the reserves have been drawn down to what I call the Judy
Sword point, you know, you draw numbers, here's enough, you didn't
have sources elsewhere and that was next thing that made sense.
Now it's being advanced, but for purposes that really aren't
traditional government purposes. And it's not that it's never
something that might have to be looked (indisc.), but it's being
looked at for purposes other than what it should be looked at.
That's - you know, that's my objection.
CHAIRMAN ROGERS: Before we go to the audio conference, I'd like to
try a little bit more of the mini loadings we did last night to try
to, again, gage what level of consensus or its (indisc.) might be.
MS. BRADY: Well, before they do that, I think I'm getting clear in
my own mind what the -- when I saw the endowment scenario
yesterday, I though it was a whole lot different from the
composite. But it seems to me like what the two differences are
has to do again with the reserves and has to do with (indisc.)
permanent fund. One is that you'd use the reserves to fill in the
gaps for spending with some of the social taxes that we've decided
until you got to a certain percentage so you've kept that billion
and a half, whatever it is, you know - so you'd spend up to there.
And then you would -- at that point, you would fill in with income
tax and cutting the dividend. That way, people won't have -- the
legislature doesn't have any room to move, I mean, and we don't.
After that, we know that's what we have to spend. And the other
way is to go ahead and cut the dividends and use the income tax
early and essentially plug that money into, you know, to to plug
into -- front load the faster - the permanent fund. Both of them
have problems. The second one -- the only problems with the second
one still just procedurally is you go ahead and you cut the
permanent fund. You do the dividend -- you do the income tax, you
put some of the money into the permanent fund dividend and you
still draw down your reserves so that you spending really does
change. I don't know, and I guess the question is literally is do
we want them -- the key question for us right now is do we want to
front load that permanent fund using taxes, and cuts to the
permanent fund. But we still hope we can keep that spending line
flat which can (indisc.) possible. Or do we want to say, "No,
we're gonna go ahead and use the reserves until they're gone and
then do the income tax and permanent fund." Is that it?
SENATOR RIEGER: Use reserves until they're at their appropriate
level.
MS. MCCONNELL: At their appropriate level.
SENATOR RIEGER: No one has said we'll drain em.
MS. BRADY: No, until they're up to whatever it is we need for that
and let the permanent fund grow at the same rate.
CHAIRMAN ROGERS: But if it's $28 billion, your gap grows bigger in
your out years.
MS. BRADY: If you continue to spend the way it is and, you know -
if you - oh ya.
CHAIRMAN ROGERS: You're not spending the way it is. You're
spending 25 percent below where you're (indisc.).
MS. MCCONNELL: The reason you're gap is larger, even if you hold
the lid on spending is that if you have a low savings account,
you're not getting much interest off it to be able to replace with
the declining oil revenue. So it's not an either/or situation.
We're still saying we have to keep control on spending, but the
question is....
MS. BRADY: Well, (indisc.) have to change spending. See we're
still not around this table. We're not willing to give up
longevity, we're not willing to give up power cost equalization.
We're not willing to give up anything other states don't do.
CHAIRMAN ROGERS: In order that we have an opportunity over the
lunch break to try any changes in scenarios, I really would like to
get through this in the same fashion. For those who weren't last
night, we're just trying to gage what level of consensus or lack
thereof there is and what we want to know is how many people could
accept the plan without this. How many people couldn't accept the
plan with it. And how many prefer -- you know if you prefer a plan
with it, that that is sort of in your preferred model. So -- and
this is at some point, they're in the ten year plan.
SENATOR RIEGER: That's why I say that -- and really presumption
that everything was on the table or should be on the table. You
know, I don't think there's anything that well I I -- there is very
few things that I would say I couldn't live with. It is how
they're served up. It's (indisc.)
CHAIRMAN ROGERS: And so conditionally accept a plan with it then
you shouldn't...
MR. LUDWIG: We went through this yesterday.
(Indisc.--everybody talking at one time).
CHAIRMAN ROGERS: If you could accept it conditionally, don't vote
here.
MR. LUDWIG: Right.
CHAIRMAN ROGERS: And this is basically so we know how many people
drop off of a plan irregardless of what else is in here. And we
had -- as an example yesterday, we had one person who cannot accept
an endowment plan. So if the endowment is if it drops off. We
have four people who can't accept a plan that isn't an endowment,
so four drop off. I'm just trying to gage whether it's possible to
get eight votes for a plan. So how many people cannot accept the
plan with an income tax at any time during the ten year period?
How many people cannot accept a plan without an income tax during
the ten year period? How many people cannot accept a plan with a
statewide sales tax?
UNIDENTIFIED SPEAKER (Male): We would have in the last...
CHAIRMAN ROGERS: Oh, I'm sorry. How many people prefer a plan
with an income tax? Four, five, six, seven, eight, nine. How many
people cannot accept a plan with a statewide sales tax? How many
people cannot accept a plan without a statewide sales tax.
MR. POURCHOT: How does that work again?
CHAIRMAN ROGERS: If the plan doesn't have a statewide sales tax --
how many people prefer a plan with a statewide sales tax? Three,
four, five, six, seven. How many people cannot accept a plan with
a seasonal statewide sales tax? How many people - be the same.
How many people prefer a plan with a...
SENATOR LINCOLN: Oh no, that's not necessarily the (indisc.)
because one is a seasonal and the other one is...
CHAIRMAN ROGERS: O.K., how many people cannot accept a plan
without a seasonal sales tax. Alright. How many people prefer a
plan with a seasonal statewide sales tax? One, two, three, four.
How many people cannot accept a plan with new or higher fish tax?
How many people cannot accept a plan without a new or higher fish
tax? How many people prefer a plan with a new or higher fish tax?
How many people cannot accept a plan with higher oil taxes at some
point in the plan? We're talking about a ten year plan?
UNIDENTIFIED SPEAKER (Male): Ya.
UNIDENTIFIED SPEAKER (Female): Higher rate or and/or production -
new production?
UNIDENTIFIED SPEAKER (Male): How do you want to vote?
UNIDENTIFIED SPEAKER (Male): (Indisc.)
CHAIRMAN ROGERS: O.K.
SENATOR RIEGER: Brian, this is ten years, not fifteen?
CHAIRMAN ROGERS: Our plan is a ten year plan. We've been showing
on our spreadsheet fifteen in order that we see what happens that
we're really sustainable in year ten.
SENATOR RIEGER: I'm sorry, I'll change my vote on number 1.
CHAIRMAN ROGERS: To?
SENATOR RIEGER: Cannot (indisc.).
CHAIRMAN ROGERS: How many cannot accept a plan with higher oil
taxes or production numbers stated in the plan? How many people
cannot accept a plan without higher oil taxes or production in the
plan?
UNIDENTIFIED SPEAKER (Female): (Indisc.) make a (indisc.).
CHAIRMAN ROGERS: How many people cannot accept a plan without new
or higher oil taxes as a plan? How many people prefer a plan with
higher oil taxes or production in the ten year plan? How many
people cannot accept a plan with -- How many people cannot accept
a plan without higher taxes on nonresident workers?
MS. BRADY: Now what now?
CHAIRMAN ROGERS: If the plan doesn't have higher taxes upon
nonresident workers.
MS. NORDALE: I just think it's unconstitutional and I think that
we ought to point out that kind of discrimination.
CHAIRMAN ROGERS: No, there may be ways -- it doesn't say -- I'm
not saying solely on nonresident workers.
MS. NORDALE: Ya, but that means it has to be on everybody and so
I think we need to deal with the fact that, you know, you've got a
constitutional issue there.
CHAIRMAN ROGERS: How many people cannot accept a plan without it?
How many people prefer a plan with some taxes on nonresident
workers?
MR. POURCHOT: You mean designed exclusively for the -- you mean
designed exclusively (indisc.--other people talking) because
obviously an income tax...
CHAIRMAN ROGERS: Yes, that's true. An income tax is one version.
An employment tax is a version. There are several things that can
do it. But -- taxes on tourist or tourism. How many people cannot
accept to put taxes on tourist. How many people cannot accept the
plan without taxes for tourists or tourism? How many people prefer
a plan with taxes on tourists or tourism.
UNIDENTIFIED SPEAKER (Female): Now you know we're double voting
too.
CHAIRMAN ROGERS: Sure, there's a line there. Are there are other
things that people want to see (indisc.) before we get in there or
any other? We've been through spending. We've been through
endowment. Do we want to go on elimination of the CBR or
modification to the CBR? O.K. We'll take a five minute break while
we get the teleconference set up and we will go.
UNIDENTIFIED SPEAKER (Male): Are people ready to start?
UNIDENTIFIED SPEAKER (Female): Yes.
UNIDENTIFIED SPEAKER (Male): I heard one "Yes."
UNIDENTIFIED SPEAKER (Female): Yes, we're gonna do it.
UNIDENTIFIED SPEAKER (Male): Two ready to start.
CHAIRMAN ROGERS: This is Brian Rogers in Anchorage. Do we have
Chris Irwin and Michael Forester on the line.
MICHAEL FORESTER: Yes Brian, I'm here in New York.
CHAIRMAN ROGERS: Hi Michael, how are you?
CHRIS IRWIN: This is Chris Irwin in San Francisco and I have Tammy
(indisc.) with me here, another analyst (indisc.)
MR. FORESTER: I would just like to add that Peter Block is here
with me in New York and Peter is the analyst that follows AHFC.
CHAIRMAN ROGERS: I want to thank you for taking some time to work
with us. I apologize for the late faxing of two alternative plans
to you. And I understand, Chris, you've been briefed on how the
spreadsheets lay out.
MR. IRWIN: Yes I have, thank you.
CHAIRMAN ROGERS: And Michael, I guess we were unable to reach you.
What these are are two versions of current working documents on
what a long-range financial plan might mean. There are major
elements of the plan that don't reflect in the spreadsheet
necessarily that get into issues of budget process, et cetera. But
basically what we have is one model called the endowment scenario
projection that would make the permanent fund into an endowment
similar to college and university endowments, and set a set
spending rate of the endowment principal each year assuming that
the earnings in excess to that spending rate over time preserve the
purchasing power of the endowment. This one uses a three and a
half percent pay out for ten years, and a four percent pay out
there after. The plans have other revenues including a series of
excise taxes that are increased, some user fee increases and an
income tax triggered in about FY 03. Both of them are the same in
that regard. The endowment plan does away with the existing
constitutional budget reserve and deposits the budget reserve into
the Alaska permanent fund but retains a reserve for oil price
volatility so that if there is a low oil prices for a year or two,
the state would still have a - be able to balance the budget out of
that earnings reserve. The second projection called composite
scenario, uses the projected permanent fund net earnings and
inflation proofs at the projected inflation rate and then the
remainder is split between the current permanent fund dividend and
is available to be used for the budget. If it's not needed in the
budget, this spreadsheet dumps it into the....
TAPE 2, SIDE A
CHAIRMAN ROGERS: ...help the state convince the capital markets
that the state is a good credit risk. And then other observations
you might have on issues that the commission ought to - ought to
consider as we develop a plan. We're called upon to develop a ten
year plan. The spreadsheets go out 15 so that we can see how
sustainable we are, how balanced we are after year 10, but the plan
actually would only be those elements in the first 10 years. With
that, let me stop and turn to you and see what comments you have.
We have nearly the entire commission here and I'm sure they'll have
questions as well.
MR. FORESTER: This is Mike Forester in New York and I'm just
getting to see it now but a question that immediately comes to mind
would be this thing would restrict the spending on the state. I
mean it doesn't like there is much changes on spending on current
programs going forward, in fact, in a few years it falls. What
happens as service demands or should service demands increase
(indisc.) ability to just give the state the increased spending if
needed.
CHAIRMAN ROGERS: The both plans call for a - over a three year
period - a nominal dollar cut of a $100 million and then after
that, indexes the budget to inflation and half of population
growth. Any further spending changes would have to either draw
from the surpluses and thus, reduce the CBR or permanent fund
earnings reserve or (indisc.) the permanent fund.
MR. FORESTER: Well again, you'll be in a situation that the state
spend on what earnings are available from the endowment fund or
various reserve funds. What's going now would be vulnerable to oil
revenues available. Obviously, that's gonna dictate how much you
can spend but it will be a similar situation. Is that correct?
You don't give the state any more flexibility.
CHAIRMAN ROGERS: It does not give the state more flexibility in
spending. It gives it -- one plan gives it less volatility on
permanent fund earnings. Both of them remain vulnerable to oil
price fluctuation although both have reserves to cover oil price
fluctuations.
MS. MCCONNELL: There would, however, be the traditional state
choice that any state would have if it -- to either reduce spending
or increase other revenues. So there would be nothing prohibiting
in this plan that would prohibit if the legislature determined it
was essential to increase state spending. That could be done
through traditional taxes.
MS. BRADY: Plus you could increase the flow from the permanent
fund endowment.
ROBERT LOESCHER: Plus it sets up a fairly stable reserve funds
which is not what we have now.
MR. IRWIN: This is Chris in San Francisco. Again, I'm just kind
of digging into this. You know, I think -- as a credit rating
agency we obviously have, you know, narrow focus and that's on the
repayment of rated debt which admittedly does talk to a lot
ancillary issues like sound budgeting, and financial planning and
so forth. Just kind of big picture kind of reaction since the
permanent fund corpus was not directly secured to repay the bonds,
we've looked at that with considerable interest and, on the
operating side even is a potential source of stability when oil
revenues do, significantly decline in the future. But again, it
looks like by the year - by the end of the day - by 2010, it looks
like the ending balance of the permanent fund is between these two
proposals is only about four billion different, which is not small
change but, nevertheless, as a percentage not that different.
Anything that would add stability to the state's future financial
operations I think would be a credit plus. I guess, Mike, I agree
with you. It doesn't sound like there is nothing new here that
would insolate the state from fluctuations in the future price of
oil significantly. But, again just a quick reaction to these
spreadsheets. It looks like I don't see any prima facie treat to
the credit rating inherent in this. Mike, would you agree to that.
MR. FORESTER: Oh ya, I would agree.
MR. IRWIN: Again, we will certainly want the opportunity to study
these in more detail. I think that the idea that the state may
have to impose some new taxes in the future is one that we were
wondering maybe would be an inevitability. I'm not sure if that's
true or not. What taxes are you considering here to highway and
motor fuel tax, a marina motor fuel tax, and a tobacco tax, and
none of these, I guess, are present in a significant amount now.
CHAIRMAN ROGERS: All three are present right now. The highway
motor fuel tax is currently at 8 cents. This would raise it to the
national medium and 22 and then index it. Marine motor fuel tax is
currently at 5 cents. It would raise it to 8 cents and index it.
Tobacco tax is currently 29 cents a pack and, comparable on other
tobacco products, this would raise it to $1.29 and then increase it
another 25 cents every three years. And there is an alcohol tax
and this is about a minor increase in that tax level.
MR. IRWIN: And so we're talking about some significant increases.
I guess the income tax would be the new one here, right, in each
plan.
CHAIRMAN ROGERS: Correct.
MR. FORESTER: And regarding that, I was wondering how you have it
coming in in 2003, and I was wondering why that is and what would
trigger it to come into that play. And what would be the plan here
for instituting an income tax?
CHAIRMAN ROGERS: These two trigger it the first year after 2000
that the fiscal gap went negative under the plan
TAMMY: (Indisc.) showing in 19 I mean in 2002 of twelve thousand
to twelve million?
CHAIRMAN ROGERS: You're correct, it does show that - the composite
does show a twelve million dollar deficit, so that might require
advancing it another year. Or using a great -- actually one could
use a greater proportion of permanent fund earnings that year
instead of using four hundred million could use four hundred
twelve.
MR. IRWIN: Just a question. If the constitutional amendment is
successful, would that stipulate an indefinite pay out rate?
CHAIRMAN ROGERS: Yes.
MS. BRADY: Or you could do a -- we haven't talked about that yet.
The thing is we're still -- we're trying to do a couple of things,
I think. We're trying to do some flex -- we're trying to some
assured, you know, how -- an assured way of how we define
reoccurring income. We're trying to - we're also give the
legislature and government some flexibility in the future because,
as you point out, this is a pretty flat spending line and the
pressures are gonna be enormous.
TAMMY: Actually, I have a (indisc.) in the sense (indisc.) this
year, a question just about cumulative spending cuts that you're
outlining for 97, 98 and 99. Increments are growing a little bit
larger each year. What kinds of cuts are those anticipating to be?
MS. MCCONNELL: That's an accumulative number, so it's not a higher
amount in the second year. It's a forty million dollar cut then
thirty than thirty.
CHAIRMAN ROGERS: And in terms of what the spending cuts are, we
have not yet defined what the specifics are within that, but there
are some principles dealing with non-needs based programs with some
administrative consolidation and restructuring. We have some
issues dealing with state retirement that have minor impacts in the
early years but get bigger in the out years, Several other
potentials within that level. But we're still working on what, if
any, specific budget reductions we would lay out as part of the
plan or whether we would just lay out a target and leave it up to
the legislative process to achieve.
TAMMY: Really just more like the target right now.
CHAIRMAN ROGERS: Correct.
MS. MCCONNELL: We would, under these numbers, have to handle --
somebody earlier referred federal impacts. That would be within
this amount as would any other changes in spending obviously.
MR. IRWIN: In each case are you considering lowering the dividend
amount - the annual dividend by about the same amount?
CHAIRMAN ROGERS: No, actually under the endowment scenario
projection, the dividend drops by 30 percent in nominal dollars
from this year and it's frozen at a nominal dollar level of $700 a
year for the whole 15 years. Under the composite scenario
projection, it is stepped down over four years and beginning in
year five, the approach under the composite says take your
permanent fund earnings, take out from those earnings inflation
proofing and then split the difference between the dividend and
general funds availability. So the dividend begins to grow again
under the composite -- where under the endowment scenario, for
example, in FY 10 the dividend is $700 in nominal dollars. Under
the composite, the dividend would be about $1,200 in nominal
dollars in 2010.
MR. IRWIN: Ya, you know again if you just lay the permanent fund
dividend side by side with the projected income taxes, it looks on
paper like, you know, skimming on one hand and taking from another.
Was there any thought given to simply instead of imposing income
taxes dropping the dividend more or that would different kinds of
political repercussions?
MR. ROGERS: It would have different type of political
repercussions both in the public and on the commission.
MR. IRWIN: Ya, sure, O.K.
MS. NORDALE: You have to remember, of course, that cutting the
dividend has tremendous impacts on people whose cash incomes are
extraordinarily limited simply because of the differences in
economic development and job availability between urban and rural
areas.
MR. IRWIN: Oh sure, no, and I understand that you can fine tune
the income tax a lot more - simply cutting back on the cash
transfer.
MR. GORSUCH: We have a former governor who feels like we should be
paying larger dividends and then taxing it all back. So we have
quite a diversity of opinion on the subject of taxation.
MR. FORESTER: The question I have when we jump back to the revenue
side. I know Alaska Housing has an agreement signed with the
commissioner of Revenue until about the year 2000. How does Alaska
Housing and their fund balances factor into this revenue equation
beyond the year 2000? Maybe in the existing general fund source
column.
CHAIRMAN ROGERS: What that shows is an assumption that that
agreement becomes a permanent agreement at the nominal dollar level
of $50 million for the remainder of the plan.
MR. FORESTER: ...project, it would increase in real terms
inflation or mess it up at all.
CHAIRMAN ROGERS: Under the existing GF sources, it would show it
as constant nominal dollars, so a decreasing real dollar number.
And we have not adjusted that for any larger withdraw not wanting
to upset the Standards and Poors Rating Agency.
MR. FORESTER: But Alaska Housing would be able to, through their
earnings, earn in excess of $50 million if they're able to maintain
their asset base.
CHAIRMAN ROGERS: Yes, under either of these scenarios, that's a
constant.
MR. GORSUCH: Maybe we ask you a question as to what would cause
the rating services' alarm and affect their rating based on a ten
year financial plan? What would you be looking at? What would
cause concern?
MR. FORESTER: I think the major concern would just be any sort of
unpredictability. If we could have some predictability such as,
you know, with the current plan, that would be more than adequate.
You know, if there's -- I think what spooks the financial community
is when you have the financial auditors come in and, I guess, the
state auditors come in on a yearly basis and try to determine the
maximum amount of funds that can be taken out of the housing agency
that has general obligation ratings, backing certain series of
bonds, especially when you have (indisc.) that ability dollars
(indisc.). That rated based upon that pledge. So I think any
predictability is really what people are looking for at this point
and will be looking for in the future.
MR. GORSUCH: So it's really long-term. I mean the stability is
more important on a year to year basis from a rating service than
the state's overall long-term financial plan.
MR. IRWIN: Well, you know, I think we realize, like all of you,
I'm sure is that you get out beyond a couple of years you've got to
expect a changing environment. You know, I think just on the debt
obligation as the state as a whole, broadly speaking, you know,
there is still some concern that, you know, the debt is retired
within reasonable expectations of the availability of the
underlying oil revenues. And we know that that curve is being
pushed out every year and who knows if ANWR is developed the cash
registers could be ringing again, you know. But I think, certainly
to the degree that the permanent fund can help stabilize just
general revenues available to the state. That's a good thing
certainly if it doesn't create a political turmoil that would bring
down certain - the current social contract there. And Mike, you
might want to speak more specifically to that. I mean we realize
the state's on GO bonds or retired pretty quickly, but the state
has (indisc.) it's credit through the bond bank and just for school
building construction also which you know we can't ignore.
MR. FORESTER: The rating that we have on the state reflects the
concentration of revenue and the eventuality of the policing of the
oil reserves. The plan has always been that at some point in time
the state would have a large trust fund to support general fund
operations and this may be the beginning of that with this proposal
where to set up this fund that would then generate revenue each
year on an ongoing basis - on long-term basis to fund operations to
be spent at -- The spending leaves the budgeting phase within
available revenues. That is what we'd be looking for regarding
stability and maintaining balanced operations over the long-term
and going out as (indisc.) debt because, obviously, that's what our
ratings speaking to repayment of debt, and not just the state's
debt but also the contingent debt and various, as Chris mentioned,
bond obligation debts the state has -- has been issued by that
agency - began (indisc.) debt to schools and other types of
entities like that. So, again, it more long-term perspective than
the state's GO bonds that retire (indisc.) years. Also, we would
be looking at the likelihood or the eventuality of the state itself
issuing GO debt, cause based on our visit in the summer, a study is
going on of the state's overall capital needs. I'm sure it's part
of your whole mission to look at that question and how to finance
them. So we would assume that there may be (indisc.) coming, so
again, we would want to see the revenues and spending - there'd be
a relationship maintained. And all along, what's boosted state's
rating has been the ability to maintain reserves. And I think here
with the various earnings reserve and budget reserve, that would
address fluctuations in oil prices for -- and the earnings reserve
- if the earnings themselves fall and interest rates fluctuate
general market. Again, it will be a similar situation to what we
have now with the state's (indisc.) rating fatal outlook. I think
it looks like with a plan like this I don't see, at least at this
point, risk to the ratings and to the extent that is more
consistency and stability in budgeting and spending and addressing
the needs that are there. Who knows what could happen in the
future as far as the rating of the state going up.
CHAIRMAN ROGERS: That was one of the issues I wanted to move to is
that we are having some discussion of including issuance and new GO
debt within this plan and within the spending amounts called for in
the plan. Are there any actions that don't show here or aren't
obvious here that we can take in the next five years if we were
issuing debt to improve our bond rating? Are there any - anything
other than trying to feel with stability and predictability? Are
there other actions that you would see that might be taken that
would improve the ratings?
MR. IRWIN: That's a good question. We may have to confer among
yourselves to give you sort of a definitive response. I mean
clearly short of pledging the permanent fund to the repayment of
debt, I'm not sure there is anything that could explicitly be done.
Although, as the general principal - a diversity of revenue is
considered kind of better than a mono line kind of revenue. I mean
historically, different revenues - fluctuations tend to off set
themselves to some degree, not totally certainly but to some
degree, the addition of an income tax here in the outer years I
imagine we would see as a plus. Whether or not that would be
enough to make a rating difference I think we'd need some more
deliberations, some more data and some more timing - elapsed time
to see how that would work but I don't know. Mike do you want to
respond to that?
MR. FORESTER: Ya, I was thinking the same thing - I mean somehow
dedicating revenue to it. But again, I would agree with everything
Chris said. (Indisc.) what the current situation with regard to
revenues available competing service demand needs, budgetary needs,
and see what the legislature actually does with these proposals.
See how the budgeting has been going over - say over that five year
period over the next five years.
CHAIRMAN ROGERS: The second question I had on a related topic is
if we were looking at issuing additional GO debt over this period
of time, the State Bond Committee has used an informal rule in
recent years that the state's debt service should not exceed 5
percent of projected unrestricted revenues in any of the out year
projections. Is that a reasonable rule of thumb that we could use
as to what would be a maximum prudent level of debt.
MR. FORESTER: Ya, I would say that's a good level. We've seen
that in other states (indisc.) their sort of self imposed debt
limit. I mean if there's no constitutional limit and states just
want to use a given measuring stick, 5 percent of general revenue
would be a fairly good measure to use and we've be comfortable with
that in other state.
MR. IRWIN: That's, again as Mike said, is a level that seems to be
pretty common and manageable.
TAMMY: And it's always something that's looked upon more
positively if you are managing your debt more pro actively than if
you're not. I mean not just examining what what your capital needs
are but what policies you have in place to pay for those needs.
MR. IRWIN: Ya, I mean Alaska is such a unique situation. Who
knows - maybe - I guess unlike most states the chief rating concern
in Alaska is simply how long the bonds go out. I mean I think when
we raised the ratings not long ago you know we, I guess, got
comfortable with the fact that even within the Prudhoe curve, there
is some more room for more debt. But if the terms go out beyond,
you know, the latest reasonable estimate of that curve, I think
that would have more of an effect on the rating since the amount of
budgeted is consumed.
MR. LOESCHER: Mr. Chairman, is that so, that statement so even
with the permanent fund growing as it is in being an underlying and
asset of a state that's generating a revenue stream. Does that
change or do we fall off the cliff when Prudhoe curve ends?
MR. IRWIN: Well, you know, if you adjust the structure here so
that you can tap some of that permanent fund earnings for debt
service, that could make a difference. I guess we have to see
really, you know, legally what can be done there and what comes out
of that process. I mean clearly, there is a - you know you're
showing a major pot of money here. If that can be tapped to fill
in that declining curve a bit in a legally reliable way, from the
point of view of a bond holder, I guess that could make a
difference. We'd really have to talk specifics at that point.
UNIDENTIFIED SPEAKER (Male-teleconference): Ya, I would just add
that to the extent that this is now in (indisc.) then it becomes an
ongoing revenue source to the state and that as that grows, it
would replace oil revenue as that was depleted so - and then it
would be emplaced in perpetuity. Then the analysis may shift
slightly to more traditional amounts of debt. As to the corpus of
bonds and that determine the debt would match the life of the
facilities. In fact, we could get comfortable with a slightly
longer (indisc.) than in the current situation where it's so
heavily dependent on oil revenue.
MR. FORESTER: Interestingly enough, if in fact security does
become kind of a blended situation between sort of geological
forecast and investment forecast, we would probably bring in our
managed funds group more and more doing an analysis of the
portfolio than we do now in trying to link the rating more directly
to that which was, in the past, seen as a potential source of
operating income but not necessarily directly legally dependable
for debt service. But that would be an interesting avenue to
explore and we'd certainly be willing to do that with you.
MR. GORSUCH: Let me ask an alternative question. Under what we
call our base case, we have a $550 million current fiscal gap and
it grows to about $1.4 billion out to 2010, how is it we have our
current rating and how much worse would it have to get before the
rating would begin to show negative?
MR. IRWIN: Well, that's a fair question too. You know, our
experience with state budgets in the Lower 48 is that there are
often some pretty alarming budget gaps at various points of the
process. They tend to work out. If they're done quickly, they
often don't have an impact particularly if the state says, "O.K.,
we acknowledge we have a funding gap here and this is our plans for
dealing with it." And it seems to make sense if it's not based on
overly optimistic projections of revenue or plans for spending.
Frankly, if the budget gap that you're talking about really does,
in practice, occur the way, you know, you just described - year
after year and cumulating to that degree, frankly it could have a
rating impact. But budgets change so much as you know from day to
day, that if we would react to just, you know, every day's
forecasts, we would be changing ratings all the time - down, up,
down, up, down, up. That wouldn't do anybody in the market any
good, so we try not to do that. But clearly, if you really think
that, you know, absent any restructuring, like you're discussing
here, that your operating gap in the budget would be of the order
of magnitude that you just mentioned and accumulating, I would say
there very possibly could be rating factor.
MR. FORESTER: I would agree. You mentioned some numbers there.
I see the projected gap and then (indisc.) at $500 million, but I
don't see it growing. I see it on a year to year basis being
fairly modest.
CHAIRMAN ROGERS: Actually under this, we don't have a gap in most
years. These are after we take action. What Lee was talking about
was before taking action, the gap by FYL 5 grew from the $524
million this year to $1.4 billion.
MR. FORESTER: I think - and just a general statement, we see, as
Chris mentioned, typically we see these forecasts highlighting a
problem facing state or municipalities and any entity that we're
rating but (indisc.) in the rating and a (indisc.) rating at fairly
high levels such as (indisc.) a cap that we would expect management
to address those situation before it passes such a level.
CHAIRMAN ROGERS: Do you expect them to create long range planning
commissions to solve the problem?
MR. IRWIN: There you have it, sure.
MR. FORESTER: Whatever it takes.
MR. IRWIN: You know clearly - clearly having some idea of a long-
range strategy is a good thing and I would say of all the states in
the county, it would be particularly important for Alaska given the
preponderance of your revenues.
CHAIRMAN ROGERS: Let me take one more question before we break
here.
MS. MCCONNELL: A flip side to Brian's earlier question about
whether there is anything that we could add to the plan that would
increase the likelihood of our rating improving, as if you'd let us
know is there anything in the plan, as you see it know, that would
inhibit an improvement of the rating - any particular element that
you see that is problematic.
MR. IRWIN: I don't see anything that really jumps off of these
spreadsheets that causes me concern in sort of the perspective of
the bond holder. Again, we do want to reserve the right to study
this in a little bit more detail. But - no I - you know again, it
seems to be building in some stability into the state's general
financial picture here which all else being equal, is a good thing.
Mike do you want to...
MR. FORESTER: Ya, I would agree with that and just also given some
of the revenues that are projected here, I guess if the state were
to embark on this in (indisc.) years and then not get some of these
increased revenues - that then would to put more pressure somewhere
else. I guess a concern would be if the state legislature is only
going to go halfway and then stop. Where does that leave the whole
plan - the plan as whole, I guess, it would be something that we
have to look into at that time. But what I see here, again, I
agree with Chris that it looks O.K.
TAMMY: I would just add, this is Tammy again, the only thing about
the increases in the tax (indisc.) just says in here, it seems like
pretty significant ones and context of reviewing them kind of off
of Mike's comments. He is wanting them and, you know, going
forward that limits some flexibility on your revenue side to kind
of (indisc.) how it might work (indisc.)..
MR. FORESTER: I would still like to add something just on the
ratings of other rated Alaska agencies that issue revenue bonds and
that would be any proposal from the Long Range Financial Planning
Commission, I believe and I think that the committee would believe,
should include some sort of long-range plan for reliance upon
revenues say from Alaska Housing or the Industrial Development
Export Authority. Ya, do you just want note that we've had a
negative outlook on Alaska Housing now for about two years and we
are going to have to make a decision in about the next year or so
on the direction of that rating. And we have noted several times
that we are looking toward the commission's recommendations for a
solid plan for the long-term. It kind of puts some predictability
into the rating picture, so to speak. And I also believe that it
would be viewed positively by a financial community if a long-term
plan were solidified by the legislature.
CHAIRMAN ROGERS: One of the possible pieces of legislation would
be a resolution, that would be adopted on an annual or bi-annual
basis, sort of looking out five years as to what the elements of
the plan may be over each succeeding five year period.
MR. IRWIN: Ya, I think we would certainly applaud that
TAMMY: Ya, and again, that's kind of what Chris said earlier, you
know, when (indisc.-hard to understand) we would get some comfort
out of a five year plan and I think we all probably agree that five
years is a little bit easier.
CHAIRMAN ROGERS: Going back to the AHFC issue for just a second.
If there were some passage of legislation which set up a
predictable annual draw from AHFC - and hypothetically at roughly
level it is that the AHFC Board if acceptable, and that was sort of
the given as to how much would come out of AHFC profits annually to
the state. Would that allow AHFC to come off the negative rating
if there were predictability as to what that draw is rather than
the annual "How much can we get this year?"
MR. IRWIN: Well, I mean we'd obviously have to take a look at the
magnitude of the draws that you're talking about and try and make
some determination as to whether or not they could sustain
prolonged (indisc.) given the (indisc.) requirement that they have
on the rated (indisc.). But ya, I mean I think it would definitely
be the (indisc.) and, you know, hopefully the outlook could be
revised as stable. You know, I just want to reserve a comment
until we have a plan in front of us. But all along, a chief
concern has been the uncertainty as to annual looks at the reserve
and the financial statements of AHFC and is what may happen. So to
the extent that there's more long-term certainty or low (indisc.)
five year plan, the committee would look favorably on that I
believe.
CHAIRMAN ROGERS: Well, I want to thank you for your time and we do
recognize these are not the necessarily the definitive word from
Standard and Poors but rather a quick reaction and we appreciate
that in terms of our process of thinking this through. I guess I
would say don't spend a lot of time working - thinking further
about these plans until you see what we ultimately end up with. In
a couple of days there will be some shifts from here and we'll be
completing our work over the weekend and then issuing a written
report in a couple weeks, and I'm sure that the folks that you deal
with in AHFC and elsewhere will make sure that you get copies of
the final plan. Chris, Tammy, Michael, Peter thank you for your
time.
MR. FORESTER: Well thank you, is certainly interesting for us and
we wish you the best of luck in your endeavors.
UNIDENTIFIED SPEAKER (Male-teleconference): Again, thank you.
UNIDENTIFIED SPEAKER (Male): Thanks, bye.
UNIDENTIFIED SPEAKER (Male): It's nice to know that things don't
change.
UNIDENTIFIED SPEAKER (Male): (Indisc.) like giving that report
ever since I've been around.
MS. NORDALE: We break our backs to add another $6 million into the
permanent fund - and he says, "good job."
CHAIRMAN ROGERS: If we'll pledge the permanent fund, they'll think
about increasing our ratings. How long a lunch break do people
want?
MR. GORSUCH: Till 2:00.
CHAIRMAN ROGERS: How about 2:00 sound good. O.K., we'll work from
about 2:00 to 5:30 or so, break and then come back.
(After the lunch break)
CHAIRMAN ROGERS: ...one paragraph or so from each member of the
commission that would be a concurring or dissenting opinion from
elements of the plan that would allow us to perhaps come up with an
overall plan that is closest to meeting the - or meets the optimum
number of key points for people but allows individuals to express
briefly where they disagree with the model. And the reason I
suggest that is that I think for some of us, being able to say,
"Yes, I support the plan with this reservation," is better than "I
support or don't support the plan." And one idea I've had for how
to deal with it and certainly from the very beginning we've said
people could write a minority report not necessarily would be
incorporated in the plan but would be available. But I'm thinking
of just a brief concurring or dissenting thoughts that maybe for
some of us give us political cover with key constituents. What I
see as the down side to that is those concurring or dissenting
opinions will be used to try to stop or derail provisions of the
plan which could cause the whole thing to unravel for the
legislature in much the same way it is for us. That's what I would
offer - my thought on the issue. Lets go around the room and see
what other thought (indisc.), Lee.
LEE GORSUCH: I guess my thought is we might actually have a fair
amount of agreement or we might need to achieve agreement on the
first five years, and that the divergence of opinion might come in
the ten year plan. And there may be ways in which we could craft
the agreement on the ten year plan. (Indisc.) Brian's suggestion
that we might have some divergent about the relative merits of the
different issues. For me, I hate to keep sawing my old song about
the proportionality of taxes cuts reduced dividends as well as
retained earnings. In the short run and in the long run, you know,
my core is this idea of trying to build the endowment as at least
some offset to declining oil production, and for me that's more
important than anything else in terms of the issues. We do have to
build up some kind of sustainable revenue source. And once we've
played the income tax with a sales tax card that's played and we
know what the magnitude of that is -- it's four to five hundred
million dollars. If you threw both of them in the hopper and
that's $500 million against the $1.4 billion gap. If we threw the
dividend in at current levels of $600 million, you still can't get
there. So as long as I see that -- we are trying to build up this
endowment fund, and I'm not totally wedded to the endowment, per
se, but I think it has a lot of very positive features to it. It's
the principal I'd like to see happen. I do have serious
reservations about a $300 million real budget cut in three years.
If we saw some programs that we're going to recommend, then I'm
willing to sit down and discuss that, but if it's general, the
political instincts are just to spread it across the board. And
someone who represents a self interest in the issue, I'm 30 percent
below where I was 20 years ago. I'm competitive with my counter
parts in Washington, Oregon, already. I can't take anymore unless
I'm gonna start, you know, denying opportunities. I don't feel
that's true in all other institutions but it's true for my
institution. So if I can't start getting some targeted sense of
where this $300 million is coming from, I don't want to be on the
cutting room floor without a chance to make an argument about why
we are in line with other states in terms of expenditures for
higher education and things of that sort. So I'm still more
inclined, again as I said before, the $200 million cuts, the $200
million in taxes and the $200 million in reduced dividends in the
short run with everything else being retained as earnings in the
permanent fund. But I think we actually have a reasonable degree
of consensus around the first five years and that might be helpful.
People's conditions might be on the next ten years but I think
we're actually fairly close on the first five.
TAPE 2, SIDE B
MR. LOESCHER: ...$300 million the way we have them on our scenario
here. And I think we have to look at, you know, some lists of
suggestions on where these cuts could come from, otherwise, it
would mean some difficulty. And I think we deserve -- well I think
we have the duty to advance such a list. The other thing is that
yesterday, at the end of the day, you talked about composite or
endowment scenario. You never said a choice maybe we could have
both with the preference or recommendation from the commission on
one or the other or whatever. I sort of think that we ought to
consider advancing both to the report along with base case of
business. The other is that I believe that the narratives are not
necessarily matching these two scenarios and I think it would save
a lot of debate among this intangence of discussion if we focused
on bringing the narrative to the scenarios. Then lastly, this
business of the income tax business is difficult and the discussion
this morning laid out a number of good points on how to deal with
that. And I think there's only several choices of how to deal with
it. We ought to examine it and try to get a policy cut from around
the table on where that should go because that is an important
feature - fundamental philosophic feature of this this thing. But
anyway, those are the only points that I would have.
CHAIRMAN ROGERS: Marie.
MARIE WESTFALL: Well, I would certainly like to spend more time on
cuts because because I think that that is what the public is sort
of expecting us to do and up till now, really we have sort of
glossed over it. One of the things that has always worried me is
constitutionally, we need to educate people K through 12. We have
a super large university budget and actually has never come up
around this table. I don't know if maybe it's because it's easier.
But it is something that I think it would still need to discuss
kind of cuts that we need to make. You know, as far as these plans
are concerned, use the composite one or the endowment, actually I
could live with either one of them. I want to see us build up
something that down the road we're going to be able to have a
(indisc.).
CHAIRMAN ROGERS: Mary.
MS. NORDALE: I'd like to see, as Bob mentioned, the endowment
scenario and the composite scenario be presented as our best effort
to coming up with a spending plan based on estimated revenues using
(indisc.--coughing) approaches. The -- I have some concerns that
we have not addressed the structure of state government adequately
and I think that we should spend some time in dealing with that.
In terms of the income tax, I would like to see it retained in the
plan for a couple of reasons. One is that I think it spares us
from eating our seed corn; and two, I suppose I have a similar
degree of cynicism to Judy's and that is that I'm not confident
that we will see the political success of retaining the expenditure
level as we've recommended it. I think so far the narratives that
have been prepared need an awful lot of editing. What I would like
to see is spend some time today and tomorrow talking about the
structural problems that we haven't addressed. Not so much that we
can actually target changes but we can certainly make specific
recommendations as to where it appears it is going to be necessary
from the state to direct its attention if the spending plans
computer scenarios are to be honored.
CHAIRMAN ROGERS: Judy.
JUDY BRADY: I guess I would like see us if we could present one
plan, and I thought the first two, we talked about two earlier and
then spent quite a bit of time talking to people who have been
interested in this for a long time and their impression including
(indisc.) was that if you present one plan, you'll have a better
chance of selling it. You know, if we can't come to an agreement
naturally (indisc.). I agree with Lee that we have an agreement on
five years - we have agreement on five years. I think both plans
have the same spending. Interestingly, both plans do many of the
same things. So it's simply a question of how you want to enforce.
Actually we're talking about is how you want to enforce the use of
reserves. It's a single issue basically. And (indisc.) and the
income tax issue when you bring it in not whether or not you have
one when you bring it in. I like to concept too of the cuts, cuts
in spending cuts and taxes, and the cut in the dividend and then
would -- perhaps when that happens when its needed, triggering or
brining in the personal income tax. I like the idea of putting
some money into the permanent fund. I also think we have to be
careful about cuts. I think too many cuts are cuts that can't be
borne the system will simply defeat the plan. I know the public
wants cuts. I know the kind of - some segment of the (indisc.).
I know what they expect but I also think that we've spent the time
looking at it and we're the ones that are going to have to decide
whether or not in reality or we think it can happen. I think maybe
this afternoon we can reach quite a bit of agreement on what we do
and then spend the time on the (indisc.) If we do $300 million in
cuts I agree we're going to have to - real cuts we're going to have
to give some clue about what - how we think cuts should be made.
CHAIRMAN ROGERS: Bruce.
MR. LUDWIG: I'd -- like Bob said, I'm worried about a $300 million
cut in the budget too but I guess I'm prepared to do that for the
opportunity to bulk up the plan for future generations where we can
do something and I don't mean just to give them a tax free society,
but somehow to replace the oil revenues that we're getting in but
we aren't going to get in the future. And like we said in the past
when we do the budget cuts, the area that I'm involved in has taken
a real heavy hit. Well we've gone through tier two already. I was
surprised last year when we had our pay bill up and in the research
not even been counting a six and two-thirds percent increase the
salary schedules dropped over 20 percent compared to the cost of
living. You get to a point where you have a hard time attracting
people. And, you know, I'm just as good an auditor up in the
Department of Revenue looking at ARCO's books as you was at ARCO.
I think that cost us money in the long run if we cheat ourselves
and don't get good help. So I think we ought probably try to
identify some places where the money comes specifically from.
Maybe that's harder than trying to come up with a plan, but I think
we owe it to the charge that we've been given to try to identify
some cuts. I think that -- I think there's probably some money
there that we haven't gone over as far as revenues and maybe
they're just nickels and dimes, you know, as far as fees and other
ways to generate a million here and two million there. We've kind
of glossed (indisc.). I don't know that we've had the opportunity
to be able to see all that stuff but I know Mary did a very
thorough job and there's a lot out there. Kevin Ritchie said one
time that there was - he felt that there was like $400 million
worth of user fees and smaller taxes that go into place without
looking at a sales tax or an income tax, and that might be pretty
far fetched but there ought to be $50 million, you know, where you
could get people to pay for stuff.
CHAIRMAN ROGERS: Hugh, I'm concerned that we have not addressed
the volatility of our primary revenue source. As you know from
last night, I am not as concerned about the level of spending cuts
being too great as the rest of the room is. I think that within
our system we have an employee base that has a cadillac medical
system, a cadillac retirement system, and if you look at the way
the general public perceives the levels of compensation that it
significantly exceeds the private sector. And I'm troubled that
coupled with all the give away programs, the non-needs fact based
transfer payments that this plan won't sell.
MS. MCCONNELL: I like the idea of having some pretty firm and
sounds like redefined plan elements for the first five years
recommending a review at the second five. I think it would be good
to give some general direction of where we're headed and what some
of the options are. Maybe it's opposed to expressing it at
diverging opinions but that we have have some choices that we can
make in 99. I would like to see us recommend, assuming that we
move forward - we like a lot of the elements of both of these. My
main concern about the endowment is that if it fails the public
vote, we have a real problem in terms of how we proceed. So what
I would like to suggest is that we set it up to have - to recommend
that the legislature pass SB 51 or something similar to that and go
a head and proceed with the endowment if we agreed we decided that
we like that with the provision that then if the endowment passes,
you don't have to do the SB 51 approach or something like that
because I'm concerned that we not peg it all to a constitutional
change and have fail safe that's statutory as option. And I think
there are a few things that we could leave open to further work by
the legislature and the Administration such as recommending - we
could say in a fairly generic way we know that there are a number
of areas where taxes could use tune-ups either because exceptions
are out of wack or we could sort of categorically describe some of
the problem areas that we've seen and said that it would be good to
go a head and tune those up. I don't think we necessarily have to
come out with a specific recommendation on every one but we do feel
there are some inequities in how it now. I wouldn't waste our time
on trying to ferret all of those out - give examples instead.
CHAIRMAN ROGERS: Georgianna.
SENATOR LINCOLN: Well, I think I've said this a couple of times.
Who are we writing the plan for? Are we writing the plan for the
legislature and the governor, as I think that's our charge. Or are
we writing a plan that is all of the "I's" are going to dotted and
the "T's" are going to be crossed and each of around this table are
gonna be concerned about our specific interest group or groups and
what they may say or the general public might say about a specific
plan. Are we looking at a plan that is going to get us out of a
situation we're in and is going to look at a healthy Alaska, a
healthy economy, a healthy future or the next and the next and the
next generation to ensure that. So I get concerned about us
dotting the "I's" and crossing the "T's." I think there isn't, I
don't think, any disagreement about the need to cut spending, the
need to increase taxes and the need to cut dividends, but the
question is to what degree. I'm concerned that if we are going to
have a two hundred or three hundred million dollar expenditure
reduction that I want us to identify necessarily the specific
programs as much the areas that the legislature could look toward
finding the - or to reduce the budget, otherwise we're going to be
here a long time if we start talking about we need to cut PCE.
Because I'm going to argue about the need for PCE and what that
does to rural bush economy in that if -- that we're not going to
see a growth - that we're going to see more expenditures rather
than to have a healthy all Alaska. So I hope we don't get into
specifics like that, otherwise we're gonna be here a long long
time. We all have areas of expertise around here. I don't know
what the university budget is by line, but you do. So I look to
you for that advice, but I don't expect us to throw specific
programs out here otherwise we're not going to move forward. I
think that some of the suggestions are good and will move us
forward. I'd look at this and I said, "Well gee, can I live with
a five year," because I think that income tax should be pushed back
here. But five years, I guess I could live with that. It's beyond
that I really have some problems. I wish it could be in maybe in
the fourth year or the third year even, but I could live with that.
That then gets to the "I'd prefer but I'm not going to fall on the
sword if it's not there." And I think maybe that's some of the
things that we need to sort through. We all have to give up
something here and that plan that we're going to present, ladies
and gentlemen, is not going to be the plan that is going to be
implemented. I'm sorry members, but it just won't be because there
is going to be some more time to (indisc.) here. I think we should
just recognize that.
SENATOR RIEGER: I think that, you know, what the plan and the work
the commission has pointed out is it's pretty easy to get there.
The tools are there and almost redundant on how easy it is to get
to closing the fiscal gap. None of them are painless but it's not
like you can't even think of a way to close the gap. You know what
I see is that there is something very vaguely like a one-third,
one-third, one-third consensus out for eight years which is
something in the two to three hundred million dollar fewer
dividend, two to three hundred million dollars lower spending, two
hundred million dollars of higher taxes which are all these things
kind of itemized - little taxes. And then there is kind of a fork
in the road or a three way fork in the road and I don't see how we
reconcile that because I think some people feel strongly the other
way as I do - the opposite way, and that's when the next round of
tools faces the state and it's whether you do income taxes or
whether you make another greater draw on permanent fund earnings or
whether you do some other alternative. You know, there is two here
in the composite and the endowment and I think the third one really
is the composite without the - bulking up the permanent fund and
without the income taxes because I think the numbers work without
it. And I think that perhaps the best approach is to say there is
a number of ways to get there. We're together on the first step
till the fork in the road and you have alternatives, all of which
would work out there. And that's a meaningful report and I think
it's something that most of us can sign off on.
MS. NORDALE: I forgot to say I'm going to be praying for the
longevity lawsuit. Mr. Chairman, just sitting here listening I was
skimming through the preparations bill and including the longevity
bonus, out of seven programs I came up with $80 million - almost
$81 million worth the cuts we can do right now without...
MR. LUDWIG: Including longevity?
MS. NORDALE: (The response was in the affirmative).
MR. LUDWIG: I thought that was $70 million.
MS. NORDALE: Well 72, and according to this bill -- but there are
some other programs that easily could be eliminated because all the
functions can be absorbed by sustained ongoing program. We could
eliminate the ABC Board for $640 thousand, get rid of postsecondary
education, longevity bonus, get rid of the Alaska Aero Space
Habitat Division, seniors and veterans exemption, the homeowners
exemption. That gives you $80 million.
CHAIRMAN ROGERS: I think there is consensus on the last two of
those.
MS. NORDALE: What?
CHAIRMAN ROGERS: I think there is consensus on the last two of
them.
MS. NORDALE: Well that's right but, you know, the ABC Board is a
vestige of prohibition and the lack of a tax base in the territory
and so booze was regulated in order to raise money for territories
general fund. The communities, we have, you know, wet, damp, and
dry options in the bush. We've got planning and zoning and
commissions in the urban areas. We don't need to have the
regulatory functions of the ABC Board. We don't need the ABC Board
going in and measuring somebody's barroom to determine whether or
not it works. Each community can decide that and - which they do.
They do Brian.
BRIAN ROGERS(?): They measure the barroom?
MS. NORDALE: You've got to submit architectural pencil drawings to
make sure you've got the right kind of a bar (indisc.) and their
regulatory function has been, for the most part, either be done by
the cops or by the tax collectors. Postsecondary, all it does is
run a loan program that can be absorbed by another agency. Aero
Space...
CHAIRMAN ROGERS: That's not true.
MS. NORDALE: Sure it is.
CHAIRMAN ROGERS: They're also responsible for the regulating of
private postsecondary education.
SENATOR LINCOLN: But Mr. Chairman, just as a point of order, you
know I don't think that these are things that we can all embrace so
I think we need to get back to this.
CHAIRMAN ROGERS: I would like to do a little (indisc.) pole on the
issue of specific budget cuts just to get a sense...
MS. NORDALE: Well, what I was doing was just giving you a sense of
how you can target whether you want to or not. I'm not saying that
the commission has to adopt this.
CHAIRMAN ROGERS: O.K. and what I'm asking is -- what I want to
find out is how many people do want to be specific about the
reductions in the first three years that need to be made versus how
many people don't to. I've heard Senator Lincoln say she was
concerned about listing specific expenditure reductions because we
could be here all day and all night discussing each one and I think
we just saw that start to happen there. I've heard others,
including myself, say "I think there needs to be some specifics in
order of the spending cuts to seem as real as the taxes." So what
I want to do is find out how many people want to spend some time
being specific and many don't, and then based on where the majority
is, we either should halt discussion of that or be prepared to
discuss it. So on the issue of whether we discuss...
SENATOR LINCOLN: When I say specific, I mean specifics like what
Mary is listing rather than that we need to -- I think we have to
be specific and I don't to say just cut two hundred or three
hundred million dollars but where departments can have reductions -
but not to be specific as that. So I hope that clarifies it.
CHAIRMAN ROGERS: Judy.
MS. BRADY: Well, I kind of -- I was looking to comment. I guess
I what I would say is it depends on how much we're going to talk
about cutting. You know, we're talking about what we first talked
about which was kinda 40-30-30 or $200 million or kind of 200
million less - is still a lot of money. Without the structural
changes - I mean we're just trying to cut things as are. That's -
that I don't think we need to do it. We're going to go for heavier
changes. I mean heavier cuts - then I think -- at least that was
kind of my general thinking about that we need to give a little
clearer direction.
CHAIRMAN ROGERS: I think that based on last night's straw polling
and we're looking at a level around a hundred million nominal,
three hundred million real over that three year period as being a
number that gets the most votes on the commission.
MS. NORDALE: Mr. Chairman, this is kind of in the same subject but
one of the things I would like to see us come out with is a
recommendation that the fees paid by residents of the pioneers home
be based on income.
CHAIRMAN ROGERS: We're on the revenue -- you're talking the
revenue side.
MS. NORDALE: I understand that but...
CHAIRMAN ROGERS: I don't think that's really germane to the issue
of whether...
MS. NORDALE: No, I realize that but one of the problems that I see
in approaching the issue is that if this commission doesn't come up
with some recommendation like that, we're going to lose pioneer
homes completely and I think that that would be a very sad event
for Alaska. That would be a budget cut of about $30 million.
CHAIRMAN ROGERS: Is there further discussion about whether we
should discuss such specific budget cuts in our report or not.
Bruce and Lee.
MR. LUDWIG: I would like to suggest maybe a third alternative
there and that's the generally specific. Something like when we
talked about restructuring - some form of restructuring government.
And I don't have a problem with the world say get $50 million out
of restructuring the way we provide services without getting down
to saying you layoff two people in Bethel and put a computer
terminal there. I mean there is ways -- if we get down too far,
we're micro managing - even in the legislature I don't think you
ought to do that let alone a commission that is supposed to take a
broad view. So I'd suggest maybe there's something that's
generally specific as far as limiting it the areas without getting
down to real fine details.
SENATOR LINCOLN: That's the word I was looking for, "Generally
specific."
CHAIRMAN ROGERS: Lee, on the issue of whether or not to be
specific.
MR. GORSUCH: As I mentioned last night, the difficulties about not
having some degree of specificity is if, in fact, we say we're
going to cut the budget by $300 million and then we put in a motor
fuel tax. Now the questions are whether or not some share of that
motor fuel tax is going to go back to the department of revenue to
maintain roads.
MS. NORDALE: I hope Revenue doesn't take on roads.
MR. LUDWIG: Well, this is part of restructuring (laughing).
CHAIRMAN ROGERS: They're going to make it a toll road.
MR. GORSUCH: The Department of Transportation -- if that doesn't
carry some implicit reallocation, I don't think the voters are
going to support it. I think there has to be some kind of good
faith expression that if in fact we pass this, some share of that
money is going to go for better road maintenance. If we do that,
however, and that's a $40 million item, the only way you can do
that is to take it out of some other agency. Now the cut's $340
million for somebody else. So I'm not interested in that.
Suddenly, we're talking about a tremendous budget cut that won't
have snowball's chance in hell of ever getting enacted. And you
know, so I think we do have to be somewhat specific, at least on
these items. The impacts of the federal budget cut is another one
we've talked about. We are kidding ourselves if we think we can
just absorb that without doing the programmatic changes. They take
at least a year. I mean just don't think they're realistic. I
think we do have to be reasonably specific. And when I say
reasonably specific I don't mind, for example, using some
benchmark. Bring wages and compensation down to some index level
that could read upon in terms of maintaining competitiveness,
whether it's the university, public schools, public employees or
whatever. And we could even try to decide whether there was a
target there. For me, that's a fairly specific set of -- that a
specific recommendation. But I do think we need to have some
degree of specificity or we won't know - the legislature won't know
what we're talking about then. When they raise revenues, does that
mean the budget go up or does the budget cap stay? It is dedicated
for a particular program. So I do think we do need to be....
CHAIRMAN ROGERS: Mike, on the issue of whether to be specific.
REPRESENTATIVE NAVARRE: Probably ought to set it up as either or.
Either make these cuts or you have to implement these other revenue
measures. Because my concern is that notwithstanding all of the
discussions about the fact that a $40 million cut is (indisc.)
million dollar real reduction and a $300 million real reduction
over a three year period. My opinion is not a likely scenario. I
mean I -- if I could write the budget myself, I'm sure that I could
probably come up with a reduction and have a number of people mad
at me. But expecting a legislature to make those types of
reductions arguably over the last three years - five years if you
include the Hickel Administration, we've got most conservative
Executive Administration, and for the last three years a very
conservative House and Senate majorities who have bled on the
Finance Committee to try to come up with reduction. And squeezing
a lot of individual little things, we haven't come up with much.
I mean it's much much easier said then done. I think we ought to
leave it as a scenario that if you're not going to make these
reductions through a prioritizing such as these specific items,
then you have to implement other revenue measures for additional
money (indisc.).
CHAIRMAN ROGERS: Annalee.
MS. MCCONNELL: I started off thinking that it would be good idea
for this commission to recommend pretty specific budget cuts
because I thought so many of the tough choices are politically
difficult that if a group of citizens representing a lot of
different view points said we should do it - that that would be a
good idea. And I haven't totally made up my mind but one of the
things that -- one of the - well the points that was brought to my
attention that could be a concern is that if our report ends up
being a battle over longevity bonus, it may get -- some of the
other stuff we do may get lost in the shuffle. And I really
haven't decided whether I believe that that's the case or not, but
it did give me pause which is the first thing that I had heard that
made me think it might be a good idea not to be too specific about
the cuts and let that part be fought out in the normal legislative
appropriation area. But I would hate to lose the overall financial
plan in the public conversation if it ended up being a battle with,
you know, particularly targeted groups whether was seniors or any
other group that would likely be here. And one little tune-up I
would like to suggest on the cuts, which might address some of the
issues like Mary has, is that if we describe the cuts not just as
cuts in total spending, but in some cases, that might be a shift to
fee support, if it a cut in the sense of reducing the fiscal gap,
that that might be another way of sort of open up some doors and
whether we decide to give a specific example like the pioneer homes
are not -- I think it would help if we give some specific examples.
But that -- I think that some of this stuff that we're looking at
that can cushion the magnitude of what otherwise would be pulling
out of service altogether.
CHAIRMAN ROGERS: So on the question of whether or not to be
specific, from what I've heard we have a choice of voting if we
would put specific cuts, that we would not put specific cuts, that
we would generally specific, that we would be reasonably specific.
And I guess I would add to that specifically reasonable.
MS. MCCONNELL: Specifically general?
CHAIRMAN ROGERS: On the sort of three approaches, specific cuts,
no specific cuts and reasonably general cuts. Are you ready to
vote?
MR. GORSUCH: Call for the question.
CHAIRMAN ROGERS: All those in favor of being specific about the
budget reductions, please raise your hands. One, two, three, four,
five, six. On not being specific, please raise your hands. And on
being reasonably generally specific.
UNIDENTIFIED SPEAKER (Male): Hey, you can't vote twice.
UNIDENTIFIED SPEAKER (Female): Ya you can.
MS. BRADY: They are, that's not fair.
UNIDENTIFIED SPEAKER (Female): Why not?
CHAIRMAN ROGERS: I think the specifically reasonably generally
specific carries the day. What does that mean?
CHAIRMAN ROGERS: Judy.
MS. BRADY: Do you want the Expenditures Committee to take some
sort of break sometime here and Bob Loescher (indisc.) and come up
with some say, "Here's what we think." And at least vote it up or
down or... I mean if we want to do that, we can do that. We've
spent a lot of time on this. I don't mean not right now, but I
mean some time in the next 24 hours -- over wine. How much do you
want us to cut?
MR. LUDWIG: Three hundred million.
MS. NORDALE: Three hundred-three O in three years.
CHAIRMAN ROGERS: Let me try within this first -- lets see if there
are any consensus budget cuts by letting people - anyone who wants
to propose something they think there might be consensus on say it.
If anyone objects - it's not on the consensus list and let me...
MR. GORSUCH: Before we get into this, you know, I heard Steve say
that he thought our general consensus was that we were in general
agreement about the one-third, one-third, one-third over the five
year period of time. I'd like to lock that in first, go back to
the base case (indisc.). If it is one-third, one-third, one-third,
we've already got the one-third in taxes...
CHAIRMAN ROGERS: You're off the subject. You're moving to a diff
-- if we keep moving to a different issue every time somebody wants
to move to a different issue...
MR. GORSUCH: Well, it's specifically to your $300 million which is
beyond the one-third, one-third, one-third. So the point I'm
trying to get back to is if we agreed to one-third or whatever the
base case number is in the year 2001, which is five years out,
alright. And my recollection was it was in the $600 million or
$650 million category, we could go a head and say, "Alright, we're
going to get one-third or two hundred and some million out of
revenues." You fill that amount out of budget cuts and we're take
the equivalent amount out of the permanent fund dividend program.
If that's the case, and we do have an agreement on that, then I'm
willing to go into the next round which is now sort of getting into
the real specificity around the budget cuts. But I wanted to make
sure that we don't jump back into the three hundred real in three
years, not five years, and suddenly we find ourselves violating
what I thought was our general understanding. I'm not looking for
specifically one-third.
SENATOR RIEGER: Ya, I was just going to say I was one who observed
that it worked out that way and these taxes were done with the
results of some pretty careful thinking, you know, tobacco and
motor vehicle and whatever. And I think that in the year 2004,
they came out to almost exactly $200 million. So I wouldn't want
to take that specific kind of move back (indisc.) one-third, one-
third, one-third.
UNIDENTIFIED SPEAKER (Male): (Indisc.) fisheries on yet.
SENATOR RIEGER: I'll say my point is that where there's been some
careful work, lets not just throw it out for the sake of the catch
phrase, you know, one-third, one-third, one-third. I think those
have been worked through and you know now it's whatever it works
out to but that's kind of where it's heading. So I guess I'm
uncomfortable with what to do and add by taking an approach like
that rather then just working on...
CHAIRMAN ROGERS: Well, what we would add is if the dividend gets
cut to $600 instead of $700 in order to get to the one-third from
the dividend we'd have to reduce from the $700 that had the optimum
level of (indisc.) to the $600 that did not.
MR. GORSUCH: What is the 2001 base case number? Does anybody have
that right?
SENATOR RIEGER: What year?
(There was discussion - everyone talking at once - about numbers)
MR. GORSUCH: So it is $300, $300, $300.
SENATOR LINCOLN: But is that on the scenario, $300, that we've got
before us?
SENATOR RIEGER: I'm missing something because I'm looking at
something that says "Status Quo Projection" at the back of these
runs. It say's status quo in 2001 is seven hundred (indisc.--
coughing) in the year 2001.
CHAIRMAN ROGERS: Status quo on the dividend?
SENATOR RIEGER: Ya.
MR. LUDWIG: I thought you were asking for the fiscal gap for
status quo.
MS. BRADY: What about it?
SENATOR RIEGER: Oh, O.K. and I was giving -- 767 is the
distribution amount in millions of permanent fund dividends under
the status quo.
CHAIRMAN ROGERS: So, one-third, one-third, one-third five years
out requires a $433 dividend.
MS. BRADY: But we don't think it's actually going to go - I mean
because of (indisc.) skids on now, we know put the skids on now,
it's not going to be that high. The gap is not going to be that
big five years from now so...
SENATOR RIEGER: That's part of the spending cuts.
CHAIRMAN ROGERS: Ya, and in fact by cutting in the first three
years, you get a much bigger impact because you've lost your
inflationary growth on spending. You're taking a larger percentage
out of spending than the one-third.
MS. BRADY: But I think we ought to try to put the block in right
now what we were talking about for cuts and all this - and we could
move on to how we need to be specific.
CHAIRMAN ROGERS: Annalee.
MS. MCCONNELL: On the 40, 30, 30, would 35, 35, 35 be an option on
that?
MS. NORDALE: That gets you to 105.
MS. MCCONNELL: Well I'm willing to offer the 5 to -- I'm thinking
about federal impacts again - the first year of federal impact and
wondering if I upped it 5. Try 33.
CHAIRMAN ROGERS: I will gladly pay you in three years for $5
million today.
SENATOR LINCOLN: Well it sounds like generally - the one-third,
one-third, one-third, generally.
CHAIRMAN ROGERS: I can't support a $400 dividend in that period of
time.
SENATOR LINCOLN: But I'm saying generally because I think that
what I heard was that there'd be some fluctuation - maybe some
slight fluctuation - that it wouldn't necessarily come out to the
one-third, one-third, one-third.
SENATOR RIEGER: What's missing in the one-third, one-third, one-
third, I think is that there is a permanent fund earnings stream
(indisc.) and the one-third, one-third, one-third is the other
three components that you have use after you've taken some money
out of permanent fund earnings to make the rest work. It's really
- it's like - it's one quarter, one quarter, one quarter, one
quarter. You know, I mean there is a fourth component going in
filling that gap and (indisc.)
MS. BRADY: That begins to work - get you back to what we agreed
with on the permanent fund dividend and taxes and cuts doesn't it?
Doesn't that begin to move it into something that works.
CHAIRMAN ROGERS: If we cut the dividend to $700 which was what I
think was the optimum point in terms of voting yesterday. That's
about - about a year five is a reduction in nominal dollars of $140
million today.
UNIDENTIFIED SPEAKER (Male): What was that again.
CHAIRMAN ROGERS: If we reduced the dividend to $700 nominal
dollars in FY 01, we save about $140 million in nominal dollars
from today.
MS. BRADY: And then how much do we have to cut, how much we use --
what is four say again? I mean what are we -- why are we going
back to basic (indisc.)
MR. LUDWIG: Are we saying that the third has to come all out of
dividends or can it come out of the permanent fund earnings. Can
we use part of it from earnings, part of it from dividends?
MS. BRADY: Sure.
MR. LUDWIG: Your comfort level would go up, mine would.
MS. BRADY: Well so work it, give us some numbers.
MR. LUDWIG: Use permanent fund earnings, including dividend
distribution, to take the third out of. So the dividend wouldn't
take the full hit. Something - part of that with earnings reserve.
MR. GORSUCH: On the composite scenario, we took $257 million of
permanent fund earnings - the real dollars to go to the general
fund, and we took a hundred -- not quite a hundred - $78 million
from the dividend. So the 78 and 257 would be 320.
MS. BRADY: Couldn't we just take a little more from the dividend -
we're O.K.
UNIDENTIFIED SPEAKER (Male): Where did you get that number on the
dividend composite scenario?
SENATOR RIEGER: As I work through - I think it's not cutting the
dividend (indisc.). It's only what you take out of permanent fund
earnings.
UNIDENTIFIED SPEAKER (Male): Right
SENATOR RIEGER: There is a concept (indisc.)
MR. LUDWIG: When we talked about third, third, third, I was
thinking a third new revenue, third budget cuts and third permanent
fund. Not necessarily dividends.
SENATOR LINCOLN: But I don't want to hear a quarter, a quarter, a
quarter, because then you're talking about one-half really coming
out of the permanent fund. So I wouldn't agree to go along with
that.
MR. LUDWIG: I haven't advocated that.
SENATOR LINCOLN: No, but that is what I heard Steve say, it would
be a quarter, a quarter, a quarter, a quarter, instead of one-
third. And so....
TAPE 3, SIDE A
CHAIRMAN ROGERS: Are you ready to vote on "yes" or "no," on one-
third, one-third, one-third?
SENATOR LINCOLN: And you're talking about a pure one-third or are
you talking about the variations, I mean that it could be off by
$50 million.
CHAIRMAN ROGERS: I don't know. Take a ten minute break.
SENATOR LINCOLN: Well you shoot for that target.
CHAIRMAN ROGERS: Permanent fund dividends is reduced by $198
million, spending reduced by $274 million, and taxes and fees
increased by $155 million.
MS. NORDALE: Are you looking at real or nominal?
CHAIRMAN ROGERS: Looking at real. So in terms of percentages,
spending is a 31 percent - makes up 31 percent of the gap closing.
Permanent fund earnings makes up 28 percent. Permanent fund
dividend reductions 23 percent, and taxes and fees 17 percent. Or
put another way, this is the one-third, one quarter, one quarter,
one quarter, one-sixth. Spending 274, permanent fund earnings 246,
permanent fund dividends 198, and taxes and fees 155.
MS. NORDALE: What's the spread on the composite scenario?
CHAIRMAN ROGERS: The permanent fund earnings $246 million, the
spending cuts $274 million, the taxes and fees is the same, and the
permanent fund dividend 152. And the difference is that in 01 you
balance the scenario projection and the endowment has a surplus
from the other one.
MS. NORDALE: What are the percentages? Did you do it?
MS. BRADY: They're the same.
UNIDENTIFIED SPEAKER (Female): But they won't be the same
(indisc.)
CHAIRMAN ROGERS: One-third, two-sevenths...
SENATOR RIEGER: But on reflection, whatever you do to the
permanent fund dividend isn't what cut - what fills the fiscal gap.
It's whether you use permanent fund earnings, it really is the gap
filler. The other is just whatever it is.
MS. WESTFALL: Although it facilitates the earnings.
SENATOR RIEGER: Well, it's a consequence but it doesn't get added
in to filling that gap. It's just something that's there.
UNIDENTIFIED SPEAKER (Male): The size of the cost through the
expense.
MS. BRADY: I'm not following, I'm not following the comment. I'm
sorry.
SENATOR RIEGER: Well, you could in theory cut the permanent fund
dividend to zero and do nothing else and you haven't closed the
fiscal gap at all. Because it's -- cutting the dividend does not
fill the fiscal gap. What fills the fiscal gap is taking permanent
fund earnings and moving them into the fiscal gap, you know, moving
them into the general fund. So you cut the dividends by $1,
because you cut the dividends by $1, you've raised the contribution
to the general fund by $1. It's not like you've done $2 worth of
filling the fiscal gap. You've one $1 worth.
MS. MCCONNELL: But still reduces total state spending and since
the dividend doesn't have to be appropriated as a dividend, it
could go into something else.
SENATOR RIEGER: Well that, you know, if dividends are being
counted at state spending and then putting earnings...
UNIDENTIFIED SPEAKER (Female) But that was something we had said
way back when that we were going to do.
SENATOR RIEGER: But then the transfer of earnings then then would
have otherwise gone into dividends would be double counted. You
can't count it -- the money that you're spending on something you
can't count once as a cut and again as a transfer into the general
fund. Just like when you cut the longevity bonus by $5 million, it
doesn't mean that you got $10 million of savings - $5 million
because you cut the longevity bonus by $5 million and another $5
million because that $5 million you save is put into the general
fund. It's one $5 million.
CHAIRMAN ROGERS: But that list doesn't double count for this.
SENATOR RIEGER: I think that does. I think the way those are
being described, it does. (Indisc.--coughing) and then I started
thinking it through and I realized you can count...
CHAIRMAN ROGERS: We're counting, though, the dividend. We're
counting the dividend...
MS. NORDALE: ...as an expenditure.
CHAIRMAN ROGERS: The permanent fund earnings is net permanent fund
earnings used after dividends.
MS. NORDALE: The thing is on both of these scenarios, Steve, we've
incorporated the dividend as an expenditure. So when you do cut
the dividend, you cut your expenditures. And while the gap is at
524, if you exclude - excluding everything of the permanent fund,
when you bring everything back in and you do cut that, it does have
an affect of cutting expenditures but I think that if many respects
you're correct and that is it is more of a nominal federal cut than
it a real.
SENATOR RIEGER: I just don't want to see it counted twice.
MS. NORDALE: Ya.
CHAIRMAN ROGERS: Now I'm really confused.
SENATOR RIEGER: If permanent fund dividends are on budget, then
it's the cut in dividends that's the savings if they're on budget,
it's the fact that that money would have going to (indisc.) gets
put into the general fund (indisc.). The way that's being
(indisc.) there, I think it's showing both.
MS. NORDALE: No because we're counting the total permanent fund
income (indisc.)
MR. GORSUCH: One cuts expenditures, the other adds to revenues.
Close the gap for two different sources, one is bringing down your
expenditure level and the other is increasing your revenue and
through the retained earnings of the permanent fund...
SENATOR RIEGER: So why are (indisc.)
UNIDENTIFIED SPEAKER (Male): Because we've retained some of the
earnings of the permanent fund and we're now using it as a general
fund revenue source.
SENATOR RIEGER: (Indisc.)
MR. LUDWIG: It would be there even if you gave the regular
dividends. That money would be in the earnings reserve - right?
You just have more of it after you cut the dividend.
SENATOR RIEGER: Yes, that's my point. You can't count -- I think
the (indisc.) is real easy. It's got all the spending and then
count that ones and then the money we save, lets count that as new
money for the general fund and then we get twice as much.
MR. POURCHOT: I think if we just keep relating it to our spread
sheets, we should be O.K. here.
CHAIRMAN ROGERS: I guess the question is do we want to move the
number the numbers from where they are towards one-third, one-
third, one-third? All in favor. One-third, one-third, one-third
requires more new revenue.
MR. GORSUCH: Well as an example, what happened to the fisheries?
SENATOR LINCOLN: It's not on there yet.
CHAIRMAN ROGERS: It was not on this mornings spreadsheet.
MR. GORSUCH: Could we have a conversation about the fisheries
royalty.
CHAIRMAN ROGERS: It got pulled off because Revenue made some
complaint that I'm not sure we ever agreed to it. I think it ought
to be back on but I'm not sure (indisc.) the objection was.
MS. NORDALE: Well they claimed it didn't generate enough revenue
to make the...
UNIDENTIFIED SPEAKER (Male): And that's (indisc.)
MS. NORDALE: ...the added collection cost (indisc.).
MR. O'CONNOR: Ya, but that number they were talking about was $5
million. The number we were talking about was $33 million.
UNIDENTIFIED SPEAKER (Male): Permanent fund stream.
NOTE: Cannot discern - everyone talking at once.
UNIDENTIFIED SPEAKER (Male): One way would be -- move it in the
direction as (indisc.) thirty some million into taxes and fees...
MS. WESTFALL: O.K. but this is not the tax that in which the
industry is contributing so much money.
CHAIRMAN ROGERS: Georgianna has the floor.
SENATOR LINCOLN: Thank you. I don't like and I guess when we had
asked earlier how that broke down - I mean on paper it looks O.K.
I guess, but then when you looked at it this way, that over 50
percent is in the permanent fund. I'm not sure that I like that
idea. And the other taxes that we had in the fisheries tax and we
talked somewhat about, you know, I guess -- I don't know if the av
fuel tax - I had written that down too and I don't know if we
decided just not to do that.
CHAIRMAN ROGERS: The what? Aviation? That was never proposed by
any as part of...
MS. NORDALE: Well if you look at Pat's draft.
SENATOR LINCOLN: Well, Mr. Chairman, if I could just finish. I
think we do need to add the fisheries tax in there - a meaningful
fisheries tax and then I'd say that should do something then with
the permanent fund and readjust that and go more in line with the
one-third, one-third, one-third.
MR. LUDWIG: But the fisheries tax we're talking about was only two
and a half million dollars.
SENATOR LINCOLN: Right, Mr. Chairman?
MR. LUDWIG: That was a different tax
CHAIRMAN ROGERS: Yes.
UNIDENTIFIED SPEAKER (Male): Did I answer right?
UNIDENTIFIED SPEAKER (Female): You did. Yes, you did for me.
UNIDENTIFIED SPEAKER (Male): Is said yes to the PCE is O.K.
Right?
SENATOR LINCOLN: No.
MR. GORSUCH: Can we get a taxes on the seasonal sales tax? Is
that - is that doable (indisc.)
SENATOR LINCOLN: No, that's legal.
CHAIRMAN ROGERS: Seasonal sales tax is legal and it's done in some
communities.
MR. GORSUCH: Well, I think if we had a seasonal sales tax and the
fisheries tax we proposed earlier...
MS. NORDALE: Who's going to collect it? Who's going to account
for it?
CHAIRMAN ROGERS: I guess it looks to me that looking at where the
support is, more people support and income tax than support a
seasonal sales tax as part of the plan.
MR. GORSUCH: Not the five year plan.
CHAIRMAN ROGERS: We don't have a separate vote for five year...
CHAIRMAN ROGERS: Annalee.
MS. MCCONNELL: Could we get at some of the tourism issues another
way which is right now we're not generating any direct revenues off
the tourists but we are generating direct spending from tourism
industry. In another way they get at the same thing would be to
reduce the spending for tourism and free those dollars up for
something else.
MS. NORDALE: Mr. Chairman.
CHAIRMAN ROGERS: Just a second. Where would that - where would
those spending cuts be?
MS. MCCONNELL: I guess this violates the generally specific rule.
CHAIRMAN ROGERS: Specifically reasonable (indisc.).
MS. NORDALE: Following up with what Annalee is talking about, the
tourists contribute a substantial amount to those communities that
charge a sales tax and the tax is collected there and is used
there. The problem that we have is that the potential source of
revenue is absorbed by another entity while the state continues to
spend money on tourism promotion. And it seems to me that the
logical thing is to say tourism promotion is a function of the
industry, not a function of the state.
CHAIRMAN ROGERS: Bruce.
MR. LUDWIG: Our constitution says that all the resources belong to
all of us and when people come up to look at the wildlife, I mean
that's a common resource. And when people come into Anchorage,
they don't just use Anchorage streets and Anchorage otters and they
don't go travel to Kenai to do things, go travel out the Alaska
Peninsula to do things. It's more than just Anchorage. It seems
to me that there is a resource, they're taxing people on sales in
Anchorage or any place else and being able to harness that somehow.
Either give it back to the communities and give them some the
expenses that they have or something. But is seems like we not --
I mean it seems like we're just letting tourists, and my impression
is is that we get a bunch of people from down south that come up
and drive the buses during the summer. The people that own the big
tour groups are primarily from down south. So I mean you're not
even getting the business, you know the personal income in the
state. We're just kind of giving that away and it doesn't seem
like we ought to give it away. There ought to be a way to harness
it.
MS. NORDALE: Well there is the argument that we've got an income
tax which would harness some of it, but then you have to remember
that the boats that come in pay dockage fees, other harbor fees,
for parking their anchors, in Ketchikan, Sitka, Juneau, Anchorage,
wherever. The tourists who spend pay sales tax in those
communities. The fact that Anchorage doesn't have a sales tax is
a matter of election by the people of Anchorage. So they lose
revenue, that's their choice. But, you know, it seems to me that
what we haven't progressed is the structural problem that exists
and that is that what Anchorage doesn't charge or Fairbanks doesn't
charge by way of sales taxes is expected (indisc.) by the state.
And I think that we ought to take a look at those issues, you know.
A seasonal sales tax is a nice idea but when you look at who is
going to collect it, you can hardly expect local government to
collect the sales tax unless you pay for it. So I'm not too sure
what you're really gaining when what you want to do is to get local
government to assume more responsibility such as police, roads and
that kind of stuff. So why rip em off you know. What will happen
to potential revenues from tourism.
MR. LUDWIG: But I'm thinking about the person that comes into
Anchorage, flies into Anchorage, brings -- however they get here,
goes down to homer on a bus to go fishing. I mean they certainly
inconvenience Hugh when he's trying to get out of his driveway and
this bus is coming. I mean that's an example. I mean they're
using the roads and all this other stuff. And that's -- you may
tax them at both ends but what they're sightseeing in the middle,
nobody gets.
MS. NORDALE: Well I've done a lot hairy stuff and I never got
charged for sightseeing.
CHAIRMAN ROGERS: Judy.
MS. BRADY: I think we need to regroup here a little bit again. We
have all been a lot of weekends, a lot Saturdays, and somebody in
the audience who has been with us the whole time pointed out is
that we have certain charges and, you know, one was to come up
sustainability, one was to close a gap, one was to come up with --
we had a little discussion about systemic change or not. But we
have these big charges here and now. We're trying to say O.K. lets
see, $246 million maybe if we give $248 million that would be
alright. You know we're kind of down to -- so maybe what we need
to do is say, "O.K., we do agree on the five year, lets get this
closed off as soon as we can here and then..." Lets say generally
we accept these figures and then lets see if we're ready to go
endowment or composite. You know, see if we can move it into which
way we want go about this. Maybe finally visit one last time, the
Roger Cremo plan, the endowment Hugh worked out, to see if we want
to say, "Alright, we see all these problems with these other
things." You know the only true way to hold that budget line down
is from a full endowment and say yes or no to that. If we're
saying yes, that does it, that's what we put in front of the
legislature. That's what we think we should do. (Indisc.) the
people (indisc.) say no, then we can decide between these two or
maybe some third alternative by using a little bit more of the
permanent fund earning. Just kind of move ourselves right through
this to see if we can come to closure on some of these things and
just do the vote. You know we already kind of know what each other
thinks.
CHAIRMAN ROGERS: Lee
MR. GORSUCH: Well again just trying to have some degree of
proportionality (indisc.) if spending were more than 250 and the
taxes were more than 200, we'd be in the ballpark of the 200 - $250
million proportional sharing. And if we add the fisheries tax, 31,
and we add some seasonal sales tax, that would bring the tax and
fees up to the $200 million and then offset the reduction of $24
million in the spending category. Therefore, the permanent fund
dividend would be about $200 million, the taxes would be about $200
million and spending reduction is about $250 million instead of
$274.
Ms. BRADY: That gives you your $5 million Annalee. He's talking
about adding fishery.
MR. GORSUCH: I would be willing to hold the conversation, go back
to the principles on cuts if you like.
CHAIRMAN ROGERS: Ya, we were on principles on the cuts. Are we
ready to return to our reasonably generally specific cuts
discussion. Reasonably generally specific cuts which was where the
majority was before we diverted the one-third, one-third, one-
third. Lee suggested we come back to a discussion on cuts.
MR. GORSUCH: And if I could just in closing, just go back to our
board. We had 14 of us saying we would support some fish taxes and
we had 13 supporting some seasonal tax on tourism and my only
observation was we brought those within the five year plan. That
brings the tax and fee number up to $200 million.
CHAIRMAN ROGERS: I believe that the fish tax was on the group's
consensus plan and that we should put it back on this consensus
plan and, in fact, you and I during the break put it back into the
model.
HUGH MOTLEY: The problem we had, it never got into our interim
reports the way Mike and I have worked up the number. The number,
as it is shown there on the revenue sheet, the current fisheries
resources tax collect $34 million a year, half of which goes to the
local communities. If you double that $34 million and we take it
all, then there is no further administration involved. There is
nothing...
MR. O'CONNOR: This thing says in September we're gonna double the
rate and rebate a quarter to municipalities. It's the same thing
we're getting right now. September 1st.
MR. MOTLEY: But it was not in our interim report and that's why
the Department of Revenue has been having a problem with what was
there. They couldn't (indisc.).
MR. GORSUCH: Under the endowment plan, that would being the taxes
and fees to $189. Permanent fund dividend productions at a 100
total payout lessened by 198. Those are rounded into the $200
million category and the spending...
MS. BRADY: Annalee, could you change those into -- and I would do
it except no one could read my writing which is a huge advantage.
MR. LUDWIG: Did you have a tax on tourist?
UNIDENTIFIED SPEAKER (Male): Not yet.
UNIDENTIFIED SPEAKER (Female): Looking to a head count.
UNIDENTIFIED SPEAKER (Male): Thirty-four.
REPRESENTATIVE NAVARRE: I;m the one who suggested the fisheries
tax increase and I think that in the context of fishery resources
should get more for it. But it seems like of the other taxes that
we're talking about, it's the only one that's targeted at a
specific industry in the state of Alaska. That's the only one
we're going to recommend. Everybody is supposed to bit the bullet,
everybody is supposed to share in this and the only one that we're
targeting at as an industry is fishing and I'll have a very tough
time doing that if we continue to subsidize tourism as the same
time as we're raising taxes on fish.
UNIDENTIFIED SPEAKER (Male): Second the motion.
MR. GORSUCH: I think it is true that our three biggest industries,
oil, fish and tourism, that there ought to be some contribution
back to the state's economy. So I think we've got a fair amount of
support if we know what the mechanism is for it and recognizing
that someone was saying well there is a feedback gives some
recognition for communities are already, you know, somehow
providing a service and charging a fee back that we might want to
create some credit.
MS. BRADY: Well why don't we consider about that -- there was one
suggestion we do it the other way and just take away the marketing
money.
MR. O'CONNOR: It's $8 million. Alaska Seafood Marketing is $8
million.
MS. BRADY: Well I was thinking more of the tourist.
UNIDENTIFIED SPEAKER (Male): That's not true.
REPRESENTATIVE NAVARRE: Seafood marketing is based on assessments.
UNIDENTIFIED SPEAKER (Female): Self supported by the industry.
MR. LUDWIG: Didn't you get Kim Elton's letter?
UNIDENTIFIED SPEAKER (Male): I got Warren's letter too.
MS. NORDALE: But the thing about ASMI is that the state still
carries the burden for the staff. In other words, they pay the
salary, retirement and the health package.
MS. MCCONNELL: They are state employees and all the cost of it is
charged to ASMI.
MR. LUDWIG: There is no line item. It says "retirement cost."
Your budget is broken down and all that has to come out (indisc.)
NOTE: Cannot discern - everyone talking at once.
MR. LUDWIG: If you make $100 and the other benefits cost $34 more,
they charge your budget $134. So if the money that's in the budget
is all coming from somebody else, then the state isn't kicking in
on it.
MR. GORSUCH: O.K. (indisc.) and we have $58 million, just say for
rough purposes. A 1 percent sales tax is $60 million. Would a
safe assumption be that one quarter of that, that is the summer
season, would yield - a 1 percent sales tax would yield $15
million?
UNIDENTIFIED SPEAKER (Male): At least.
MR. GORSUCH: We did an estimate on statewide sales taxes being
equivalent to - 1 percent being equivalent to $58 million, so say
60 for ease of arithmetic. And if we said the season of the
tourism would be one quarter, three months, or one-fourth of the
year, that at least it would yield one-fourth of the $60 million or
$50 million.
MS. NORDALE: How are going to collect it Lee?
MR. GORSUCH: How do you normally collect this sales tax?
MS. NORDALE: Ya, but this is not a sales tax that goes to the
coffers of a locality as we have now. You're talking about a state
tax. Who is gonna collect a state tax?
MR. GORSUCH: Well who normally collects the state and sales tax?
MS. NORDALE: We don't have one.
MS. WESTFALL: You're talking about putting more people back on in
the Department of Revenue to do it.
MS. MCCONNELL: Actually there would be two ways to do it. In any
community that's already got a sales tax, you could have the local
community collect it. It might be an incentive to get Anchorage
and Fairbanks to do something to tax themselves for once.
MR. LUDWIG: Figure out a way to make money.
MS. NORDALE: Ya but by the time you crank up all those
administrative costs...
MS. BRADY: Ya but not if you do local. You know I've thought
about that. We've talked about -- (indisc.) talked about that
early on that we do a 7 percent sales state sales tax and any
community that already has one doesn't have to do it. Communities
that don't, we split it with them and pretty soon they figure out
they're better off to have their own and they start raising their
own money and we (indisc.).
CHAIRMAN ROGERS: Georgianna and then Annalee.
SENATOR LINCOLN: If we're going with a seasonal sales tax, and you
go at the 1 percent, then we're saying that during the tourist
season we're gonna have a 1 percent then it drops to nothing. Is
that correct? It's going to cost just as much to have a 1 percent
as it is to do a 2 percent sales tax. The amount of personnel is
gonna be the same, the paperwork is gonna be exactly the same. I
don't know what the incentive of 1 percent would be when what I --
I think what I heard anyway was that people are less agreeable to
a sales tax than they are to an income tax. So then if we're
concerned about what the general public feels about our plan and
they see a sales tax, then I found out even if it's a seasonal
sales tax I don't think they're going to look at that as this is
the way to capture tourism dollars. They're gonna look at it as
the commission taxing Alaskans and it's a sales tax and whether it
is that Anchorage and Fairbanks to pay for it. I mean 1 percent.
I don't know that I would support a 1 percent sales tax to get the
tourism dollar. There seems to be other ways that we can do it.
MS. BRADY: How?
SENATOR LINCOLN: Well, one of the things that I heard was where we
have - and I don't know what the figure is, I'd have to go back -
to have it exactly as is in Seattle, an entry fee for the entering
into the international airport. An entry fee through the border
that you would then capture in an entry fee maybe on the tour ships
that you would then have the road, the air and the marine highway.
MR. LUDWIG: Are we allowed to charge entry fees?
SENATOR LINCOLN: Well they do in Seattle. They have an entry fee
for the airport.
MR. LUDWIG: Is it U.S. Customs?
MS. NORDALE: That's part of the funding program that Joe Perkins
was talking about.
MR. POURCHOT: The best thing is to do it - fund the airports.
UNIDENTIFIED SPEAKER (Female): It's actually an airport (indisc.)
with your ticket.
UNIDENTIFIED SPEAKER (Male): And with Alaska, that would go into
the international airport revolving fund.
MR. LUDWIG: But how do you charge them that when they drive in?
How can you charge them when they come across the boarder. I mean
that's a national - that's U.S. customs.
MS. BRADY: Well you could do it for awhile until somebody caught
on.
MR. GORSUCH: My only problem is what if a 1 percent sales tax or
a $20 tour tax, no matter how you collect it whether it's at the
facility landing, crossing the boarder. We have about a million
visitors a year, more or less, and the number continues to grow and
will continue to grow. At 20 bucks a pop, it's $20 million. And
I see no reason why we couldn't recommend that the legislature
devise some mechanism whereby the visitors to Alaska make a
contribution back to the revenue (indisc.) of the state. Figure it
out, we estimate it would be $20 million or $40 million depending
upon the levy. But $20 for a visitor to Alaska does not strike me
as an extraordinary tax.
SENATOR LINCOLN: Well maybe that's the way we can do it rather
than saying that a sales tax just to have a recommendation to the
legislature that the legislature devise a plan to have a $20
million or whatever the figure is that we want to put in here.
Some plan to collect that from the tourists for the tourism
industry and then let the legislature deal with that because I
don't think it's gonna sell with a sales tax.
CHAIRMAN ROGERS: Does anybody know if it's legal to put a vehicle
permit fee on vehicles that enter the state that don't have Alaska
license plates? I know with commercial vehicles we do require
Alaska plates on them.
MS. BRADY: But that's not most of our tourist. I think....
MS. NORDALE: We've got a port of commerce tax problem on that one.
CHAIRMAN ROGERS: Mary.
MS. NORDALE: One of the effective ways of raising revenue in many
communities have found is a bed tax. Fairbanks has a bed tax,
Anchorage has a bed tax.
MS. WESTFALL: Well I think everybody has a bed tax.
MS. NORDALE: Right and at the present time, most of the revenue
that's raised by the bed tax goes to support the visitors and
convention bureaus, the community promotion stuff. You could
encourage the bed tax and make it uniform throughout the state and
you would pick up the lodges and the RV parks and all of the rest
of this kind of stuff on a bed tax and that would get just about
everyone coming into the state. And we could say also, we could
put toll. If you go past Hugh's driveway, you'd have to pay a
toll. But, you know, in terms of simplicity, in terms of
collectability, in terms of enforcement, you've got a better handle
on something like a bed tax than you have with a seasonal sales tax
which gets to be a very complicated thing to impose, particularly
in the communities which do not presently have a sales tax and,
therefore, they have no structure for collection.
CHAIRMAN ROGERS: And are you proposing a uniform statewide bed tax
or a statewide bed tax in addition to the local bed tax?
MS. NORDALE: In addition. Uniform, statewide, in addition.
CHAIRMAN ROGERS: Is that a consensus?
MS. BRADY: I think Georgianna's idea about just saying to the
legislature, "Hey, you guys get paid these big bucks..."
SENATOR LINCOLN: I didn't say that!
CHAIRMAN ROGERS: I find it interesting how easy it is for us to
work on specifics on taxes and how hard it is to work on generally
reasonable specifics on spending cuts.
MS. BRADY: Hey, listen. The Expenditure Committee spend about 26
hours working through, and you've got two or three scenarios there
and we've got backup paper up the kazoo cutting $513 million. So
if you want us to do that, pull out those working papers, say here,
here and here, you've got it. But we spent a lot of time that.
That wasn't just kind of sitting oh ya, dada dada dada.
MR. ROGERS: I understand that, but as a full commission, every
time we get to the issue of spending we seem to move away and
suddenly we're talking taxes.
MR. GORSUCH: Well, my argument was similar. One of the ways we
got into this was proportionality. So all I'm saying is if we can
pick up another $20 million in some visitor tax, whether it's
adding to the landing fees, the bed tax or some other kind of
mechanism, we're in the $200 million category, then I want to just
sort of reserve the conversation about the $274 million real cut
relative to the other portions coming in and see if $250 million
would be more acceptable. But I'm willing to sit down and look at
the list. So if we can get agreement on the seasonal tax, with
that degree - or lack of specificity, I think we should turn to the
spending. And the only argument I was trying to make was by having
added the $34 million in fisheries taxes and the $20 million in a
seasonal tax adds up. You got $54 million which means we could
reduce the spending allocation by $50 million and you'd have
spending at 224, permanent fund dividend at 200 and taxes at 200,
which is roughly...
CHAIRMAN ROGERS: And permanent fund earnings at 200.
MR. GORSUCH: And permanent fund earnings depending upon how one
"counts."
CHAIRMAN ROGERS: Annalee
MS. MCCONNELL: We could treat the tourism area in a similar
fashion to the pioneer home and that is make it clear that there
would be a couple ways to get at it, one of which would be revenue
increases either, you know, maybe suggest a couple of
possibilities. Another way to get at the same place is to reduce
the expenditure directly (indisc.) and leave that decision up to
the legislature.
CHAIRMAN ROGERS: Pat.
MR. POURCHOT: Well I was going to say that, following up on that,
the two taxes that have a lot of common in terms of the history and
the problems are fishery and tourism, and these are not new
subjects. People have been around the block on them several times
and they appear to have problems of how they're designed. I don't
think we're gonna design a tourism tax. Even I would say a
fisheries tax around this table because there is, I mean there is -
-I mentioned four or five things in my paper here on fish taxes and
different things to do. I forgot one that is being discussed right
now on salmon roe tax which is kind of a separate thing but these
taxes hit different parts of the fishing industry differently
because of, you know, offshore, inshore, and where they take their
product and work at how that affects the international - the price
of the product. And I would be very leery about trying to design
a tax in those things. I think, you know, we think that they're
not paying their fair share or whatever that is. I think you could
say that. I think in the case of fisheries though, as Mike and
Georgianna know, it's real problematic on how much you can raise
and not really get into small people's economic problems fast. And
I would -- just from what I know doubling to another $30 million I
think that the legislature would completely balk at it. I think
fishing communities would come unglued. I think that's too high a
number and there is a lot of different things that could be tweaked
that you just have to really study the impacts on particular
fisheries and fisher people.
MR. GORSUCH: Do you have a counter proposal?
MR. POURCHOT: Well, you know, I would kind of go back to maybe
plug numbers and talk about design, it needs to be worked out and
recognize its different effects here. Tourism the same way. I
think there is more that could be done. Actually several things
that should be explored and then, you know, plug some modest
numbers.
CHAIRMAN ROGERS: Judy.
MS. BRADY: Well what, you know, maybe what we're thinking in terms
here of selling. You know, have the one-third, one-third, one-
third. But the fact of the matter is that when you talk about it
if the public sees or if we see - if I see, I'll talk about me, if
I see that we're cutting spending and everybody is doing something
that's enough for me. I don't need, you know, I don't need 30
percent, 30 percent, 30 percent. This looks to me like a good
split. That many new taxes, that kind of cut in the permanent fund
dividend -- the new thing is to take from the earnings and that's
a very exciting thing we're talking about, you know, as long as we
control the flow so you don't eat it all up. I think that makes
for a very nice flow and I don't think we have to sit here and try
to make up for things that is just gonna stop the thing from moving
forward. I think that tourism and fisheries are things that need
to happen and if we want to be general, fine, but I don't think
those need to be show stoppers for our plan. You know, I think the
way this is flowing right now, it's beginning to flow pretty
nicely, and we don't need strict one-third, one-third, one-third.
We don't even have to say it like that. We could say everyone does
something.
MR. GORSUCH: Could we use a generally specific recommendation that
the combination could be about $50 million and we ask them to get
on with it.
MS. BRADY: Yes.
MR. LUDWIG: What was that Lee?
MR. GORSUCH: That we just say in general the fishery taxes ought
to be contributing about $30 million more and tourism ought to be
adding about $20 million more and ask the legislature to try to
design a proposal that addresses all the issues that the, you know,
Pat has referenced and just go on with it.
CHAIRMAN ROGERS: Is there opposition to that proposal?
MR. POURCHOT: I would use a lower number than 30 for fisheries.
CHAIRMAN ROGERS: Mike.
REPRESENTATIVE NAVARRE: You know after having suggested the
fisheries tax as I have been, in further discussions with some
fishermen down in my district on the Kenai Peninsula who maintain
that at least they pay as much or more than it costs to run their
enterprise in the state, and there are other enterprises - resource
extraction enterprises - in this state that don't. And so the
state subsidizes all them and what we're asking them to do now is
to pay additionally so continue subsidizing other entities. And so
I'm not so sure that either the legislature is going to come up
despite that identified item, although it's a common property
resource and it is...
MR. ROGERS: And if I could (indisc.) for me, we look at fisheries
comparable to oil, in the oil industry we have one set of revenues
that are related to using this common property resource of our
royalty. We have another set of revenues that are paying for the
regulatory costs. It seems to me that paying for the regulatory
costs and enhancement, et cetera, is (indisc.) and something for
having the benefit of a resource that could be even dollars for
fishermen in the state ought to have some weight. Now that
argument then probably should extend to mining and timber and some
of the other industries other than oil but that don't pay the full
price. But I'm not sure that saying because there are other
industries that don't pay their way, we should let fishing not, to
me is the wrong direction.
SENATOR LINCOLN: What if we flipped that and put fisheries at 20
and tourism at 30?
MR. GORSUCH: There would have to be royalty ways in which you can
count the fish. I mean charge to the 5 cents of the value or 5
percent of the value or 2 percent. There ought to be a way you can
collect your royalty tax on this common property. Look at what's
happening with the CDQs. I mean we're discovering it has an
enormous value now because you get the allocation and guess what,
you auction off and find out how much is 10 percent worth. It's
worth a hell of a lot money and that's a small percentage of the
total fishery.
CHAIRMAN ROGERS: Mike.
MR. O'CONNOR: When we had our public hearing, Alaska Bering Sea
crab fishermen were here, represented here, and 47 of the 57 boats
that he represents were from Seattle. And he said his industry was
a $250 million industry on the water turned into a half a billion
dollar industry onshore, and they were talking about an additional
$20 million tax. That's supposedly already on the book. Did that
old man know what he was talking about? That didn't seem like much
of a tax and he said each boat was worth $57 million.
MR. O'CONNOR: Maybe that's where it was that he was talking about
but it didn't seem like they were paying much tax. First of all
they're (indisc.). Most of those big owners now are out of state.
TAPE 3, SIDE B
MR. POURCHOT: ...our revenue since then, I've had quite a long
discussion with our Department of Revenue. Nobody has looked at
corporate income tax for years and years. I mean it referenced in
everything that the federal government ever had as far as tax
exemptions for years. There are still lots of these that go on
regardless of whether they should or shouldn't regardless of what
the legislature may or may not have in mind for their -- I mean
it's a -- we don't have the tightest corporate tax in the world.
And finally there was some issues of other kinds of excise taxes
relating to use of other public resources like nonhunting
recreation. There is a national movement now where the states are
now picking up too on dovetailing on looking at excise taxes on the
sale of sporting good equipment, possibly nonhunting commercial
activities on state lands and using those to offset or augment
expenditures on - for public land facilities and management of
state land. And then aviation fuel we have talked about. I
actually went back and talked to DOT a little bit more about it.
It's, like so many things, very - it's a little more complicated
and I've put in a little discussion here just on some of the things
and I just arbitrarily put it in the category of not recommenced
but I don't think the commission ever had a real discussion -
discussion on it. But it is, I would say, in a different category
than motor fuels or marine fuels just because who pays the big bulk
is a really small group of commercial airlines that are operating
out of the Anchorage International Airport, and to some extent
Fairbanks. And it has with Russian airspace being opened and did
have some real competitive aspects to it.
CHAIRMAN ROGERS: Maybe we can just to a quick vote on those issues
and finish up with the revenue side before we go to the spending
side. We should hit the spending side about 10:00 tonight. On the
revenue side, gaming, are there people who would oppose the tax on
charitable gaming as part of the plan?
MS. NORDALE: Mr. Chairman, can I say something before we take a
vote on that? The gaming problem is the one of - the worst one.
At the present time, the state is not appropriating enough money to
do an adequate amount of enforcement. We want to increase the
revenue, you have to recognize you're gonna have to increase the
expenditures in order to capture that revenue. I mean seriously
underfunded, so the legislature would have to address that issue.
UNIDENTIFIED SPEAKER (Male): I think the people who work in the
pioneer homes....
MS. NORDALE: Right.
MR. POURCHOT: There is actually a better way of doing that than
the way we're doing it now. We have kind of a in-use tax now where
we gotta go find out how many pull tabs somebody does in some bingo
parlor or another. A much better easier way is to get it back into
the distribution where a box of pull tabs goes out and and it's
gotta be just like liquor, it's gotta have a state stamp on it.
MS. NORDALE: That was proposed about ten years ago, Pat, and the
operators of the pull tab parlors (indisc.) with their hobnail
boots on so you've got to be very careful. You have to understand
what you're getting into.
CHAIRMAN ROGERS: How many people would oppose the inclusion of
some form of tax on charitable gaming in the plan?
REPRESENTATIVE NAVARRE: Can we rephrase that. Instead of a tax on
charitable gaming, why don't we say a tax on gambling operators or
a tax on gambling.
MS. NORDALE: Gambling.
REPRESENTATIVE NAVARRE: Ya, because if you say charitable gaming,
immediately all of the charities get mad at you. If we say it the
other way, they would get a tax on gambling...
CHAIRMAN ROGERS: Tax on gambling operators. How many would
oppose...
REPRESENTATIVE NAVARRE: Gambling operations.
CHAIRMAN ROGERS: Tax on gambling operations as part of the plan.
How many would oppose -- how many would favor -- how many would
prefer a plan with a tax on gambling operations? One, two, three,
four, five, six, seven.
REPRESENTATIVE NAVARRE: How about the state take over all the
gambling activities just for one year so we could get a real
accurate picture of what...
CHAIRMAN ROGERS: How many would oppose a lottery? With a state
lottery, how many would oppose a lottery as far as the plan. One,
two, three, four, five, six, seven, eight, nine, ten. And how many
would prefer a plan that included a lottery? Three. How many
would oppose a plan that included a tax on subchapter S, corporate
income?
REPRESENTATIVE NAVARRE: Can I make a comment on that?
CHAIRMAN ROGERS: Certainly.
REPRESENTATIVE NAVARRE: And that is that we just authorized
limited liability partnerships which (indisc.), I understand, much
the same way as sub S, so you'll probably...
SENATOR RIEGER: They're called limited liability cuts (indisc.)
partnership.
REPRESENTATIVE NAVARRE: Well, limited liability companies. So
that's what you end up having instead of (indisc.)
MS. NORDALE: It's just going to move them all over into another
title.
CHAIRMAN ROGERS: How many would oppose something that was a tax on
subchapter S unlimited liability companies?
UNIDENTIFIED SPEAKER (Male): Say it again.
CHAIRMAN ROGERS: How many would oppose extending the corporate
income tax to subchapter S unlimited liability companies? Three,
four?
MS. NORDALE: Because that becomes a personal income tax on a very
few people and it's an inequitable application for personal income
tax, an additional income tax. And I think that, you know, you
need to be aware of the fact that you've got a constitutional
problem because it is an individual income tax.
CHAIRMAN ROGERS: How many people would prefer a plan with a tax on
subchapter S unlimited liability? How many would prefer a plan
that tax subchapter S unlimited liability through income tax,
generally? We already have that up there. So income tax,
corporate income tax, any discussion of the issue of corporate
income tax tuneup? Pat.
MR. POURCHOT: I would recommend that we include a discussion of
corporate income tax recommending a review of the operation of it
and recommending a review of it and possible changes in light of
current circumstances.
MS. NORDALE: Modernizing.
MR. POURCHOT: And we just blanket adopt all federal credits.
There is no differentiation between any of the federal credits. We
have carried back from future to back taxes for refunds which is
not done.
MR. LUDWIG: Did Revenue give you any idea what (indisc.)
reasonably could be expected out that revenue money?
MR. POURCHOT: No, the only number I have was for subchapter S.
CHAIRMAN ROGERS: Judy.
MS. BRADY: Well we're not gonna add these to our list at the top
here are we?
CHAIRMAN ROGERS: Not unless it's a consensus.
MS. BRADY: Well even then, you know, this begins to look -- I mean
when you add 12 new taxes...
CHAIRMAN ROGERS: Then you have to have at least 12 new cuts as far
as I'm concerned. We're not going to get it done until 10:00
tonight.
MS. BRADY: O.K.
CHAIRMAN ROGERS: Any other revenue measures before we close the
door on a new revenue measure and the chair would rule further
discussion out of order?
MR. POURCHOT: What about the recommendation for the review of the
corporate income tax?
CHAIRMAN ROGERS: Is there an objection to a recommendation for
review of the corporate income tax?
MR. POURCHOT: With no fiscal note.
MS. BRADY: You know we haven't had a chance -- I mean unless
somebody has...
MR. LUDWIG: I was voting to review the federal business tax.
SENATOR RIEGER: I just have a question. If you're proposing the
(indisc.) which is fine, are you -- does that implicitly adopting
this draft? There is a lot of verbiage in here that I...
CHAIRMAN ROGERS: No it's not. It has (indisc.)
SENATOR RIEGER: O.K., (indisc.).
CHAIRMAN ROGERS: Bruce.
MR. LUDWIG: I'd like to talk about employment tax too.
CHAIRMAN ROGERS: Ah yes, we have not talked at all about the
employment tax.
MR. LUDWIG: We have 75,000 nonresidents that work up here and I'd
like to see us get at least $100 a head off of em. And if we're
gonna reduce permanent funds anyways, why don't we give people a
chit or a warrant that they could turn in so they don't have their
$100 come out of a paycheck. It just comes out of their permanent
fund and that way we at least get seven and a half million dollars
from nonresidents who work here and leave.
CHAIRMAN ROGERS: So what you're saying is with a dividend each
year you'd send out a voucher good for $100 of employment tax and
then you charge everybody uniformly the employment tax, but those
who were dividend recipients would have a voucher to pay any
(indisc.) tax.
MS. NORDALE: They could turn it in to their employers.
MR. LUDWIG: Yup.
MS. BRADY: Good idea. That would be a great idea.
CHAIRMAN ROGERS: Georgianna.
SENATOR LINCOLN: Well I guess I'm not really in favor of having,
under the way it's presented, a employment tax because, you know,
we're not talking about an income tax. We I think have taken off
the table a sales tax, but we're willing to put a $100 per head on
individuals that -- and I think as was stated here in Pat's -- or
somewhere where I read that the young people who are working for a
minimal salary or those who are just barely making it are paying
that same $100 as somebody who is drawing a $100 a $150 thousand
salary. And so I'm not for -- if we're going to off the table an
income tax, we're taking off of the table the sales tax that -- now
we're going to charge everybody an employment tax of $100. I would
not support that.
MR. LUDWIG: I'd like to respond to that. I agree with you 100
percent Georgianna, but we've agree we're gonna reduce the dividend
right? And that's gonna apply to everybody. So as a way of
reducing that, we give somebody a voucher and they turn that
voucher in, they don't have to pay the $100 because that voucher is
worth $100. So they give that to their employer and they don't
have the first $100 come out of their paychecks, but if you don't
qualify for a dividend and apply for one then you have to pay it.
MS. BRADY: Ya, so if you live in Alaska, you get a dividend, you
don't have to pay it because you've got the voucher. So what you
do is you capture everybody who works up here who...
CHAIRMAN ROGERS: Since we're cutting the dividend $300, maybe we
ought to have a $300...
MR. O'CONNOR: That's what I was gonna say. Lets make it $500.
SENATOR LINCOLN: But aren't you saying that that $100 is taken out
of the dividend - that voucher.
MR. LUDWIG: No.
SENATOR LINCOLN: Maybe I misunderstood you.
MR. LUDWIG: We already are lowering it so you just get credit for
what you've already done.
CHAIRMAN ROGERS: So Bruce's plan the effect on residents.
Residents are already losing the $300 out of the dividend. They'd
lose really $200 out of the dividend and get -- or they'd lose $300
out of the dividends but get a $100 voucher so they'd really...
MR. GORSUCH: Why won't it pass the court if the two are severable
issues.
SENATOR RIEGER: I remember tinkering with ideas like that and
going to our Legal Services Department because I like that
approach, and I remember them saying (indisc.). But basically the
courts will look at the whole scheme and it looks it's a tax on non
residents. (Indisc.) and that's pretty blunt. They won't allow
it. You know you have to be (indisc.)...
CHAIRMAN ROGERS: Annalee.
MS. MCCONNELL: I agree with Judy that if we get into too many
lists of taxes, it will start to collapse of its own weight and I
would suggest we stick with the fishing/tourism in year two, and
that we can say there are some additional -- I think we could
separate the rest of the tax things into ones that we think could
merit further consideration like corporate tuneup, like craft some
features, some kind of gaming tax or whatever. And then the ones
that we think that the public and the legislature should just go
ahead and say these are not the ones we want to pursue and leave it
at that because I think at some point, no matter how little the
amount of money is on each one, if it's a long long list it'll
appear real heavy.
CHAIRMAN ROGERS: I think the only other revenue issue that has
come before us is we haven't done a quick poll with that passenger
facility charge that Commissioner Perkins (indisc.--coughing) that
we pay now for interstate flights. If we were -- we pay it but it
all goes outside, that if we were to impose it we would get $3 for
each person embarking or disembarking at Anchorage and Fairbanks.
It would have no impact on the ticket prices interstate but it
would have an additional impact on intrastate.
MS. MCCONNELL: Sometimes, sometimes there is already the amount
being collected and it's going to different cities outside.
CHAIRMAN ROGERS: Right, if you're flying Fairbanks, Anchorage,
Seattle, it's going outside now, but if you're flying Fairbanks,
Anchorage or if you're flying Anchorage Juneau and not going
outside or if you're flying from any bush region into the major
cities, it would be an addition ticket cost.
MR. GORSUCH: Cash value?
CHAIRMAN ROGERS: Six dollars per maximum (indisc.).
MS. NORDALE: Round trip. Isn't it $300 each way?
CHAIRMAN ROGERS: Thirty bucks each way. And the revenue was about
$5 million a year to Fairbanks, Anchorage and Juneau Airports.
MS. NORDALE: If I recall it, Commissioner Perkins indicated that
the people traveling in and out of the urban centers, intra Alaska,
would carry a substantial financial burden to support the Juneau,
Anchorage and Fairbanks airports and that there would be no
distribution of benefit back out into bush for that payment. And
I think that the legislature is seeing that that somewhat in there.
CHAIRMAN ROGERS: How many people would favor the imposition of
PFC? One, two, three, four, five, six. And how many would oppose
the imposition of the PFC? One, two, three, four, five, six, and
the remainder a neutral. That's not a consensus. So are we ready
to talk about some reasonably, generally, specific.
MS. BRADY: I want to go by Bob (indisc.)
MR. LOESCHER: Because I fly every day.
MS. BRADY: Ya, but it doesn't affect your ticket costs.
UNIDENTIFIED SPEAKER (Male): (Indisc.)
MS. BRADY: Well Juneau is so high that it doesn't make any
difference.
NOTE: Cannot discern - everyone talking at once.
CHAIRMAN ROGERS: Bruce has the floor.
MR. LUDWIG: We talked about getting $50 million from fisheries,
tourism, mining and timber right? Forty for those?
CHAIRMAN ROGERS: I heard 20 20 and some number.
MR. LUDWIG: Do they go on the spreadsheet?
CHAIRMAN ROGERS: Yes.
MS. MCCONNELL: Second year.
UNIDENTIFIED SPEAKER (Male): Second year of the spreadsheet.
UNIDENTIFIED SPEAKER (Male): Spending.
CHAIRMAN ROGERS: Spending, let me go the board here.
MR. LUDWIG: It's time for a break here.
CHAIRMAN ROGERS: No breaks until we finish.
UNIDENTIFIED SPEAKER (Male): Well lets just get the university one
off first.
UNIDENTIFIED SPEAKER (Male): Get it over with.
CHAIRMAN ROGERS: (Indisc.) start with reasonably specific spending
reductions. We have the retirement incentive plan without
replacement of some proportion of the retiring workers. And we've
had the tier three retirement, there are PERS and TRS. I have not
heard opposition to either of those. Is there opposition to either
of those? Sean.
REPRESENTATIVE SEAN PARNELL: The RIP plan what was...
CHAIRMAN ROGERS: The retirement incentive plan would be to provide
a, as the prior ones have using that as an example, provide three
more years accredited service to anyone who retires within the next
six months and then the state replaces half of those employees or
less than half of those employees, or replaces them at lower
salaries and they're a net savings. The audit work was done on the
earlier RIPs indicated a bigger savings in school districts and
university as a proportion than it did with the state. The big
TRS, and I don't know if it had to do with the structure of it or
what, but there were much bigger TRS employees savings than PERS.
Unless you specify, you know, that you can only rehire half of the
number of positions that retire or something like that.
REPRESENTATIVE PARNELL: I guess I won't get into details but I
don't know the details as well as perhaps Steve does, but a real
quagmire, but the work we did in the legislature in the last two or
three years on the RIP and the financial consultants that came in
there was never a demonstration of a long-term savings that we
could see. And there is a short-term savings but we never had a
long-term savings. I think Steve can maybe address...
SENATOR RIEGER: I can just give you my opinion form looking at
those reports. If you have a tier three, RIP works. If you RIPed
the way the (indisc.) goes into the same system as the old. Over
a life cycle analysis, there is no savings.
CHAIRMAN ROGERS: And I've heard no opposition to the tier three
and the issues I've heard on the tier three that might be part of
a consensus would be 30 and out instead of the current 25 for TRS,
that is you can't retire until you've worked -- right now you can
retire after you've worked 25 years regardless of age. Change it
to 30.
MR. POURCHOT: I don't think we want to design this.
CHAIRMAN ROGERS: O.K., you don't think we want to get into it?
UNIDENTIFIED SPEAKER (Male): No.
SENATOR RIEGER: It's fine with me, go for it.
MR. ROGERS: If we're going to do any estimate of savings, we have
to have some idea but if you don't want to design it...
MR. GORSUCH: Reasonably specific.
SENATOR RIEGER: I think that this commission, since we're talking
about long range financial planning and policy, might at least make
a recommendation of whether the tier three should be a defined
contribution planning instead of defined benefit because then you
don't have the issue of unsound actuality of sound plans...
MR. LUDWIG: I thought if you got SB 51 you wouldn't push that
other.
CHAIRMAN ROGERS: This is only for new employees.
MS. NORDALE: Use the retirement incentive plan as a tier three and
simply say, "Estimated savings equals X number of dollars," rather
than getting into specification of what the plan would be.
REPRESENTATIVE PARNELL: Except the information from Steve was just
that over the long term, there is no savings in our retirement
incentive plan.
UNIDENTIFIED SPEAKER (Male): Unless you do both.
MR. LUDWIG: If you did it right now, you'd already get savings...
MS. NORDALE: You'd have to marry those two concepts in order to
achieve some savings and then just assign a dollar amount of
savings anticipated.
CHAIRMAN ROGERS: That one is a growing number over time and
that...
MR. LUDWIG: Have you done any estimates, Annalee, on last year's
bill?
MS. MCCONNELL: Well, we had some modifications suggests for tier
three now. I don't think it's possible for this committee to have
sufficient information between now and Sunday to make either a
responsible recommendation on the specifics or to accurately to
project the amount because the amount will depend on what specifics
you choose. And I don't think we need to peg a specific amount to
each of these things anyway because I think we're gonna find many
of the sorts of recommendations we have, you know, administrative
consolidations, we can't say now how much that would be. But I
think it is good for us to give some idea of specific types of
generally specific items.
MR. LUDWIG: Was there a fiscal note on the RIP bill last year?
MS. MCCONNELL: Pardon.
MR. LUDWIG: Was there a fiscal note on the RIP bill?
UNIDENTIFIED SPEAKER (Male): The next one that I thought...
SENATOR RIEGER: An alternative that might be on something like
tier three, you could consider what the employer contribution costs
should be and not take (indisc.) from that. Because I think there
was surveys that the Department of Administration did which showed
the average employer contribution was nationwide.
MS. NORDALE: Isn't there a renter's rebate that is also a part of
this thing? It's about $350 thousand, so it give you a 1.8.
CHAIRMAN ROGERS: I think that's 1.5 but somebody who is (indisc.)
can look in the budget document.
CHAIRMAN ROGERS: Does anyone have another one that they think
there would be complete consensus on that they want to nominate,
reasonably specific budget cuts.
UNIDENTIFIED SPEAKER (Male): Geographic pay differentials.
CHAIRMAN ROGERS: That would be a study for state employee pay.
What about for the formulas as well, just for pay.
MS. MCCONNELL: Well actually there is an immediate one for non-
covered employees. It doesn't even apply the study. That's a
(indisc.) dollar amount. It brings it more in line with for labor
cut.
MR. LUDWIG: We took our cut in 87. That's where it -- sock it to
em.
REPRESENTATIVE PARNELL: I heard Annalee mention administrative
consolidations. What does that mean?
UNIDENTIFIED SPEAKER (Male): Do we want to talk about it? We
should be talking about consolidating departments (indisc.) but do
we really want to get into that?
MS. MCCONNELL: There again, I would suggest we just put up as a
category. We're looking at a lot of different options and right
now evaluating in the budget process which ones we think we could
do this first year.
REPRESENTATIVE PARNELL: Are you saying we should assign a number
to an administrative consolidation?
MS. MCCONNELL: I wouldn't on that one.
CHAIRMAN ROGERS: On administrative consolidation, departments and
divisions, I would like to see a target out there, if not in
dollars, I think there is something that sort of gives a target
that says we may reduce one or two departments over the five year -
- within the five year plan. Even though there are big savings
from reducing the number of departments, I think makes the whole
idea of budget cutting more real to people to see that there are
fewer agencies. But when I look at paying the commissioner of the
same to run a $9 million general fund Department of Labor and a
$300 million general fund Department of Health and Social Services
they're sort of not comparable.
MS. BRADY: How about the Alaska...
MR. MOTLEY: Throughout the state we operate and fund significant
health plans. We need to look at potential for combination of
these teacher, municipal and state plans and look at -- (indisc.)
some self insurance type.
MR. LUDWIG: I'd throw Medicaid into that too because that's a
health...
MR. MOTLEY: There is just a huge group we're spending a fortune.
And we do have cadillacs in that so we might able to accomplish a
similar result with a lot less (indisc.)
MR. LUDWIG: I thinks those are the non governments. We (indisc.)
CHAIRMAN ROGERS: State, local government, schools and university
and Medicaid.
REPRESENTATIVE NAVARRE: Steve suggested that a category that's
always talked about that's very difficult to pin down fat.
CHAIRMAN ROGERS: Oh ya, lets cut fat.
UNIDENTIFIED SPEAKER (Male): Double count here...
CHAIRMAN ROGERS: Do we want any kind of a targeting dollars on
either of these or...
NOTE: Cannot discern - everyone talking at once.
SENATOR RIEGER: ...medium and small, $2 million in the health
fund.
MR. GORSUCH: Could big be as big as $50 million and about. Or is
that too big?
MR. LUDWIG: I can't see where you would save $50 million on that
first one.
MR. ROGERS: Small would be less than $5 million (indisc.).
MS. NORDALE: I think in your administrative consolidation, you
could (indisc.-coughing) up big.
UNIDENTIFIED SPEAKER (Male): Big?
MS. NORDALE: You'd get major savings out of that.
MS. NORDALE: Administrative consolidation. We've got agencies and
departments and divisions that are crawling all over (indisc.-
coughing) same damn thing.
MR. GORSUCH: Bruce, how about bench marketing and wages and
compensation?
MR. LUDWIG: With what?
MR. GORSUCH: Some appropriate (indisc.) account - benchmark.
MR. LUDWIG: We've got a contract with the state that only goes up
a half of the CPI increase. I mean I'll take the benchmark of the
CPI any day.
SENATOR LINCOLN: So the savings would be $20 million in five years
cumulative.
UNIDENTIFIED SPEAKER (Male): Annually in the fifth year.
MR. LUDWIG: I don't know about the RIP and tier three in five
years generate $20 million.
UNIDENTIFIED SPEAKER (Female): TRS won't hit until like ten years
from that.
UNIDENTIFIED SPEAKER (Male): We're in five years folks.
MR. LUDWIG: If you go below a certain level, then you'd have to
back into social security and that costs you more money.
SENATOR LINCOLN: When we talk about combining the health plans I
heard somebody say self insurance. That is going to include the
peek at that and see if we could have self insurance.
CHAIRMAN ROGERS: The university already does have self insurance
as do most of the local governments.
MR. LUDWIG: The state sort of does except they run it through
Aetna to do it. They own the reserve fund but you still pay a buck
a claim.
CHAIRMAN ROGERS: Other reasonably generally specific cuts? Is
somebody writing these down?
UNIDENTIFIED SPEAKER (Female): Savings or cuts? Savings?
UNIDENTIFIED SPEAKER (Male): Savings or cuts?
SENATOR LINCOLN: I think that the welfare reform (indisc.) that's
gonna go through within the next five years. We're going to
definitely going to have a savings?
UNIDENTIFIED SPEAKER (Male): Federal? Georgianna?
SENATOR LINCOLN: No state. I mean it'll roll over.
UNIDENTIFIED SPEAKER (Male): Do we have a welfare reform act?
SENATOR LINCOLN: I'd put that, ya I know it, and I'd -- it's
definitely got to be a medium - at least the need.
CHAIRMAN ROGERS: Is there any disagreement with the passage of a
welfare reform package?
SENATOR LINCOLN: Five years.
CHAIRMAN ROGERS: Within five years?
UNIDENTIFIED SPEAKER (Male): Is that (indisc.) cutoff you saying,
or within five years.
REPRESENTATIVE NAVARRE: That's really very heavily dependent on
what happens with the federal funds. Federal funds are
significantly reduced it's been going to create more of burden not
less on the state portion.
UNIDENTIFIED SPEAKER (Male): But out of the state portion that
does get shifted, we should be able to cut back.
CHAIRMAN ROGERS: We'll probably -- you're right, we're probably
gonna end up after federal with the savings (indisc.).
CHAIRMAN ROGERS: Bruce.
MR. LUDWIG: Reorganization and administrative consolidation of the
university. Maybe kinda go back to community college concept to
a degree where communities participate (indisc.). Well they do it
in Prince William Sound.
MR. GORSUCH: We supposedly saved $12 million going the other way.
CHAIRMAN ROGERS: Lee, what's the savings on this one?
Reorganization consolidation - administrative consolidation at the
university.
MR. GORSUCH: I don't know what is being suggested. What one -
what's the idea?
UNIDENTIFIED SPEAKER (Male): Lets (indisc.) going back to
community colleges. We had 19 of em before we did the
consolidation.
UNIDENTIFIED SPEAKER (Male): Ya but they weren't to the expense of
the university.
CHAIRMAN ROGERS: They've always been part of the university.
MS. BRADY: Oh ya, absolutely, oh ya that's why it's such a mess.
MR. GORSUCH: This is a cost buster not a cost saver.
MS. BRADY: You don't want to go back to community college. You
want the communities to pay for the colleges - pay for some of
the...
REPRESENTATIVE NAVARRE(?): What you want to do is reorganize so
you don't have the alliances that you currently have which serve to
hold up budgets in certain parts of the state instead of meeting
the needs in the areas of the state that they should be
accommodating.
MR. LUDWIG: Currently four universities.
UNIDENTIFIED SPEAKER (Female): (Indisc.)
MR. LUDWIG: No, you've got statewide too.
CHAIRMAN ROGERS: Mary.
MS. NORDALE: I hate to keep beating a dead horse but if we
restructure the fee structure for the pioneers home, we would
effect a medium...
CHAIRMAN ROGERS: I thought we were still in discussion on this one
because I don't think we have a consensus on this one.
MS. BRADY: Ya, I just -- I spend some time having a thing on the
university and that's not the answer, again, going back. I mean if
you want to -- the money doesn't (indisc.) kids otherwise we'd
have...
REPRESENTATIVE PARNELL: People around the table have a different
understanding of what it would take to achieve a savings through
the reorganization and administrative consolidation of UAA. But I
think we can all agree that savings can be achieved through some
form of reorganization.
MS. BRADY: I'll tell you what I think. I think when we've got,
you know, Lee is here and we've got somebody who knows a whole lot
about it, you know, he can come up with something that talks about
how it would work (indisc.). Otherwise, for us to be second
guessing, you know, the (indisc.) chancellors is kind of...
SENATOR LINCOLN: Can I say something before Lee chimes in here.
I don't want that to mean that when the legislature looks at they
eliminate because immediately when I read just as written here that
means to consolidate the university in reorganization of it that
you'd eliminate the community college, you eliminate distance
delivery, rural campuses. And so, you know, I'm not going to be
for that if that means that we're going to - and that would be a
savings to the university system if we did that. But does it
deliver the services to Alaskans? I would argue "No."
CHAIRMAN ROGERS: Annalee.
MS. MCCONNELL: I think discussion indicates that we don't have
consensus and my suggestion would be we move on and see what other
(indisc.) get consensus on.
UNIDENTIFIED SPEAKER (Male): (Indisc.) the legislature because
they're gonna do it anyway.
MS. MCCONNELL: I have two to add.
CHAIRMAN ROGERS: Mary was next on pioneers homes.
MS. NORDALE: Ya, revision of the V structure.
CHAIRMAN ROGERS: Is that a budget cut or...
MS. NORDALE: It's a saver.
CHAIRMAN ROGERS: It's a savings.
MS. NORDALE: It's both a cut and a saver.
CHAIRMAN ROGERS: It doesn't cut spending.
CHAIRMAN ROGERS: It doesn't cut spending at the pioneers homes.
MS. NORDALE: No, no, no, no, but it cuts general funds.
MS. BRADY: How about privatization? That saves a lot more.
MS. MCCONNELL: It cuts what were gonna call undesignated (indisc.)
general fund program receipts.
MS. NORDALE: It would except all the money flows in...
MS. MCCONNELL: It closes the budget gaps...
MS. NORDALE: See the present structure is, you know, a monthly
rate and I think that it should be income based so that those have
more of ability pay can pay.
CHAIRMAN ROGERS: Judy and then Marie
MS. BRADY: Let me -- I'll tell you the big difference between this
and taxes, because with taxes you know that even if people, you
know, we've got some basis for assigning numbers, taxes, and you
have some, you know -- Department of Revenue has been working with
it a long time and you have some basis for making kind of the
assumptions that you do. With this kind of thing we're running
into -- you know were obviously into areas that we know pieces and
chunks about but actually not enough to say, "This will work," or
"This is where we get it." So it kind of -- you know the one thing
we could say for sure that general obligation debt knock off $16
million 2000 because it's gonna be gone by 2000. So hey, that's a
big chunk. We could knock off a -- but I mean this kind of stuff
we just don't know.
CHAIRMAN ROGERS: But on the G.O. debt, I would argue that if we're
gonna do anything on deferred maintenance we ought to issue some
bonds and do it all now and pay for it over a period of time rather
than waiting and so I wouldn't want to cut the G.O. debt number,
I'd want to keep it the same. So I would disagree with that one.
MS. BRADY: I know but it's one number that we know for sure rather
than think small, medium and large and then, you know, have someone
who knows here trying to tell us about retirement plan. I mean --
see we - we just I think gonna risk maybe making ourselves
(indisc.)
CHAIRMAN ROGERS: Marie.
MS. WESTFALL: O.K., I was thinking about the revision of the
structure in the motor vehicle license. We talked about the
nonprofits.
CHAIRMAN ROGERS: That's already on...
MS. NORDALE: It's in the composite...
CHAIRMAN ROGERS: It's in the composite already. Georgianna and
then Annalee
SENATOR LINCOLN: Well maybe this is somewhat of the same thing
that - it is on this - that when we were talking about the pioneer
homes before but I'm not sure it's an expenditure or savings that
the privatization factor of pioneer homes, some of the corrections,
some of the social services programs, and I don't know if the
pioneer homes fall just under that or if we're going to be specific
as to say in each one of these, but I think that somewhere we need
to talk about the privatization.
CHAIRMAN ROGERS: Come back -- we'll come back around to
privatization -hold that thought. Anything else on revision of the
fee structure to make it income based? Discussion of pioneer home
income-based fee structure Lee?
MR. GORSUCH: Maybe somebody who is more familiar with this than I
am but there has been a big issue about requiring that they become
Medicaid eligible or Medicare eligible. Is anybody familiar with
that enough to...
UNIDENTIFIED SPEAKER (Female): Yes.
UNIDENTIFIED SPEAKER (Male): Yes and no.
MS. MCCONNELL: Medicaid eligible - very few of the folks are
Medicaid. The way that it's turning out now would be Medicaid
eligible so there is almost nothing that could be gained there
unfortunately because of the nature of the care being given.
MS. MCCONNELL: Alzheimers is not Medicaid eligible and that's the
base number of patients.
CHAIRMAN ROGERS: Further discussion on the revision of the fee
structure of the pioneers home.
SENATOR RIEGER: Is the subject, I mean does the suggestion of
revision of fee structure or revision of fee structure to make it
income based.
MS. NORDALE: To make it income based.
SENATOR RIEGER: I don't know enough about that. I have a problem
with that because I'm not sure what's being proposed, so it might
have some long-term consequences (indisc.). It's just looking at
the fee structure is my problem.
MS. NORDALE: I have a real problem with having people who have a
very substantial incomes living at the pioneers home at a very very
low cost.
CHAIRMAN ROGERS: Put a provision in the fee structure to reflect
ability to pay.
MS. BRADY: Longevity bonus.
MS. NORDALE: They don't get it.
CHAIRMAN ROGERS: Are we comfortable with the revision of fee
structure to reflect ability to pay?
SENATOR RIEGER: You know it's all we need there that there are
discounts given and to keep raising the fee structure and you give
discounts, where they always have in the past, so that a person
could always keep X quantity of monthly income (indisc.)
MS. MCCONNELL: But right now it's something like $700 a month and
the cost of care for some of those beds is something like $6,000 or
$6,900 or something, it's way (indisc.)...
SENATOR RIEGER: But I saw that those fees keep going up.
MS. MCCONNELL: They've been going up at 10 percent but they
started so low that I think they estimated it to come to cost of
care would take something like 63 years or 47 years or something
like that, at a continuing 10 percent increase a year.
CHAIRMAN ROGERS: Judy.
MS. BRADY: Maybe instead of doing budget -- you know there is
something the matter that my mother is in a very nice place in
Spokane and there is all kinds of private places there and every
place else that don't charge nine or ten thousand a month. So
either we are doing something wrong or we started something that
where you can get that kind of money paid back from the state or
something. I mean maybe what we need to look at is why the heck
are costs running that high. I mean there is kind of just a basic
problem right there. We're the only state in the union that costs
are running $9,000 or $6,000 a month and we need to figure out why.
MS. MCCONNELL: Our cost of care is less than a private sector for
those types of patients and they have been unable to get - the
private sector folks in Alaska don't want to take on alzheimer
patients. So it seems to me that this may be one of those areas
like with some of the fees and taxes where we want to say, "We
think this is something that warrants some further conversation and
make you promising to make a specific recommendation.
REPRESENTATIVE NAVARRE: But the cost of care in a lot of the
private facilities is higher primarily much of it paid for through
Medicaid.
CHAIRMAN ROGERS: One I'd like to propose up here has to do with
the number of hospital beds in the state and the Certificate of
Need Program. According to the commissioner of Health and Social
Services, one of the big cost drivers in Medicaid and everything
else is the number of hospital beds because once a Certificate of
Need is issued that allows somebody to build a hospital, you build
in a forever cost but paying the core cost of those beds through
Medicaid and other systems. And it's her belief the single cost
savings measure that we could see would be to freeze for awhile the
issuance of any Certificates of Need for new nursing home and
hospital beds.
MS. BRADY: Nursing homes too?
UNIDENTIFIED SPEAKER (Male): Nursing home too?
CHAIRMAN ROGERS: (Indisc.) just hospital, I'm sorry
MS. BRADY: Should have done this four years ago.
MS. NORDALE: Well I'd certainly go for that (indisc.) Karen is
absolutely right on that one.
MR. POURCHOT: V.A. facility.
CHAIRMAN ROGERS: I support that. That would be freeze.
REPRESENTATIVE NAVARRE: The Health Care Task Force set up a number
of years ago, four or five years ago, did address that and actually
wrote a letter to federal (indisc.) regarding the new Native
hospital and Elmendorf because of the number of excess beds that we
already had in Anchorage but there was just no way to derail what
we're already.
MS. BRADY: One of the most amazing (indisc.) programs I've ever
heard. We had all the hospital administrators, we had PHS,
Elmendorf, Humana, Providence, I can't remember - is there another
one? - all talking about how they all needed to have MRI equipment
because if one did, then they all needed to get it, how they all
needed to have all this stuff. People from the audience kept
saying wait a minute, what (indisc.), ya, but we have to do that to
people competitive because they all answer to different masters.
MS. MCCONNELL: Get the state out of inspection - certain types of
inspection business where local governments do similar - like
building inspections and some of the health inspections - where we
do it in some communities but not other places. The (indisc.)
could be totally fee supported at a multi level so we're not
necessarily shifting a financial burden to the local level.
UNIDENTIFIED SPEAKER (Male): Who sets the standards?
SENATOR RIEGER: On that I would like - I mean I think the concept
is right, but Annalee also at other time has argued that either
eliminate or make it totally self supportive because in some cases
I'm not....
TAPE 4, SIDE A
SENATOR LINCOLN: ....It was statewide. I'm not just looking at
(indisc.)
MS. NORDALE: They don't do anything. They're really sort of
supplemental to the cops and, you know, if there is a real problem.
They just issue licenses. The Department of Administration or
Commerce could issue the license.
CHAIRMAN ROGERS: So actually we're trying to solve the alcohol
problem then nobody issued a license.
MS. NORDALE: That's right, exactly.
CHAIRMAN ROGERS: Is this one - is there consensus on this one?
Several committee members answered, "No."
MR. LUDWIG: (Indisc.) eliminate APOC.
CHAIRMAN ROGERS: O.K. everyone who declared conflict of interest
on this one doesn't have to vote. For the remainder of us, is
there consensus on that one?
Several committee members answered, "No."
MS. BRADY: We should cut their budget though, I'll tell you what.
UNIDENTIFIED SPEAKER (Male): Noncontroversial (indisc.).
MR. MOTLEY: Get the free troopers out of communities of less than
- or more than 2,500.
SENATOR LINCOLN: What's a free trooper?
MR. MOTLEY: It's ones where nobody is paying for their cost but
there are communities that could afford them.
SENATOR LINCOLN: Then I want to talk about that because...
MR. MOTLEY: Fairbanks....
SENATOR LINCOLN: Twenty-five -- wait a minute. Is the 32 percent
of communities with a population of greater than 2,500.
MR. MOTLEY: We just lost our trooper in Soldotna so we don't have
a (indisc.) within. Fifty miles one way and 45 (indisc.).
UNIDENTIFIED SPEAKER (Male): So you lost it to Soldotna?
MS. NORDALE: Nobody is out there directing traffic.
CHAIRMAN ROGERS: What this will do would -- as I understand your
proposal, the word "free" would allow a community like Fairbanks
North Star Borough, outside the City of Fairbanks, and the City of
North Pole and areas of the municipality of Anchorage that don't
have city police to pay for troopers if they wanted to. Is that
correct?
MR. MOTLEY: Allows self supportive.
MS. WESTFALL: ...which only operate outside of the City of
Ketchikan.
CHAIRMAN ROGERS: So what I understand this proposal to be is
really offering those communities three choices: 1. A municipal
police department; 2. contracted police department and I guess a
subset of that contracting with the state. Annalee
MS. MCCONNELL: I don't think I'd feel comfortable at this point
supporting it if we say that all those four options are possible
but saying just no free troopers I'd feel comfortable with. I'd
want some more information before I decided whether I thought It
was in the long term a good or bad idea for parts of communities or
communities to be able contract with the state. So that part of it
for me would be controversial and taken off the list, but the way
Hugh worded it, I would go 100 percent.
UNIDENTIFIED SPEAKER (Male): You live with getting free troopers
out?
SENATOR RIEGER: I can't live with that because I that it can be
interpreted to not allow the options that Annalee has heartburn
concern.
MS. MCCONNELL: Well I don't know if I have heartburn yet but I
don't feel I have information to make a decision of (indisc.)
SENATOR RIEGER: It's the same with the one above. It eliminates
certain state inspections and make employees self supportive. You
know, I mean these things have to be examined. I think that we
have a philosophy (indisc.).
CHAIRMAN ROGERS: Between Anchorage and Fairbanks.
UNIDENTIFIED SPEAKER (Male): There is nobody stationed there now,
in Anchorage.
SENATOR RIEGER: Oh there is, you know, there is still troopers in
Kenai and Juneau and Fairbanks. I mean this -- you're talking
about 90 percent of the population.
CHAIRMAN ROGERS: And this is for highway patrol right? Or is for
all these services?
SENATOR RIEGER: Dillingham has a trooper there (indisc.) over
2,500. Get rid of them too.
CHAIRMAN ROGERS: I'm not sure I agree on all (indisc.). I can
live with, you know, saying that the local government might have to
handle the misdemeanants and highway, but I guess I think there is
some value in having a uniform statewide application on felony
prosecution - felony investigation the troopers offer.
MS. NORDALE: I have a problem in Anchorage and Fairbanks where
they do have some municipal police and if the community wants
troopers to enforce the same laws, you know, to do - to be
substituted for municipal employees, then they should pay the full
cost of that substitution because I don't think that the state as
a whole should bear the cost of a couple of communities free
loading.
REPRESENTATIVE PARNELL: Lets get rid of it. Lets get rid of the
language or change the language. I mean free has causes heartburn
over to Steve and yet clarifying it causes heartburn for Annalee.
This doesn't describe (indisc.) happening either.
UNIDENTIFIED SPEAKER (Male): I thought that was noncontroversial.
CHAIRMAN ROGERS: I sense there is a consensus possible.
SENATOR RIEGER: ...suggest - allow self support for troopers.
UNIDENTIFIED SPEAKER (Male): How about reexamine troopers?
MS. MCCONNELL: ...the words say eliminate with state funding.
Would that work Steve, eliminate state funding of troopers which
allows them to be either as an option...
MS. NORDALE: Eliminate state funding of municipal police.
MS. MS. MCCONNELL: Would that work for you Steve? Because then it
will provide that we could examine the option of either contracting
to pay for or having local governments choose not to do it at all.
REPRESENTATIVE NAVARRE: How do you define municipal?
SENATOR RIEGER: That's (indisc.) because I think it would be like
the Aquaculture Associations, they're really state funded but
they're self-supportive (indisc.) Aquaculture Association...
MS. NORDALE: Police functions formed by troopers.
REPRESENTATIVE PARNELL: That may take care of it. I don't think
a state trooper is gonna just say we're not gonna serve a certain
area of the state. I think constitutionally, if they provide
public safety it's subminimal level and perhaps the language of
funding (indisc.) police functions. What do you think Steve?
SENATOR RIEGER: What Annalee has said there if you have - allow
self support, you address Sean's constitutional problem. Now does
that mean that the troopers can still perform the self supporting.
I mean when the sin tax gets sorted out...
UNIDENTIFIED SPEAKER (Male): It's your language.
SENATOR RIEGER: I know, I just want to make sure that is what is
meant the way it's written there.
CHAIRMAN ROGERS: Does this allow a militia? O.K., other
proposals? Annalee.
MS. MCCONNELL: I think we should put the longevity bonus on
because there will in fact be savings over time and...
CHAIRMAN ROGERS: But those are already in current projections.
MS. MCCONNELL: Well what I'm wondering is -- I mean does it --
would it be fair to acknowledge that there is one coming and then
that at least puts it on the list for anybody who wants to consider
changes to that.
UNIDENTIFIED SPEAKER (Male): Not at the (indisc.). It's not a
(indisc.) very much change it because it's already in the
prediction for spending. No, actually it's not Annalee.
MS. MCCONNELL: I don't think we did specifically -- no, I think in
the end when we changed the base case we did not take that original
stuff had it - at the actual (indisc.). When we changed it, we
just used generic numbers. So it would identify that there will be
some reduction and then there could be discussion about whether to
speed up the reduction in the future or we could have a court case
(indisc.).
CHAIRMAN ROGERS: Is there support of speed up the reduction or
making it -- is there opposition to making through the changes in
the Longevity Bonus Program.
SENATOR LINCOLN: The changes could be a needs based....
CHAIRMAN ROGERS: First of all on the concept of (indisc.) change
the longevity bonus from the current 20 year phase out, is anyone
fundamentally opposed to that?
SENATOR RIEGER: No, but close to. It's hard for me to imagine a
scenario that'll save more money than what's already in place of
the law.
CHAIRMAN ROGERS: And the scenario in place right now...
SENATOR RIEGER: Phases it out. I think that an effort to try to
tinker with it will end up costing more. I mean I just think -- I
looked at how hard that was. Doesn't mean you can't recommend it
but I think when you really get down to to it...
CHAIRMAN ROGERS: Can I suggest maybe on alternative which would
say, "If the lawsuit against the changes in the longevity bonus is
successful, then the longevity bonus should be repealed."
UNIDENTIFIED SPEAKER (Female): Yes.
CHAIRMAN ROGERS: Is that acceptable to everybody.
MS. NORDALE: Ya.
CHAIRMAN ROGERS: O.K., are there further changes in longevity
bonus? We've got an agreement if the lawsuit is successful, repeal
longevity bonus. We've got a conditionally big savings.
UNIDENTIFIED SPEAKER (Female): Contingent savings.
CHAIRMAN ROGERS: Are there other changes that people would like to
propose and see if Steve can accept them on longevity bonus? Well
let me propose to making - the taking of the remaining people who
are eligible under the current program, making it needs based or
affluence tested at two times the poverty level. That is if people
are making more than two times the federal poverty level for
Alaska, they would be ineligible for longevity bonus.
MS. MCCONNELL: (Indisc.) repeal it or make it....
CHAIRMAN ROGERS: No, that's one and the second would be a change
that we would recommend whether or not it's successful.
MS. BRADY: The only reason I don't like this is because now we
have another poverty level thing. And don't we have in this state,
depending on what the deal is, three or four different kinds of
poverty levels being (indisc.) we've got access to or not
(indisc.). Don't we do it two or three different ways?
SENATOR RIEGER: There is a lot of disregards.
MS. BRADY: There is a lot of what?
SENATOR RIEGER: Disregards. There is a lot of income that doesn't
count as income.
MS. BRADY: Ah, O.K.
MR. MOTLEY: Don't we have some sort of hold harmless clause
attached to the longevity bonus too?
UNIDENTIFIED SPEAKER (Male): Not anymore.
MS. NORDALE: That was the permanent fund dividend.
UNIDENTIFIED SPEAKER (Male): (Indisc.) but on the longevity bonus.
UNIDENTIFIED SPEAKER (Male): No, because your eligibility for
longevity bonus is (indisc.).
MS. MCCONNELL: Would it -- I'm not sure if I got sense of the
earlier consensus but would we want to consider saying, "If the
lawsuit is successful, either repeal the program or make it needs
based."
UNIDENTIFIED SPEAKER (Male): No.
MS. MCCONNELL: I wasn't sure if we needed a little more qualifier
(indisc.).
SENATOR LINCOLN: On that (indisc.) the heartburn on making it
needs based.
SENATOR RIEGER: You can't devise programs and then (indisc.) needs
base and create (indisc.). You know, I mean that's not how you
manage the state's finances.
MS. MCCONNELL: I'm not - why can't you? What's the...
REPRESENTATIVE NAVARRE: The argument is that if you already have
a social system that accommodates people who are needs based, and
so if you set another program (indisc.--coughing) needs based
program.
UNIDENTIFIED SPEAKER (Male): What if (indisc.) tested instead.
MR. LUDWIG: We're kind of recommending floors of cuts right? I
mean we're not saying these ought to be passed. We're saying this
is where you can get cuts from meaning the legislature may decide
to cut other things or cut these more.
CHAIRMAN ROGERS: Georgianna.
SENATOR LINCOLN: I just have a fear that, you know, where we're
talking about a savings that if we eliminate the ALB completely,
and I know that there are a number of the small communities where
that's the only income that some of the older people have, that if
that is eliminated we're really not talking about a savings then.
We're talking about a savings of those that -- no, I will go back -
- I don't even know if we're talking about a savings period because
there are those that say, "This will get me by, I don't need to ask
for any more assistance so I'll make it on that knowing that that's
coming in every month." If we don't (indisc.--coughing) then I
think those same folks might come in and say, "I need double that."
MS. BRADY: That's fine - needs based.
SENATOR LINCOLN: And then we're not talking about a savings at all
to the state.
MS. BRADY: You know it's people who need money have a right under
our system to come in say they need it. The objection about this
is as long as we have money to give away that's fine, but here
we're talking about all kinds of stuff and we're still saying I
just want to repeal it.
SENATOR LINCOLN: Ya, well we're not talking about repealing it
right now. We're talking about if it stays as is, then we're
talking about will it be a needs base or do we just eliminate it
to...
MS. BRADY: We've got other needs based programs they can apply to.
SENATOR LINCOLN: I just say that if we do that then we need to
write in our report that it could conceivably cost the same or
more, but it won't be a huge savings I don't think.
MS. BRADY: I just think we don't know enough about -- you know if
somebody calls us up and says, "O.K. legislature and some
committees (indisc.) what you think, let me ask you why you have
these." I'd say, "Well, (indisc.)." I just am getting
increasingly uncomfortable with trying to prove it. You know if we
said we have some principles and the principles were, the main one
was that if something that's not needs based and gives a real close
look at it but something other states don't do if it's a real close
-- I mean those two go first period.
CHAIRMAN ROGERS: Any other generally reasonably specifics. I
heard tourism - tourism marketing.
UNIDENTIFIED SPEAKER (Male): Are we still talking about over five
years?
UNIDENTIFIED SPEAKER (Male): Yes.
CHAIRMAN ROGERS: Eliminate state funding for tourism marketing.
(Indisc.) an objection.
SENATOR RIEGER: But allow self support.
MR. POURCHOT: I object.
CHAIRMAN ROGERS: Nature of your objection.
MR. POURCHOT: I think there is a legitimate state role for generic
marketing that affects, you know, an industry that, you know, it
goes along with the (indisc.) and I think really ties into being
able to get something out of tourism. I think there is a
legitimate role for the state (indisc.) self supportive.
CHAIRMAN ROGERS: Sean.
REPRESENTATIVE PARNELL: Also if you find in the the studies that
show that (indisc.) tourism dollars bring in $52 million worth of
state revenues (indisc.) different various taxes are opposed. I
mean that's another way that's legitimized in the legislative
process.
REPRESENTATIVE NAVARRE: But that's based on the tourism community
numbers and they add taxes on motor fuels and with their general
taxes they add revenues to the ferry system, all of those things
which they argue would go away without (indisc.). Whether or not
you believe in this (indisc.)
CHAIRMAN ROGERS: I remember when the oil companies first started
they'd leave in droves. They didn't and I don't think the tourist
will leave.
REPRESENTATIVE NAVARRE: I agree with (indisc.) that there is a
reason for and a justification for state funding of some generic
tourism but there also ought to be a recovery mechanism that
captures what it costs to deliver that generic marketing and that's
what we don't have.
UNIDENTIFIED SPEAKER (Male): Why did that go away (indisc.)?
CHAIRMAN ROGERS: I hear two objections.
MS. BRADY: Why don't we just eliminate $4 million of it and let
them keep $1 million. One million dollars is a lot of money.
CHAIRMAN ROGERS: Not compared what other states spend on it.
REPRESENTATIVE NAVARRE: Ya, but other states have sales taxes,
statewide sales tax (indisc.).
MS. BRADY: Statewide bed tax, statewide sales tax, things at the
airport, they're on their (indisc.) card, it's $10 a shot.
REPRESENTATIVE PARNELL: Brian, you weren't -- were you counting me
as an objection?
CHAIRMAN ROGERS: No, I'm counting Mike, (indisc.) and Pat.
UNIDENTIFIED SPEAKER (Male): So try rewording it, make sure it is
marketing almost self supporting.
MR. POURCHOT: Maybe -- I mean you could almost make it the same
way. If we bring in $20 million from the new tax -- if you could,
you know, funnel back $5 million of a new tax and $50 million, you
actually (indisc.) both things.
MS. BRADY: If they'll let us -- if they do not object $20 million
of new tax then sure, we'll give em back $4 million. That's what
this is.
CHAIRMAN ROGERS: If the tourist tax passes, this falls off the
list. Conditionally, small (indisc.)
CHAIRMAN ROGERS: Any other reasonably specific savings that people
would like to try? Any other generally specific? And the program
reductions?
SENATOR RIEGER: What program reductions do we have?
UNIDENTIFIED SPEAKER (Male): We don't have any except the
conditional ALB.
MS. BRADY: PFD hold harmless.
CHAIRMAN ROGERS: Can somebody describe the permanent fund dividend
hold harmless? Steve.
SENATOR RIEGER: Well that's a really tough one because it's real
frustrating, but what happens is that the permanent fund comes in
one chunk once a year and so a person can be, you know, some of it
would by most people's standards, be considered to be needing
outside assistance when income is so low. But the federal rules
when it all comes in one month, you extrapolate that to annualized
income and it's so high that you say, "If you had made that much
money all year, you wouldn't be eligible." So you get thrown off
the welfare roles but then you don't get on the next month. There
is a waiting period of three or four months after that. So the
penalty is disproportionate, that kind of welfare penalty is
disproportionate to the income received, in fact, it's more in
money that what you receive. You get $1,000 and you lose $2,000.
So it's been a tricky one and I think that, you know, there is some
cases where it really seems crazy to have a hold harmless, in other
cases it's like a one size fits all that really has some outrageous
examples both ways.
MR. LOESCHER: You know, Mr. Chairman, there is all kinds of
changes that come in in the welfare reform and all these various
other sport projects programs funding but the message is that those
funds are gonna go down. They're gonna be reduced. And other
messages that you're gonna transfer the thing, at least the federal
side, in block grant form to the legislature or to the state
government. So, you know, I really wonder if this thing is -- I'm
against this idea. I think there is gonna be other cuts and I
think the benefit here is gonna be lost in the wash.
CHAIRMAN ROGERS: Well it may be that the other welfare -- I think
you're probably right, this will be out of date by the time the
legislature comes (indisc.) the other federal welfare (indisc.).
REPRESENTATIVE NAVARRE: Well I don't think it will because there
is going to be some...
CHAIRMAN ROGERS: Some people will trigger out...
REPRESENTATIVE NAVARRE: That are gonna trigger off it and the
argument for having it or leaving it the way it is is that
everybody benefits equally from the permanent fund dividend.
UNIDENTIFIED SPEAKER (Male): But that's not true, some people pay
taxes on it.
UNIDENTIFIED SPEAKER (Female): I missed that, some people pay
taxes on their permanent fund dividend?
UNIDENTIFIED SPEAKER (Male): ...on their permanent fund dividend,
ya.
MS. NORDALE: I don't think it's gonna be a budget gap filler
though. I think it comes out of the dividend fund itself.
CHAIRMAN ROGERS: Well we have our $700 cap on the dividends. It
now would be a gap filler. Under the current laws, you didn't have
it. It would just be the $10 million would be distributed cross
everybody else's check.
CHAIRMAN ROGERS: Hugh.
MR. MOTLEY: At the risk of appearing stingy, what we're saying is
we want to have the highest welfare payment in the country and on
top of that we want to stack on top a permanent fund dividend for
every member of the household. And we are getting a lot of
opportunities to pick up essentially transient folk to come in for
the tourism season for some part-time job and stay on because they
can't go back somewhere and do nearly as well. And I'm not -- it's
an interesting message. I don't want to penalize them but I also
don't know that I think it's necessarily smart to have the best
deal going out there.
CHAIRMAN ROGERS: I have real heartburn with this one, taking $700
away from people who we know are low income when we won't take
$3,000 away from people we know are high income with a longevity
bonus and, therefore, I would oppose including this since we didn't
(indisc.) discuss the longevity bonus.
MS. MCCONNELL: One of the things that someone from HESS told me
when this took a look at before was that there was a substantial
administrative cost because all these folks have to go through the
whole process again of getting back on the roles and that there was
a case load impact there that at least needed to netted against any
savings of dollars. Their original calculations had been -- it
reduced the saving considerably. I don't remember the number....
MS. NORDALE: It amounts to two or three million dollars. It re
upped on the roles.
CHAIRMAN ROGERS: Sean.
REPRESENTATIVE PARNELL: Can I make one more (indisc.) for boards.
I talked about two of the big budget drivers. We talked about
savings and personal services. Later we talked about savings and
health and social services or the welfare type programs. We didn't
talk about the third driver was education and (indisc.) education
and it's a tremendous chunk of our state budget. I just think that
needs -- you could at least write it Brian.
CHAIRMAN ROGERS: Increased - sort of like increased spending at
slower rate or something. I mean we know spending is gonna go up
but slow growth rate of education.
REPRESENTATIVE NAVARRE: Well we've already done that with our...
CHAIRMAN ROGERS: We haven't done it yet Mike.
REPRESENTATIVE NAVARRE: Oh yes we have. We're (indisc.) a $30
million cut this -- a $40 million cut this year, $30 million the
following year, (indisc.--coughing) the following year. Not in the
foundation but in the budget. They already squeezed education.
CHAIRMAN ROGERS: Under our existing spending plan, you know, under
the composite or the endowment we're allowing a total budget to
grow by inflation in half of population growth. We know that
education spending is -- the population is gonna grow faster than
that population growth so that it would be very little growth in
the instructional unit value - really do without larger cuts
elsewhere in the budget already so...
UNIDENTIFIED SPEAKER (Male): Well I'm not talking...
CHAIRMAN ROGERS: Are you arguing for -- I guess the main driver on
education funding right now it instructional unit. Are you
suggesting to freeze that for a period of time or...
REPRESENTATIVE PARNELL: I'm suggesting that we not allow a $200
million increase in the next five years or seven years at $61
thousand unit value which translated would mean (indisc.). No, you
would just change the formula. I mean you don't have to give up
the unit value. It's gonna get reapportioned differently. That's
true but I'm just trying to think through this out loud. If we're
gonna spend $200 million more on education if we don't do anything,
not in seven years.
UNIDENTIFIED SPEAKER (Male): I'm talking about under our current
system.
REPRESENTATIVE NAVARRE: I see what you're saying, but under our
plan were cutting $300 million real over the next three years.
UNIDENTIFIED SPEAKER (Male): So what am I looking at?
CHAIRMAN ROGERS: The real dollar's expenditures. A $274 million
in real dollars.
MR. LUDWIG: This has got to be part of it or you're not going to
make it in dollars.
CHAIRMAN ROGERS: Steve.
SENATOR RIEGER: Well I think so. I think that foundation formula
includes the formula for local contributions. I wouldn't be
surprised if when the foundation twists and turns through, you'll
find some people on that commission that (indisc.). So you'd --
you know what you're slowing is the rate of growth and general fund
support of education. Probably, you know, the amount of education
activity won't slow it the same.
CHAIRMAN ROGERS: What I've heard, the recommendation would be to
change the formula to slow the growth.
MS. NORDALE: Right.
CHAIRMAN ROGERS: Does anybody have a problem with changing the
formula to slow the growth?
REPRESENTATIVE NAVARRE: I just have a comment and that is good
luck.
SENATOR RIEGER: It should be GF education, general fund education
spending.
CHAIRMAN ROGERS: Well we haven't touched local government.
MR. LOESCHER: Just for the record, I just think that that whole
thing is folly. I think you're gonna regret, you know, putting
anything in this report that leads you this way. I think we're
headed for a crisis in this whole education program, the state, and
I just honestly believe it's gonna land on your head in the next
period of time, both on the formula and also the lack of support
for maintenance for school facilities. There is a hell of a
backlog.
REPRESENTATIVE PARNELL: I agree with Bob totally. I just don't
think that more money, given under the current scenario, that
anyway...
MR. LOESCHER(?): You know, I'm just one vote but I just wanted,
for the record, to be -- know that I'm not for this thing.
CHAIRMAN ROGERS: As a general rule, I've been dropping things off
if there have been two objections.
MR. LUDWIG: We did a RIP thing and took into account savings of
the state. We didn't take into account any savings to the school
district which add more noticeable savings then the state. And
maybe if we just took into account that amount, I mean that would
be some slowing in growth.
CHAIRMAN ROGERS: That's true.
MR. LUDWIG: You can pass the RIP bill, it's not gonna have an
effect on the economy as if you cut the general fund (indisc.),
effect on the budget but...
CHAIRMAN ROGERS: I have one I would like to propose. I'm not sure
I can estimate the savings but that would be that we spend more on
child support enforcement (indisc.) collect from parents who don't
pay child support plus reducing welfare caseload.
UNIDENTIFIED SPEAKER (Male): Say that again.
CHAIRMAN ROGERS: If you spend more on child support enforcement,
you collect more of the child support due and pull people off of
welfare roles.
MS. NORDALE: Most of the money spent on child support enforcement
is federal money.
MS. BRADY: But you gotta get some some place else in the budget
too. The whole question is who does the tradeoffs within the
budget, stop saying, "We need this and we need this so we need more
money." We're gonna have to - have to start doing tradeoffs.
That's all there is.
CHAIRMAN ROGERS: I was trying to find something that the spending
of money triggers the savings...
MR. LUDWIG: Oil revenues.
MS. NORDALE: Well put it up there...
MS. MCCONNELL: Another growth area was the whole corrections
criminal justice and we have one little thing related to that but
we don't have anything on the whole prosecution of misdemeanors -
that side of the equation - prosecution and jail and so forth. The
other aspect of the growth in the Corrections budget that we don't
have is the real push to deal with alcohol which is driving that
budget.
MS. NORDALE: I agree, lets quit and go have a drink.
CHAIRMAN ROGERS: I haven't heard any objections.
SENATOR RIEGER: I'll object.
CHAIRMAN ROGERS: Is there a second objection?
MR. O'CONNOR: It depends on what you were talking about, various
recommendation or whether...
MS. NORDALE: The Corrections problem is really intractable at this
particular point, but it seems to me that it makes real sense for
us to make a recommendation that the current justice system be
coordinated so that you don't get disparate parts at war with one
another.
MS. BRADY: I haven't thought about that.
MS. NORDALE: No I don't, I just think we ought to leave
Corrections off of it because it's such a complex thing that we'll
never be able to agree on.
MS. BRADY: I have a thought and the thought is, getting back where
we were before, is that we need some structural change. I mean
this little kind of penny ante stuff, you know, is painful and half
the time we don't know what we're talking about and, you know, get
this -- except for a few things we're all really knowledgeable
about and say, "Ya," doesn't get us where we want to go. But there
are some things structurally and that's if we can force that to
look at corrections and some task force and alcohol, the task force
has done really good things before. It's like the hospital and
kind of how it doesn't get paid some attention to and somehow we've
gotta get things that people spend time on pay attention to. One
thing you can do - when you go through this book and you see all
the money on alcohol program and a mental health program throughout
the whole state, a lot of it with Native groups, nonprofits, lots
of huge amounts of money going out there, it would be real
interesting to put all of the health grant money that goes out to
municipalities or any place else, from the state, give it to the
department for zero based budgeting then they decide whether they
need more money for welfare payments or they need more money for
aid to dependent children or whether they're better off having
Tanana Chiefs do something or, you know, whoever it is the money
goes to so that the people who are responsible for tallying make
those decisions. No (indisc.), you'd do the same thing to
Corrections where you have -- see now everybody is kind of used to
getting their money, it's become an entitlement of (indisc.)
nonprofit and have this money for ten years, you expect to get it
and you call your legislator when you don't get it. And no one
ever says - is the state, the city, I'm using Fairbanks, Tanana
Chiefs, whoever else is doing it, are they all counting the same
people as clients and they've all got budgets over a million
dollars and they're still not solving a problem and no one gets to
even ask that question because the money always goes out to these
(indisc.). They're used to getting it. It's like little
departments. And unless we can change this whole thing somehow,
shake up that whole thing somehow and make it performance based.
That's not gonna change so we can just nit pick until we're blue in
the face and Health and Social Services, Transportation and in
Corrections that's how it continues.
MS. MCCONNELL: I sense we may be toward the end of what really is
kind of our (indisc.). I would like to propose a last one which is
streamline the state accounting system and big, medium and small
SENATOR RIEGER: The budget process, a lot of money here, (indisc.)
REPRESENTATIVE NAVARRE: How about a unicameral legislature?
UNIDENTIFIED SPEAKER (Male): No.
NOTE: Cannot discern - everyone talking at once.
CHAIRMAN ROGERS: O.K., this commission will be out of business in
48 hours here or we'll supposedly have finished our plan in 48
hours.
REPRESENTATIVE PARNELL: We can stop the clock right?
CHAIRMAN ROGERS: Ya for those who -- till 9:00 monday morning lets
stop the clock. We do have to decide fairly soon how late on
Sunday we're gonna go before we quit so that we deal with airplane
schedules on Sunday. We're scheduled to start at 10:00 a.m. on
Sunday and complete about 4:00 p.m. Tomorrow is 8:30 a.m.
MS. BRADY: What if we were able tomorrow to decide on how we were
going to close the gap in the five years and with the options
(indisc.) and then -- and just at the consensus kinds of things,
kind of like Annalee did it - the two page version. And then we
really are - we're all off the hook until the end of the year. I
don't mean for us to go to the end of the year, but then have a
drafting committee that goes and works on the, you know, the final
draft over the next week and sends it around to everybody so that
all we have to decide this weekend for announcements and everything
are the kind of the key points. How about that?
CHAIRMAN ROGERS: I agree and I believe that will take us much of
Sunday to wordsmith the consensus points that what we found on the
original report was one and two word changes here and there made a
big difference to people and my sense is that we will not make it
tonight, we're meeting tonight and tomorrow, that we will not be to
enough closure even on consensus. On drafting of the consensus
points, while I think we're real close to what are, there will be
wording changes and emphasis changes that make a big difference
(indisc.). I really think the Sunday meeting is gonna be necessary
to give us that. Pat.
MR. POURCHOT: I would like to suggest something. I'm reminded
something that said quite early in the day, in the morning, kind of
troubled me a little bit because Steve made a comment which I think
was a good one relative to some tradeoffs down the line. Why are
we increasing income tax when he read through and saw that we're
still contributing to the corpus of the fund with, "Excess monies
from the revenue stream." It reminded me that we've kind have come
down a long way towards certain people's view of an endowment
scenario and a composite scenario. And then it might be worthwhile
sometime real soon to go around the table to let people, in a very
concise way, comment about their overall feelings about one or the
other or something else, but give people an opportunity to put in
their own words their composite or their total like, "I really like
this composite scenario except the income tax comes in too late or
too early, or there is not the right kind of interface between the
dividend."
CHAIRMAN ROGERS: Actually we did that but you were out of the
room.
MR. POURCHOT: Oh I'm sorry.
CHAIRMAN ROGERS: We did that as one of the first things after a
break and (indisc.). The members who didn't have an opportunity,
we're sorry.
MR. POURCHOT: Well it was a great idea. Was it helpful?
CHAIRMAN ROGERS: Yes, it was very helpful. (Indisc.) going around
the room.
MR. POURCHOT: The...
CHAIRMAN ROGERS: Not; ten of the members had an opportunity to
comment during that...
MR. POURCHOT: I'm still concerned a little bit on the composite
scenario about phasing it. I don't understand how we moved. I
thought we needed more money and that's why the income tax I had
always envisioned is coming in at 00 or 01 as opposed to 03. I
also don't understand still, maybe let Steve, the flow of money
from the earnings reserve and the interaction with the reserves in
general as reserves as contributors in early stages to the deficit
and then phasing out. And I've somehow -- this may be just my
understanding of the numbers, I think we've - my mind I've lost
track of early on use of reserves trickling out and entering some
steady state as a rainy day account, period. On the endowment
scenario, you know, the whole thing of the endowment to me is...
REPRESENTATIVE PARNELL: Pat, can I just interrupt?
MR. POURCHOT: Ya.
REPRESENTATIVE PARNELL: When you're speaking of endowment
scenario, what are you referring to?
CHAIRMAN ROGERS: Endowment scenario (indisc.) September 29.
SENATOR RIEGER: Do you have that?
REPRESENTATIVE PARNELL: I want to know if you're talking about the
Cremo plan, if you're talking about (indisc.) endowment.
MR. POURCHOT: This (indisc.) 4 percent endowment and it seems like
there is three components that are really - can be separated and
we've kind of intermixed em all the time. One is the mechanics -
the endowment and there you have these issues of 4 percent, 3.5
percent. How much is too much, too small? And it's troubling to
me. I don't have a problem with the endowment per se, in fact
several years ago I went before the Permanent Fund Board, you know,
tried to get em to move in that direction but the percentage -- if
a percentage goes into the constitution, boy that just strikes me
as not the way to go. You'll never out-guess reality. You'll
never anticipate whether that's too little, too much, things
change. The world changes and the 4 percent may be conservative,
may be too conservative. I just think in the constitutional
amendment, you've gotta get away from percentages and I would think
that if you want to be conservative, you could even take something
like, "Shall be a quarter of a percent below the ten year real
earnings of the fund," and then it's recalculated every year to
what the last ten years were. But real live endowments don't -
they reassess all the time and they change their payout.
CHAIRMAN ROGERS: And we'd be able to do that every two years.
UNIDENTIFIED SPEAKER (Male): (Indisc.)
MR. POURCHOT: My point exactly (indisc.) the constitution.
MR. LUDWIG: I doubt the endowments when they make changes or make
it much more than a quarter percent. So why couldn't you give a
percent or a percent and a half range? Do it that way.
SENATOR RIEGER: We'd go to the max all the time.
MR. POURCHOT: And then the other component, of course, is the PFDs
and, you know, that should remain somewhat a legislative
prerogative right? I mean in a way we're just kind of quibbling
about what the ramping down or what the ramping should be on that.
That seems like that doesn't happen quite so debatable a point.
And that - there is - there should be more flexibility in the
amount of dividends over 10 or 15 years.
CHAIRMAN ROGERS: I thought I heard pretty strong consensus for
bringing the dividend level down to $700.
MR. POURCHOT: I'm not disagreeing with that, I mean, but....
TAPE 4, SIDE B
CHAIRMAN ROGERS: ...it is, so how does it factor into the plan?
MR. POURCHOT: Well if we factor it into our plan, I'm just saying
you've got to recognize that that's a flexible one.
CHAIRMAN ROGERS: So is everything else (indisc.)
MR. POURCHOT: Not 4 percent when it's in your constitution.
That's not flexible. That's - I mean - that's - I'm trying to --
There is two very different things here as part of the endowment
plan. And the third part, which is kind of a separate topic, which
is what you do with your reserves. What do you do with your
constitutional budget reserve? You know, that can be as dramatic
as repealing the whole CPR and just taking that one line out of it
so it's any back tax settlements or settlements go into the
permanent fund corpus period, or you can just be left alone and you
could do some of these other combinations that are on the plan for
periodic withdraws or use of the reserve. But if you do your
dramatic effect to do away with it, that solves actually a lot of
problems. But there is a remaining issue, I think, of rainy day
account. You also would like to do something the earnings reserve,
you know, you have to address your rainy day component of this in
some way. I don't think you'd be unwise to have no reserve or if
your reserve is completely incorporated into the corpus of your
permanent fund then you're back to the constitutional issues.
SENATOR RIEGER: If you're getting ready to break just to (indisc.)
out my past point (indisc.). I'd just like people to look at
something that (indisc.) just to flesh out, my objection go around
the room. But I just asked what would happen if you didn't use the
income tax money to raise income tax to make those extra deposits
into the permanent fund. You end up with, in the year 2010, $5
billion in reserves and never giving an income tax. And I'd like
people just look at what those numbers show and we've done so many
other taxes and budget cuts and, you know, everything. That's why
I say it's, you know, why I've said I've had some heartburn. So,
again, what I did here, except for the billion dollars we just
plugged into 496, I cut out all transfers from reserve accounts to
the permanent fund corpus and cut out all income taxes just to see
what the numbers would look like.
CHAIRMAN ROGERS: And the permanent fund is $9 billion less.
SENATOR RIEGER: Or whatever, ya, 529. I have thirty-four -- I
show thirty-four two verses twenty-nine five. That's not 9.
CHAIRMAN ROGERS: O.K., I was looking at it compared to the
endowment. You have $5 billion less.
SENATOR RIEGER: Ya, 4.5 and you have $5 billion in reserves. I
mean the difference is it's in the corpus of one, not in the other.
MS. BRADY: And this is gonna be the issue. This is the issue
about whether or not -- and then, of course, if you need to spend
more then you'd do an income tax or I guess we'd cut it from the
earnings reserve fund.
CHAIRMAN ROGERS: I guess the problem I have with that is unless we
make some substantial deposits to the permanent fund, we have not
replaced oil as a revenue source and I think that I agree with Lee
that there should be a strong goal of building a permanent fund
that becomes the revenue source that supplants oil as oil
disappears. I think that was what the framers of that amendment
wanted when they wrote it for the voters in 76. I think (indisc.)
what the debate was over the permanent fund constitutional
amendment. A lot of the discussion was we need something for when
the oil runs out and I think that a $5 billion difference or a $3
billion difference, whatever we can do to build that is important,
and under an endowment scenario we might want to reduce the payout
below 4 percent, you know, go even lower or raise the percentage of
funds of royalties dedicated to the permanent fund to try to bulk
up the fund so that it does that. And I have real heartburn with
making major budget cuts, major reductions in a dividend without
hearing it, without further diversification of revenue sources. We
heard from Standard Poors the advantage of an income tax, it
diversifies your revenue sources. It's less volatility in your
avenues and that's been -- you know, one of our big problems is
volatility and a - the composite scenario projection has volatility
earnings and volatility of oil prices and it's a percentage of our
total income. Most of it is volatile. To the extend you bring in
things like income tax and move to an endowment plan whatever the
pay out rate may be, you reduce the portion of our budget that's
supported by volatile revenues. I think that's part of planning
for the future. Judy.
MS. BRADY: Well you still have a big - you still have a $4 billion
(indisc.) an imbalance in the constitution budget reserve fund and
you're about at the place the permanent fund an imbalance that
we've talked about over the years so just don't - we're not
hurrying along the same place that we would be ordinarily. There
is a couple interesting things to think about, of course all we
think about, and I'm not - you know I'm still thinking it through
but there is a huge -- well there is a line of thinking that says,
"We're lucky to have the permanent fund, we're glad we did that so
we'll have some of that will come into the general fund through the
years," but then also we should be a state who really like the
state, you know, like other states we keep saying we want to be,
then we should be doing things to encourage further economic
development so that that's taxed in terms of corporate tax or
royalties or if it's natural resources that increase the revenues
up here so that, you know, you keep throwing money - you keep
having money come in from other sources as well. At least at the
corporate level and more and more and more shift state funds to the
local level who will pick up that in the local taxes. But just to
say we're gonna be static and the only think that's gonna save us
is to have the same amount of money from the permanent fund as we
have from oil is a little tough too. I just think it's interesting
that we have all these choices. What I heard -- I'll tell you what
was most disturbing to hear the first thing out of their mouths -
Standard and Poors say, "Well the budget line is pretty flat to be
able to do that." Whoa. Isn't it neat though that we have all
these choices? I mean I don't think there is a state in the union
that could look at this and say, "Wow - neat choices."
CHAIRMAN ROGERS: I think following up on what Pat and Steve have
said, tonight's discussion probably should focus on these big
building blocks and their interrelationship because if if we can't
agree on the big building part - I think we know what each of the
blocks are now. We know what the spending cuts are generally, we
know what the package of small revenues are and roughly when we
want them and then -- well we've got the big building blocks and
how they arrange and I think that would be the most constructive of
tonight and then we can run some more models tomorrow morning and
see the effects.
MS. BRADY: Did we agree to work tonight? I know it was on, I
thought we were not going to.
CHAIRMAN ROGERS: If we don't work tonight then we can work
tomorrow night instead. I think unless we can get through the big
building blocks discussion, we don't get any new scenarios.
MS. BRADY: Well we pretty well can work out the scenarios just
from - I mean the scenarios work pretty fast. Why don't we decide
that we were gonna finish the big building block thing by 10:30
tomorrow and everybody just gotta come in knowing that we're going
to do that. We're gonna stop going round and round and round,
myself worse than anybody say, "Ya, this is what I'll buy into,
lets do it." We all know what the deal is. It's not gonna get any
easier. It's not gonna change. We don't have any new information.
Everybody looks about zombied. You know, think it through, come in
tomorrow morning, settle down and just do it.
MR. LUDWIG: When you talk about building blocks, are you talking
about like when we start an income tax if we have an income tax?
CHAIRMAN ROGERS: Relationship between the issues of CBR of
endowment verses nonendowment, of when and if an income tax comes
in, or another major tax, the mechanics of the CBR verses the
mechanics of PFD, how much we bulk up the permanent fund, if it's
an endowment what the spending rate is. Mike.
MR. O'CONNOR: We've got a lot of plans in front of us. Why don't
we, first thing tomorrow - I mean whenever tonight if we have to do
it, identify one, two and three and these three plans that we've
got and see where this group is. There is no changing on this
plan. You've just got to pick - prioritize one, two and three.
MS. BRADY: The only thing I need is I need the people who talk
about the plan a whole lot better than I do and understand it - is
to go through like the endowment scenario and the composite
scenario again and then I guess Steve's third piece and talk
exactly about what the differences are because sometimes I
understand it entirely and other times I lose it again about what
the advantages and disadvantages of each are in terms of what one
might accomplish better than the other and why. You know because
I -- both the numbers are kind of the same.
CHAIRMAN ROGERS: Mike.
MR. O'CONNOR: Isn't the biggest difference of these two endowment
and composite scenario or even Steve's that constitutional budget
reserve is off the table and there is a limit to the amount of
spending that can be made in the endowment plan.
MR. LUDWIG: (Indisc.) that comes out of the revenue which is a
limit on spending.
MR. O'CONNOR: Well I know but they work the same. You can only
get X amount of money out of this thing so it goes up here and then
Y is all you can spend unless you tax more, change the
constitution. Steve's plan, the problem is there is $4 billion
that can fill that gap with a two-thirds vote.
CHAIRMAN ROGERS: I think there are other pieces beyond that and I
think there are other arguments beyond that that we ought to take
the time to make and not try to do it this very minute. I'll leave
it up to the -- certainly up to the commission whether the group
wants to meet tonight. I think all of us are tired and would
prefer not to meet. But the question is does that force us to meet
Sunday night? I mean do we make it or not? And it comes down to
a collective judgement of how quickly we can work. I think back
to where we were at 10:30 - 10:00 this morning and figure that's
about the rate of progress that we make in this group. It's from
here to a complete report or complete enough report to go on TV
with the governor and the legislature. Is tomorrow and Sunday
enough time or will we need one or more evenings?
REPRESENTATIVE PARNELL: I think it may be enough time if we leave
here defining the "building blocks," in defining a process that you
think we should call (indisc.). And the reason I say that is we're
already talking about an endowment plan but did I miss a vote of
whether or not another endowment -- I mean is that part of the
discussion on this? I don't think that we know what the parameters
or what the building blocks are and if we defined those parameters,
we might then know whether we're gonna make it by working Saturday
and Sunday because we all kind of have fuzzy building blocks in our
head I think.
CHAIRMAN ROGERS: I think that you'll find that the problem with
trying to clarify what the building block are is that's really the
kind of process that it takes us to decide because if they become
more clear, adjustments get made. And you know for example, I've
seen some changes I'd like to make and I'm one of the advocates of
the endowment approach with a fixed rate but after talking with
Hugh, I saw a couple of other pieces that we may wish to consider.
REPRESENTATIVE PARNELL: Did the commission already move when I was
gone today that the endowment approach under Robert Cremo's
scenario is not something that we want to pursue.
CHAIRMAN ROGERS: I haven't seen anybody propose - show a set of
numbers that comes anywhere close to balancing in either a five,
ten or fifteen year with Roger's plan. If anybody can produce
that, I think we can put that out but both the composite and the 4
percent endowment we can show a scenario that balances with the
five and ten year point.
REPRESENTATIVE PARNELL: So right now we're down to three plans
basically is where we are.
CHAIRMAN ROGERS: Unless somebody can show the Cremo plan that
balances at the five, ten year points. And according -- there has
been analysis that Tom Williams did that I disagree in part with
that we show that doesn't make it. But I think somebody who would
be an advocate for a Cremo type plan would have to plug in some
numbers and show what happens. I've tried, I can't get it to work.
MS. MCCONNELL: And we've tried at OMB as well. I mean we have one
scenario to try to do that. It's not that hasn't been pursued.
REPRESENTATIVE PARNELL: Well I just haven't seen it around the
table and I didn't know - I though I was going to get to see some
(indisc.) work on it but I haven't. That may be my own fault more
than...
CHAIRMAN ROGERS: One other are we do need to cover is how were
going to portray federal and other non general funds in our
presentations. That'll require some discussion tomorrow. OMB has
a set of sheets (indisc.).
MS. MCCONNELL: (Indisc.) on taxes today.
CHAIRMAN ROGERS: That's one way of dealing with that issue. It's
not in the spreadsheet, per se, which may turn off some of our
detractors but it does lay out the issue. That's something we need
to cover.
CHAIRMAN ROGERS: How many people don't want to meet tonight.
We'll recess until 8:30 tomorrow morning. For those who voted not
to meet tonight, please be here on time 8:30 tomorrow morning.
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