Legislature(1995 - 1996)
09/30/1995 09:00 AM House LRP
| Audio | Topic |
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
LONG RANGE FINANCIAL PLANNING COMMISSION
September 30, 1995
9:00 a.m.
Legislative Information Office
Anchorage, Alaska
TAPE 1, SIDE A
BRIAN ROGERS, CHAIRMAN: ....depends on what we try to do between
now and 11:00. We've got four people lined up to speak here and
then I'd like us to move to the issue of do we present one plan or
two and if we know -- if the answer to that is two plans, I think
we know what they are and we need to work on both. If it's one, we
would need to vote on which -- whether to take the endowment or the
SB 51 type approach. But before we get to that issue, I have
Annalee, Lee, Pat and Bruce lined up. Annalee is finished.
ANNALEE MCCONNELL: (Indisc.) 45 minutes....
MARY NORDALE: Who's lined up to speak?
CHAIRMAN ROGERS: I've got Annalee, Lee, Pat and Bruce.
MS. NORDALE: No, no, I mean, public testimony.
CHAIRMAN ROGERS: Public testimony -- we've got one person signed
up so -- Jerome Komisar. And at 11 o'clock we've proceed to public
testimony, for as long as that takes. Annalee.
MS. MCCONNELL: Three quick things. One is under the endowment
plan, ANWR bonus payments or any -- any lump sum kinds of payments
would be going where, as you see it now?
CHAIRMAN ROGERS: Under -- under -- as it's written now, an ANWR
bonus - 50 percent would go in the permanent fund and 50 percent
would be available....
MS. NORDALE: To the general.
CHAIRMAN ROGERS: To the general fund. The legislature could
choose then, to deposit more if they wish. I would like to go with
a -- personally -- with a situation like we have now where the
Constitution says at least 25 and legislation says 50. I would
like to have the Constitution say 50 and legislation say 100 or 75,
but give the legislature some choice to address -- pent up capital
demand or something else -- if there were such a bonus. Gas line
revenues from production - 50 percent will go in the fund; from
property taxes it would go to the general fund.
MS. MCCONNELL: Okay. And is there no one -- on the gasline,
there's no sort of one time type thing equivalent to a bonus
payment from ANWR?
CHAIRMAN ROGERS: No.
MS. MCCONNELL: I kind of like the approach of in any year when
we're getting something that's above and beyond the typical royalty
kind of flow, to have at least the encouragement through statute to
do more. I agree on that. The other thing is, I think it would be
good to put into the reserves aspect some repayment mechanism -- I
think that at least the carry forward from the undesignated general
fund should go if the reserves fall below a certain level, so we
maintain a perhaps equivalent to next year's estimate. That we say
that -- that if it falls below next year's estimated endowment
payment or next year's estimated typical oil revenues or something
like that, that we have a provision for them to be paid back. The
third thing is I think....
MS. NORDALE: What would you pay back?
MS. MCCONNELL: Carry forward.
MS. NORDALE: From?
MS. MCCONNELL: ....general fund carry forward -- any surplus year
end balances. I would get out of all the other stuff that
(indisc.) up the CBR or the repayment provision. But that I think
would address your concern about the reserves.
MS. NORDALE: Somewhat.
MS. MCCONNELL: Somewhat, ya. I don't mean that it addresses it
fully, but it -- it (indisc.) deal with an aspect of your concern
there. And the last thing is, I think it's important that people
have the sense that this plan is achievable within a pretty short
time frame and so I would prefer to see if we could bring this up
to balance in the year 2000. I think it does a couple of things;
one, psychologically I think there's sort of a clean slate feeling.
I think stretching it out over -- over six budget years diminishes
some of the immediacy of it and I think -- so I think it would be
beneficial -- we're not having to tune up all that much. It could
be done perhaps by instead of going from 3.5 and then kicking it up
to 4 percent in year 05, you could maybe take it in two steps and
go 3.5, 3.75 and then 4 or something like that. We'll make some
other adjustment, but I think that would go a long way toward not
only helping to sell it, but also keeping the legislature and the
Governor's feet to the fire (indisc.).
CHAIRMAN ROGERS: Lee.
LEE GORSUCH: I want to come back to Mike's point on the issue of
the deferred maintenance. This is a huge accumulated problem
throughout the state and I think there is a way in which the
legislature could put together some kind of bond package that would
over a three to four year period of time, clear out the high
priority deferred maintenance and simultaneously require that the
state budgets bring themselves up to the formula that required
maintenance - whatever that particular facility or building might
be. But I think that's something that is going to have a down
stream impact if we don't address the issue of funds. And it goes
into the -- it can stay within our budget limit in terms that
belongs sort of a debt service obligation over a spread period of
time and it requires the agencies to get themselves to reallocate
within their budgets to bring up to essentially where it should be
in terms of deferred maintenance percentage. But I think we've got
a huge accumulated backlog that needs to be cleared if -- again,
this is going to be in that scenario of reality. I don't see it as
a budget buster, but I do see it as a very realistic way to get a
handle on some downstream impacts by investing in this up-front
with the caveat that those budgets have to be adjusted to make sure
it doesn't begin to reopen again in the outlying years.
CHAIRMAN ROGERS: Pat.
MR. GORSUCH: Oh, and I -- one other -- point out of Annalee's.
And that is that I do think we do need to pay a little more
attention to the repayment for those reserves if they're going to
be maintained. And I have some thoughts on the subject, but I
would defer that conversation to later. But there's got to be a
way to build those reserves back up -- they're just depleted and
they're never replenished.
PAT POURCHOT: I didn't want to let go by any concerns about the
change or proposed change in this from 25 to 50 percent mineral
leases and bonuses. I guess I have concerns with that and there
lies my concern about flexibility, I think, is that by just flat
out reducing the amount of anticipated revenues - general fund
revenues - and I recognize that that's part of the front loading
permanent fund tool. The current system of statutorily taking new
-- 50 percent of new - newer stuff, I think has worked well. I
guess I don't see quite the tradeoff for the point of going back in
and taking Prudhoe Bay revenues up to the 50 percent and depositing
them in the permanent fund. I just don't -- I think that is yet
one more -- (indisc.-coughing) thin line between kind of what Sean
was mentioning -- I didn't quite understand if Sean wanted more
binding on the legislature or if that's kind of a contradictory
feeling within the legislature is how much straitjacketing do --
does the body do to itself for one, but I think to me -- I think it
crosses the line for me. To go back in and put Prudhoe Bay -
increase Prudhoe Bay monies in the permanent fund, I think that
that magnitude that you're looking at there - that $250 million
range - probably exactly is the kind of - size of the figure that
can buy you the flexibility on either increased debt service for GO
bonding or periodic capital expenditures.
CHAIRMAN ROGERS: Certainly, if we wanted to go to 50 that could be
done statutorily instead of constitutionally.
MR. POURCHOT: Right.
CHAIRMAN ROGERS: Bruce.
BRUCE LUDWIG: I had a couple things. I did feel comfortable with
the endowment scenario that you passed out today. Maybe even
guardedly happy with it. I think it addresses a lot of things that
a lot people (indisc.). I think it's the best compromise we've
seen so far. Mike had raised some time ago and I'm surprised I can
still remember, about the permanent fund dividend and the 700 cap,
and we talked about whether to let the legislature increase that
(indisc.) discretion, and I can't argue against that for a couple
reasons. One is -- and I mean, I'm not that familiar with it --
but I know that there's been a lot of mergers and takeovers where -
- where -- for profit motive, where the investors want immediate
returns and it's done things - it's had a different effect on other
people besides the investors - you know it's - it has a real bad
effect on families and workers and stuff like that. (Indisc.-
cough) be also seen, at least in Southeast, and I think it's true
pretty much throughout the state with Native corporations, where
there's been a large outcry on boards to - to put the big dividends
back in the people's individual pockets. And I think you're going
to hear the same thing with the legislature. And I just -- if it's
a fixed payout, whether it's a quarter or 30 percent or whatever it
is, and nondiscretionary, it's not subject to that kind of
pressure.
CHAIRMAN ROGERS: I had earlier intended to move to voting here,
but I got three more people signed up -- Georgianna, Judy, Sean.
SENATOR GEORGIANNA LINCOLN: Mine will be quick. While I have no
argument that we have an unmet need there on deferred maintenance
throughout the state, I would argue against putting it up front,
because we will individually then place our own priority issue in
the scenario; such as village safe water. I don't think anybody
can argue the unmet need out there in Alaska when people are still
carrying, including myself, honey buckets, slop buckets, outhouses,
frozen human waste, human waste that is unfortunately spilled as
they're carrying it to the honey bucket hole, lagoon, in the
streets -- children having hepatitis B, -- the cost that is then
derived to the state, I would argue against putting deferred
maintenance on there, because then I'm going to argue for village
safe water.
CHAIRMAN ROGERS: Judy.
JUDY BRADY: First of all I had a question. If we -- does this
endowment scenario that you -- the latest one -- does that show 50
percent going into the permanent fund?
CHAIRMAN ROGERS: Yes.
MS. BRADY: And -- but the top line doesn't change -- the
general....
CHAIRMAN ROGERS: What -- look at -- the second line is an offset
to the first line.
MS. BRADY: Oh, that's what you were (indisc.). I wasn't following
what -- what was happening there. Okay, so that's the money that -
- okay. So, in some sense, it becomes something of a wash.
CHAIRMAN ROGERS: The -- so the -- the existing general fund
sources instead of a million, nine, ninety seven and ninety eight,
would move to a million, seven fifty three.
MS. BRADY: So, actually we'd only be putting in the difference
between 244 and 667 into the earnings stream.
CHAIRMAN ROGERS: Effectively, yes.
MS. BRADY: So, we're only putting like 300 million more into the
earnings stream then that first year.
CHAIRMAN ROGERS: But it -- it grows because the permanent fund net
earnings grow and the PF deposit declines based on production
declines in fact it grows more substantially.
MS. BRADY: Then I wanted to respond to one comment and it's the
comment about being in a straitjacket -- you know, not having very
-- very -- very much room to move. As a matter of fact, if your --
if your budget is $2.5 billion and we have no dedicated funds, you
have a lot of room to move. The question is - you know - if you
want to take that burden on. So, if we -- you're in nobody's
straitjacket -- the legislature has total ability to move that $2.5
billion. And it's just easier -- in the way we're set up, it's
just easier to add money to each little pot rather than to have to
structurally move so you can -- so you can move money to where you
need it. But that's what we're trying -- that's what's going to
happen one way or the other and we're trying to make it happen in
a way that's more -- you know, smoother for everybody. So, that
would be my comment there. I like this endowment scenario. The
thing I would ask us to take a look at -- and it's not a big deal -
- but as we again, as we look at what we're going to use for the...
the devil's in the details, and Georgianna has pointed out that the
legislature is probably going to change some of this anyway -- but
again, and I know we talked about it last night, what kind of
general fund (indisc.) increases, fishery tax increases, tourism
increases, and other resource taxes -- everything else we could
stand up and say, ya this is what everybody says we'll get and we
can argue that this other stuff is so general that it may take away
from (indisc.). I mean everything else is pretty nailed down and
this is kind of like - figure it out for yourself. So, I don't
mind leaving it in there, I just -- but I -- if I were gonna --
want us to look real, real legitimate, either tag it the way we've
tagged other things or take it out and make it up -- do something
else -- just so we look real tight, you know. But I like this a
lot.
CHAIRMAN ROGERS: Sean.
REPRESENTATIVE PARNELL: I guess I want to clarify my earlier
comments based on (indisc.). I probably didn't articulate it well
enough. I just think if we're going to basically crack the
permanent fund open and use its earnings, I think the public is
going to want some kind restraint on spending. I think that's
what's happening here is that we're sending in a bigger stream of
revenues from the permanent fund into the mix plus we've got some
pretty significant reserves in the budgeted balance. There's no
restraint (indisc.) depending upon faith of the legislature and the
Governor. That's -- I mean that's just a fundamental difference in
philosophy. It's part of this scenario. So that was -- that kind
of goes to the straitjacket issue that if we're going to spend
permanent fund monies on general fund spending then there ought to
be some mechanism of restraint. And I don't see any built in. And
I -- I just -- Mary and I agree, I guess, on concern over a steady
stream of revenues coming in, only for different reasons.
CHAIRMAN ROGERS: Mike O'Connor.
MIKE O'CONNOR: I have just a couple questions on this thing. The
1.7 billion that's been discussed on unrealized gain -- it's no
where to be found on this endowment scenario, right?
CHAIRMAN ROGERS: That's correct.
MR. O'CONNOR: So, none of the potential interest or anything else
from that unrealized gain is in this picture?
CHAIRMAN ROGERS: No, that's not - that's incorrect. And the
reason that's incorrect is that in the upper left-hand corner,
we're using permanent fund earnings at 7.94 percent average. That
7.94 -- Brad, correct me if I'm wrong on this -- that 7.94 is the
average return on book value. So, if we were to put the 2 billion
unrealized gains in, we would have to change that 7.94 percent
number to the average return on market value, which would be lower
than 7.94 percent, so the earnings number should be the same. The
big difference is -- and I think a defect in this version of the
spreadsheet is that if we were doing an endowment pay out of 3.5
percent of market, that the permanent fund net earnings line would
be slightly higher. Want me to run through it again?
MR. O'CONNOR: I think I got it. You're saying you're not....
MR. GORSUCH: The counter argument would be then, how is it we're
getting that low a rate of return on our portfolio?
CHAIRMAN ROGERS: Is that a low rate of return?
MR. GORSUCH: Well, I don't know what it is, we haven't
calculated.... If you dropped it down from....
MR. O'CONNOR: 7.94 (indisc.) lower than that, is pretty low.
CHAIRMAN ROGERS: Well, you'd be at about 7.4, or something like
that I would guess.
MR. O'CONNOR: Compared to any other 10 or 15 year average of
Standard and Poor's or any other, I'd say it's low. But anyway,
that's one question. The other one -- on the revenue -- AHFC --
there was a document, I thought, laying around a long time ago,
saying that they could probably provide $70 million worth of
revenue annually without affecting their -- is that in or out of
this....
CHAIRMAN ROGERS: There was an agreement of 70 million in 96 and 50
million in 97, 98 and 99. This extends that 50 million per year
from -- all the way out, basically. So there's....
MR. O'CONNOR: Fifty million dollars a year....
CHAIRMAN ROGERS: Fifty million dollars a year.
MR. O'CONNOR: That's in there?
CHAIRMAN ROGERS: It's in existing general fund sources....
MR. O'CONNOR: Ya, okay.
CHAIRMAN ROGERS: And it's from our base case scenario. If you
look at -- if you go back to the interim report, that's where that
line shows.
UNIDENTIFIED SPEAKER (male): It's not adjusted (indisc.)?
CHAIRMAN ROGERS: It's not adjusted - it's 50 million nominal
dollars throughout.
UNIDENTIFIED SPEAKER (male): (Indisc.) should be adjusted.
CHAIRMAN ROGERS: And that would be another revenue source we could
add in.
UNIDENTIFIED SPEAKER (male): If we wanted to.
CHAIRMAN ROGERS: Before we move to public comment, I'd like to get
through as many of the -- a couple key decision points. One is
whether we present one plan or two. If it's one plan, is it the
endowment plan or the composite plan and the issue of whether we
want to make a change in the CBR or not. Depending on the answers
to the first two, there will be a subsidiary set of decisions that
need to made on the big building blocks. But the first issue is do
we present one plan that is the commission's recommended plan or do
we present two plans - one using a constitutional route and one
using a statutory route. And I'd be interested in discussion on
the issue of whether it's one or whether it's two that we present
in terms of the strategy of going - going to the legislature, the
Governor and the public. Judy, and then Mike, and then Bruce.
MS. BRADY: I would argue that we present one plan. The
legislature -- we have legislators around the table, we have active
citizens around the table -- if somebody wants to throw another one
in the hoop later on their own, that's fine, but that we do the one
plan.
CHAIRMAN ROGERS: Mike O'Connor.
MR. O'CONNOR: I think before we decide whether one plan or two, we
need to know if we can get to one plan. Because if we can't get
there, there's no sense making that decision.
CHAIRMAN ROGERS: Bruce.
MR. LUDWIG: Mike's got a point, but I'm going to assume we can.
If we come to one plan, and if it's the constitutional plan, it's
going to take everybody -- I mean it's going to take a real focused
effort to get that passed by the legislature and by the public. If
there's two plans on the table and one of them is statutory and one
of them is constitutional, you're going to have a division right
off the bat - you're not going to get the two-thirds and three-
quarters that's required, anywhere for it. So, if we're -- if we
are able to reach an agreement it's going to take compromise on
everybody's part and part of that ought to be buying in to selling
it, you know, or having the ability to sell it. So, I'd argue for
one plan.
CHAIRMAN ROGERS: Annalee, Steve, Mary.
MS. MCCONNELL: I would prefer one plan, but that we put in there
that we believe very strongly that if the constitutional amendment
doesn't pass - assuming that we were to pick the endowment approach
- that we say that there should be an immediate (indisc.-coughing)
to take the SB 51 approach. The alternative would be to shelve
both of them, but (indisc.-coughing) as I did yesterday we had SB
51 passed and then it goes away if the constitutional amendment.
I think maybe a stronger case could be made flipping it. But I
think we should make it clear to everybody that if there isn't the
constitutional change to this, that we still need something pretty
significant pretty quickly.
CHAIRMAN ROGERS: Steve.
SENATOR STEVE RIEGER: I lean toward two plans. I think that first
because it's -- as pointed out -- it's hard to have a plan that
relies on a two-thirds vote of both houses as being the sole thing,
and Annalee's kind of touched on that, too. But I think that the
side by side presentation of two which really have many common
elements shows what you gain and what you lose in the two
approaches and there's some educational value in it, too. So, I
think it's a practical approach to show what would happen if you
have -- what you could do if you had two-thirds vote and what you
could do if you don't, and also it would help in the analysis of
really being proposed and what the real common threads are.
CHAIRMAN ROGERS: Mary.
MS. NORDALE: I opt for two plans. One with the endowment scenario
and one composite, because I think resting the integrity of this
commission's work on a shaky basis of a constitutional amendment is
very dangerous in terms of our ability to persuade the legislature
and the people to accept substantial cuts in spending and increases
in taxes. I think that if we have two approaches, we can persuade
everyone that we're dealing with reality. If we do have only one,
and it's an endowment approach, my feeling is that we will not
persuade either the legislature or the general public, that the
time has come to tighten the belt. And, of course, I don't like
the endowment scenario, so -- and I particularly don't like this
one -- although I do want to compliment you, Brian, for the
thoughtfulness and the effort that went into the preparation for
this and my concern is primarily with (indisc.). But I don't think
we will have accomplished the goal that the people want if we only
come in with something that is going to require such a wrench and
cannot be -- and cannot ultimately accommodate growth and demand.
CHAIRMAN ROGERS: Mike.
REPRESENTATIVE MIKE NAVARRE: I think we should try to focus on one
plan, but at the same time we're going to have to put in
information about the other plan, as long as there -- I would like
to see the major component including income tax put in both of
them. Also, if we can try to track where the -- what happens and
make them as close to equal on the permanent fund. Because
otherwise, what you set up is a conflict between the two plans on
such things as well, this one increases the dividend and this one
doesn't make you pay income taxes. And immediately you -- that
becomes the discussion instead of what really should be the focus -
- and that is a change in the statute -- well, I like actually
either plan because I think it takes us on a road that we need to
be headed on. But as long as we can sort of avoid the conflicts
that might lead to not doing anything, I guess we should try to
focus on one and then putting the information out on both of them,
because it's going to get there anyway, because I think we're sort
of -- I mean I think both sets are going to get there one way or
another anyway. So, if we go with the endowment, people can bring
up the composite. If we go with the composite, people can bring up
the endowment.
CHAIRMAN ROGERS: Georgianna.
SENATOR LINCOLN: I would suggest that we go with one. First of
all I want to say I appreciate Steve's comparison between the
endowment and the composite, and I appreciate the compromise that
he shared with the group of both. But I believe that if we go with
an endowment -- I like including the public in decision making --
and if we have an endowment that requires a constitutional
amendment, it requires us to go out to the public and sell it. And
I like that. I want the public to buy into the plan; that that is
their plan. Whereas, a statutory change - that's just the
legislature saying we are the leaders, we'll do to the people, for
the people. And I don't like that approach. So -- and if we give
us a choice between a statutory or a constitutional approach, I
think that the legislature, personally, will take the easy route
and go with the statutory approach. So, I'm for one and I'd like
to incorporate some of Steve's concern in the endowment plan and I
hope that we can just present one.
CHAIRMAN ROGERS: Pat.
MR. POURCHOT: Mike gave most of what I was going to say, but it
seems like -- I guess what I would like to see is that we do go
back and try to make both plans in in close agreement as possible
in regard to reserves policies, dividends, use of earnings, little
taxes, big taxes, which I think is possible. If they're not, then
I think that Mike pointed out the problem -- you'll choose your
plan on whether or not you like the tax structure or not, or you
like it because it's a higher dividend. I think we want to get
away from that. Then, though, when we kind of mesh these big
elements, then I would see that then you'd kind of frame the next
decision in terms of whether it's a constitutional or statutory
approach and it's probably - would be then a majority - the
conclusion would be a majority of the commission favors this
approach, statutory or constitutional for the following reasons; a
minority would prefer statutory way of achieving it for these
reasons.
CHAIRMAN ROGERS: Lee.
MR. GORSUCH: I think we're moving toward one plan with alternative
approaches. So -- at least the conversations are, we getting these
two different scenarios very close together - and the issue boils
down to, in one approach there's a constitutional requirement that
does impose some discipline and the other is -- that does not and
therefore, has year to year improvisations that have both pros and
cons. So, my own sense is that we ought to see if we can't sort of
one plan that where we've agreed on the plan, that where we've
agreed on the scenarios; two, that we lay out the approaches and
that we come down and recommend one approach for the following
reasons. And it seems to me that the issue on the endowment plan
is an example. It has that one key feature to it which is the
constitutional amendment. The rest of it can be debated every year
the legislature gets together. But what the endowment does is it
does create this sort of sustaining capacity for the offset to oil.
The rest of it you fight out every year in terms of cuts,
dividends, uses of whatever reserves remain, and so forth. So, I
would say see if we can't get together and have one plan, two
approaches, with our recommending one approach -- our preferred
approach which in our conversations appear to be leading towards
the endowment.
CHAIRMAN ROGERS: I agree, I think, with the comments of Annalee
and Mike and disagree, in part, with Lee. I think that presenting
one plan is the best approach in terms of getting the public
focused on issues. I think we have to say that if the plan fails,
that elements of the plan can be adopted anyway. But, I think that
we don't have one plan with two alternative approaches. I think
that the -- there are fundamental differences between the endowment
and the - the composite that make them -- they have the same groups
of elements, but that doesn't make them the same plan. Because of
the discipline, the sustainability and the limitation of volatility
in the -- that the endowment offers and because of the flexibility
and tie to performance -- greater tie to performance that the
composite offers. And I think they're different enough in their
fundamentals that even though the elements of income and the
elements and expenditure are similar, it's not the same plan with
two approaches; but two different plans with a group of similar
elements. Annalee and then Steve.
MS. MCCONNELL: As Mike pointed out we do have right now the
dividend amounts being different under the two plans which could in
and of itself drive a whole bunch of public conversation. And I
guess this is -- part would be a question to Steve, at least for
starters, and that is whether there would - whether you think there
might be some advantage in adjusting the - the dividend payment
amount in the approach that you had originally suggested. So, that
we end up with something that's more comparable or we likewise
adjust our endowment so that the differences don't fall on that one
area because we've pretty much taken care of all the other elements
now being pretty much the same in terms of individual items of
taxation and individual items of spending levels and so on. I
agree with you that there's still some fundamental differences in
the nature of how we do the permanent fund earnings, but....
SENATOR RIEGER: Ya, I was kind of persuaded by Lee's argument that
you probably can bring all the elements together to where it is one
plan with two approaches and because some of those fundamental
differences can be reconciled to make them the same. As far as the
fiscal elements of how you close the gap, they can be brought close
and that might be a reasonable way to approach it to say it's one
plan with two approaches; one constitutional and one statutory.
You know, clearly a constitutional approach is more disciplined in
and by its definition, but that's - I don't think it's a
fundamentally different plan. Maybe it is (indisc.) whatever. I
think what Annalee is saying, you know, you can probably make the
dividend formula the same - you could - I mean right now they're
different. Just like you could make the payoff rule the same. You
could make the endowment approach be a five year average minus
inflation times 50 percent, which would be SB 51 again. So, that
might be a reasonable way to say that there's one plan but there's
two approaches to getting (indisc.).
MR. LUDWIG: What about income tax?
SENATOR RIEGER: Well, the way I see it, there's only consensus out
five years or ten years or somewhere in there. And then there's
that two or three or four way fork in the road and I don't think
that we're going to be able to say that we have one plan from that
point no matter what we do. I mean, at that point you point to
four possible ways to continue to close the gap and it shows on
these graphs, even this one that's called the Rieger revision. You
always have the tools to close it in a variety of ways - either you
cut dividends more, or you cut spending more or you raise an income
tax or you find out that there were new revenues you hadn't counted
on because there's time lag chipping in royalties and there's ANWR
development or some combination. And I think that - I think that
to go into that era and make that decision now in a plan - in a
single plan will kind of detract from the report (indisc.) and
there's just too much unknowns out there and there's too many
philosophical differences amongst the commission, so I think - I
still think there's one plan up to a point where you make that next
fork in the road - whether it's the five plan or the eight year
plan or whatever. And then we have to say, here's the road you can
go on - they all work, but it's too far out for us to say this is
what we're gonna say the state should do out there. But I think
it's very comforting that there's a variety of ways that you still
can close the gap and that we've identified them.
CHAIRMAN ROGERS: Mike.
REPRESENTATIVE NAVARRE: I agree that there are fundamental
differences in the two approaches. I just wanted, Brian, to make
sure that both of them included out five years or whatever an
income tax, both of them assumed a certain level of dividends, if
possible, and then all of these things level much of that
flexibility to the legislature anyway. Both of - in both of the
plans, unless you set up a flat amount for dividends, they leave
some discretion to the legislature in all of them depending on what
choices you make affect all the other numbers. And we should also
assume that - or attempt to assume - that growth in the permanent
fund is going to attempt to be relatively the same.
CHAIRMAN ROGERS: Lee and then Mike.
MR. GORSUCH: What's important to me is that -- is that we would
not want to communicate to the public that if in fact they were to
adopt the constitutional amendment it means the plan goes into
effect. The only thing that goes into effect is the constitutional
amendment. So the only way the public really gets a voice in this
is if they get a chance to vote directly on the question of the
constitutional amendment. And I think that has a lot of admirable
qualities to it, because it means the legislature still has to
fight out the issue about the taxes, cuts and use of dividends.
But the one thing that they're assured of is that that savings
account is offsetting oil and therefore that debate can go on at
the appropriate level. And that's - that's why I think the
endowment has some superiority is that it does offer that one
opportunity for the voters to come in and take some money off the
table, but still leaves open the - all the kinds of debates that we
have. But I think it's going to be tricky because to the extent
that the voters think when they adopt the endowment (indisc.-
coughing) that they're necessarily adopting the dividend level, a
tax level, a cut level -is going to misrepresent what they're going
to necessarily get when they vote on the constitutional amendment.
So, I am a little concerned about their perceptions that they're
buying a plan, when really what they're going to be buying is a
constitutional amendment and then the legislature still has to work
out the plan.
CHAIRMAN ROGERS: Mike, Judy - Mike O'Connor - Judy, Mike Navarre
and then we are at the time set for public testimony. I'd like to
see if we could close out this issue of the one versus two versus
one with two before we move to public testimony.
MR. O'CONNOR: Well, if we try to do what Mike has said and
equalize the taxes and permanent fund, it still seems like there's
a heck of a difference between the out years and 2010 with the
balance of the fund. One is 29 million even with 5 million in
reserves is only 34, and the other is 40 and I can't quite add up
income tax and get there or subtract dividends and get there.
That's $6 billion and it isn't coming from either of those two
sources, so that's one thing to look at that's worth finding out.
Because if you can get that closer, that's Bruce's grand kids
trying to figure out how to stay in Alaska.
CHAIRMAN ROGERS: Judy.
MS. BRADY: Well, I think what we need to do is just concentrate on
what we think about the plan and then - and then concern ourselves
about the fact that, you know, what the public will think and how
we can sell it later. I mean, let's just make sure that we can all
say yes, I agree with this, or agree with this, or if we can't,
then we do a little minority report or however we do it. But get
this -- there's a huge difference in my mind between a
constitutional endowment scenario that takes a whole lot of money
off the table and - and limits you to whatever you have to spend
plus a little flexibility in reserves. (Indisc.-coughing)
flexibility in what you have to pay out (indisc.) constitutional
for the dividend - I'd like to give some flexibility, but I'd like
to give limited flexibility. So - but I think we just need to go
and move forward - vote and (indisc.) from there.
REPRESENTATIVE NAVARRE: The reason I like the endowment scenario
has been discussed a little bit and that is that when you go out to
the public debate about whether or not to support it, you talk
about all these other provisions in this plan. You talk about the
fact that this needs taxes, period. Whether - whether you get any
of them in this legislative session or not, if you - you adopt the
endowment scenario, you - there are going to be taxes and there
will be debate about what those taxes are and it makes easier the
legislative task of implementing whatever they are, because the
public will know - this debate will take place on the endowment -
not entirely, but the debate for the most part will take place and
the public and education about the fact that there is going to be
taxes and the reason we need taxes (indisc.) taking place. That's
really the - and that's why I think that they - we should try to
make them as equal as possible because that's going to be debated
and determined by what the legislature does and if they don't do a
certain level of one, they have to increase the others. And that's
politics.
CHAIRMAN ROGERS: It seems to me in terms of voting, we have about
four choices - vote on them, drop one, vote on them, drop one, and
then vote on the final two. One choice would be to come forward
with a single plan and say this is the plan we endorse. A second
is to come forward with two plans and say these are the two choices
we're putting forward to the public. A third is to characterize it
as a single plan with two approaches. And a fourth is to put
forward a plan and say if this plan fails, here's a - here are a
series of backup choices. So, we got one plan, two plans, a plan
with two approaches, or a plan with a backup plan. And if you have
to choose from one of those four, how many would favor putting
forward one plan? One, two, three, four, five, six, seven. How
many would favor putting forward two plans?
UNIDENTIFIED SPEAKER (male): What was the third and fourth
choices?
CHAIRMAN ROGERS: The third choice is one plan with two approaches
and the fourth is one plan with a backup plan. How many would
favor two plans? Two. How many would favor one plan with two
approaches? One, two, three. And how many would favor one plan
with a backup plan? One, two, three. Okay, we're going to drop
two plans from the voting and vote again. Now we have one plan,
one plan with two approaches or one plan with a backup plan. Hugh,
you're troubled.
HUGH MOTLEY: Ya, I'm troubled because I - I sit here and listen
and I'm afraid my silence may be misleading someone in that none of
the plans we're considering are plans that I think solve the
problem of volatility, sustainability of spending and I'm still
troubled by the - I know there's another $400 million drop in oil
revenues in the year 2011 alone. Now, I realize this is only a
projection, but in fact, I think either one of these plans if we
take them out in public, we're saying this - they're assuming we're
going to fix the problem - and I really don't believe we've fixed
the problem. (Indisc.-coughing) spending is still too high. So,
I'm here voting when I'm not being totally open and honest; I don't
see a plan here that does - that solves my problem. If I'm
deceiving you, I don't want to do that. I'd almost rather not vote
than say (indisc.) if you put out two, I don't like either one of
them, because I don't think it does it. I do like some things
about the endowment plan. Just to be totally honest - it does put
some constraints on spending that are not there in the other plan.
But it carries a connotation that it fixes things and it really
doesn't fix things. We can't sustain the level of spending that we
have today, that we briefly cut, and then it just continues to go
up. And even just in nominal terms, we can't afford the nominal
term increase in spending. Maybe I shouldn't even vote.
MR. POURCHOT: You mean these don't work - the charts don't work?
MR. MOTLEY: In my opinion, they don't work. In my opinion, they
don't solve the problem of volatility and they don't solve the
problem of spending. I think the spending needed to be cut more
and I think we need to be starting from a much lower base and
recognize that we have to live within our means. So, I'm just
being -- before I vote you need to know where I'm coming from. I
can't help where I'm coming from.
CHAIRMAN ROGERS: Bruce, Judy, Annalee before we vote.
MR. LUDWIG: We all kind of have our own ideas on how we ought to
deal with it for what period and all that, but I go back to the
resolution creating this. The resolution says we do a 3, 5, and a
10 year plan - it doesn't say 16 years. It says 10 years is the
maximum (indisc.-coughing) and it says a plan. It doesn't say two
plans. It doesn't say plan with a backup....
TAPE 1, SIDE B
REPRESENTATIVE NAVARRE: ....a limit on spending, and it doesn't
say that you can't go below that and I think that the debate is
going to be and already has been - if you're talking about
implementing taxes in order to support this level of spending, then
the choice is always going to be reduce spending or increasing
taxes. So, that part of the debate is not ever going to go away.
(Indisc.) I just think that you have a tough time getting below
this spending level and that's not because I'm not (indisc.) I just
been trying to do it for a long time and it's - it's very
difficult.
CHAIRMAN ROGERS: Voting between one plan -- characterizing our
report as one plan, one plan with two approaches, or one plan with
a backup plan, how many favor one plan? One, two, three, four,
five, six, seven, eight....
MS. BRADY: Wait a minute - what did we just vote on?
CHAIRMAN ROGERS: One plan, one plan with two approaches or one
plan with a backup plan.
MS. BRADY: So, this first one was just one plan.
CHAIRMAN ROGERS: One plan.
UNIDENTIFIED SPEAKER (female): And we were not referring to....
CHAIRMAN ROGERS: We would not refer to other approaches or a
backup plan. How many vote for one plan? I need to recount. One,
two, three, four, five, six, seven, eight. How many one plan with
two approaches? Four. And how many one plan with a backup plan.
And who didn't vote? No, that's everybody okay. So, we're going
to go forward with a single plan. Now the question is, do we go
forward with an endowment plan....
UNIDENTIFIED SPEAKER (male): We need eight.
CHAIRMAN ROGERS: It's eight....
UNIDENTIFIED SPEAKER (male): There was eight.
CHAIRMAN ROGERS: Eight for one plan, four for one plan with two
approaches, three for one plan with a backup plan.
UNIDENTIFIED SPEAKER (male): Now we drop the low one and vote on
the other two?
(Laughter)
CHAIRMAN ROGERS: That's actually a good idea - that's -- ya,
that's -- we can see....
UNIDENTIFIED SPEAKER (female): (Indisc.) about majority? What
ever happened to that being a....
MR. GORSUCH: Because we started out with four plans, we dropped
the low one, and voted on the other three. Now we drop the....
UNIDENTIFIED SPEAKER (male): Constitutional amendment's involved.
MR. GORSUCH: I just want to be on the winning side.
(Laughter)
CHAIRMAN ROGERS: Okay, notice of reconsideration has been given.
By two-thirds vote, we can bring up immediate notice of
reconsideration. How many favor one plan?
UNIDENTIFIED SPEAKER (male): What's the other choice?
CHAIRMAN ROGERS: One plan with two approaches. One, two, three,
four, five, six....
(Laughter and chatter)
CHAIRMAN ROGERS: Do people think we need more discussion on
endowment versus composite before voting if that's the one plan, or
are we ready to vote on which approach? How many....
MARIE WESTFALL: Just a minute. Could we just clear up for
everybody - are we voting for the composite scenario or the Rieger
revision composite scenario?
CHAIRMAN ROGERS: On the two -- within whatever approach we choose,
we then have a series of decision about - on the endowment it would
be a spending rate, what we do with the CBR, what we do with income
tax and other things. Within the composite, it would be what
percentage to the general fund, what dividend rate, et cetera.
It's just which of the two plans (indisc.-coughing).
UNIDENTIFIED SPEAKER (male): And the numbers in both cases can
still be tinkered with.
CHAIRMAN ROGERS: Well, no we only need to do it with the one plan
we're working on after this.
UNIDENTIFIED SPEAKER (male): I mean - ya but....
CHAIRMAN ROGERS: Ya....
MR. GORSUCH: You're not necessarily buying....
CHAIRMAN ROGERS: No, you're not buying my endowment scenario or
any other particular endowment scenario, if you're voting
endowment. It's just do we do an endowment constitutional
amendment and then we have to work out the details if we're going
to do it, or do we go with the nonconstitutional composite approach
and work out the details for that.
MS. MCCONNELL: Assuming that somebody in the state of Alaska will
ask of the question what if the constitutional amendment fails, if
we take the approach of just saying one plan, how would we address
that - not necessarily the written materials, but what inevitably
will be the questions that come from the audience, reporters,
groups we speak to. Because that might affect how I would....
(Discussion indiscernible).
CHAIRMAN ROGERS: So, you -- the question is using a constitutional
endowment approach or using a statutory approach.
MR. POURCHOT: And if we lose on the details of the endowment, we
can drop back to the other one?
(Laughter)
CHAIRMAN ROGERS: If you lose on the details, you can be in the
minority on the final report.
MR. POURCHOT: It does make a difference. There are some details
that makes a big difference.
MS. BRADY: It does. There are some details here that I'm voting
for as part of the package.
CHAIRMAN ROGERS: The problem is given about seven hours left of
our work, if we have to keep working on both plans before we
finally decide, we're -- we're trying to stay on two tracks at once
and....
UNIDENTIFIED SPEAKER (male): We don't have time, ya.
CHAIRMAN ROGERS: So, I'm trying to limit which one we work on,
recognizing that, you know, I'm going to go for one of them. But
if it comes out with some details I don't like, I'm probably going
to vote against the final plan. (Indisc.) then we have to go back
and start -- then we work until midnight.
(Laughter and chatter)
UNIDENTIFIED SPEAKER (male): But the question is constitutional or
statutory. I mean, we're not saying that anything is on the table
at the moment even though we know that there are only two....
UNIDENTIFIED SPEAKER (male): There's some commonalities, already.
CHAIRMAN ROGERS: And I think we have some general themes. Since
this isn't going to work, we'll proceed to public testimony. And
then we'll break for lunch, and we'll figure out how the hell we
can get through this.
SENATOR LINCOLN: I think it's good work. I think we should just
vote on it.
Note: Too many people talking at the same time to discern who is
saying what.
CHAIRMAN ROGERS: Let's go to public testimony. I -- I -- Now I'm
not.
UNIDENTIFIED SPEAKER (female): Why don't we just vote on what we
have and then we can just tinker with the details.
UNIDENTIFIED SPEAKER (female): Yes, that's what....
UNIDENTIFIED SPEAKER (female): Vote on what we've got in front of
us and tinker with the details after lunch - after the one we vote
on.
MR. LUDWIG: Do you need a motion to overcome the reluctance of the
chair?
(Laughter)
CHAIRMAN ROGERS: Well, I guess if we're voting on something close
to the two, I think the current composite unfairly portrays what
the final composite is likely to look like. And maybe that's good
because I favor the endowment plan, but....
MS. BRADY: Ya, but we know we're going to change things pretty
much anyway. I mean we all kind of assume that, don't we, that
we're going to equalize some of the things so it wouldn't be that
kind of issue.
SENATOR LINCOLN: And I would just suggest that for those
testifying, I think it would be nice for them to know which
direction this committee is going in. And I think we're ready....
CHAIRMAN ROGERS: Are you ready for a straw poll (LAUGHTER) on
endowment versus composite.
Note: Several of the commission members responded in the
affirmative.
CHAIRMAN ROGERS: Okay.
SENATOR RIEGER: It is a totally different question than whether
you do one or two plans.
CHAIRMAN ROGERS: Well, we already voted on one plan.
SENATOR RIEGER: I thought -- I thought (indisc.).
UNIDENTIFIED SPEAKER (male): He wants to switch his vote from one
plan with something to one plan with....
CHAIRMAN ROGERS: A majority of this commission voted for one plan.
UNIDENTIFIED SPEAKER (male): It started out with one procedure....
UNIDENTIFIED SPEAKER (male): But we did have the eight votes....
CHAIRMAN ROGERS: There were eight votes. That's why we didn't
need....
UNIDENTIFIED SPEAKER (female): Question.
CHAIRMAN ROGERS: Straw poll on the question of endowment versus
composite. All those who favor composite, please raise your hand.
And how many favor endowment? Thirteen endowment, one composite,
one abstention.
MR. O'CONNOR: Then why did you not want to call for a vote?
SENATOR LINCOLN: Moving along.
UNIDENTIFIED SPEAKER (female): You didn't (indisc.), did ya?
CHAIRMAN ROGERS: I didn't think we were ready to vote.
(Laughter)
CHAIRMAN ROGERS: I think we were ready for a straw vote, but I
don't think we're ready for a final vote. Let's move now to public
testimony. If you can make room for one more chair at this table,
at that end. Okay, the first person, I think, is - the first
member of the public that I saw come in that wants to speak,
president of the university system, Jerry Komisar. Can I have an
indication from the audience how many other people are wanting to
speak. One, two, three. Okay, we'll go with a roughly five minute
or so, but since it's a small group, I'll give some flexibility in
that.
JEROME KOMISAR, President, Statewide Programs & Services,
University of Alaska, Fairbanks: I've prepared a written testimony
that I could read until next Wednesday, which (indisc.). Instead,
I'm going to distribute it. As you know -- I'm going to hold on to
two, the rest can be sent around -- the Board of Regents has been
very interested in the activities of the commission, not only
because of potential impact on the university, but because of their
general interest in the state of Alaska. They - they were ready to
come down with a group, and they still with recommendations to this
commission. There would not be quite as many recommendations as
there are caribou in this state, but it would be close to that
number. I committed myself to come down and to make a presentation
to you and testify, not necessarily to every one of their points,
but I think to some of the major themes that came up within the
regents. In the - in the written testimony, which I hope you have
an opportunity to read. If I was going to suggest how to read it,
I think I'd read the first three paragraphs and the last three
paragraphs and then the middle. The first three paragraphs are a
general thank-you and - and the statement is that - that you're
putting time and effort on what I think and what the board thinks
as the most important problem and major issue facing Alaska. And
I think the board and I certainly want to give my thanks to the
intensity of time that you've put in - into this. The last three
paragraphs was sort of a late thought when I was putting this
together, but over the last three years, we've really seen two
major attempts to force a public dialogue on crucial issues. The
first attempt was President Clinton's attempt to build a health
plan, which fractured on minutia and became hopelessly fragmented.
And the second attempt to get a public dialogue was Republican
Contract for America, which grabbed the public imagination because
all the elements lead to a single theme. And I think - I think
it's imperative that somehow the work of this commission boils down
on just a few items or perhaps a single item. My feeling is that
the contract -- I was going (indisc.) a Contract for Alaska, but I
was talked out of that so I'm using Alaskans to contract with its
own people and - and I think it would be far different from the
federal contract because I think Alaska is in far better shape than
- than the country is and that we have an ability to do things,
largely because of the permanent fund, that the Nation at large,
does not have.
JEROME KOMISAR continued: The single theme, if I was going to try
to develop one for the commission - and the commission's thinking
is certainly far ahead of mine and more knowledgeable than mine -
would be on the issue of deflation. What are the deflationary
impacts of each of the changes that you're thinking of? And you
could set up -- (indisc.) on deflation -- what zaps the energy of
the state -- what takes away from the economic vitality? There
were certain actions that you will -- that you will subscribe that
are going to limit economic activity and there are other actions
that will have less of a negative impact. There may even be some
actions that have no negative impact. And I will try to array the
recommendations on the basis of those that do the greatest harm to
the general economic energy within the state. One of the things
that would do no harm to the economic energy would be discontinuing
putting money into the inflation proofing fund. The inflation
proofing fund has no immediate effect upon the economy of Alaska.
It is questionable if it has a long run effect. In fact my
argument in this piece is that inflation proofing is wonderful if
the schools are well maintained, the potholes are filled, and if
the water is pure. But if you have is diminished basic services in
this state, that inflation proofing is like Nicholas II holding on
the the Czar's jewels. It -- it doesn't really buy you very good
insurance; in fact, it ultimately invites a certain level of
catastrophe. The most deflationary thing that we can do is cut
government expenditure. That's not a - you know - a subterfuge
from - from the liberal element or something that political parties
have put into place; it has to do with complex economic
organizations. There's a certain economic impact to public
expenditures and there's a terrible impact when you cut them.
Capping -- the second thing that would have a deflationary impact;
not as much as - as - as cutting public expenditures, I'm sure
you've discussed this already, is cutting the permanent fund
dividend. That has a deflationary impact, too. Capping the
permanent fund dividend however, does not have a deflationary
impact. And, in fact, if the capping allows you to spend in
certain other ways there is an economic stimulus. One of the
things I recommend to you, if-if-if you look at a permanent fund
dividend of $990, as you have, and you look at its distribution to
the wealthiest Alaskans, you really have issue two checks. You've
issued one check that goes immediately to Washington, D.C. of the
value of $376. Now Washington needs the money, but I don't think
that was the role of the permanent fund. Is there a way of
developing a tax structure, so that element is taken - is taken
aside. My sense is - is really just those. One to thank you and
two to - to appeal to you to try to come down, which you may
already have, to a document that has a certain centrality so it can
be publicly discussed. If it has too many variables and if it is
too fragmented, the kind of public discussion that commission after
commission failed to get in this state I'm afraid may be failed to
get once again. And if it was something such as a single issue, I
would - I would put it on the side of trying stimulate an economy
and - and test every one of your potential actions against that.
But thank you very much. I hope you have to read - to read this
and I must say I - I - when - when the commission was put together,
I was very envious of Lee's appointment. I thought that - that -
that as an economist, as well that I would - I would have loved to
have spent time with the commission. And I see as he gets more
exhausted (indisc.) that I'm very lucky to be in Fairbanks and
beyond that, I'm sure he's making a much better contribution than
I could ever.
MR. GORSUCH: Thank you very much.
MR. KOMISAR: Any questions?
CHAIRMAN ROGERS: Questions from members of the commission?
REPRESENTATIVE NAVARRE: Mr. Chairman.
CHAIRMAN ROGERS: Mike...
REPRESENTATIVE NAVARRE: Thank you.
CHAIRMAN ROGERS: Next is Joan Diamond. Joan is coming up - we did
get also something from the International Association of
Residential and Community Alternatives, but I'll hand it out.
JOAN DIAMOND: I have --I brought some that could be run off, I
just didn't run it off before I came.
CHAIRMAN ROGERS: That's okay. If you want to leave it, we can
make a copy and pass it out.
MS. DIAMOND: My name is Joan Diamond. I'm basically speaking for
myself. I have a background in public health so much of the
information that I'm speaking to has to do with that background.
I'm here in support of increasing alcohol excise tax that's been
proposed in the commission report and also considering some
specific policy - some specific public policy that in the long
range plan for financial stability has a lot to do with looking at
the control of alcohol. That from a public health perspective.
The state costs are so tremendous and to a large degree in response
to state crises response to alcohol use that in taking a look at
the excise tax on alcohol, it has a lot to do with reducing the
cost of government. It's well established that if the price of
alcohol goes up, consumption, associated problems and (indisc.-
coughing) services go down. For long range planning, consider the
following all of which is supported by the Alaska Injury Control
Plan. Raise the alcohol excise tax to reflect the 1995 consumer
price index. The excise tax is not been adjusted for 12 years;
1983 was the last time it was adjusted. The state is losing
millions of dollars in revenue each year. It has never been
indexed for inflation. I think it is the only commodity we have
that has never been indexed. So, indexing it for inflation so that
it keeps pace with all other commodities, as we know as inflation
erodes the actual price from year to year, beer has come to be the
same price as soda price -- or nearly, unless you buy imported
beer. Establish equivalencies for taxing beer, wine and spirits.
After prohibition, spirits were erroneously taxed at a higher level
with the myth that hard liquor was more dangerous than beer. We
know that the amount of alcohol is the same in an ounce of spirits,
a glass of wine and one can of beer. Alaskans consume 12 times
more beer than any other alcohol beverage. Also, give back to the
municipalities the right to tax alcohol at whatever the local level
votes to agree, without restrictions that were established in 1985
that prevent local communities from taxing alcohol at a rate higher
than any other local sales tax. Right now we are inhibited from
doing that. In addition, Medicaid dollars are disappearing. As a
result additional public policy can do a lot to reduce the cost
like mandatory helmet laws, which I know are controversial and
primary enforcement of seat belts. It would go a long way in
reducing the cost of hospitalization, long term care, and the
lifelong SSI or social security payments from injuries on the roads
and highways. We know that helmets and seat belts work and protect
the rest of us from paying for it. Last year in Alaska, one
hospital billed Medicaid $106,000 for a single head injured person
who wasn't wearing a helmet. That's one. This did not include
doctor bills, lab tests as well as all the long range care, the
maintenance, that goes with one brain-damaged young man in the
state of Alaska. The argument that it is a personal right to ride
at my own expense just doesn't fly anymore. Finally, a bill -- a
bill for graduated licenses, which I know is in the legislature
right now for juveniles, is also needed in long term planning.
Since our juveniles cost us the most as they transport themselves
from one injury, whether it's violence to - or unintentional
injury, one injury waiting to happen to another. Juveniles can
earn the responsibility to drive and save us the cost for paying
for the crisis. Any of these measures, I know are controversial
because I've watched them come up and go down, as different
interests fight to keep whatever side they want. What I'm asking
to commission to act -- begin or maybe continue to act in the
public's interest in looking at some of these recommendations.
Thank you.
CHAIRMAN ROGERS: Ms. Diamond, thank you. Were there questions
from any member of the commission?
MS. DIAMOND: The....
CHAIRMAN ROGERS: Georgianna.
SENATOR LINCOLN: It's not a question so much as just a statement
for prevention and all that I really am a believer that we have to
do more in prevention and in the long run it's going to save the
state money. Last year in our prison system, we had one
AIDs victim that cost of the state $876,000. One. And we've got
three in there now. And we need to do more toward the prevention
rather than after the end result.
MS. DIAMOND: So, what does it take to do that?
SENATOR LINCOLN: Well, we have -- I guess more money into
prevention....
MS. DIAMOND: Sometimes I think though people think that prevention
is more money and sometimes it's good public policy.
UNIDENTIFIED SPEAKER (female): Absolutely.
MS. DIAMOND: And we don't need to throw more thousands of dollars
-- I'm not sure people even can see what prevention means. On some
of these measures in terms of pricing alcohol as a prevention
strategy that public health continues to promote. Yet, I mean, we
know everyone sitting at this table, the incredible resistance from
the alcohol industry to keep the price down so that the consumption
can continue at the high rate. Dollars are made when we drink a
lot, not when we drink a little. So, it - it will be a constant
tug of war between who is acting in the public's interest versus
the individual right to live the way we want. And I think it's
going to be a ongoing battle in the state with the Alaskan
mentality, which is I want to do what I want, when I want, how I
want. And maybe as the dollars begin to dwindle and there's this
tug of war, maybe there will be a shift from this public individual
right or private right versus public good. We've swung so far to
individual right, you know, maybe there will be a swing now back
into more moderate thinking and part of public policy is a
preventive way to do it. So, I agree with you. And this document
that I have from you from the state of Alaska is to give you an
idea of some of the costs of just one person hospitalized and it
has nothing to do with long term costs, it has nothing to do with
criminal justice system incarceration; it's only being hospitalized
in the hospital for one person for all sorts of different things.
So, you get an idea of what we're spending for each one of these
people.
CHAIRMAN ROGERS: Steve.
SENATOR RIEGER: Do you think that the right public policy is the
mandatory helmet or the lack of a right to free medical care if
you're injured while not wearing a helmet.
MS. DIAMOND: You're saying one or the other?
SENATOR RIEGER: Ya, I mean if you wanted to prevent that you could
either say you must wear a helmet or b) if you have an accident not
wearing a helmet, head injury, maybe you don't get care.
MS. DIAMOND: We'll never do that though. The American way is to
always -- not to leave a person bleeding on the road. We'll never
do that. We'll never leave that person bleeding on the road.
SENATOR RIEGER: Okay.
MS. DIAMOND: We never will. I mean that's not the American way.
We'll always pick them up and we will take them to the hospital --
I mean we all know that -- we'll never do that. So, you know, for
the people who -- I know the ABATE group that fights so hard
against the helmet law and I know how hard it is on-road and off-
road vehicles, and I know how hard policy is to extend statewide.
I mean I've listened to the arguments and I hear the public
testimonies. I just think that either we get real about our costs
that we put out for people who say I have a right to live the way
I want. Well, that's true if they have those long term costs to
cover themselves. But insurance, whether you pay by your employer,
ends at a certain point and it never goes for long term care.
Sometimes it's cut off at hospitalization early. So, we will
always foot the bill for these young people who feel that throwing
all caution to the wind is their right. Well, it is as long as the
public dollars don't support it. And it always will. So, I guess
from my point of view is, it's a small sacrifice to put a helmet -
I mean, I put a helmet on myself and my kids when they go bike
riding. I feel it's a small sacrifice to - to protect the brain
when you know (indisc.) it will in exchange for reducing the costs
if there is an injury.
CHAIRMAN ROGERS: Mike.
REPRESENTATIVE NAVARRE: I was just going to say that I started out
originally as a supporter of the helmet law, but there are some
good statistics on the other side too that suggest that in many
cases vision impairment from helmets, hearing impairment
potentially from helmets and the additional protection that you may
get in - in accidents, there - there may be a correlation between
the two and - and you heard that testimony also and it boils down
to I guess whose statistics you believe.
MS. DIAMOND: California passed the helmet law in 1990 -- it's been
two yeas -- 1992, they had a 37 percent reduction already the first
year from reduced head injuries. Mostly it's young men.
REPRESENTATIVE NAVARRE: Did they have an increase in accidents,
though with the decrease in head injuries?
MS. DIAMOND: No, they didn't and it's interesting. There's all
sorts of counters to arguments that you're giving about reduced
hearing and all of those kinds of things. I've seen all the
literature and what's interesting as a by-product from California
as a result of the helmet law, they've had a (indisc.) difficult
time getting body parts for their donor organs in the California
program. You know the young men whose hearts and lungs we all
want, if we're the one that needs the organs -- their organ
transplant program has had a substantial decrease that they never
even considered would be a by-product of the helmet law. I know it
sounds silly, but I'm just trying to bring....
CHAIRMAN ROGERS: Well, it's a very graphic example....
Laughter
MS. DIAMOND: ....and I know - I know the research, I know all the
research that's been put forward and it's been refuted over and
over and over again. The best - the best examples are the state's
who have passed it, and we're watching California the best, because
they have the best data for follow-up. Their costs have been cut
substantially. And this is a cost committee - I mean, this is what
you're about.
CHAIRMAN ROGERS: Thank you.
MS. DIAMOND: Thank you very much.
CHAIRMAN ROGERS: Roger Cremo. I've heard that name somewhere
before.
ROGER CREMO: This commission has been very fortunate to have a
chairman who conducted himself so brilliantly, and I really mean
that, throughout -- throughout these many months. Whether he
guided or steered is irrelevant. The fact is he did it
brilliantly. The legislature commissioned you to -- as I read its
directive -- commissioned you to find a way to end unsustainable
spending and to do it in a systemic way - their word, systemic.
Incidentally, the legislature said, that you should come up with
cuts in spending and increases in revenue because obviously
whatever the system there - those things are needed. And also
incidentally, they said tell us what to do for the next three
years, and five years, and ten years and incidentally, they said
tell us what you think of forward funding and the relationship
between the state and the communities -- the local governments.
The main thing they told you was to provide for systemic change
that eliminates - terminates unsustainable spending. I don't think
you've done that and I just want to say so. I don't think you've
done that at all. Sustainable spending is alive in Alaska.
Unsustainable spending is alive in Alaska and it will be alive
after you finish, apparently. And I think that's a great mistake.
I think it's a failure on your part to do what the legislature
asked you to do. Sustainable spending is achieved in - in - in a
civilized government - civilized society by the back pressure, if
you like, that the people exert on the legislature. By the people
-- the people by their resistance to tax, their resistance to not
only confiscatory tax, but to almost any tax, is the great
restraint against - against unsustainable spending. And on the
conventional revenue side of things in Alaska, we have that
restraint -- we have that element of restraint -- we have that
factor at work in Alaska. But we don't have it at work when it
comes to our wealth, because we have wealth -- the other states
don't have it. There is no restraint in the case of wealth. The
people have no say. The legislature can, without any concern about
resistance from the people, can reach into that wealth. I think
your task is, and has been, to take that authority away from the
legislature -- shouldn't have had it in the first place -- they've
wrecked the place using it. Anybody in doubt about that -- I can't
imagine anybody being in doubt about the fact that the legislature,
through its unrestrained spending has caused terrible problems.
Why do you think we're here? That has not been taken away. Sure,
some money has been taken off the table, some accumulated natural
resource revenue -- a pittance in comparison to the billions that
have yet to come through the pipe. Those you've left on the table.
About the only little gouge you took in those -- you said, well
we'll go from 25 percent of -- of -- of the -- the -- excuse me --
at my age, words fail me sometimes --
CHAIRMAN ROGERS: Royalties.
MR. CREMO: Thank you. ...of the royalties, you're moving that up
to 50 percent. That's helpful, but it isn't -- it doesn't solve
things. As long as you leave to an inventive legislature, the
opportunity to pull the natural resources revenues to it and avoid
the permanent fund, it will do so. Our legislature, five years
from now, may put the emphasis on - on the tax -- on the production
tax and take the emphasis off the royalty. Who knows whether to -
to avoid the partial mechanisms that you've set up. They're not
enough -- they're not enough. You haven't taken away -- haven't
provided to the people -- the ones you serve -- you haven't
provided to the people the weapon they need to keep the legislature
from spending and continuing to spend on an unsustainable basis.
I don't care whether the -- whether the natural resource revenues
suddenly drop -- you call it volatility -- or whether over the long
run, they decline because their production changes, or whether they
go up severely, as they will if there's an ANWR, and if there's oil
at ANWR. All those -- all those events cause great strife in
Alaska and will continue to cause great strife because you haven't
provided a way to prevent it.
CHAIRMAN ROGERS: Thank you. Questions. Thank you for your
continuing participation. Representative Finkelstein.
REPRESENTATIVE DAVID FINKELSTEIN: Thank you. I appreciate this
opportunity. I also wanted to express my appreciation to all the
committee members for your hard work. I (indisc.) catching up the
meetings to realize how happy to not be on the committee -- to not
have to be here for all these meetings, but I just want to make a
quick pitch on why I think it's a good idea to move up in your
schedule the income tax. The income tax is a funny issue and I
think people don't really understanding what the average Alaskan
thinks about the income tax. I -- there have been polls and I've
participated in some that show the majority of Alaskans -- majority
of Alaskans don't at this time favor an income tax. But the
experience I've had - and I've had and I've got a fair amount of it
(indisc.) because I was the sponsor of the income tax last year in
the last legislature. The response I get is a significant portion
of people, you know, less than 50 percent, who actually support it
right now -- who hear about it and say, yes, that's a good idea, we
never should have gotten rid of it, we need the money, we've got a
half-billion dollar deficit. And of the remainder of the people,
they're not all opposed to the income tax. What happens when you
discuss things with them, you find they fall into a bunch of
categories. There's a category of people who say yes, we should
have an income tax, but we need to cut the budget more or we need
to cut back on things more. And everyone that says that has a
different perspective of what that means and, you know, different
perspective about whether that's been accomplished. There's a
significant portion of people who say yes, we have to have an
income tax, but not right now. Sort of like they just -- they want
to delay a little bit longer -- but they believe we need it.
There's a significant amount of people who say well, my preference
is a sales tax or my preference is cap the dividend or they name a
bunch of things and they won't pick an income tax on a poll, but it
doesn't mean they're against an income tax. It's just that any
time you get a large group of people, you're going to get different
views on what the priorities are. They believe though that
something has to be done to produce some revenues for the people of
the State of Alaska. It's -- you know, the bottom line of this
issue is, it's still amazing we're not the only the only state in
the country that gives out $1000 to everyone in the state, but
we're the only state with no sales taxes and no income tax. We're
the only state that doesn't rely on its citizens to pay something
for government and I personally think we probably shouldn't ever
gotten rid of the income tax, we should have reduced it to a lower
level and had to increase it, you know, as times required. If we'd
even had it at a small percentage of it originally was, we'd of had
billions of dollars more in the meantime. And I just ask your
consideration as best you can for trying to move that up as far as
you can because the -- I just am convinced the average Alaskan
isn't against paying for government. The average Alaskan accepts
they've got to pay something for government. They may all have a
little bit different take and they may not pick the income tax
right now as their first preference, but I believe from my
experience that most people can accept an income tax in the near
future.
CHAIRMAN ROGERS: Steve.
SENATOR RIEGER: Do you think the average Alaskan would support an
income tax with sole purpose of which is to add more money to the
permanent fund so that there can be more payout beyond the year
2010?
REPRESENTATIVE FINKELSTEIN: I don't know because until you -- you
know -- ask a question, you never find out. I personally support
an income tax under any scenario. I'd support it to pay for garbage
pickup -- I mean -- you know, we just need to get more sources of
money from our citizens and the obvious point of which everyone
here realizes is the reductions in dividends -- which may be
necessary -- but reductions in dividends hurt exclusively Alaskans.
Income tax hits people who are non-Alaskans, as well.
CHAIRMAN ROGERS: I have to respond to Steve's (indisc.), but let
me put it in the form of a question. Do you think it's fair to
characterize an income tax as being put forward for the sole
purpose of putting it into the permanent fund, when it also
provides some diversity of state revenue sources.
Note: The response was indiscernible.
REPRESENTATIVE FINKELSTEIN: Thank you.
CHAIRMAN ROGERS: Did anyone else from the public who wants to
speak? I don't have anyone else signed up.
MR. GORSUCH: I (indisc.) this before Roger left, but it's in
regards to the endowment plan and you know, first is, Roger, I
think I speak for almost everybody in this room when we say
publicly that we hold you in high admiration for your vigilance in
trying to advance the concept that you firmly believe is in
Alaska's long-term interest. And you've been faithfully attending
every meeting that we've been at just because of your concern that
we all try to do what's good for the State of Alaska. So, I wanted
to compliment you for your constant contribution to advance
Alaska's welfare. I did, however, want to share with you and the
other commissioners why I think your endowment is not in the
state's long-term interest. I use by way of a parallel -- first
let me say that I'm not an apologist for the state's spending, but
I would have to argue that this is a better community and a better
state than it was before -- before oil, by a long shot and that
significant efforts have been made once our wanton days in early
80's sort of rein in those kind of expenditures. In part that's
been driven by a fall of petroleum prices, but even as early as
1980's the legislature has been struggling with making voluntary
deposits into the permanent fund and, in fact, almost half of the
principal of the permanent fund is the result of voluntary actions
on the part of the legislature. So, it's not as though nothing has
been done over the years and those efforts continue to be made.
But I genuinely am concerned about the idea of a fully endowed
state spending level. I think this is like inheriting wealth, and
all you do is live off the inheritance. I think it leads to the
wrong kind of economic vitality that President Komisar was
referring to; that is, you don't have to get out and work, you
don't have to find new natural resources to bring additional
revenues into the state's stream, you don't have to be creative,
you can do zero population growth, you can sort of coast on this
endowment because we now have a sustainable level of spending. Why
do we need more sort of cutting down old growth timber, why do need
(indisc.) of ANWR, why do we need a gas pipeline -- we're set,
we're endowed, we don't need more development. I think we've
struck a reasonable balance in which we've tried to bring that
declining oil revenues from a one time -- I think Alaska would be
extraordinarily fortunate if we were to have anything even close to
another ANWR come into the state's picture. This was a once in a
lifetime type of episode and we're now trying to compensate for it.
And I think by trying to go to sort of this offset to the oil
production as a way of creating some stability for Alaska as we
know it, still puts pressure on us to go out and find more natural
resources. It still creates sort of this idea of the appropriate
level of spending depends on how much you want to pay in dividends
and how much you want to collect in taxes. I think that's the kind
of relationship we want to have. We can still have that argument
about the appropriate level of state spending, but you got to pay
for it. But the issue is we can't pull the rug out, just because
oil production is going down. But I don't want to have
disincentives for future resource development, and I know we've
talked about this before and respectfully disagree on the issue.
But I wanted to sort of share with you publicly, I think you've
made a great contribution to my own thinking on this particular
question, and even though I haven't come to the same point that you
have in your advancement, I think the very fact that we have the
endowment on the table, even though only you may see it as a half
a loaf is in part due to the vigilance that you've shown to
continue to try to inject this issue about a some degree of
sustainability and it's on the details where we disagree. But I
wanted to thank you publicly and also explain, in part, why I've
come to the position I have, which is at variance from your own.
CHAIRMAN ROGERS: I'd like to echo your comments in every respect
on that. With every respect.
Note: Indiscernible comments.
CHAIRMAN ROGERS: In terms of our decision matrix, what -- we'll
have a series of decision to make after the lunch break, deal with
how we approach the endowment plan. What I'd like to suggest is a
series of -- of decisions as follows:
First, we deal with the issue of spending rate under the
endowment and the choices would be fixing a percentage or floating
a percentage based on long-term performance. First, we deal with
what rate to fix it at. If we choose the second, what rate to
float it at as a five-year, ten-year, or percent below performance.
Second, we have the issue of changing rate of deposit into the
permanent fund from 25 to 50, or not changing it from 25 to 50.
MR. GORSUCH: Mr. Chairman, on that first one, could Steve and Pat
come back after lunch with a proposal? Would that be too much to
ask?
CHAIRMAN ROGERS: Ya, in terms of running the figures?
MR. GORSUCH: No, no, I think they could -- I think, if I
understood them correctly, they could live with the three and one-
half, they just want to make sure the language in the
constitutional amendment is tied to something other than three and
one-half, even though we use three and one-half for planning
purposes, that's what I understood to be their -- their position.
CHAIRMAN ROGERS: I think we'll have to get into that when we get
into the discussion. The third issue is CBR, whether to eliminate
it or to fix it, and under either one, what and when we dump out of
it into the permanent fund.
The fourth is on the dividends -- whether to go with a formula
dividend, a capped dividend, or a formula with a cap, as I guess
might be Mike's approach. I think those are some of the basic
building blocks. Then we have -- then we'll come back around to
income tax.
MR. POURCHOT: Can I interrupt?
CHAIRMAN ROGERS: Yes.
MR. POURCHOT: This is maybe just a little bit. I don't want
(indisc.). I'd like to ask you to list (indisc.) earnings reserve
account.
CHAIRMAN ROGERS: Okay. Yes, and there is none and we need one.
MR. POURCHOT: ... kind of a harebrained idea, I'd like to just try
out as....
UNIDENTIFIED SPEAKER (male): What'd he say?
CHAIRMAN ROGERS: Permanent fund earnings reserve. So, we have
five major groupings -- decisions under the endowment: Spending
rate; constitutional dedication to the permanent fund of royalties;
constitutional budget reserve; permanent fund dividend; permanent
fund earnings reserve. It's 12 o'clock, let's break until about
1:15. If everybody could be back here on time and then we'll go
into that decision process.
TAPE 2, SIDE A
CHAIRMAN ROGERS: ...from which of those decision we make is then
a second set and maybe a third set. As I understand the argument
so far, the argument for the set percentage is it's economical
(indisc.) the Constitution we can set up -- set a number that we
know is low enough to be safe. The argument for floating is that
we can't perfectly predict what's going on and setting a floating
percentage that's based on five or ten year average still provides
some predictability, but -- but allows us to move with reality and
the argument for a range is that that gives the legislature some
flexibility to set the numbers. The argument against a set
percentage is that it may not recognize reality and doesn't give us
enough flexibility. The argument against floating, I don't know.
And the argument against a range that I've heard expressed is that
whatever the range is, the legislature will pick the highest one on
the range. Are there other arguments than those that people want
to advance for or against any of those three choices before we
vote? Mike and then Lee.
MR. O'CONNOR: Well, a floating range, obviously if you have a bad
year, let's say it was like last year where it was zero, spending
is going to have to go down.
CHAIRMAN ROGERS: But with a float, I think we have to assume that
it's based on long term, like the five year average, the ten year
average or something like that. I think that's what Pat and Steve
who've advanced that idea would say.
SENATOR LINCOLN: Would you explain the range again.
CHAIRMAN ROGERS: The range, I think and Annalee was suggesting
that the draw could be you know, something like not less than three
and one-half not more than four or something like that.
MS. MCCONNELL: But in combo with that, I'd - I'd probably would
still want to tie it to more than just one year at a time. Not
just....
MR. LUDWIG: What do you mean?
MS. MCCONNELL: Instead of having it be as of June 30 of the
previous fiscal year or (indisc.) projected to the end of that
current year that it would be five year average or ten year
average.
MR. LUDWIG: On the float?
CHAIRMAN ROGERS: On the percentage or on the...
MS. MCCONNELL: No, on the range. If you said 3 percent, I still
think there might be some advantage -- I'm nervous about picking
any one day and saying you'd take a percentage of earnings on that
one day.
MR. LUDWIG: I thought -- (indisc.) misunderstanding because I
thought the second range were based on a percentage of the balance.
CHAIRMAN ROGERS: Of the market value, ya.
MS. MCCONNELL: But the market value...
MR. LUDWIG: Or book value. I'm not convinced market is the right
word (indisc.).
CHAIRMAN ROGERS: Byron persuaded me that market is the right way
to go on that. But he's -- by the way, Byron said that he can
bring the permanent fund's investment performance advisors on line,
assuming we can find a telephone line and a speaker phone, if we
want to get into some of that.
MS. MCCONNELL: But you had it pegged to the upcoming fiscal -- so
in other words, you'd make a budget in May, you'd do a flat budget
in May based on a projection
CHAIRMAN ROGERS: Of the final market....
MS. MCCONNELL: .... a month away. Okay.
MR. GORSUCH: You know, my concern about the -- the idea of the
float is it does create then a lot of internal -- potential
internal volatility and pushes the fund into a very conservative
investment portfolio if they are trying to meet what they
politically recognize to be an expectation for state government;
that is, even though the argument is going to be you're independent
to come up with whatever -- whatever your real earnings are. My
guess is that they're going to want to ensure that they keep some
degree of -- of -- of stability and they're going to wind up
becoming much more conservative investments than would otherwise be
the case through the set percentage. The set percentages actually
give them a chance to be of -- in a more balanced arrangement than
I think the -- the float would. And I'm wondering if we couldn't
get to the issue of the -- how should I say -- the inappropriate
judgments or the discontinuity with the performance by you know
building in some kind of statutory audit performance that basically
takes a look at the you know, portfolio with some connection back
to the its real - real earnings. I'm just afraid that the float --
long-term float is going to have some other undesirable
consequences that will introduce more potential instability with
the only way of offsetting is for the trustees to second guess what
that dollar requirement is and as a consequence wind up in very
conservative investments in order to meet what they think the state
is going to need. It puts a real downward picture on that
investment portfolio rather than increased flexibility.
CHAIRMAN ROGERS: I think there are ways to improve any one of
those three if we choose it. On the set percentage, I think to say
instead of, as I wrote it, based on the market value on June 30,
you say on the market value of the previous December 31. And then
it's a known number throughout the legislative session. I think on
the float, if you're looking at saying the pay out is based on 1
percent less than the real -- the average real earnings for the
last five years, that you use a number that builds in a -- a
cushion against some -- some down periods. So, in my way of
thinking either of those were (indisc.) the range doesn't work --
say the lower or upper because (indisc.). Hugh, did you have your
hand up? Okay. Steve and then Bruce.
SENATOR RIEGER: Well, I think that Lee's point is correct although
if it's a five year average, it is really tempered to a great
degree because if you're sitting there and you know that a percent
of your payout is based on what's already passed, it really
diminishes your concern about what you're going on that last 20
percent, whether you're going to yield a 6 percent bond yield or a
potential 2 or 10 percent stock yield. So, I think that it's still
there and I think it's always true that as long as you have people
looking at your performance, you're going to be more nervous when
you're out there in more volatile investments. The best you can do
on that is to do a longer term average. The -- one other point
that I'd raise that doesn't have any financial validity, but it
might have a kind of a perception validity is that, when you talk
about a payout that's based on performance, it's going to be clear
that your payout -- what you're paying out is earnings. When you
talk about a pay out that's based on some value or market value,
the perception is you're paying -- you're taking some money out of
the permanent fund itself and I think it's going to be a harder
sell with -- it's just a semantics thing, but it's going to be a
harder sell to say let's take x percent out of the corpus each year
as opposed to saying let's take some slice of earnings. For what
it's worth, I think it's at least worth considering.
MR. GORSUCH: But you get into -- you get into definitions of real
earnings which is what you're -- it's been hard to explain to the
public -- inflation and what real earnings are, just like what real
dollars are.
MS. BRADY: It's hard to explain, to me.
CHAIRMAN ROGERS: I think people understand if you say we're going
to....
MR. GORSUCH: Three and one-half percent is pretty clear.
CHAIRMAN ROGERS: If you're going to pay out 3 l/2 percent and you
say that on average, that should fully inflation-proof and then
some, there may be some years that we under inflation-proof but
those will be balanced by the ones we over. People will understand
that, I think. But there is the risk in that year that you do dip
in.
MR. LUDWIG: It does require a better explanation or more
explanation.
CHAIRMAN ROGERS: I think real earning requires more explanation.
Bruce.
MR. LUDWIG: There's circumstances where I think range could be
good. You know, Mary's brought up a number of times that if
there's a disaster, and if you could have a trigger of some sort
that was real and objective or population increased by x percent or
some kind of objective disaster measurement could happen where we
could kick it in. I still wouldn't look at more than a quarter of
a percent. I mean I wouldn't - I wouldn't want to have a big --
big range.
MS. BRADY: You know what? I can't follow this conversation real,
real well and I've been dealing with this stuff for a long time, so
I'm assuming like I'm kind of an average citizen -- person -- and
so, but I what - I will listening to when I'm listening to the
conversation is that people who know about the permanent fund agree
that what we did was right even though -- was okay to do -- and was
protecting the fund and was -- that we described it correctly even
if they might have a different idea then I would be willing to buy
into the plan if I hear people who understand (indisc.) about the
fund saying we did it wrong, we didn't understand, then I'm going
to start getting nervous about the whole thing. So, all I'm
interested in is that people who discuss this -- you know, who
discuss it all the time, sit there and nod and say yes, there are
these three things and either one of them would be an acceptable
thing to do, this is the one we choose as the most acceptable, then
I think you can argue it in public however you want to argue it.
Just so we don't have this real serious disagreement among the
people who know about it that this is a good thing to do.
CHAIRMAN ROGERS: Pat.
MR. POURCHOT: I'm not setting myself up as one who really knows
about it, I just happen to come next in the conversation. If you
tie it to the real rate of return, by definition, you can not get
in trouble, as trouble is defined by invading your corpus over
time. You absolutely know -- not year to year, over time -- that's
the definition of real rate of return as we have defined it in the
use of the permanent fund. Not just here, but historically.
So....
MR. GORSUCH: That's -- that's not true. You could have unrealized
losses just as you can have unrealized gains in that portfolio, and
artificially pop up real earnings because you didn't take your
losses, just as you -- we have it now where you got potentially $2
million of unrealized gains, it can go the other way and your so
called real earnings are an over-statement because you failed to
take your losses in any given year.
MR. POURCHOT: Now wait a minute, let's not confuse market and book
value, here.
MR. GORSUCH: No, I'm not. I'm talking about book value. Book
value....
MR. POURCHOT: No, we're talking about market value. We're talking
about market value.
MR. GORSUCH: Market value has in the 4.79 percent increase an
assumption associated with the -- the $2 billion of unrealized
gains, otherwise we wouldn't lower the rate of return when we do
the adjustment.
CHAIRMAN ROGERS: Steve.
UNIDENTIFIED SPEAKER (male): We wouldn't lower the....
MR. POURCHOT: I don't follow what you just said.
CHAIRMAN ROGERS: It is after lunch time and I think all of us are
having some trouble thinking.... I'd like to invite Byron up to
the table, since we're talking about taking....
MS. BRADY: Why don't we just have the permanent fund tell us the
best way they'd like to see (indisc.). But do these give us
different amounts of money (indisc.) I want to know.
CHAIRMAN ROGERS: Potentially.
BYRON MALLOTT: Mr. Chairman, I think that I can talk from back
here. I'd mentioned to you that I'd asked Michael O'Leary from
Callan & Associates to stand by to be available to me if issues
like this could arise, because that's what they do everyday. I
just now wanted to ask him two questions. Whether using the
spreadsheet as you have with essentially the -- the accounting
value using a nominal rate of return really matches up in terms of
market value and whatever payout rate. You would assume that the
answer is yes and the answer was yes. But I did want to double
check that. And secondly, I asked him about this whole notion of
a payout rate both relative to the fund and prospective sizing it
relative to -- to both past market performance -- market
performance, I emphasize not fund performance because I think it's
important for all of us to keep in mind that almost the whole
history of the permanent fund has been in a bull market for all
practical purposes, and at some point it's going to go the other
way, and it could go that way for some period of time. And I just
asked him what kind of options that other endowments may have used
and he said it's not atypical for a -- an endowment to use a moving
average of three to five years. He said that you don't need to go
beyond five years, at least (indisc.). So he said that that made
sense using a moving average of either three or five years. He
uses th example there, again off the top of the head, calculating
the in-flow of new revenues in addition to market growth of the
asset. But if you used the 5 percent payout rule, for example,
that the real payout rate is about 4.6 or 4.7 because you're adding
asset value as you're paying it out. So -- so -- anyway that just
gives you a frame of reference. He did indicate that he would be
available on the phone during the course of the afternoon, if he
did have -- or if you did have specific questions relative to these
kinds of issues.
CHAIRMAN ROGERS: So -- so, he said if we used 5 percent of the --
of the market value of the average of the past five years, that
equals 4.6 percent of the current market value.
MR. MALLOTT: That was just ballpark.
CHAIRMAN ROGERS: Okay.
MR. MALLOTT: And he just used 5 percent as an example, not as a
(indisc.).
CHAIRMAN ROGERS: So -- so, if our target pay out rate is about 3
1/2, we would want to say 4 percent of the average market value of
the last four years -- five years or something like that.
MR. MALLOTT: Recognize that all this is, is just (indisc.) right
now, but I think that it gives you a sense of -- of the rates. I
was particularly interested in his reaction to (indisc.) the
spreadsheets, whether using cost accounting plus a nominal return
puts you in the ballpark (indisc.).
CHAIRMAN ROGERS: Do we want to try to get a teleconference hooked
up and ask him questions or is that enough information for people
to make decisions?
MR. GORSUCH: I was just wondering if we could ask Byron to call
him back just one more time and ask him on -- if we had average
data on a set of market versus five year average based on the what
we call the float -- the real earnings -- if he could tell us what
the pros and cons of those two options, that would be helpful.
MS. BRADY: Can we hook him up and so everybody can hear and then
you guys can ask questions....
MR. MALLOTT: We certain could. He did say (indisc.). The issue
(indisc.) and I think you might want to explore this with him,
because (indisc.), but fundamentally, you really can't talk about
the endowment approach in terms of net income, cost, and so forth
when you move an endowment to a market, market, market, and the
payout rule has to do with a percentage of the value of the
portfolio at the market. And I think that that conceptually is
important. I don't think it changes anything, but I think it helps
to uncomplicate it (indisc.). And again Mr. Chairman, I know that
you're at a point where you're trying to get the policy framework
and I don't want to hang you up in detail, but I just wanted to
make sure that -- that concept all hung together.
MS. MCCONNELL: (Indisc.) 13 billion would be a detail, but once we
get over 13 billion....
CHAIRMAN ROGERS: One choice we have is to make a first cut at it
and to say that we think there should be some -- that there's room
for debate as to what the appropriate payout rule is -- here's an
example of one that we have used for purposes of our calculation,
but you know we don't have pride of authorship, necessarily.
Steve.
SENATOR RIEGER: It seems to me that -- maybe we can check this
with O'Leary -- but if you have a conservative pay out rate as kind
of your target transferred to the general fund and it's important
that that be conservative for the purposes of this thesis, and if
you were a typical fund manager or that manager's fund advisor --
permanent fund, I think that the likelihood the pressure to be
conservative will be greater with the fixed pay out than with a
market -- five year average of market performance, because there's
nothing in it for you to exceed your target, but there's a lot of
penalty for falling short. So, if you know that -- you know, that
it's likely that you could do 4.6 percent long-term real rate of
return, but nobody's gonna -- but there's some risk, you know 80
percent of the time you can make that, but 20 percent you'll fall
short of whatever the right number is. But you could with 100
percent certainty do a 3.5 percent forever, there's going to be a
strong temptation to keep your job and keep your financial advisor
job and recommend the 3.5 percent sure thing allocation rather than
take that little chance of falling short in order to get the higher
return. So, there's -- I think -- I mean -- I -- in Pat's camp
because I think that you're a lot safer and you can never invade
principal -- you go on an actual performance basis, but I think
that there's that second effect when you start -- and I think it
would be nice to talk to him about it. When you start trying to
second guess how will the actual fund managers and advisors behave
under those two different types of demands placed on the permanent
fund.
CHAIRMAN ROGERS: Steve, I think you're right if we use the
percentage of the previous year's market value. But what I heard
Byron say was that you use a percentage of the average market value
in the last five years which means you really are tied to
investment performance because the market value has changed based
on that investment performance. And I think the scenario that
Byron lays out does very well link to performance and get away from
the possibility of invading principal. Judy.
MS. BRADY: I guess my question again is how much will all of this
-- what is the difference in -- in how much money would be
available to spend and my other question has something to do with
what Bruce asked -- it has to do with flexibility. Are we going to
sunset this eight years from now so if the legislature decides they
want more of a payout, are we going to hold them to it or -- so
that puts pressure on taxes and stuff where actually you don't need
to because you actually should be -- the endowment should be paying
more as time goes on -- see I don't know if I want to decide now
that eight years from now we should still be bulking up the
permanent fund when other things have happened, maybe you want a
bigger pay off here.
CHAIRMAN ROGERS: I -- I think if we're looking at setting
something in the Constitution, you have the opportunity every two
years for a re-set, but realistically you have the problem maybe --
the opportunity not that frequently because the legislature is not
going to want to go back and re-set it....
MS. BRADY: Oh, you -- in the Constitution, given the opportunity
to re-set....
CHAIRMAN ROGERS: Ya, ya because they -- well, no -- no, they could
go in and propose to the voters to amend the Constitution.
MS. BRADY: Oh, ya but you don't -- you don't want to get that
started in your Constitution. What if the Constitution....
MR. GORSUCH: We've been doing it for the last 12 years.
MS. BRADY: Ya, but we haven't made all that many changes, but what
if -- what if you went -- what if you did as part of the
constitutional things, let the -- let the legislature re-set that
number every four or five years, that they would not redo the
Constitution, they would just have the chance to re-set that number
every four or five years or six years or....
CHAIRMAN ROGERS: And so a legislature could decide this year we
want to re-set it to 10 and spend like crazy.
MS. BRADY: For ten years or eight years -- ya....
Note: Tape indiscernible -- everyone talking at the same time.
REPRESENTATIVE NAVARRE: .... because then that would only require
-- it would still require two-thirds but the pressure would be to
stay with the number that is currently or whatever is established
as the constitutional level, but it would -- I mean it would allow
for possible adjustments. Otherwise, I think -- I think Judy's
right - we'll have a hard time ever getting a change.
CHAIRMAN ROGERS: So could they set it at eight? Could the voters
say....
REPRESENTATIVE NAVARRE: No -- they could set it but then it goes
to the voters for approval.
MS. BRADY: So you have the argument again, so do people -- because
otherwise people end up paying more taxes; there'll be all this
kind of stuff when you have this much money available and then it
should be looked at every once in awhile, (indisc.) what you want
to do again.
MR. LUDWIG: I thought part of our recommendation was going to be
do this every five years or so - with different people.
CHAIRMAN ROGERS: I guess I'm concerned that if you could change
the pay out rate through legislative action approved by the voters,
that a legislature coming in and say, we want to raise the dividend
to $2,000, so all you need to do is adopt this constitutional -- or
adopt this new pay out rate of 9 percent next year and we'll give
a special distribution.
REPRESENTATIVE NAVARRE: That could happen anyway.
MS. BRADY: And that's not....
CHAIRMAN ROGERS: Not under -- not under -- not if we have a fixed
number.
REPRESENTATIVE NAVARRE: Sure it could.
MS. BRADY: Ya, but that's not fair -- I mean, we're going to have
future....
REPRESENTATIVE NAVARRE: The legislature -- they'd go in and say we
want to increase the dividend. In order to do that we have to
change this rate, we put the constitutional vote before the people
(indisc.) so that if that type of irresponsible... This would too.
It just says that you have to put some number before them which
means that probably that the number that the legislature puts up
would be, I think, at or near that pay out number and the final
vote is by the public and if they don't approve it, then the
existing rate continues.
MS. BRADY: And where we fail always in our constitutional
amendments on the spending limit we never could change it so it
never worked. So, if we had been able to change that automatically
every four years. I mean, when we try to prevent future bad
decisions we always screw up forever.
CHAIRMAN ROGERS: Pat and then Annalee.
MR. POURCHOT: In answer to Judy's first question -- what are the
differences in the amount between the different options. The true
answer is we don't know because therein lies this risk --
minimization that we're going through. And -- but all we do know
is that if you just said today, based on just -- its approximate
4 1/2 percent real rate of return -- just today, but we don't know
what it's going to be in the future and that's what we're trying to
modify. The 3 1/2 percent rate, obviously is 1 percent different,
on a $20 billion corpus, that could yield you a difference of $200
million in annual contributions -- 1 percent on $20 billion. So,
to the extent today, based on history, that you move to the true
real rate of return on average versus 3 1/2 percent is $200 million
dollars annually. But we don't know what's going to happen in the
future, we don't know whether....
MS. BRADY: And that's not enough.
MR. POURCHOT....it's going to be five long years in a row or
whether it's going to be much higher and so you're -- you're -- you
want to protect your corpus and I think some of us would argue
though, you - you want to front load your permanent fund and
that's how - how we set up this projection from moving to 3 1/2 to
4 percent and I would argue that some of us would say in your out
years, there's nothing wrong with taking advantage of five good
years in a row.
MS. BRADY: Yes.
MR. POURCHOT: And so, I don't know if it's so necessary in the out
years that you are so conservative below whatever your five year
real rate of return happens to be.
MS. BRADY: But if we only have 200 million, we're - we're at the
same here, we're going to have $667 million.
MR. POURCHOT: You'd -- you'd have 200 million more if you went to
your....
MS. BRADY: Oh, 200 million over the 667. Oh, I thought you meant
that was all we were going to get and I was going to say whoops.
CHAIRMAN ROGERS: Lee and then Hugh.
MR. GORSUCH: Well, I just -- I don't -- I don't think it would be
wise to put a sunset provision in the constitutional amendment.
You can always go back after a revised constitutional amendment.
MS. BRADY: What about automatic -- what about (indisc.) every five
years you had to re-set the number. You didn't go for a
constitutional amendment, you just re-set -- you just had to --
legislature reaffirm or change the number.
MR. GORSUCH: We don't want the legislature dinking with us. We
want either the real rate of return or the endowment return in the
Constitution. I mean the whole idea was to take us out of the
legislative arena.
MS. BRADY: (Indisc.) you've taken out of the near stuff, but I --
okay.
CHAIRMAN ROGERS: Hugh and then Annalee.
MR. MOTLEY: I hadn't raised my hand.
Laughter
UNIDENTIFIED SPEAKER (male): But we know you wanted to say
something.
CHAIRMAN ROGERS: Annalee.
MS. MCCONNELL: If -- if we were to put in the Constitution a
maximum -- I don't have any problem with saying that the
legislature could take it below a maximum level, so that you don't
require that -- that it be at 4 percent, but you say -- or whatever
would be the number -- but you say at maximum it's 4 percent, you
could as this scenario started off at 3 1/2, I might bump it up to
375 part way through (indisc.) to 4 or something like that. But I
don't have so much heartburn with the legislature making -- making
some moderate adjustments, I think if we smooth it out on a five
year basis, there's less need to do change from year to year anyway
because you smoothed out the income stream and that's the condition
under which you'd be tempted to jack up the rate. So, if we five
year average it and give a range together, I think perhaps we --
we'd get to a good -- we retain some flexibility without going
through too many hoops or running amuck.
MR. GORSUCH: Why don't we wait until we hear what our consultant
has to say on this. I'm willing to give some kind of deferral to
the advice on A and B and I don't....
MS. BRADY: But don't you think -- and don't you think that with
the permanent fund there, if the legislature started to run amuck
on this that the permanent fund trustees would start having a fit,
and the public would start having a fit, and.... (Indisc.)
concerned -- I'm just concerned that we'll be so I'm just ...
CHAIRMAN ROGERS: The endowment plan that I put forward said 3
percent of the previous year's market value. An equivalent dollar
amount is Byron's modification, from Callan and Associates 4
percent of the average of the previous five years market value,
which builds in some performance. Steve, how would you word your
real earnings (indisc.).
SENATOR RIEGER: I'd say the previous five years average rate of
return.
CHAIRMAN ROGERS: The average...
SENATOR RIEGER: ...rate of return over the....
CHAIRMAN ROGERS: Average percent of return?
SENATOR RIEGER: Average dollars return. It would be actual money.
Ya, average -- average real return, which is a total return --
market value return (indisc.).
CHAIRMAN ROGERS: In either of these you could dip into principal -
- for any of these -- you can dip into principal for a single year,
but on average for these two -- or this one would guarantee that on
average you didn't over long market cycle.
MR. GORSUCH: But if Steve's doesn't have a percentage, then in
fact there is no growth in the -- internal growth inside the fund.
The whole idea of the 3 1/2 percent was to allow about a percent of
retained earnings inside the fund that is the source of its
building up over time. So, unless you went to 80 percent of....
SENATOR RIEGER: There's still dedicated royalties going in.
MR. GORSUCH: We know what those are. There's 200 million. The
endowment plan doesn't work if you distribute -- as we have the
spreadsheet here -- doesn't work if you pay out all the earnings.
SENATOR RIEGER: Oh, it does so. I mean, even the difference
between 35 and 40 million out there -- it doesn't totally close
your gap. It's a matter of degree. I mean none of these -- none
of these build up a -- none of these build up an endowment that's
so big that you -- you 100 percent fund the general fund for the
next 50 years.
MR. GORSUCH: This spreadsheet doesn't -- these numbers don't work
if you don't retain some earnings.
SENATOR RIEGER: Well, sure they do. You that -- even that one
that's called the revised....
MS. MCCONNELL: They get bigger, yes.
SENATOR RIEGER: Big is a matter of maybe $100 million difference
payout in the out year between this one which is the low (indisc.)
of the permanent fund and this one which is the highest, which
raised the royalty contribution 50 percent and, you know, had an
income tax bumping in and everything else.
SENATOR RIEGER: None of them totally solve the problem, it's a
matter of degree.
MR. GORSUCH: Do you know how much principal it takes to earn $100
million a year?
CHAIRMAN ROGERS: Two and a half billion at 4 percent.
MR. GORSUCH: Two and a half billion is a lot of money.
SENATOR RIEGER: That's my point. Look at it the other way --
2 1/2 billion only gets you 100 million a year, and it doesn't
solve your problem one way or the other.
MR. GORSUCH: It solves $100 million worth.
SENATOR RIEGER: It solves 100 million....
UNIDENTIFIED SPEAKER (male): It's only a hundred million.
MS. BRADY: I also -- it also (indisc.) for a ten year period, so
it might build a lot of schools, it might fix a lot of roads, or it
might fix a lot of other things that we need that we can't make up
the difference in taxes....
SENATOR RIEGER: Not logically....
MS. BRADY: There's some kind of trade off.
SENATOR RIEGER: Why don't we have a $2 billion tax burden starting
right now so that by God, by the year 2010 we'll have 100 percent
endowment. I mean, it's....
MR. GORSUCH: I don't support -- all I support and am trying to
argue along is that we want to have some offset to the -- to the
declining oil production that contributes. That was the gap that
we've -- I thought we were trying to fill. We used -- we left a
spread for conventional taxes and in here we still have half of an
income tax, we still have $340 million worth of dividends being
paid -- we've got enough cushion in here, but the only way that's
possible is if over time you're trying to have an income generating
capacity to offset oil. And you can't go after taxes as a way of
simply trying to continue to do that. So, the idea is that you're
trying to avoid this kind of crunch downstream.
CHAIRMAN ROGERS: Pat, I'll get to you in just a second. I want to
see if anyone has the wording for another alternative that is 3.
MR. POURCHOT: That's -- that's what I was raising my hand for.
What I had thought about was - was combining those two concepts,
which is -- and again, this isn't how it will always work, but
it's worked historically to gear to your 3 l/2 percent. Now today
would be average dollar real return of previous five years minus
1/2 percent for the first five years, and then -- I'm sorry --
minus -- I'm sorry, I misspoke -- minus 1 percent for the first
five years, going to minus 1/2 percent thereafter -- percentage of
this rate of return, average dollar real rate of return averaged
over five years. That's the same today approximately as laid out
here -- well except for in Brian's, you take your 3.5 clear through
05, I guess that's another sub-option, how long you take your
conservative pay out.
MS. MCCONNELL: To be -- I'm not sure I understand what (indisc.)
let me try this out. If the real rate of return -- if the real
return $100 million, then are saying minus 1 percent of that 100
million, or minus 1 percent of something else? I'm not....
MR. POURCHOT: It's then same dollars or percentage. I was -- I
was (indisc.) converting real rate of return in a percentage, so
today it's 4 1/2 percent. So, for the first five years or the
first ten years, you would take 3 1/2 percent and then thereafter
it would rise to 4 percent.
CHAIRMAN ROGERS: But you're using dollar return, not percentage.
UNIDENTIFIED SPEAKER (female): Dollars not percentage, ya.
MR. POURCHOT: It doesn't make any difference.
CHAIRMAN ROGERS: Well, except how you -- except these have to be
words in the Constitution -- it does make a difference. Somebody
is going to interpret them....
MR. GORSUCH: So it'd be either 80 percent or 75 percent of the
dollar amount....
MR. POURCHOT: ...of the dollar amount.
CHAIRMAN ROGERS: Okay, you could do it -- if you did a percentage
of the dollar amount rather than minus the.... Good. Judy.
MS. BRADY: Okay, now let me -- let's explain this so I understand
it because we'll probably have to explain it in the (indisc.).
Under A, you would still have one whole percentage point each year
that just would be internal to build up the fund.
UNIDENTIFIED SPEAKER (male): Yes.
MS. BRADY: So, the fund would build up faster with A, but you'd
have less to use for -- for running government.
UNIDENTIFIED SPEAKER (male): Yes.
MS. BRADY: Under B....
CHAIRMAN ROGERS: It's the same as A, but it's smoothed over a
longer period of time.
MS. BRADY: So, (indisc.) you'd still have a whole full percentage?
CHAIRMAN ROGERS: Yes.
MS. BRADY: Earning....
CHAIRMAN ROGERS: Because of the buildup.
MS. BRADY: Okay. And do all these -- are we taking the permanent
fund down? I mean, are we....
CHAIRMAN ROGERS: Dividend?
MS. BRADY: Dividend down, so....
CHAIRMAN ROGERS: That's -- that's independent of this, but yes.
MS. BRADY: Are we dumping that money into the fund, too or are we
using that for spending?
CHAIRMAN ROGERS: Under the -- under the endowment approach, the
dividend is within whatever that amount is, so you have to choose
between dividend and spending.
MR. GORSUCH: For -- for clarity, B is what we're working with and
that's just the modification of the five year spread, right?
CHAIRMAN ROGERS: B is a modification of A, and D is a modification
of C.
MS. MCCONNELL: And D is now going to be some percentage of C,
right?
MS. BRADY: Okay, so what's the big difference between A, B, and C?
So, the big differences are between A and B on one end, and C on
the other. So, like the difference from B and C is the real
difference, right?
UNIDENTIFIED SPEAKER (female): The rest is (indisc.).
MR. POURCHOT: In theory they're all the same, you just -- you're
just not trying to judge what the markets are going to be like 15
years from now....
MS. BRADY: Well, one apparently allows some money internally, so
the fund builds up a little faster and one allows some more money
to be used for general fund operating. Is that the main
difference?
MS. MCCONNELL: A, B and D allow build up of the fund.
CHAIRMAN ROGERS: C doesn't.
UNIDENTIFIED SPEAKER (female): C does not. C takes the full
earnings, spread out -- you know takes out the bumps and spikes and
stuff, but C basically uses all the earnings. The other three
don't.
CHAIRMAN ROGERS: Except that under C, in its defense, the
legislature could choose to make an additional permanent fund
deposit.
UNIDENTIFIED SPEAKER (female): True.
UNIDENTIFIED SPEAKER (female): It just gives them some
flexibility.
CHAIRMAN ROGERS: Does everyone understand A, B, C, and D?
MR. LOESCHER: I understand (indisc.)....80 instead of 80 or 90....
CHAIRMAN ROGERS: What I'd like to do is to try a structure vote on
this with people voting for either A or B, or C or D and then once
we've decided whether to follow the A or B approach or the C or D
approach, then we'd divide within that group. I think that's the
way to vote that allows....
MS. BRADY: What do you want to do now?
CHAIRMAN ROGERS: Okay, if you support A or B, you'd vote yes --
you'd vote for that. If you support C or D, you'd vote on that.
Where the majority goes, then we'll look within the A or B flat
rate approach or the C or D....
MR. GORSUCH: (Indisc.) until after we hear from O'Leary, because
my vote on B or -- I'd be voting for B or D, depending upon what
O'Leary says about this idea of risk and return. Do we have him on
line or....
MELISSA FOUSE: We can get him.
MS. BRADY: Can somebody explain to me just where we're getting
him, because....
MS. FOUSE: Well, we have to go in the library.
CHAIRMAN ROGERS: Oh, we have to go in the library to get him, so
why don't you get him on the line and then come call us.
MS. BRADY: (Indisc.) you think -- Lee you're saying that you have
to have that 1 percent because you're trying to build it up to so
much and Steve's saying, hey, we're trying to build it up, but how
do we know what (indisc.) in the future. Is that kind of it?
SENATOR RIEGER: I mean actually -- you know, I mean -- I'm not
hung up on that 80 percent or 90 percent of real earnings versus
(indisc.). I mean that's -- that's a side issue. But I'm trying
to demonstrate you know, the bigger issue in that it's -- in my
opinion -- it's great to work towards an endowment and endow as
much of the general fund as we can. But none of these scenarios
come close to endowing the general fund and it's at what price do
you beef up the endowment even further. Some of us fall out, you
know when you don't have 100 percent being available in real
earnings. Others of us might fall out when we start adding
additional taxes to build up the fund or someone might fall out at
some other point. But it's all a matter of degree. At what price
do you build up your corpus and you know, so this is just one issue
in a whole spectrum of issues of how much sacrifice....
CHAIRMAN ROGERS: Okay, we got him on line -- let's....
TAPE 2, SIDE B
CHAIRMAN ROGERS: The motion before us is to adopt B with the
friendly amendment of up to 4 percent. Is there further
discussion?
(Indisc.--several people speaking at once.)
CHAIRMAN ROGERS: Judy.
MS. BRADY: I just want to know, now, (indisc.) right?
CHAIRMAN ROGERS: It's roughly the same--whenever we break or
overnight we re-run it to make sure. So we've got to look at what
the last five years market value numbers are, which I hope we have
some. Are they on Rieger (indisc.) spreadsheet?
UNIDENTIFIED SPEAKER (Male): We don't know . . .
CHAIRMAN ROGERS: It's that book, right? . . . Okay, we'll get
that and calculate it ...
MS. BRADY: Okay, because I just don't want to have any unintended
(indisc.) on other parts (indisc.).
CHAIRMAN ROGERS: Lee. On the motion to adopt up to 4 percent of
five years.
MR. GORSUCH: One caveat we had talked about was if in fact there
was some kind of interest or extraordinary event for which we'd
like to have a little flexibility, and as (indisc.) said the
response to Brian's question was 4 or 5 percent. He would
unequivocally say it would be sustainable over a long draw. And
we're using the low number--the 4 percent--his figure, which if I
understood what Byron had said earlier, the 4 percent is
effectively more like 3.5. We're back to the 3.5, but that we
could go 5, which would be the effect of 4.5. And to get to the
point I think Judy would rephrase earlier some others, if we wanted
to create a provision whereby a 3/4 vote of the legislature could
authorize an additional point, an additional one percent draw, that
would be a possibility.
CHAIRMAN ROGERS: Mike.
REPRESENTATIVE NAVARRE: I think he also said that on policy
decisions there was a lot more downside than to investment. And
that might lead to a short period of time with very good earnings,
convincing policy makers to jump up that amount, which might not
ever be reduced again, simply because of the expectation of
spending that could be provided with that type of a draw.
CHAIRMAN ROGERS: Sean.
REPRESENTATIVE PARNELL: I wanted to share--I just told Mary--I'm
torn right now, not because of the policy goal but because I think
we're just going down the wrong path, for the reasons I've already
tried to articulate. Hugh has tried to articulate. And so I'm
trying to figure out how I can be of the most help, and have the
most meaningful input I can in the process. So, I don't want to
vote no on everything just because I don't like it, I just want to
try to participate (indisc.). In other words, it would be easy for
me to say, no, I'm not going to go for floating percentage because
I think we're going down the wrong path. It would be easy for me
to say, no, I'm not going to set a percentage because I think we're
going down the wrong path. But, I just want you to know that even
though I strongly disagree with this type of a downward climb that
we're heading down towards, I will try to meaningfully participate
in the decisions.
UNIDENTIFIED SPEAKER (Male): Is there another type of a balanced
plan that you would support?
REPRESENTATIVE PARNELL: I would support something along the lines
that Roger Cremo was promoting.
CHAIRMAN ROGERS: But it doesn't balance.
REPRESENTATIVE PARNELL: Well, it does if you use different
assumptions. Your--you know, I'm not--we don't need to get into a
debate over that. We've already agreed that we're going to cut a
hundred million dollars over three years. And that's a parameter
that was set before deciding on whether we're going to have an
endowment. That's a parameter that impacts the ability to use the
Cremo endowment, because of other policy implications, and now that
we're this far down the path of coming to this endowment--I mean,
I'm willing to work within the parameters that have been set. At
this point in time. That's all I wanted to state for the record.
CHAIRMAN ROGERS: I would hope that everyone--if there are areas
that we get off what you support, you try to make the best of where
the group is. I think that's what Hugh had said earlier.
UNIDENTIFIED SPEAKER (Male): Right.
CHAIRMAN ROGERS: In the hopes that we come up with the best
possible plan. Mike O'Connor, you had your hand up?
MR. O'CONNOR: I changed my mind.
CHAIRMAN ROGERS: Okay. Are we ready to vote? The proposal before
us is to adopt B, up to 4 percent of the average of the previous
five year's market value. All those in favor please raise your
hand. One, two, three, four, five, six, seven, eight, nine, ten,
eleven, twelve, thirteen votes. ... That takes care of that first
group of decisions. We have before us the 25/50 for the permanent
fund deposit rate, the CBR, the permanent fund dividend, and the
treatment of the permanent fund earnings reserve. And we'll take
a five minute break before we get to those.
(Break)
UNIDENTIFIED SPEAKER (Female): I would leave it at fifty percent,
and I would say--I would make it specific to ANWR, that if ANWR
comes on 75 percent. By statute, so people could change it, but I
think that it would be--I think there's going to be some other
fields that would come on. See, I don't know--if West Sack(??)
came on, I mean, is that a new field?
UNIDENTIFIED SPEAKER (Male): (Indisc.)
UNIDENTIFIED SPEAKER (Female): Well, I'm concerned about--we're
going to have a lot of pressure on to spend it anyway, and we've
already decided we're not going to do a payout, even on the
earnings. We're going (indisc.).
CHAIRMAN ROGERS: So we have--alt one is 50/75. Alt two is 50.
And alt three is 50, with 75 specifically to ANWR. If ANWR's open
and if there's oil there.
UNIDENTIFIED SPEAKER (Male): Where's gas production put in
currently?
CHAIRMAN ROGERS: Gas production currently is at 25 percent from
Prudhoe, and McIntyre is at 50. If there's any gas produced there.
And so, the alt--any of the three alternatives would boost the
deposit for royalties from gas production.
MS. BRADY: Let me just talk a policy issue for a minute, because
you do have every state that has some good things happen to it,
their budgets go up. Because they get more--in terms of
reoccurring revenues. Because we own so much of our land, our
reoccurring revenues tend to be attached to oil and gas production.
So we do better--our ability for new schools, new roads, new all of
that--goes up. And I think we should continue to allow that. I'm
a little concerned that we are saying that we're trying to control
even our natural flow of funds.
UNIDENTIFIED SPEAKER (Male): (Indisc.)
UNIDENTIFIED SPEAKER (Male): I need somebody to explain to me why
we're increasing from 50 percent to 75 percent the new fields.
UNIDENTIFIED SPEAKER (Male): My rationale for that--I think Judy
just talked me out of it, but my rationale for that was, since
we're not counting on any of that money today, it's a freebie into
the fund, and builds us in the out years when I see we have
trouble, and I guess I'm persuaded partly by Hugh with that
(indisc., coughing) drop we get in 2011, and thereafter. That
anything we do here helps that. But I guess Judy persuaded me to
leave that issue open, and the legislature can always decide to
make it a policy.
MS. NORDALE: But it doesn't leave it open with Judy's amendment by
having 75 percent of ANWR.
UNIDENTIFIED SPEAKER (Male): No, I think she persuaded me to go
with two.
UNIDENTIFIED SPEAKER (Male): But by doing it by statute you are
sort of leaving it open.
MS. NORDALE: But see, I would leave it--I would even probably go
50 percent. Is that the way it is now?
CHAIRMAN ROGERS: Right now, the statute calls for 50 percent. On
new fields.
MS. NORDALE: I guess I'd just leave it in statute. Not change it.
MS. BRADY: Could we--can I make another one up there?
CHAIRMAN ROGERS: Sure.
MS. BRADY: And that maybe would be at least 50 percent
constitutional and 50 percent of new fields.
CHAIRMAN ROGERS: Well actually, 50 percent constitution--it would
have to be 50 percent, because it's 50 percent on all ...
UNIDENTIFIED SPEAKER (Male): (Indisc.) 50 percent constitutional,
unless you're making--you carve out Prudhoe--you'd have a
tremendous drop in revenue to the general fund.
CHAIRMAN ROGERS: You have 244 million in the first year (indisc.).
Mike.
REPRESENTATIVE NAVARRE: One of the things we're not protecting
against though is the--the lease sale where you get a billion
dollars for ANWR (indisc.). And they spend 500 million of it in
the legislature a year.
CHAIRMAN ROGERS: That is current law. And under alt 2, that still
would be the case. Under alt 1 they'd have 250 million to spend,
and alt 3 they'd have 250 million to spend. If it was a billion
dollar bonus coming in.
MS. NORDALE: Yes, but since we know ANWR is the only thing coming
on, that we're going to get a billion dollar bonus for, why don't
we just do something for ANWR? Instead of your bonuses going ...
CHAIRMAN ROGERS: Because you do it in 1995, and the field doesn't
come on until 2004, and you have all the service-related
responsibilities and that 250 million not spent.
MS. NORDALE: What are you--maybe I misunderstood what you were
arguing. What were you arguing?
CHAIRMAN ROGERS: Well, I'm saying that if it's 500 million it's
that much more that you have expense. All I'm saying is that if
you don't change it, you get your lease sale money tomorrow.
Production. And all the people will come for 10 years, and the
money's gone. Ya. It's gone tomorrow, if you don't make a change
in the existing system.
MS. BRADY: I think (indisc.) point is right when you--there is a
real difference between something that's a one-time unit as opposed
to a periodic thing that royalties would represent. And I think it
would be worth increasing the percentage for those kinds of
payments. At the moment I don't care too much whether that's a
constitutional or statutory--maybe in statute, but I think it
should be a different rate than regular old royalties.
UNIDENTIFIED SPEAKER (Male): Where does the money go now?
MS. NORDALE: Now it's being treated the same as royalty payments
and severance taxes.
CHAIRMAN ROGERS: So an alternative would be to go 50 percent in
the constitution, 75 percent of bonuses, and 50 percent of other
resources.
MS. BRADY: But but but but ...
CHAIRMAN ROGERS: But but ...
MS. BRADY: We're going to have some more lease sales, with
probably bonuses although everybody's hoping bonuses kind of go
away for a while. But anyway, other things with bonuses. I think
we want those to go in, because right now is kind of a quiet time.
UNIDENTIFIED SPEAKER (Male): Go into the permanent fund?
MS. BRADY: No, no. Go into the budget. Because we're going to
have some capital needs and some other things, for lease sales.
But why don't we just separate out ANWR and say that for ANWR
sales, 75 percent of the bonuses go to the permanent fund. So that
our regular business as we go (indisc.) stays the same. And if
ANWR opens then we treat that separately, because that's going to
be a whole new field.
CHAIRMAN ROGERS: Is that 75 percent of 90 percent, or 75 percent
of (indisc., laughing).
MS. BRADY: According to our governor, it's going to be 75 percent
of 50 percent.
CHAIRMAN ROGERS: And our delegation.
MS. BRADY: Oh yes, and our delegation.
UNIDENTIFIED SPEAKER (Male): Our current governor.
MS. BRADY: Our current governor.
UNIDENTIFIED SPEAKER (Male): And our current delegation.
(laughter)
CHAIRMAN ROGERS: Who's next? Mike, I'm sorry.
REPRESENTATIVE NAVARRE: I guess I share some of the frustration
with the spending of the legislature, but I want to point out that
in fact the legislature didn't spend it all. When we had the
opportunity, we didn't spend it all. We made significant deposits
into the general fund, above and beyond what were required under
the constitution. And that while I think that to some degree we
need to attempt to reduce the discretionary authority of the
legislature in order to force some conservatism, on the other hand,
I have a fundamental objection to representative government being
neutered. So I think that you have to allow some responsibility
that is contained in the constitution to remain with the
legislature. So, while I support going to 50 percent
constitutionally, I think trying to address every (indisc.,
coughing) beyond that (indisc., coughing) beyond what's--what the
legislature is trying to do.
CHAIRMAN ROGERS: Lee?
MR. GORSUCH: I think when the public voted initially on the
constitutional amendment for the permanent fund, there was an
impression that when they voted the for percent it was 25 percent
of everything. Well, it turned out it wasn't 25 percent of
everything. In fact, corporate income taxes didn't come under that
provision, and severances are outside of that. And as a
consequence, if you look at the total value, since these other two
sources of state income represent over half of the total oil
revenue stream, it was really like 12 and a half percent. So I
personally think that moving to the 50 percent constitutional
requirement gets us closer to where we thought we were with the 25
percent. If we're going to continue to exempt severance and
corporate income taxes. Which at least historically has been a big
source of the total oil related revenues.
CHAIRMAN ROGERS: Steve and then Chris.
SENATOR RIEGER: (Indisc.) important that--to some extent,
stability is good, but to some extent a little volatility is good,
too. And I think I see some pattern with (indisc., coughing) if we
overstabilize, what happens is that all of your activities get
chewed up by formula programs. There's nothing left (indisc.),
there's nothing left to do (indisc.) one time things. So, I think
that there's some case to be made that you ought to stabilize but
within limits. And it's kind of an accident that I'm even here
this morning. I'm not really that alarmed if maybe there would be
some extra money now and then, that's one time money. Because
there's probably some things there waiting for that.
CHAIRMAN ROGERS: Bruce.
MR. LUDWIG: I have a question for Judy. You made the comment that
the oil companies were trying to get away from bonuses.
MS. BRADY: No. That was that little--that little report. The oil
policy council.
MR. LUDWIG: Where would these--like would royalties go up a
percentage, or something?
MS. BRADY: Ya, there would be trade-offs. It would go--there
would be a couple of trade-offs they recommended. I don't know
what the companies think about the whole package. But, the point
is here, that we know probably the feds would (indisc.) Cause they
always do. And ANWR is on federal land, and so the question is,
what do you want to do with those bonuses. Do you want to treat
them--which we hope is a lot of money, because we hope everybody's
real interested. And that's the money that tends to be--there's
going to be some pent-up needs at that time, because that's going
to be, what, six or seven--it could be--well, hopefully not that
long.
CHAIRMAN ROGERS: In terms of voting, I want to structure two
votes. First, on the constitutional, and then on the statutory.
I think that makes it a little bit easier. So on the
constitutional, between 25 and 50. Mary.
MS. NORDALE: I move we stay with the current (indisc.) the
constitutional.
(Indisc.)
CHAIRMAN ROGERS: Moved and seconded to stay at 25. Are you ready
to vote? Alt D in the statute (??).
UNIDENTIFIED SPEAKER (Male): The current policy?
CHAIRMAN ROGERS: Well, we'll be voting just on the constitutional
side. Then we'll vote on the statutory side.
UNIDENTIFIED SPEAKER (Male): (Indisc.) vote for two together, the
constitutional and the 50 percent.
CHAIRMAN ROGERS: Ya. So, motion made for no change.
UNIDENTIFIED SPEAKER (Male): Where's the spreadsheet?
CHAIRMAN ROGERS: We have another 250 million a year to spend. If
the permanent fund goes down. So the current statute is amended by
a simple majority. The current statute--ya, a simple majority
could change it. All those in favor of keeping the constitution at
25 and the statute at 50, please indicate by raising your hands.
Five. All opposed. Eight. The motion fails.
UNIDENTIFIED SPEAKER (Male): I move alternative number 2.
CHAIRMAN ROGERS: Alternative 2. Change constitutional to a 50
percent dedication, leave the statute as is.
MS. NORDALE: For clarification, then, we're talking about 50
percent of everything, regardless of when it came on line, right?
CHAIRMAN ROGERS: Correct.
MS. NORDALE: And that would be 50 percent bonuses, 50 percent
royalty, 50 percent straight across the board.
CHAIRMAN ROGERS: Federal mineral lease revenues.
MS. NORDALE: Everything.
CHAIRMAN ROGERS: Yes. Minus 250 million from the revenue stream.
Correct. Balanced by the payout from the permanent fund. That's
what the spreadsheet shows. Ready to vote? All in favor of
alternative 2, the (indisc., laughter, many people speaking at
once). Are you ready to vote? We're voting on alternative 2,
which will be to recommend a constitutional amendment changing it
from 25 to 50 percent. No change in the statute. All those in
favor, please raise your hands. Thirteen. The motion passes. We
have adopted alternative 2. Okay, next we get to treatment of the
constitutional budget reserve. And, alternative 1 is to leave as
is. Alternative 2 is repeal, and put all the money into the
permanent fund upon repeal. Alternative 3 is to--is to what?
MS. NORDALE: It's the scenario that you had yesterday, where the
periodic deposits were made.
CHAIRMAN ROGERS: Deposit amounts in excess
MS. NORDALE: (Indisc.--coughing) 1.5 (coughing).
CHAIRMAN ROGERS: Deposit annually the excess over 1.5 billion into
the permanent fund. Is there another alternative?
MS. NORDALE: Isn't it our ... don't we use the CBR to build 96 and
97 where we did away with this?
CHAIRMAN ROGERS: Yes. And under--if we're dealing with--if we
repeal and put it in the permanent fund, the vote takes place after
96 and 97.
MS. NORDALE: Okay, so number 2 ...
CHAIRMAN ROGERS: Number 2 is what's on the spreadsheet that I will
produce. Number 1 is on Steve's bill. Alternative 3 is on the
composite before Steve's, which showed the annual dumping of the
excess over 1.5. Alternative 4 would be to fix it, basically
having revenues rather than funds in the general fund, repealing
the (indisc.). It speaks to revenue rather than funds available in
the general fund, or alternatively repealing the sweep or both.
(Indisc.--coughing) the two approaches basically, the reason it's
not working is because of the sweep provision. If we can fix that
problem--most people who would want to keep the CBR would want to
do that fix, I think, almost regardless of party.
UNIDENTIFIED SPEAKER (Male): (Indisc.).
CHAIRMAN ROGERS: Well, (indisc.) that's between (indisc.--several
people speaking at once). You replenish it from one-time windfalls
when they come in, and (indisc.--coughing) with the sweep (indisc.-
-coughing) has is that you replenish it by raiding existing funds,
for the value at year end.
UNIDENTIFIED SPEAKER (Male): I don't care if you call it repeal,
sweep or payback, it's the truth that it's a raid on existing
things like the marine highway fund that have caused a automatic
three-quarter vote every year regardless of what spending has been.
CHAIRMAN ROGERS: But it still would be replenished by all
administrative proceedings if ...
UNIDENTIFIED SPEAKER (Male): But the obligation (indisc.--coughing)
UNIDENTIFIED SPEAKER (Male): Doesn't matter.
CHAIRMAN ROGERS: If there's a windfall, it goes in. Just as
currently, if there's no windfall it doesn't go in. So it's not a
function of what had been drawn in the past at all. Are there
other alternatives that people have besides those four? A major
subpart of 2 is that you would keep the language in (indisc.) as it
is for depositing future windfalls into the permanent fund corpus.
We put in five or six hundred million dollars I think into the
revenue projections, and if we just repealed it, it would just--I
assume--go into the general fund.
UNIDENTIFIED SPEAKER (Male): So, you're saying keep it? Or are
you saying take the language on settlement and put it into the
permanent fund.
UNIDENTIFIED SPEAKER (Male): The prospective language. There's
still some debate over what's in there.
MS. NORDALE: Well we need to know that, right now, we're showing
that the remaining settlement money would go into the earnings
reserve in order to bring that up to levels. So we have to be
careful that we ... tie all these pieces together.
CHAIRMAN ROGERS: Actually, ya. Cause that's another thing, an
element, that's another way of dealing with a reserve. Lee.
MR. GORSUCH: What do we now think the purpose of the CBR is?
CHAIRMAN ROGERS: A volatility (indisc.) to ensure that (indisc.).
MR. GORSUCH: It seems to me that, on the one hand, if there's this
idea that it appears to be the receptacle for settlements, and
therefore there's a higher (indisc.) for expenditure of those
funds. That that purpose is quite different from the oil price
volatility, and it seems to me that it creates some confusion about
how are we going to handle oil price volatility if not through the
CBR, then what other vehicle do we have to do that? And I came
back then to the idea of, we're going to have the permanent fund
earnings reserve ending balance as we've kept it at a billion
dollars, whether it was our idea that the earnings reserve could
serve as the stabilizer for both permanent fund as well as oil
price commodities or not. So, it's not clear to me in my mind--I
understand the CBR's purpose, to sort of pull in these windfalls
and require some leverage before you can let them out, but what I
wasn't sure as we were thinking about the permanent fund earnings
reserve was whether that could do double duty, serve as a
stabilizer for permanent fund earnings distribution and oil price
volatility, or whether we need two separate funds.
CHAIRMAN ROGERS: Mary.
MS. NORDALE: I would like one fund. Apart from the--I just want
one fund out there, and everybody else can argue it out but what
the constitutional budget reserve fund fixed was the permanent fund
earnings reserve balance. But I don't want two funds to draw from,
that's why I like the endowment. If we were going to take one of
those funds and dump it into the permanent fund so we could use it
as an endowment and this one single reserve fund then became a kind
of fix-it fund if things went bad for a year. And that's all it
was, we dumped everything else into the permanent fund. We dumped
settlements, we dumped all of that into the permanent fund, and
just kept this one fund as a--and we kept it low enough so that it
wouldn't be--it would be volatile but would be immediately apparent
that we were like breaking the contract here. And it really was a
fund that moved, so that if we got in trouble we could help
ourselves out for a few years.
CHAIRMAN ROGERS: The proposal that I put forth on the endowment
scenario, which is really number 2, would have an almost identical
impact if instead we adopted Steve's fix-it, and deposit the amount
in excess of a billion and a half to the permanent fund, and take
the permanent fund earnings reserve and get rid of it. So you put
it into the corpus of the permanent fund. So that ...
MS. NORDALE: So, it becomes a question of which is most
politically likely or easiest to happen.
CHAIRMAN ROGERS: And the other difference, and it's not real
major, is that the permanent fund earnings reserve, because it's
invested by the permanent fund corporation, is earning a slightly
higher rate on average than the CBR, which is invested by treasury
on short-term investments.
UNIDENTIFIED SPEAKER (Male): Immediate term.
CHAIRMAN ROGERS: Immediate term. The difference is historically
8 percent--7.94 percent--versus 6 percent. But I think you have
the same impact, but where do the earnings go. Do the earnings
reserves go as part of the calculation to the endowment. And the
earnings of the CBR go into the CBR.
MS. BRADY: The earnings reserves don't go as part of the endowment
calculation.
CHAIRMAN ROGERS: Right. No, the earnings of the permanent fund
earnings reserve under this model are deposited into the permanent
fund. They are not (indisc.--coughing).
UNIDENTIFIED SPEAKER (Female): (Indisc.).
CHAIRMAN ROGERS: They are part of the permanent fund. Which is
another reason that it is at least as--an artificial fence built
around these because it's part of the permament fund, makes it
difficult because if you spend any of that you're raiding the
permanent fund. That's the rhetoric they sometimes ... Mary
MS. NORDALE: It seems to me that before we vote specifically on
CBR options a little bit more generic conversation about reserves
and Lee's point, I think, should come first. The route we've taken
with the five year averaging on the endowment side deals to a large
degree with the volatility and predictability issues that we had
with that one chunk of income. The main purpose I see at this
point moving forward for a reserve is to deal with oil price
volatility. So it seems to me that we should--setting aside the
mechanics for a moment of which place we put it in. But we need to
think about establishing an amount of reserves that is pegged to
the oil volatility issue and how much--over what period of time and
what price drop do we want to say we should be prepared to meet out
of our reserves. And, the issue of repayment. I think those are
the two critical elements. And then we can decide which of these
funds has a better chance of giving us the mechanics that we want.
But I'd like to suggest an amount that's pegged to the anticipated
oil and gas related revenues for the following year, something like
that, so that it's that one forward business that you had in an
earlier version of the plan.
CHAIRMAN ROGERS: That would be about a billion five, right now.
After adopting the 50 percent. A billion four or a billion five
is, would be the--basically one year if Prudhoe shut down, we could
cover.
UNIDENTIFIED SPEAKER (Male): Where would you get the money to put
into.
UNIDENTIFIED SPEAKER (Male): Or two years if
CHAIRMAN ROGERS: Two or three years of low oil flows.
UNIDENTIFIED SPEAKER (Male): That would be part of the CBR?
CHAIRMAN ROGERS: What she's saying is--whatever, if we go down to
one fund, whatever fund it is, it should have an amount equal to
that. And the rest would all go into the permanent fund.
UNIDENTIFIED SPEAKER (Male): I'm just asking where we'd get that
money.
CHAIRMAN ROGERS: Either out of the CBR or the permanent fund
earnings reserve.
MS. NORDALE: If before we adopt it we take that much money out ...
so I think in terms of--for instance, in terms of where we are on
quantities here, we're a little bit shy although not. We're maybe
in the 200, about 200 range million less than where we would be
between two to three, depending on which year you look at. And so
I think, as we look at the mechanics, if people feel comfortable
with that amount, and that the purpose is oil volatility as opposed
to needing it ... we don't need it for dividend stability. We
don't need it for general fund earnings stream. Or for permanent
fund stability. It's just for oil volatility, isn't that
everybody's common understanding of what our purpose would be?
CHAIRMAN ROGERS: Does everyone basically agree that's the purpose
of having a reserve fund at this point? Is for oil price
volatility.
UNIDENTIFIED SPEAKER (Male): Do we know what the question of that
1.6 is volatile, as opposed to fairly fixed?
UNIDENTIFIED SPEAKER (Female): I'm sorry, I missed the first part
of what you were saying.
UNIDENTIFIED SPEAKER (Male): We have two billion available
revenues. General fund revenues. Oil is 80 percent, so it's like
one-sixth. What part of that one-sixth is (indisc.--coughing)
prices? What part's volatile? Is all of it volatile, is half of
it volatile?
UNIDENTIFIED SPEAKER (Female): Well certainly not all of it.
Unless we would presume the complete shut-down of the pipeline,
which is one of Brian's cases. Will Condon's suggestion was to
take an approach of saying we should be able to handle two years of
ten dollar oil. That was sort of his idea of what would be the
kind of situation that gave us more than just a 1986 period of time
with prices going haywire, but major change in the national--I mean
on the international scene.
UNIDENTIFIED SPEAKER (Male): So at ten dollars you'd be looking at
750 million a year.
UNIDENTIFIED SPEAKER (Male): Ya. Somewhere around ...
UNIDENTIFIED SPEAKER (Female): But you'd have two years
UNIDENTIFIED SPEAKER (Male): At what point do they shut the
pipeline down? Eight dollars? Seven dollars? At some point it's
not worthwhile for them to drill.
CHAIRMAN ROGERS: You have to have a negative wellhead value of
some amount. Because just to keep everything running, they're
going to run it at a loss for a little while.
MS. NORDALE: Plus you get the terrific--the fed would step in,
because of national emergency they need the oil. The fed would
step in and say you can't, there'd be all kinds of ...
UNIDENTIFIED SPEAKER (Male): Wouldn't we start a war before that
happened? (laughter)
CHAIRMAN ROGERS: Mary.
MS. NORDALE: I just like to throw out a couple of ideas. I know
that they're not going to be very perfect here, but ... If we had
a fund ... we fixed the CBR and characterized that as the hedge
against volatility, I think we would be on safer ground, because I
think that the pressures for spending are going to be such that the
earnings reserve of the permanent fund will be drawn down. Perhaps
not by great increments in every year, but I think in some years.
We've got a lot of unmet needs that are going to become more
apparent, and I think the temptation is going to be too great to
overcome. And with the scenario that we're working on now, we show
that there is a gradual decline in draw down of the earnings
reserve, below that which is recommended to be a hedge against
volatility. So, I think that we really need to have two funds. I
don't like the idea of having to have separate little accounts.
But on the other hand, I think that if everything is in one fund,
and it's drawn down, we have nothing to--we run the risk of not
being able to hedge against volatility. We have nothing to meet
emergencies with, and we get ourselves into a position of being
unattractive as a marketer of debt. So that we don't have a way of
creating capital improvements when we need them. That is a debt
amount is gradually created.
CHAIRMAN ROGERS: I'm not concerned on the natural disaster side.
We have the ability to issue debt without voter approval, to meet
a natural disaster. So I don't think we need a fund on that side.
And I think that Steve's concept of tying the CBR to revenues
rather than amount available for appropriations keeps the spending
limit in there. It would say if the amount of revenues for a
fiscal year is less than the amount of revenues for the previous
year, then they can make an appropriation by a 3/4 vote. So we
think I keep the concern that Hugh has had of that CBR being able
to be raided. I don't know, I guess we'd have to repeal the C
section, the section that says by 3/4 vote you can do it no matter
what. For public purposes.
MS. NORDALE: I'd like to have you explain your idea about revenue
bonds for disasters. I'm not confident that they would be ... I'm
not talking about constitutional capability during a crisis, I'm
talking about practicalities of floating a bunch of funds when your
revenue is so constricted as we have it portrayed here and you're
losing your flexibility moment by moment in terms of the (indisc.).
So, I think that as a matter of practicality, not as a matter of
constitution, we should really consider the fact that it might not
be in the State's best interest to rely solely on floating revenue
bonds in order to meet disasters.
CHAIRMAN ROGERS: Judy.
MS. BRADY: Well, disasters ... I think what we need to be
concerned about is what we know, and that is volatility of oil.
And I think the 1.5 billion is okay as long as, you know, as long
as it's not just a dictated fund for everyone who's kind of short.
And I don't care which way we go. I think that's a six of one,
half a dozen of the other, what do we think is easiest to work with
and accomplish that. Disasters work kind of in and of themselves,
and the money flows from the feds. And I don't think that the
mechanisms ... and with our permanent fund there we would not ...
I mean that's ... we don't need a disaster fund, and in fact a
disaster fund is simply asking for somebody to declare a disaster.
For someone to step in. It really is ... they really are just
very, very ...
MS. NORDALE: But the only draw down you can make on the permament
fund, Judy, is whatever percentage you've got under market value
...
MS. BRADY: You don't have to do anything on the perm ... if we had
a big disaster here, the way it works is you don't ... you've got
two or three years to get your act together, and pass whatever laws
you have to pass or do whatever it is you have to do. I mean the
money ... is the main thing.
CHAIRMAN ROGERS: Annalee.
MS. MCCONNELL: I think our problem is less with the humongous
disasters and more with--if Ross Kinney were still in the room, I
suspect he'd be a little concerned. I think we do need the ability
to go back after a budget has been established and provide money.
Not everything is fully covered by the feds. For those things
where you need some--I think in our capping jargon of yesterday,
this would be in the small category. But some ability to go beyond
what was budgeted initially, if you have that kind of thing that
happens at the wrong time of year. So, I agree with Mary that we
need some of that. But I think at the larger level, it's almost
like the working poor not having health insurance. We're in better
shape for the really mega things, but in some ways ...
UNIDENTIFIED SPEAKER (Male): (Indisc.) not really the small stuff
MS. MCCONNELL: The Kenai kind of, Koyukuk level of expenditure.
The small to medium kind of thing.
UNIDENTIFIED SPEAKER (Male): I guess I prefer having the earnings
reserve act as a dual purpose, because fixing the CBR, if we fix
the revenues, then ... are you talking about repealing the 75
percent provision?
CHAIRMAN ROGERS: Eventually.
UNIDENTIFIED SPEAKER (Male): And I guess maybe we're okay that
way. Maybe we should just say that if revenues are less, then you
can draw from the earnings reserve of the permanent fund rather
than having two funds. Because the CBR ... you may be able to fix
it, you may not be able to fix it. But my impression is, it's too
new yet for the legislature to really have determined how to
manipulate it.
CHAIRMAN ROGERS: On the issue of one fund versus two, are people
ready to make a choice as to whether we have one reserve fund or
two reserve funds? How many would favor two reserve funds? How
many would favor one reserve fund? Okay, that's ... once you have
an endowment you don't need ... if we're going to have one, are you
ready to vote on whether that should be the CBR, with whatever
changes we make to it, or the permanent fund earnings reserve, with
whatever changes, or do we want to discuss the changes first.
MS. NORDALE: Could I just have somebody talk real shortly about
what they see as the pluses and minuses of both of them? I don't
have any strong feelings about ...
CHAIRMAN ROGERS: Who wants to give that one a try? Pat?
MR. POURCHOT: I'm going to just repeat what you said, Brian. I
think that you can shape them to whatever you want mechanically,
but I guess I'm persuaded that having something within the umbrella
of the permanent fund is superior, in that you ... to the extent
that it's not being used, the earnings contribute to our overall
corpus building, and ...
UNIDENTIFIED SPEAKER (Male): I have to disagree. I think we ought
to keep the permanent fund over here, and then if we need a budget
reserved capped at a billion and a half, with fixes 1, 2, A B and
maybe C, on the 75 percent thing. I'd be more comfortable, and
then the legislature and the governor figure they've got to tap it,
they can get to it. But that would be the distinction that I would
make.
CHAIRMAN ROGERS: Annalee.
MS. MCCONNELL: There's a major element that's missing in the
earnings reserve that I think we would have to deal with. And that
is repayment, which is currently not--there's no mechanism for
repayment. In looking at the two, I think that the critical issue
that I would identify would be, one is your access to it both the
mechanics and the purposes. And, secondly, what is the mechanism
for repaying it and keeping it at a reasonable level. The third
one that Sean has identified as a concern is how, and I guess it
leads back to the first part. Is there any way we can structure
some protection so it's not just considered more money on the table
for sort of regular old purposes? And I think that is a
combination of both mechanics and the aura that you set up around
it. I tend to agree with Pat that, ironically, even though the
mechanism is technically easier to get at the earnings reserve now,
psychologically it's much harder to break.
MS. NORDALE: So what do you ...
MS. MCCONNELL: Well, if we ... I guess before we do this, I'd like
to talk about what we could set up for the permanent fund earnings
reserve as a repayment mechanism, which is a big missing item right
now. I'd like to suggest any settlements going in the earnings
reserve. To say that any settlements would go in there, and carry
forward any year end last balances from the unrestricted general
fund. And there may be some other things people can suggest.
TAPE 3, SIDE A
CHAIRMAN ROGERS: ...referred to in the statutes and so any
mechanism we design for the permanent fund earnings reserve, we
have to decide whether it's constitutional or statutory and if it's
constitutional, it's going to end up looking just like the CBR. If
it's statutory, there's opportunity for legislative mischief. I
guess where I'm coming around to - even though the earnings are a
little bit less is Steve's concept of fixing the CBR with revenues
in the sweep, maybe just saying the only time it can be drawn is a
drop in revenues and -- and then depositing the amount over the 1/2
billion in the permanent fund because the alternative is creating
a PFER and then loading it up to where there's no difference from
the current CBR.
MS. MCCONNELL: And how would you treat that in -- what would be
the Kenai flood level kind of thing under that scenario you would
not be able to use the CBR.
CHAIRMAN ROGERS: I -- I could see an exception....
MS. MCCONNELL: Okay.
CHAIRMAN ROGERS: ...for meeting natural disasters declared by the
Governor according to law, which we've used in the statute several
times. We've always been comfortable with letting the Governor --
the meeting natural disasters declared by the Governor as
prescribed by law. That hasn't been a problem ever. If that's
been abused....
MS. BRADY: Ya, but it's going to get more and more political....
CHAIRMAN ROGERS: But I don't -- I don't think you're going to deal
with the problem on -- on that, since the legislature would still
have to appropriate, etc.
MS. NORDALE: Let me -- let me get some clarification. If I
understand your scenario is that on settlements that are received
after this conversion of the CBR into the permanent fund, they
would go into the earnings reserve, not into the principal of the
fund. Correct?
CHAIRMAN ROGERS: Correct.
MS. NORDALE: Okay, so then you would have a real confusion of what
purpose as far as the earnings reserve account is concerned and
that was the reason that I was suggesting perhaps we needed two
funds. I don't like the CBR the way it's structured; it would have
to be fixed like Steve suggested, for me to (indisc.-coughing), but
it concerns me that we would have this real mess and I don't
particularly want to have sweeps and pay backs and all the rest of
this stuff incorporated in the earnings reserve. I think that's
just sheer disaster -- we're asking for more of the same, only more
-- much more.
CHAIRMAN ROGERS: Like you, I'm uncomfortable with the way it's
laid out on the spreadsheet. I think we need something better than
that. Mike and then Bob.
MR. O'CONNOR: What's the -- could you explain the permanent fund
reserve again then -- you're saying it's done by the permanent fund
board and has no statutory regulations....
CHAIRMAN ROGERS: As I understand it, the permanent fund earnings
reserve was set up as an account by the permanent fund to hold
their earnings until the legislature did something with it. And
it's appropriated from -- it's been appropriated from time to time,
but I don't believe there's any reference to an earnings reserve in
the statutes, is there.
SENATOR RIEGER: I think we did. I think the permanent fund
approached us and asked us to statutorily authorize.... They did
create it and asked for back up.
MS. NORDALE: What -- it serves as the holding account so that when
the distribution is made, it -- you know, the appropriation for
inflation-proofing, appropriation for dividends is made, the
appropriation for administration of the fund is made. Anything is
excess frequently is pumped into the principal. But it's basically
-- if everything went into the principal of the fund, you couldn't
get it back out again for dividends, for inflation-proofing, or
anything else.
MR. O'CONNOR: It's just for their use.
MS. NORDALE: No, no, it's for the state's use so that you do
get....
MR. O'CONNOR: Well, that's what I mean. It's (indisc.).
MS. NORDALE: Ya, so they can actually....
MR. LUDWIG: Get rid of the....
MS. NORDALE: Well, so they can use it....
MR. LUDWIG: They can't spend it. The legislature's the only one
that can spend it. They have to appropriate the money.
MS. NORDALE: But Bruce, what I'm trying to say is that if all the
money went into the principal of the fund, the legislature couldn't
touch it, the fund couldn't touch it, nothing. So the account
really holds this money until the decision is made how to use it
and then it's distributed.
CHAIRMAN ROGERS: But under an endowment payoff scenario, you don't
need it anymore.
MS. NORDALE: That's right.
UNIDENTIFIED SPEAKER (male): It's just....
MS. NORDALE: Well, you don't need it anymore unless you're trying
to hedge against (indisc.).
CHAIRMAN ROGERS: But we voted for one -- it could be that you
could do it all in the CBR instead of the PFER.
MS. NORDALE: Ya, except that I think that (indisc.) the CBR or the
ERA is reachable by the legislature majority vote, you'll likely
find (indisc.) disappearing very rapidly.
MR. O'CONNOR: Okay, but it's just a vehicle.
MS. NORDALE: Ya.
MR. O'CONNOR: And the second thing is then the draw from general
fund spending monies on the endowment scenario would have to, at
that point, come back out of the constitutional budget reserve if
in fact we said we didn't want to use....
CHAIRMAN ROGERS: Correct.
MR. O'CONNOR: That's all I wanted to know.
CHAIRMAN ROGERS: Robert.
MR. LOESCHER: Mr. Chairman, I -- not to reiterate what I said, but
I was persuaded by the oil volatility discussion Annalee put
forward and having -- you know, being able to present that to the
public as a reserve that's capped and with the changes in that CBR
business I think makes sense. The other thing is not to get
tangled up into the permanent fund, the public perception of being
tangled in there for our disasters and all these other things is
important. The other thing is we don't want to add to the burden
of the permanent fund -- if they need a reserve to meet our pay out
requirement, that's up to them, their asset allocation, their
management scheme to get there. But if we put it in there as a
requirement, they have to management a separate fund, a billion and
a half dollars separately, make it more liquid, short-term it, do
whatever, and I -- I -- I really think that's a problem. I -- I
just would like to argue for fixing the CBR and capping it.
CHAIRMAN ROGERS: Bruce.
MR. LUDWIG: Does the fix address the voting percentage? I've been
real impressed with the way we've all sat here and dealt with each
other and we represent some pretty extreme viewpoints. And I've
never seen that in the legislature. I mean, you kind of go down
and there's machine gun nests here and there, and that's the one
thing in my mind that that higher percentage in the voting does is,
is makes you come and talk to each other at some point. And I kind
of hate to see that go away.
CHAIRMAN ROGERS: Mike.
REPRESENTATIVE NAVARRE: Except that what's going to happen is it's
all of a sudden going to be whoever's in charge is going to make it
an appropriation, however much you want to spend to get three-
quarters vote, because you set it up as a vote on education or
something like that. I mean I just -- I just see lots of ways that
it could be manipulated. The three-quarter vote ends up being a
buy-off rather than - rather than any super majority of the
legislature having to sit down together. I -- and I would disagree
with your comments -- I'm not sure that it causes us to sit down
together all that -- all that much.
CHAIRMAN ROGERS: Mike, so -- so if it's tied to the revenue drop,
then you could accept a majority, and -- and if you could only pull
out of the CBR the amount of the revenue drop, then a majority
could do it, you don't need a three-quarters.
REPRESENTATIVE NAVARRE: Right. The only thing then where you need
a three-quarters vote maybe is the emergencies after the
disasters....
CHAIRMAN ROGERS: Steve and then Lee.
SENATOR RIEGER: The fix that I described earlier that's Bruce's
point kept the three-quarter vote - super majority vote - but it
was only a super majority vote when what was being proposed was
increases in spending. The simple majority prevails below package
of appropriations which equal to or below it at prior years, three-
quarters above. And the point I was making is that the way it's
operating right now, you can -- you have to get a three-quarter
vote even if you're going to cut spending 10 percent, so as long as
you're getting the three-quarter vote, might as well just do
whatever you want. So I'm --- this would restore the dramatic
difference in vote requirement between an increase and a status quo
by doing away with the sweep.
CHAIRMAN ROGERS: Mike, respond before I go to Lee.
REPRESENTATIVE NAVARRE: Again though, if you set it up as an
overall increase rather than the way that it sort of has been
attempted in the past, and that is separating it out so that all of
the budget that the majority happens to want is -- is encompassed
in the general fund portion and then what it takes in order to get
votes out of the CBR, which may end up resulting in an increase in
overall spending, comes out -- is forced in a separate piece of
legislation. You see what I mean?
SENATOR RIEGER: I do see what you mean, but I think that there is
-- I think that there's enough going round and round in the
legislature, that you can't really pull that off. I mean you could
try, but I....
MS. BRADY: What if you just tied it, Mike (indisc.) -- just tied
it to so much of a drop in oil revenue. I mean not some, cause
every state has -- you know, bad farm years in agriculture states
and all that, but what if you just tied it to a certain percentage
of drop that you that you -- to access you need a 50 percent vote,
and anything more than that you need (indisc.).
REPRESENTATIVE NAVARRE: I like -- I guess I like the CBR -- CBR
and you tie it to the volatility without any three-quarters vote.
If you want more money to spend, pick any one of these -- income
tax, motor vehicles tax, any other type, fee increases, any one of
those other ones to get to that funding -- to that increase
rather than a three-quarter vote because you set up lots of
unpalatable situations.
MS. BRADY: Well, the simpler the better, that's for sure.
CHAIRMAN ROGERS: Lee.
MR. GORSUCH: It does sound like a CBR if we have a -- under the
fix there are several characteristics we've not talked about, but
the one is it has a cap on it in terms of the total amount that's
in it. If we might have a different rule to it, we want to have a
replenished provision incorporated as a part of it, and -- but then
I wanted to come back to the question about the -- the normal
reserves. I remember when I sat on a school board and the auditors
always came in and said, well the rule of thumb is you ought to
have about a 2 or 3 percent fund balance to be able to allow for
unanticipated kind of fluctuations that typically go on from year
to year, inside a budget of your size, at that point we were about
I think 200 million, suddenly they were suggesting we should have
somewhere around $40 to $60 million in reserves. Well, I think we
had 10 or something. And we were getting beaten up all the time
around that question about having $10 million -- why aren't you
putting that on the table in our negotiations, why aren't you
putting that on the table for new playground equipment, and so
forth. How does the government handle this just normal cash
fluctuations over which you have little control whether it's
liabilities of one sort where you lose a bunch of lawsuits, and
another one is where more -- you know more kids show up, we're not
going to have supplementals -- how are we going to deal with that
2 to 3 percent fluctuation on a $2.4 billion budget? I ask that
question apart from the CBR; that is, within the budgeting thing,
I mean, how do we handle the requirement for some just normal
fluctuations in an operation that big and complex?
MS. MCCONNELL: The way we do it now is that they -- the draw on
the CBR is flexible. The legislature appropriates sort of easy
generic language enough to cover any gaps if our fees or our
corporate income taxes, let alone oil prices, if those things were
less than anticipated, but our expenses remained the same and we
didn't change the expense levels, the difference would come out of
CBR. The 2 to 3 percent rule that's used for school districts is
very different, at least for municipalities, that have a broad
variety of powers including you know road and police and those
kinds of things, the rule of thumb is 8 to 10 percent because the
nature of your business at a school board, it's pretty fixed. You
don't have a lot of unanticipated things like you know big
snowfalls and disasters or crime waves and all that kind of jazz.
But we do it now through the CBR. If we were to take something
like this, I think we would still need some of that same protection
because other -- there's no way we could know and balance to the
penny. So, we probably would need some sort of protection to allow
us to use this reserve, if that kind of circumstance happened.
Obviously, what we do along the way -- or at least (indisc.) now,
is monitoring along the way, so that if our revenues are lower than
expected or our beginning of year expenditures are higher, we're
telling departments to go back and reduce their expenditures for
the remainder of the year. That won't always be possible,
depending on when you find out -- you know, if you have a natural
disaster on June 29, that's very different than if you have it on
January 2.
MR. GORSUCH: So, what I'm trying to get at though is if -- if we
restrict this to the oil price, which has a nice, tight rationale
to it and so forth, we still have a budgetary issue which we have
not addressed in terms of just the normal kinds of things for any
kind of entity of that size and magnitude and complexity, and I
guess I'm looking for a -- something that rounds out our -- our
package so that doesn't come back and then all of a sudden, we've
got a -- something that isn't tied down in terms of another
problem.
MS. BRADY: Well, you might not be able to pay longevity bonus that
year, you may not be able to pay all the permanent fund dividend
that year, or -- I mean, somehow you're going to have to decide
that you're going to do some kind of tradeoffs if we're going to
keep balancing. You can't -- our problem is we can't keep looking
for new money every time you know, we know they're going to come in
with a formula increase and ask for another $16 million for every -
- that was their answer to fixing, was asking for more money, and
you're going to have disasters and you're going to have this kind
of stuff and I guess -- I guess if you're going to hold the line,
you're going to have to start cutting programs.
MR. GORSUCH: But somehow Judy, you still have to be able to hold
the money. I mean this -- I mean we -- we could ask the state to
budget 8 percent specifically for those sort of contingencies. But
every time any entity has a -- has a contingency fund, it gets
gobbled up through all kinds of other kinds of issues. So, I mean
-- I agree we want to try to incorporate within some -- some sense
of discipline, but I don't think ad hocing it throughout the year
is the way to responsibly do it. So, I'm not trying -- I'm not
suggesting we have a loophole here, but I'm just trying to figure
out how you could create it so that it would be an acceptable good
management practice.
MR. O'CONNOR: What's the matter with the way they do it?
MR. GORSUCH: Well, it -- I mean nothing, except that it -- it
extends beyond the conversation we're having on the CBR.
CHAIRMAN ROGERS: Georgianna and then Mike.
SENATOR LINCOLN: Well, the is the part that I guess I have the
most heartache about. I keep looking up at the board and thinking,
well, which way will I way to vote on this. Because unlike Mike,
the CBR, I thought, did force the Senate to sit down and talk with
one another about the give and take. I thought that was a real
good check and balance that we had when we couldn't agree --
whoever is in control -- when you have a majority and a minority --
that I think that it's healthy to have the check and balance
system. And the CBR with the three-quarter vote -- it wasn't there
unless the minority was also included in the discussions with the
majority. So, this past year I saw that as being very healthy. I
think we had -- in the Senate anyway -- a number of meeting where
we had to negotiate some of the concerns that the minority had,
some of the concerns the majority had. So, I have -- I just have -
- I'm torn on whether it should be in the earnings reserve, but
check and balance would be there and whether there should be some
in both. I'm just torn on this one. This is the only area that I
really haven't developed an opinion at this point. It just -- it's
a tough one.
CHAIRMAN ROGERS: Mike.
REPRESENTATIVE NAVARRE: Part of my concern with the CBR is that it
sets up a situation where a super minority of the legislature is in
a position to leverage over what may be a super majority opinion or
consensus. So, for that reason, I don't particularly like the --
the three-quarter vote requirement even though it works to the
advantage of the minority at this point. Lee's raised a good point
in that if we set it up -- however, we set it up, if you come back
the following year and you have underestimated what the formula
funding for education or for any of the other formula programs may
require, you don't have any -- any place to get the revenues when
you go back for a supplemental. Unless you built it in to the
budget and under the constraints that we put on expenditures, I
think that you're going to -- you're gonna have everything gobbled
up, so that you'll be at the top of the line spending going in to
what may be a need for supplemental. And on the other hand....
REPRESENTATIVE PARNELL: (Indisc.) heard this before.
REPRESENTATIVE NAVARRE: What's that?
REPRESENTATIVE PARNELL: That's exactly what we were all saying
before -- you're right -- I mean, you're absolutely right. I
didn't mean to interrupt you, Mike.
REPRESENTATIVE NAVARRE: And -- and -- but you also then, in trying
to fix that, you've got to be real careful because the flip side of
that is that if you allow some draw for a supplemental, the
legislature will build supplementals into the budget.
CHAIRMAN ROGERS: Judy then Steve.
MS. BRADY: The point is this time though, they can build it in,
but they start drawing down that -- they're only going to have --
they're not going to have what they had to draw down on before and
maybe this time when the school districts come back and say we need
a supplemental, they're going to have to say no. And you guys are
gonna have to start doing some reform. You're going to have to
start doing some things differently and at some point it's really
going to come down to no -- either that or we're kidding ourselves
when we just -- we just go back to letting them spend whatever they
can.
REPRESENTATIVE NAVARRE: No, it's -- but it's based on projections,
the way the formula is set up to work now. All you do is create
additional chaos by saying no in January to spending that's already
taken place.
MS. BRADY: Then say no earlier. I mean....
REPRESENTATIVE NAVARRE: Well, what you're saying is cut education
spending at....
MS. BRADY: I'm saying hold it, but tell them you're going to have
to cut it in the next couple of years and they've got to start
being prepared....
REPRESENTATIVE NAVARRE: I don't have any problem with that.
Whatever level you tell them they have to cut it to is the amount
that goes in the budget. The rest of the budget adjusts so that
you reach this arguable level of spending -- whatever that is --
but whatever happens with that, when you come back in January you
have no mechanism to address supplementals.
MS. BRADY: Right.
REPRESENTATIVE NAVARRE: Well, that's -- that's not realistic.
MS. BRADY: Well, that's what we're trying to deal with here is
what's not been realistic.
CHAIRMAN ROGERS: Steve.
SENATOR RIEGER: I just -- two things. You can't have any
mechanisms to deal with supplementals if you've built it in. I
mean, there's no room for a supplemental if you spent right up to
the limit in the prior year's appropriation package. But if you
have an allowance of $20 million -- whatever the number is, that's
there. My main point I think was -- is to point out that the
argument that a super majority -- super minority can hold up the
will of the majority is a valid one, but my concern is that right
now that risk is out there even if maybe we were all doing fine in
the Senate this last session. At some point -- at some point, you
could have a paralyzed government where the will of the majority is
thwarted, but I think that with a fix, there's always a way to
leave town -- the only thing you can't do is leave town and
increase spending.
CHAIRMAN ROGERS: Okay, Annalee, do you want to discuss what's on
the board?
MS. MCCONNELL: I took a stab at -- it seems to me that all this
discussion points to the fact that we need at least a statute that
clearly outlines what should be our state reserves policy and
mechanisms and so on. I just took a stab at what some of those
might be. Purposes -- the largest one probably in terms of
quantity being the issue of volatility of oil and gas revenues, but
I think we should acknowledge that other revenues will fluctuate,
also. And if oil and gas revenues drop, obviously you're going to
see a drop in many other kinds of revenues. Natural disasters and
cash flow, which is an issue and does need to be dealt with somehow
because our money comes in roughly evenly over the 12 months, but
we have bigger pay out requirements in the summer, at the beginning
of the fiscal year. An amount - I just took a stab at saying up to
two times the current year oil -- that O&G -- oil and gas revenues.
The reason I suggested current year was I think it's a little --
there's a lot more room for manipulation if you're projecting out
a year and at least if you're talking about current year and you're
doing it during the budget cycle, you've got eight months of
experience already, so the opportunity for changing it is a little
bit less. The reason I put question marks above oil and gas
revenues was that I -- since other revenues can fluctuate I don't
know if it makes sense to peg it just to those. I thought we
should have some sort of a provision to deal with the issue of not
letting it get too large, should we end up with a bunch of
windfalls in a row or something like that, so I thought maybe at
least every three years that any excess should be deposited over
the recommended amount be deposited into the permanent fund. These
are all, again, just ideas for discussion. Replenishment should,
at a minimum, include settlements, year end balances of
undesignated general fund -- oh, I meant to include the one that
Bruce mentioned which is the -- something about the -- the bonus
kind of the excess -- the bonus payment amount that is not already
going to the permanent fund, if there any like ANWR bonuses, other
bonuses, or something along those lines -- windfalls that are not
settlements, but that come out of other activity. And then access
- one idea that got thrown out was majority vote if the projected
revenue, and it would be defined, by the way, we're including
federal revenues in that, for instance, is less than the current
year.
MS. NORDALE: Or you have a natural disaster. (Indisc.) you've got
to be able to access it to meet those purposes.
MS. MCCONNELL: Right. That should be added.
MS. NORDALE: So, you -- your access has to include natural
disasters and cash flow.
MS. BRADY: Why don't you just say cash flow instead of using
natural -- natural disasters, and I will tell you again why,
because then if you need -- need money for a natural disaster, it
would come out of cash flow that (indisc.) problems, there could be
other things as well. But saying natural disaster is a total,
total, total invitation to just -- to not only declare them when
legislators put pressure on the Governor's Office, but also it's --
it's like a never (indisc.) the price tag goes up like you cannot
believe. It's just....
CHAIRMAN ROGERS: I think cash flow isn't a problem because Revenue
considers it part of the total (indisc.) subsection of the general
fund.
MS. NORDALE: The problem is though, that if it's constitutionally
sequestered for those specific purposes to draw down just to meet
cash flow requirements is a real problem.
CHAIRMAN ROGERS: But that's not the way they actually operate.
MS. MCCONNELL: Revenue actually would prefer to have it clarified.
We believe that it is the understanding of the legislature, we've
talked about it with LB&A, but it's not explicitly authorized and
so -- Judy is right, but if we said cash flow the natural disaster
asterisk would be incorporated by virtue of cash needs.
CHAIRMAN ROGERS: Steve has a constitutional amendment already
drafted that says this and says this and says this.
SENATOR RIEGER: Says that except the natural disaster....
CHAIRMAN ROGERS: It does not say the natural disaster. It doesn't
provide for either the size or the automatic deposit. It doesn't
deal with natural disasters cash flow or ANWR, but gets us a lot of
the way there. It -- it keeps the 75 percent for any purpose.
MS. MCCONNELL: Could you just (indisc.) beside natural disaster so
we don't forget about that....
CHAIRMAN ROGERS: Yes. However, for cash flow purposes, you're
not really appropriating it, you're just temporarily borrowing it.
MS. MCCONNELL: I know, but I was just using the word access
instead of appropriation to make it clear how the fund is used.
MS. NORDALE: When the general fund had lots of extra cash in it,
that was not appropriated. It didn't make a difference. Now, if
you have a constitutional....
CHAIRMAN ROGERS: What you do is, you're having the CBR buying
revenue anticipation notes issued by the Treasury. Okay, the
question is how to word this, whether -- one thing I would advocate
is on this -- the amount would be to just allow by majority vote a
deposit to the permanent fund and not have any triggers built into
the Constitution on dumping the amount over 1.5, but just allow
that to be done from time to time by appropriation.
MS. MCCONNELL: Are we going to first discuss the constitutional
amendment, because we could -- the reason I'm asking is that things
like that provision might be things that we -- we would like to put
in statute even though we didn't necessarily want it to be in the
Constitution. Thinking about the concern that Sean has raised for
instance that if you get too much in the reserves it's a temptation
and so you might, by statute, want to do some things to encourage
that not to build up so far.
CHAIRMAN ROGERS: I think -- think in the Constitution we'd have to
say that by simple majority you can dump into the permanent fund,
whereas right now by majority -- you need three-quarters to dump it
in.
MS. MCCONNELL: And then let the statute -- and then the statutes
could always be done to make it more stringent.
CHAIRMAN ROGERS: Yes. Sean.
REPRESENTATIVE PARNELL: This is just a -- maybe Steve can answer
this, because I'm not sure how we're using the word stabilize state
spending. The first sentence, "The purpose of the budget reserve
fund is to help stabilize state spending from year to year." So,
what we're trying to do is we're trying to build some protection
against use of budget reserve funds by saying that we only want to
use it to stabilize state spending. I'm not sure that -- what does
that mean -- stabilize state spending.
UNIDENTIFIED SPEAKER (male): So, if revenues drop....
SENATOR RIEGER: It's a statement of purpose. I mean....
CHAIRMAN ROGERS: The actual mechanics are that the only time you
can dip into it by majority vote, is if your revenues drop as Steve
has pointed out. I support that.
SENATOR RIEGER: (Indisc.) limits and how far you can (indisc.).
REPRESENTATIVE PARNELL: Okay, I see what you're saying.
MS. NORDALE: The supremes are going to have a wonderful time with
that.
CHAIRMAN ROGERS: I'd like to change it to statewide state revenue
instead of statewide state spending, although it's meaningless.
MS. BRADY: Ya but, state revenue (indisc.).
UNIDENTIFIED SPEAKER (male): Spending just has bad connotations.
UNIDENTIFIED SPEAKER (male): Yes.
MS. BRADY: Tell me this -- how much would it mean -- how much
money are you talking about up to two times current year -- how
much would that be?
MS. MCCONNELL: No, no just the oil and gas -- if it were just gas
portion, then....
CHAIRMAN ROGERS: Two years worth of oil and gas revenues is about
three billion.
MS. BRADY: I think that's way too much.
MS. MCCONNELL: I'm sorry (indisc.). Yes.
NOTE: Too many people talking at the same time.
CHAIRMAN ROGERS: Which is about what one year of oil and gas
revenues would be.
MS. BRADY: And I really would urge you to take the natural
disaster thing out. I've worked this fire fund from the federal
side and the state side and I'm telling you it just....
MR. LUDWIG: I can't imagine a situation where you couldn't get
three-quarter vote for a natural disaster, if it's truly a
disaster....
MS. BRADY: Well, even your local disasters though, you just can't
be surprised how much money it takes when agencies start -- start
hiring double time personnel and their price went up and up and
pretty soon the money is all gone.
CHAIRMAN ROGERS: The other question -- the question I have with
Steve's amendment, I think in order to achieve these, we would need
to add the ability to access for deposits to the permanent fund, we
would need to add the -- we have to deal with the issue of three-
quarters vote or not to go into it for other purposes and then we
have to - if we want to, add natural disasters and cash flow.
MR. O'CONNOR: A lot of this depends on how we're gonna -- what
we're gonna do with the proposals on the budget, too because what
happens is you take a $100 million out of the general fund and all
of a sudden it's a $100 million less than was in the year before
and we've tried to play that shell game already and the next thing
you know, we're at 2.6 instead of 2.5 (indisc.) some other agency,
so I think a lot depends on how we're going to handle the budget
proposal...5.6 versus the 2.4 number we're trying to get to.
CHAIRMAN ROGERS: The effect of Steve's amendment though is that
where from year -- one year to the next year, where we're
projecting spending to go up at inflation plus half the population
growth, if we had a revenue dip, it wouldn't be able to draw on it
except for a flat budget, because it's only if revenues are below
the prior year. So, -- so, the first thing the legislature has to
do is to find a way to hold the line on the budget. Then if it
can't do that, if the revenues are lower, they can dip into the
lower revenues. But there's not an ability, as I read this, to cap
this for any spending greater than the previous years.
SENATOR RIEGER: You can with a three-quarter vote.
CHAIRMAN ROGERS: But you can with a three-quarter vote. So with
a majority vote, you can get revenues up to where they were last
year.
REPRESENTATIVE PARNELL: Is it important or necessary to have the
first sentence in there and if so, why?
SENATOR RIEGER: No, it's not necessary. Just -- here and there in
the Constitution there is language like that and we thought it
would help explain what we're trying to accomplish since this the
supremes seemed so confused (indisc.) when they took on the last
court case. But you know, I -- I don't think it adds anything
except clarification, but if people think it confuses things....
MS. MCCONNELL: My suggestion would be that we do the clarification
through statute because then if we find out that there's a problem
with the way we had described it at least we could fix it more
easily than we could if....
SENATOR RIEGER: We tried to do that, remember Judge Reese didn't
like our clarification by statute last time, you know.
CHAIRMAN ROGERS: That's after the fact, though. Okay, we'll want
to proceed on to -- to some sort of decision making on this so we
can keep rolling here. Do people have an -- does someone want to
make a motion to adopt some plan here. Mike.
REPRESENTATIVE NAVARRE: I still am wondering how the earnings. Is
it invested as part of the permanent fund or would it be invested
as part of the general fund with the earnings going to the CBR and
then an occasional deposit because of that into the permanent fund.
Whereas if it was invested as part of the permanent fund, it would
increase the level of the endowment.
CHAIRMAN ROGERS: The current law -- current constitutional --
current Constitution reads, "Money in the budget reserve fund shall
be invested so as to yield competitive market rates to the fund."
And maybe that leaves it open as to who invests it. Normally, that
competitive market rates has been Treasury, but I think we'd have
to say permanent fund if we wanted permanent fund.
SENATOR RIEGER: That's a good point, Brian. I mean I think it
could be co-mingled, really. You know, it's just accounting
reports separately. But I don't see there's any reason why we have
to -- we have to physically segregate those funds and then it has
to (indisc.).
CHAIRMAN ROGERS: I would be concerned about co-mingling with the
permanent fund even though I like the higher earnings, because it
basically forces a -- an asset allocation on the permanent fund
trustees that they always have that amount of the fund in cash, and
so it may tend to artificially depress total fund earnings. And
so, I'd rather keep them separate, because since by three-quarter
vote, you could appropriate the whole billion and a half, they have
to have a billion and a half cash all the time.
SENATOR RIEGER: Or in readily liquidible -- liquidatible
securities which is everything except real estate.
CHAIRMAN ROGERS: Ya, except there are times that I hate to have
them you know, invested at their current policy which has less than
10 percent in cash and suddenly you know (indisc.) have an
appropriation that -- that, but maybe it would be better to ask
Byron on that. Byron, do you have any thoughts about whether you
want to invest the budget reserve fund?
MR. MALLOTT: (Indisc.) Treasury can be mandated to meet any public
policy call, you can do it right now. (Indisc.) Treasury invested
the way it does, I assume (indisc.) meet cash flow requirements and
that will always be there.
CHAIRMAN ROGERS: Mike and then Annalee. Annalee and then Sean.
MS. MCCONNELL: If we have a fund that's separate -- CBR, then I
mean, I agree with Byron that we can tell them what we want in the
way of liquidity. But if it's separate, then there's no other
place to go. You have to do all of your management within that one
entity. Byron if we were to have -- if instead of having a CBR, we
were to have an earnings reserve -- one reserve which is the
earnings reserve account, what is your opinion of what changes that
would make if that account was -- became the oil volatility
account. Would that have to change your investment practices in
your mixes of what....
MR. MALLOTT: I would not think so. I was just (indisc.) just to
get a sense of it, and it's written in constitutional form it could
be statutory. I was trying to capture what you were -- what you
referred to earlier by way of constitutional payout ... and this
would follow up on the language that you had prior. Income from
the permanent fund shall be deposited in the permanent fund, not
more than 4 percent of the average market value of the permanent
fund earnings shall be deposited in the earnings reserve account of
the permanent fund. The percentage to be deposited shall be
determined by law (indisc.) any three fiscal years, and the
corporation's earnings reserve account shall be made by law to the
general fund. Amounts in the earnings reserve account shall be co-
mingled with the permanent fund. (Indisc.) create an account that
constitutionally that the legislature could -- could appropriate to
and from in a way that would give you an additional account to
create flexibility, but I was speaking more to how money would flow
from the permanent fund to (indisc.). I would just pose a public
policy question as to why you would expect to have any return less
than market rate returns on an ongoing basis except for what you'd
need to meet current cash needs. Anything beyond that ought to be
invested at a rate that maximizes market return.
CHAIRMAN ROGERS: Annalee, Sean.
MS. MCCONNELL: Actually, it just occurred to me that in terms of
liquidity, since we're talking about a budget that gets passed in
May and granted there's a veto period and so on, but obviously the
budget cannot end up higher on June 30 than it was -- the Governor
can't veto up -- that changes the nature of the liquidity a little
bit in that there is some time for -- for planning which you would
have to do for withdrawal. So, it may not be much of a problem,
cause also you wouldn't be -- even if you were appropriating 500
million for some reason be it huge crash or really low oil prices,
you're not going to need every dollar of that right away, so you
have the opportunity to make a plan in plenty of time to deal with
that over the course of the 12 months.
CHAIRMAN ROGERS: That's true. Sean and then Lee.
REPRESENTATIVE PARNELL: Brian, my question is more procedural
because I felt like you had a real rational and logical sequence of
choices for us to make on the previous page. (Indisc.) this really
fits in -- Steve's amendment fits in with the fix and I just wanted
to make sure -- are we going to go back to the decision making once
we talk through -- is that where we're going?
CHAIRMAN ROGERS: (Indisc.) I've sort of lost track (indisc.) where
we are. Lee.
MR. GORSUCH: Well, I think the -- the page you just went from is
in fact the potential fix; that is, what I would encourage us is to
incorporate the areas that Steve does not incorporate in his bill
and go ahead and amend the Senate Joint Resolution 30 to
accommodate these other features that Annalee had identified and
move this thing forward. Then procedurally (indisc.) I'd like to
move off this subject and see if we can....
CHAIRMAN ROGERS: No, we're still on this subject.
MR. GORSUCH: No, no, I'm saying once we move off this subject, is
we've got budget cuts, dividends and taxes to yet wrap up. I'm
concerned about our evening plans. I'm wondering if those are
flexible or we're actually committed to....
CHAIRMAN ROGERS: My intent is that we'll break at 6 o'clock. We
have dinner reservations at 7 and we'll reconvene tomorrow morning
at a time yet to be established. Going back to Sean's issue, among
the CBR treatment, if we -- if we adopt the idea that the -- the
next page is how we go about fixing really what that's become, I
believe is a combination of 3 and 4 into the next page. So, among
the choices of 1, 2, and this new number 3, are people ready to
vote on that or do you want more discussion?
MS. NORDALE: Annalee was proposing that the 1.5 be a different
number and I'm wondering if....
MS. MCCONNELL: I was mistaken -- it should have been -- I said two
times and that was wrong. I was thinking that two years of....
MS. NORDALE: So, 1.5 is okay?
MS. MCCONNELL: Ya.
MS. NORDALE: Okay.
CHAIRMAN ROGERS: So, in terms of this -- in terms of this voting,
we leave as is, repeal, or go to the next page.
MR. GORSUCH: Do a straw poll on 3 and 4 combined.
CHAIRMAN ROGERS: Yes. Georgianna.
SENATOR LINCOLN: Mr. Chairman, I just need to go, I guess, a step
beyond that because to do that, I hear that now we going to start
writing legislation. Is that the intent that we're going to
rewrite a piece of legislation and submit that?
CHAIRMAN ROGERS: My intent has been that the constitutional change
that we suggest be incorporated into a single constitutional
amendment that might incorporate portions of SJR 30 or other
pieces. But that we try to put forward a single constitutional
amendment that puts our package out and ask the Rules Committee to
introduce it by request of the commission. I think that -- that
rather than separate pieces of legislation, having a package in a
single one, may help the process. But that's just my own
feeling....
SENATOR LINCOLN: Okay, or to submit that these are the points that
we want included in a constitutional amendment that would be put
forward by the Rules Committee or whoever. (Indisc.) that we're
not going to write that piece of legislation verbatim and say
here's the piece of legislation that we would like to see go
forward, just the -- the points to be included in it.
CHAIRMAN ROGERS: Because the resolution creating the commission
asks to us submit specific legislation, I guess my take on that, as
one member of the commission, would be that we be very specific
when we're talking about amending the Constitution and that we give
the outline when we're talking about pieces of legislation. We
just really don't have enough time to do, you know, each of the tax
bills, or each of the policy bills, but I think that amending the
Constitution is such a big deal, I don't want to give an outline
for it, I'm not comfortable supporting that, I want to see the
final language before the commission. But certainly if others
disagree, I'm open to change on that. But, like Pat -- like Pat's
comment earlier about amending the Constitution, I want to be
pretty sure what it is I'm voting for before I sign off on it.
SENATOR LINCOLN: Well, Mr. Chairman, just in following through on
that, I guess I'd be at this point, somewhat....
TAPE 3, SIDE B
CHAIRMAN ROGERS: ...alternative number 3. Well, I think we've got
that taken care of.
UNIDENTIFIED SPEAKER (female): (Indisc.) for number 1.
Laughter
CHAIRMAN ROGERS: We're back to this in time for a 10-minute break.
BREAK
CHAIRMAN ROGERS: Have we voted between whether to make it the PFER
or the CBR?
UNIDENTIFIED SPEAKER (female): No.
MS. NORDALE: No.
MS. NORDALE: Well, I thought the previous vote was to vote -- to
modify the CBR, to more flexible use of it and that would keep it
distinct from the ERA.
CHAIRMAN ROGERS: So does that then have the effect of saying
that....
UNIDENTIFIED SPEAKER (male): Having two....
CHAIRMAN ROGERS: Well no, we voted for one though so, I think by
saying we want to modify the CBR that means that we'll dump the
permanent fund earnings reserve into the permanent fund.
UNIDENTIFIED SPEAKER (female): Yes.
CHAIRMAN ROGERS: And then work from the CBR. Is everybody
comfortable with that?
UNIDENTIFIED SPEAKER (female): Yes.
MR. LOESCHER: I so move.
CHAIRMAN ROGERS: Is there an objection?
MS. FOUSE: Can you restate that, please.
MS. BRADY: Let's take a vote on it because....
CHAIRMAN ROGERS: That's a big item....
CHAIRMAN ROGERS: Okay, all in favor of....
UNIDENTIFIED SPEAKER (male): Should we wait until we have
everybody else here or....
UNIDENTIFIED SPEAKER (female): Well, we got eight.
UNIDENTIFIED SPEAKER (male): We got eight.
CHAIRMAN ROGERS: Okay, all in favor of dumping the earnings
reserve into the permanent fund, raise your hand. One, two, three,
four, five, six, seven and a half.
SENATOR LINCOLN: No, that was eight - I saw it.
MS. MCCONNELL: In terms of timing, are we talking about doing that
only at the time when all this....
CHAIRMAN ROGERS: Yes.
MS. MCCONNELL: So, at the same time, just flip the places it goes
to and from. Okay.
CHAIRMAN ROGERS: Okay now on the constitutional budget reserve,
again I'm assuming that whatever the constitutional amendment is on
the CBR is the same constitutional amendment as the endowment
(indisc.-coughing) constitutional amendment that deals with that
and probably repeals the spending limit at the same time, since it
doesn't mean anything anymore anyway. For those who missed the
vote, we -- we voted -- we voted to interpret the vote to, since we
already had a voted one reserve fund and we had voted to fix the
CBR that we then voted clearly consistently with that that we dump
the permanent fund earnings reserve into the corpus of the
permanent fund upon adoption of the amendment. And it was by a
majority....
UNIDENTIFIED SPEAKER (female): Unanimous.
CHAIRMAN ROGERS: By a majority of the members of the commission.
MR. GORSUCH: Hear, hear.
REPRESENTATIVE PARNELL: On a different issue, but going back to
your second point, I think there might be some merit in just
keeping our recommendation to delete the spending limits
separate....
CHAIRMAN ROGERS: Okay.
REPRESENTATIVE PARNELL: So, that that doesn't get muddied up -- I
mean have a separate resolution for that that we recommend happen,
as opposed to attaching it to this resolution on the CBR.
CHAIRMAN ROGERS: Well, actually we've already got a resolution on
the permanent fund and the CBR piece is part of the same plan. I
think what we want is a single resolution that has the permanent
fund and the CBR provisions (indisc.-coughing).
REPRESENTATIVE PARNELL: And the spending limit in the same....
CHAIRMAN ROGERS: Well, we'll have to vote on (indisc.-coughing)
not include the spending limit in that. But again, I think that,
and maybe -- maybe we ought to have a decision on this as to
whether the individual pieces of legislation that we recommend
would be ones that we recommend as newly introduced by the
commission, or whether we use other people's bills that are
floating around as the -- you know use somebody's for the income
tax and somebody's for the motor fuel tax and somebody's for this
constitutional amendment or that. My own preference is....
UNIDENTIFIED SPEAKER (male): Can we pick and choose?
CHAIRMAN ROGERS: Pardon.
UNIDENTIFIED SPEAKER (male): Can we pick and choose?
CHAIRMAN ROGERS: My own preference is that we ask for a package to
be introduced at the request of the commission so that it takes out
any partisan ownership of individual bills. But if people disagree
with that, say so.
SENATOR LINCOLN: No, Mr. Chairman I was going to agree totally
with you on that point and as well as I would like to see that any
resolution or bill that we have drafted go to our Leg Legal for
review before we submit it to the Governor and the legislature.
CHAIRMAN ROGERS: I think that anything needs to go through the
review and certainly, we don't have the power to introduce
legislation but Rules Committee could at our request.
UNIDENTIFIED SPEAKER (male): If they so chose.
CHAIRMAN ROGERS: And they've done -- they do that often for
interim groups. But again, that would be up to the chairman of the
Rules Committee on either side as to do it in that fashion. Other
thoughts on that issue? Okay. Looking at the CBR, on the issue of
natural disasters language in the CBR constitutional amendment, all
those in favor of including natural disaster language in the CBR
section of the constitutional amendment, are you ready to vote?
MR. POURCHOT: What's -- I'm sorry -- what's the -- where are we
are far as the trigger? You're only having a purpose because of
the trigger, right?
CHAIRMAN ROGERS: This is where we get down to the access. What --
whether - whether you have majority or super majority access to the
CBR for the purposes of natural disaster.
MR. POURCHOT: Is that what we're voting on, or are we just voting
for a general purposes section. Why are we having....
MS. NORDALE: Well, the two are tied together.
CHAIRMAN ROGERS: The purpose is, if - if you don't put it in the
access, then the purpose doesn't matter.
MS. NORDALE: Right.
CHAIRMAN ROGERS: You got -- so really it has to be in the access
section.
MR. POURCHOT: That's what I'm asking. What are we voting on?
CHAIRMAN ROGERS: On whether to put - to allow access to the CBR
for natural disasters....
MS. BRADY: On what kind of vote?
CHAIRMAN ROGERS: (Indisc.) somebody want to make a proposal on
that?
MS. NORDALE: I didn't hear what she said.
CHAIRMAN ROGERS: So whether it's a -- we have two sections of the
CBR, remember. A 50 percent vote section and a 75 percent vote
section. Judy.
MS. BRADY: If you allow - if - see it's kind of like - the whole
thing is kind of like city councils voting on school district
budgets you know where they don't get to veto, they just come to
say yes or no. (Indisc.-coughing) all the bills from a natural
disaster, you know, you don't get to say, well gosh, you gave these
guys 50 bucks an hour -- you know, you just have to vote it in
cause it's a whole bunch of money, so -- and that's the same kind
of thing that happens with cash flow, I'm assuming. So, what I
would suggest is that you allow access for cash flow emergencies of
some kind or cash flow and the Administration can make this
(indisc.) to you and you can decide on a simple majority vote. But
you take out natural disasters so it doesn't become you know, kind
of a honey pot for all the circling bears.
CHAIRMAN ROGERS: Steve.
SENATOR RIEGER: Well, the existing language or even under the fix
in resolution 30 allows an appropriation for any purpose - any
purpose - cash flow, disaster, whatever - on a three quarters vote
so, I think that if anything were a true emergency, probably the
three-quarter vote is there.
UNIDENTIFIED SPEAKER (female): Ya, if you can....
SENATOR RIEGER: I would speak against having loopholes and I think
that -- well, I think (indisc.), and I think that (indisc.), it's
probably -- it would be a loophole and it would probably be used
(indisc.). I think it would really be a....
MS. BRADY: Well, you'd get the votes, ya. I wouldn't worry about
it.
CHAIRMAN ROGERS: Bruce, Pat, Annalee.
MR. LUDWIG: I agree with Steve on the natural disaster, but I'm
kind of bothered about the cash flow. I -- I don't know why the
legislature would have to vote on the cash flow. I mean they
appropriate the money for a budget -- I mean, you're just talking
about timing and when that's paid out of the general fund. That
seems more of a mechanical thing than a -- an access.
SENATOR RIEGER: Well, I -- I'd have to check the statutes, but I -
- either in the Constitution or the statutes, revenue anticipation
notes within a year are permissible and there is already a
mechanism for cash flow. You must know that.
MS. MCCONNELL: But we don't want to have to do -- it is more
costly to the state to use a revenue anticipation note than to
borrow against the CBR, which is....
MR. LUDWIG: Well, why does the legislature have to approve that if
there's a statute or a constitutional provision allowing access.
MS. MCCONNELL: The reason -- the concern came up that the
Constitution does not say that you're allowed to use the CBR -- to
borrow against the CBR on a temporary basis for cash flow purposes.
There's sort of an irony in it in that until the very last day of
the fiscal year, you actually don't know how much you're allowed to
use from the CBR. So, there was just an interest on the part of
Revenue in clarifying that it is in fact permissible as long as
you're staying within your expectation of the total amount needed.
If you think you're going -- if the CBR is expected to be 500
million over the whole year, is it okay to use 200 up-front in
August to pay the bills for these cash flow purposes.
MR. LUDWIG: But is it necessary that the legislature vote on that?
I mean, if they appropriate the budget, and let's assume they don't
appropriate anything out of the CBR, that everything is based on
revenues, you're just talking about timing when money comes in.
MS. MCCONNELL: Right, but if legislature did not appropriate any
from the CBR, then we would not be allowed to borrow....
MR. LUDWIG: Even if the Constitution or the statute said you were
allowed to?
MS. MCCONNELL: Yes.
MR. LUDWIG: I'm wondering why on an annual basis the legislature
would have to vote for that. If -- if enabling legislation says
that's a function of it.
MS. MCCONNELL: Because the -- you're not allowed to do something
by statute that is prohibited by the Constitution. The statute can
make it narrower and tighter, but can't expand the purposes. So,
if we're going ahead and fixing the CBR....
MR. LUDWIG: I'm not arguing about the fix....
MS. MCCONNELL: Ya, you're (indisc.).
MR. LUDWIG: Ya, I'm just asking about the mechanics - why the
legislature has to, on an annual basis, appropriate $200 million
for cash flow.
CHAIRMAN ROGERS: You wouldn't and actually you could fix it in the
interim borrowing section of the Constitution which says the state
may borrow money to meet appropriations for fiscal year in
anticipation of the collection of the revenues. You could just
insert from the budget reserve fund or other parties, and that
would, I think be the kind of clarification that wouldn't require
a legislative vote.
MR. LUDWIG: So, it really wouldn't need to be done then for access
(indisc.) purpose.
MS. NORDALE: No, it has to be both.
CHAIRMAN ROGERS: It -- it has to be either in -- in the access
section here or in the interim borrowing section.
MR. LUDWIG: But wouldn't -- wouldn't....
MS. MCCONNELL: But this is a (indisc.) that probably we aren't the
best group to do in the next 15 minutes.
CHAIRMAN ROGERS: I'd personally rather leave it out of this and if
Revenue wants to make a case before the legislature, let them make
that case.
MS. MCCONNELL: (Indisc.) amendment. I'm okay with that.
MR. O'CONNOR: ... administrative problem.
CHAIRMAN ROGERS: So, on the issue of natural disasters, first
Steve has pointed out that the existing 75 percent super majority
can -- can cover that. I guess I would feel that if we later
decide to repeal the 75 percent, we ought to come back and revisit
the natural disaster issue. But is we're going to leave it at 75
percent for any purpose we don't need -- it's already covered.
MR. POURCHOT: I'm -- I'm real concerned we're heading down what I
think is kind of a wrong road here. This was laid out for a
different alternatives in dealing with reserves -- the general area
of reserves. Then we flipped back and made some decisions specific
to a constitutional amendment restructuring the CBR.
Reconstituted, the CBR would work fairly straightforwardly,
hopefully - if these words mean what we think they mean - if we did
have just a majority vote to bring spending levels up to last
year's expenditure. Or a three-quarter vote for any purpose. If
you go back in now and start further restricting when the majority
vote or when the three-quarter vote is to take effect, I think
you're headed right back down the old problem we've had the last
two or three years with the constitutional budget reserve account.
You can -- it's just going to get very complicated. Every one of
those words is subject to interpretation. So, I would say that
just leave the words alone. It doesn't even have to words with --
when you say fix the CBR, fixing the CBR means dealing with the
words that have been in court.
CHAIRMAN ROGERS: It's revenues versus amount available for
appropriation. End of sweep.
MR. POURCHOT: Right.
CHAIRMAN ROGERS: And that's what SJR 30 does. Reportedly.
SENATOR RIEGER: Oh ya.
CHAIRMAN ROGERS: That amendment, when added to our other
amendment, would not need -- in order to deal with the amount
issue, by three-quarters vote, we're covered. We might want to say
by a majority vote we can deposit the permanent fund, so you don't
need a three-quarters vote to go to the permanent fund. That makes
it easier to carry out our plan.
MS. MCCONNELL: As long as you had the amount equal to the current
year oil and gas revenues.
CHAIRMAN ROGERS: I'm nervous about how a court would interpret
current year oil and gas revenues. I'd rather say this is the plan
and then leave it up to the legislature (indisc.-coughing) deposit
a little bit -- you know $10 too much, I'd hate to have it go to
court -- have to fight it.
MS. MCCONNELL: Say it's 500 too much and took the reserves down,
you know, in an unwise way that would be also parallel.
CHAIRMAN ROGERS: It would be....
MS. MCCONNELL: (Indisc.).
CHAIRMAN ROGERS: But it's much harder to, I guess to clutter up
the Constitution to... Mike.
MR. O'CONNOR: How do we handle the case where ANWR comes in
(indisc.) and we get a half a billion dollars, general fund goes to
three and a half? Last year it was two and a half. So to get
there they take another billion dollars out of the CBR.
MS. MCCONNELL: But it would take a three-quarter vote.
CHAIRMAN ROGERS: No, it would take a majority vote. Mike's....
MS. MCCONNELL: Well, it would take a majority vote as proposed.
CHAIRMAN ROGERS: As the current -- as the current amendment is
written, the year that you get the ANWR bonuses, half of them go in
the permanent fund, the other half go to the general fund and can
be spent. The next year, after you spent the half a billion, the
revenues are down by half a billion and therefore you could draw a
half a billion out of the CBR.
SENATOR LINCOLN: That amendment you're speaking of is (indisc.).
UNIDENTIFIED SPEAKER (male): It gets (indisc.) every year.
CHAIRMAN ROGERS: Unintended consequences.
MR. POURCHOT: You have to think about what you're going to spend
it on. Typically, you'd be spending it on one-time items (indisc.)
capital construction....
MR. O'CONNOR: (Indisc.) now we're talking about deferred
maintenance. Every place in here there's deferred maintenance.
MR. POURCHOT: But you very easily might be able to drop - wouldn't
necessarily replenish it.
MR. O'CONNOR: Well ya, but let's just say that -- let's say it's
200,000, I mean 200 million -- it's not as big a number, but it's
still there, you know. We (indisc.) eliminated our purported
controls that we spent six months trying to put together.
CHAIRMAN ROGERS: Judy.
MS. BRADY: I still think the answer is just to treat ANWR bonuses
separately -- I mean just a separate line that says, you know that
you don't get to count ANWR bonuses for this to make it up. If you
-- you get half the bonuses, but you don't get to use that in your
calculation.
CHAIRMAN ROGERS: You could do that if you said - taking again the
language from SJR 30, if the amount of unrestricted revenue is
available for -- except bonuses is (indisc.).
MR. O'CONNOR: Oil prices could go to 30 bucks a barrel again -
same thing happens.
MS. BRADY: Ya, but that's alright because you have the money for
it. I mean the....
MR. O'CONNOR: You got it one year and then the next year you go
get it out of CBR.
MR. LUDWIG: What happens when the CBR is drained? Isn't that kind
of a control in and of itself?
MR. O'CONNOR: Not unless we have some kind of excess deposit
(indisc.) control, which we don't have in there.
MR. LUDWIG: I'm not sure why we have to appropriate from -- to the
permanent fund. I mean, why doesn't it just automatically - when
the bucket fills up at 1.6 or whatever, the overflow goes into the
permanent fund automatically.
CHAIRMAN ROGERS: I'm trying to figure out how to write the bucket.
MS. MCCONNELL: What about saying give oil and gas revenues because
the -- this windfall is only going to happen with oil and gas.
It's not like we're going to get a spike out of corporate income
tax or anything else.... If oil and gas revenues in any year are
more than some percentage above the previous years, then it goes
into the reserve unless - something -- I wouldn't necessary want it
completely (indisc.) in but I think at least making the presumption
that any spike in oil prices goes in to the reserve or to the
permanent fund might not be a bad idea.
CHAIRMAN ROGERS: Judy and then Lee.
MS. BRADY: Oh, I have an idea. If you're worried about too much
money, we'll just tell the companies they don't have to pay taxes
(indisc.) and golly, they'd probably -- they'd have to think about
it a little bit, but you know, then we wouldn't have t worry about
all this extra money.
CHAIRMAN ROGERS: Now you're doing (indisc.) oil and gas policy
council.
MS. BRADY: ....mucking up the budget. Wouldn't everybody love to
have our problem that you know, what do we do with all this....
CHAIRMAN ROGERS: Lee.
MR. GORSUCH: Well, I think we -- we can handle it by revising the
replenishment and simply have a replenishment device which is
whenever oil prices are in excess of 10 percent of the prior year
forecast and (indisc.).
MR. O'CONNOR: Current year oil revenues, not oil prices because
that takes care of lease bonuses or (indisc.).
SENATOR RIEGER: I think we're getting down to trying to provide
for every contingency that's out there -- the purpose of the
commission is to fill the fiscal gap or close it somehow or another
and now we're trying to anticipate individual revenue streams. You
know it's got to some.... You know Mike made his case before he
left; there's got to be some remaining budget process at some point
and when there have been excess revenues before there have been
special deposits to the permanent fund and sometimes - you know,
sometimes it works and sometimes it doesn't. But I think trying to
get too -I'll use Brian's word - mechanistic might -- I mean my
experience has been when we've tried to prescribe the future in
statute or in Constitution, it's always wrong and I think we're
getting to that point here, about how the appropriation process
will work -- you know, there's some general principles (indisc.) is
one thing.
CHAIRMAN ROGERS: Mike and then Annalee.
MR. O'CONNOR: Well, the antithesis to that is when we got 600
million bucks and they spend it in 20 days or whatever, and the
Governor (indisc.) but I mean, you know I agree with you but I'm
not sure that I believe the control mechanisms exist.
SENATOR RIEGER: Well, they don't always. I mean (indisc.) but
sometimes they do, sometimes they do. That time it did not and the
Governor lead the charge in wanting to spend that. As you recall
the Senate....
MR. O'CONNOR: I didn't blame anybody, I just said it happened.
SENATOR RIEGER: ...dug its heels in and said ....
CHAIRMAN ROGERS: Annalee.
MS. MCCONNELL: We talked about having -- having an overall
resolution that would be the fiscal plan that would be adopted by
the legislature. What if we put this kind of a more than 10
percent sort of deal as an element of the plan in the resolution so
that we make a clear message that we think it should be -- every
consideration should be given to making a special deposit when you
get that much money, but it's not locking it into the Constitution
or a statute.
MR. LUDWIG: I thought we were locking in the amount.
MS. MCCONNELL: Well, I'm suggesting an alternative -- I agree, we
got to be careful we don't get to every situation but I think it
would be a good idea somewhere to lay out we think it's just as
much a concern when more money comes in than expected as it is when
too little money comes in. That was just a way of trying to find
a compromise way of communicating that.
MR. MOTLEY: I guess my concern is if you literally don't trust the
legislature to live within the limits of reasonable bounds, I think
we're in trouble anyway. I don't know how to write such a
document, so I guess I have to believe that the majority will not
make the same mistake again.
MR. LUDWIG: Natural disaster.
Laughter
CHAIRMAN ROGERS: Okay, I believe the proposal before us is to
modify the budget reserve fund to refer to revenue instead of
amount available for appropriation, to eliminate the sweep
provision, and to allow by majority vote deposits into the
permanent fund.
MS. MCCONNELL: And (indisc.) clarifications that's right now the
sweep is totally repealed, the replenishment of the fund, if we
ended up taking out, would be currently off of deposit -- I mean
settlements....
CHAIRMAN ROGERS: Settlements and from the investment of the fund.
MS. MCCONNELL: ...and investment of the fund, but would not
include year end balances of the general fund (indisc.) general
fund, I'd like to throw out whether we would want to include that
year end -- that's the one item out of the sweep that has not
caused anybody any problems that I'm aware of, saying if you've got
a fund balance in the plain old general fund, that could go into
the reserve as a replenishment. It's all these other funds that
have created the problems. So, it's just throwing it out as a
question of whether we want to add that in as one more
replenishment.
UNIDENTIFIED SPEAKER (male): (Indisc.) problem though.
CHAIRMAN ROGERS: Ya, if you leave -- if you leave the undesignated
fund balance, you've got better cash flow.
MR. GORSUCH: Keep it under the signature authority of the director
of the Office of Management and Budget.
UNIDENTIFIED SPEAKER (male): Ya, there you go.
SENATOR RIEGER: That phrase you used quote in the plain old
general fund is in the eye of the beholder. I think that the
courts looked at it (indisc.)
MS. MCCONNELL: I just wanted to clarify....
MR. LUDWIG: (Indisc.) in the access part, we say majority vote if
projected revenue less than current year. Why don't we just
exclude bonuses from that figure. So -- so what if they spent it?
They'd have to have three-quarters next year to be able to go over
that.
REPRESENTATIVE PARNELL: I don't know - this almost sounds like
something for committee work in the legislature, but we're kind of
talking about terms - are we doing any better using the word
revenue than an amount available for appropriation. Are we talking
about projected revenue. I mean projected revenue seems to be
subjective as well.
UNIDENTIFIED SPEAKER (male): Subjective by who?
REPRESENTATIVE PARNELL: Ya, ya. And that can be manipulated to a
majority vote as well. I think I'll just (indisc.).
CHAIRMAN ROGERS: That's true. Lee.
MR. GORSUCH: Is there objection to having a provision which allows
for 25 percent of all future bonus funds shall be contributed to
the CBR?
CHAIRMAN ROGERS: I object.
MR. GORSUCH: Just for the hell or it or....
CHAIRMAN ROGERS: The more pieces we split it into and the more
words we have to add to the Constitution, the less I like it.
MR. GORSUCH: Well the argument -- the argument for it would be
we've now got 50 percent of continuing revenues off of oil and gas
development. And one item that we do not have is the -- is the
truly one-time bonus funds and if we put 25 percent -- an
additional 25 percent of the bonus it would leave only 25 percent
of that bonus money available for general fund appropriations.
MS. BRADY: I have an idea. This is not original - Pat will laugh
and Lee will laugh and some other people will laugh, but you know
one of the problems we're going to have is capital spending. And
we also know that many of our communities are gonna go -- have to
do some capital. What if we put bonuses into the capital matching
grant program and built that up as a source of matching grant
capital program, cause that's where the pressure is going to start
to come real serious.
CHAIRMAN ROGERS: I think we have the same problems on state
facilities -- state-owned facilities that we do on local (indisc.-
coughing).
MS. BRADY: What?
CHAIRMAN ROGERS: There are elements of capital spending that are
out of that such as spending on deferred maintenance of public
facilities such as new buildings that might be needed by Fish and
Game, or DOT, or Highways, or whatever and capital matching grants
only applies to municipalities.
MR. GORSUCH: Call for the question.
SENATOR LINCOLN: Mr. Chairman.
CHAIRMAN ROGERS: Georgianna.
SENATOR LINCOLN: I -- I'm going to vote against it. I just -- I
don't have that sense of comfort with the majority vote. I've seen
it both ways and I -- I'd like to think that reasonable people
would -- could sit down and come up with a plan that -- a spending
plan or any movement of funds, and have that as the -- in the best
interest of the general public of Alaskans. I don't have that
feeling - that comfort level, so the majority vote I really -- I
can't support it at this point.
CHAIRMAN ROGERS: Sean.
REPRESENTATIVE PARNELL: I think our appropriations process - our
legislative process is split (indisc.) majority vote and
philosophically I -- I disagree with you, but Georgianna I -- I
have struggles with recommending this for a different reason --
that's because I'm not sure that wording is going to get us where
we want to go.
SENATOR LINCOLN: Well, I too....
REPRESENTATIVE PARNELL: And so I -- I agree. (Indisc.)
Georgianna's original proposal. I agree with the concept of what
we're trying to accomplish, I just don't agree that this gets us
where we want to go.
CHAIRMAN ROGERS: I -- I think that -- that Georgianna's earlier
suggestion that whatever we draft up goes to Legislative Legal and
gets reviewed should address that issue and we're likely to see
something that's different. I think what we're voting on now would
be a concept that by majority vote the legislature could
appropriate an amount up to; fill the gap the drop in revenues by
super majority the legislature could go over that amount; by
majority the legislature could dump money into the permanent fund
and the sweep provision is gone.
MS. NORDALE: By majority goes into the permanent fund?
CHAIRMAN ROGERS: Yes.
MR. LUDWIG: Question.
UNIDENTIFIED SPEAKER (male): Question.
CHAIRMAN ROGERS: Are you ready to vote? All those in favor of
modifying -- so modifying the CBR, please indicate by raising your
hand. Three, four, five, six, seven, eight, nine, ten, eleven,
twelve.
MS. NORDALE: With the except of the majority vote for into the
permanent fund, I'd -- I'd like to take a vote on leaving that at
three-fourths.
CHAIRMAN ROGERS: Okay. All those in favor of....
MS. BRADY: What did you just vote on then?
MS. NORDALE: Well, we voted on a -- on a package, and what I'm
saying is I'd like to amend the package where a three-fourths vote
for appropriations out of the CBR to the permanent fund.
MR. LUDWIG: Why.
MS. NORDALE: Because I think that the -- with the revenues to the
CBR being limited to settlement and interest earnings, we're likely
to see a tremendous drop in the available funds to meet the kind of
need that this reserve is established for. And if we pull
everything out of there, we're not going to have a CBR -- or we're
not going to have a reserve fund. It's all going to be part of the
permanent fund and available for spending with a majority vote.
UNIDENTIFIED SPEAKER (male): So, with the majority (indisc.) say
put a million dollars in -- a billion dollars in the permanent fund
(indisc.).
UNIDENTIFIED SPEAKER (male): So, with the majority (indisc.) say
put a million dollars in -- a billion dollars in the permanent fund
(indisc.).
MS. NORDALE: The ERA and pull it right back out again.
CHAIRMAN ROGERS: Further discussion of requiring three-quarters
vote for transfers from CBR to permanent fund?
MR. GORSUCH: Are we requiring, as we had stated in one of our
purposes, that the amount was to be the 1.5 billion in the two
years?
CHAIRMAN ROGERS: That was not included in the motion.
MR. GORSUCH: Well, I would -- I would support the division of the
question, then because I was voting to support the package under
the presumption that we have the amount agreed upon and that the
voluntary deposits would be in excess of that amount. So, I do
want to see the CBR maintained at a $1.5 billion level.
MR. LOESCHER: Mr. Chairman, when we voted on the previous page, I
thought that was part of 3 and 4 (indisc.).
CHAIRMAN ROGERS: But the -- but whether that goes in the
Constitution or law was not established by the vote on the previous
page.
MR. LOESCHER: Mr. Chairman, I would align my comments with Mr.
Gorsuch, then (indisc.) a million and a half (indisc.) to maintain.
MS. BRADY: This (indisc.) choice -- we can do it (indisc.) a
billion and a half, but they can't do it up to that. And then what
about the pay back? If we want to keep it to a billion and a half,
how do we do the pay backs?
CHAIRMAN ROGERS: I think if we want to keep it to about a billion
and a half, we can leave it up to the legislature to appropriate
from time to time the amount in excess of a billion and half. I
don't think we need to write that in to the Constitution.
MS. BRADY: Well, I don't either, but -- but how do they repay it?
(Indisc.) follow what I'm asking.
MS. MCCONNELL: (Indisc.) could be each year the legislature could
decide to, for instance, appropriate the undesignated general fund
balance at the year end. I mean there are a number of mechanisms
that would do the dump in the appropriations bill, so that there
would be plenty of ways the legislature could do that mechanically.
CHAIRMAN ROGERS: The issue of replenishment, as things now stand,
is by settlements, by earnings, or by special appropriations into
the CBR.
MS. BRADY: Okay, I didn't understand -- I forgot that.
CHAIRMAN ROGERS: The issue of when you dump from the CBR to the
permanent fund and how - I think there are two themes: One that
would say whenever you're over a billion and a half, it
automatically dumps; another would say that the legislature by
majority can dump. Lee.
MR. GORSUCH: Well, just in general this is a complaint to all the
lawyers who draft this stuff -- no one in the public is going to
understand this amendment that says, is to help stabilize spending
from year to year if the amount of unrestricted revenue combined
amount of unrestricted revenue and money paid from the fund from
unrestricted revenue from the fund, I mean no one knows what this
means. I think our -- we should try to go forward with a fairly
simple piece of language that at least has -- I don't know how this
works, Mary, whether there can be an accompanying piece of -- of
intent that's embodied when you enact the language as the
constitutional provision that there's some interpretation....
MS. NORDALE: You have a statement of purpose.
MR. GORSUCH: But I really feel that when we're asking people to do
this amendment, it ought to be clear that our purposes are there
and this implementing language is subservient to that purpose. And
part of that purpose is to maintain a $1.5 billion fund, and I
don't -- I prefer the concept that we had than the language that I
see in front of me.
CHAIRMAN ROGERS: Georgianna.
SENATOR LINCOLN: Well, first of all I don't think that this
language is what we've adopted. I think that we've -- what's
adopted is a concept that we're going to write our own language -
that's what I understood. Maybe that was the vote we took while
you were out of the room, but that's -- that's what I said, I've
got a lot of little things circled here of concerns that I've got
of what the interpretation is - what that means and that's what we
argued about for days and weeks in the legislature, as you know.
But my concern in why I would vote for a three-quarter vote -- I
still haven't been convinced -- that when we say that it takes a
majority to move money from the CBR into the permanent fund to fill
a gap, I don't know if that gap is this or because it's just a
simple majority to dump in, that gap is this because it takes a
simple majority, or if it's this or if it's this. Whereas if it
took a three-quarter vote, it's much harder to go from this gap
that's here to here. And that's why I liked -- it's much more
difficult to get that three-quarter vote, granted, but it forces
folks to look at what the spending level is going to be. And it
forces, I think, the general public to become more involved, if you
will, in that process. I worry about just a simple majority.
CHAIRMAN ROGERS: The motion on the floor is to set a requirement
at three-quarters vote for an appropriation into the permanent
fund. We'll have a later vote on whether to set some formula that
would automatically -- at this point, we don't have an automatic
formula on the earlier vote. So, on the issue of three-quarters
versus majority for the permanent fund, are you ready to vote?
UNIDENTIFIED SPEAKER (male): Question.
CHAIRMAN ROGERS: All those in favor of the motion that three-
quarters vote be required for an appropriation from the budget
reserve to the permanent fund, please raise your hand. Two, three,
four, five, six. All those opposed -- correction, all those for a
majority vote. One, two, three, four, five, six, seven, eight.
MS. BRADY: Clear majority.
CHAIRMAN ROGERS: No, I don't have Mike's proxy for that vote.
UNIDENTIFIED SPEAKER (male): Two-thirds.
SENATOR LINCOLN: I got it.
Laughter
CHAIRMAN ROGERS: In writing?
UNIDENTIFIED SPEAKER (female): Oh.
MR. POURCHOT: Mr. Chairman, would you entertain a motion to
rescind our previous action in failing to adopt the motion to blow
up the CBR altogether?
CHAIRMAN ROGERS: A motion's been made to rescind our action in
fixing the CBR and instead blow it up.
Laughter
MR. LUDWIG: And what would go in it's place then?
CHAIRMAN ROGERS: We'd go back to 3:30 and start our discussion....
MR. LOESCHER: Mr. Chairman, that billion and a half question is --
do we need to make a motion to fix our previous motion?
CHAIRMAN ROGERS: We will have to do that, but we're still at this
-- we didn't have a majority of the members of the commission, I
don't think, on that last vote. I counted -- I must have missed
somebody's vote.
UNIDENTIFIED SPEAKER (male): I abstained -- I didn't vote.
UNIDENTIFIED SPEAKER (female): Oh-oh. The pressure's on.
UNIDENTIFIED SPEAKER (male): You can't abstain.
MR. O'CONNOR: Why not? I don't think -- I don't think that the
thing covers everything that needs to be covered (indisc.).
Expenditure -- that's why I abstained, and that doesn't change
(indisc.) vote the first time.
MS. BRADY: I have a suggestion.
CHAIRMAN ROGERS: Well, let's -- let's vote a second time and see
if anybody's changed their mind in this. The issue being requiring
three-quarter vote....
MR. GORSUCH: Should we try to 1.5 first and then do....
CHAIRMAN ROGERS: Ya, let's try the 1.5 first cause there -- how
would we -- how would those who favor constitutionally setting the
-- the movement from the CBR to the permanent fund, how would you
see that being laid out in the Constitution?
MR. LUDWIG: (Indisc.) fiscal year....
CHAIRMAN ROGERS: With a flat $1.5 billion or with a tie to a
projection of oil revenues or....
UNIDENTIFIED SPEAKER (male): Let's do it from the (indisc.),
that's how we get everything else.
CHAIRMAN ROGERS: Lee.
MR. GORSUCH: Well, one -- one possibility might be to simply --
instead of saying the purpose of the budget reserve fund is to help
stabilize state revenues, spending from year to year is to say it's
-- the purpose of the budget reserve fund is to protect state
revenues from volatility of oil and gas revenues. And it should
provide for the equivalent of last year's state revenues received
from oil and gas -- general fund revenues. That's about 1.6 this
year; it will go down a little bit the following year and so forth.
But -- and it would be almost the equivalent of the 1.5.
CHAIRMAN ROGERS: Now is that state revenues -- revenues excluding
the revenues that are deposited in the permanent fund or including
those revenues?
UNIDENTIFIED SPEAKER (male): General fund.
CHAIRMAN ROGERS: General fund actually isn't a term used....
MS. NORDALE: Excluding bonuses.
CHAIRMAN ROGERS: ...in the Constitution. Pat.
MR. POURCHOT: Well, once again in that last exchange, it seemed
like we've slid into this, I think, a trap by talking about the 1.5
million and a constitutional amendment, I don't connect those
things. I don't think you have to address everything. Just
because we're on a constitutional amendment doesn't mean we have to
pile all the elements into the constitutional amendment. We have
a whole bunch of things on our spending sheets here that we're
recommending to the legislature that they do. They're not in the
Constitution. I would see it just being a straight recommendation
that would be reflected on our spreadsheets that everything in
excess of a million and a half dollars is deposited into the
permanent fund corpus. You know and it just shows up that way and
that's what we're recommending that they do.
CHAIRMAN ROGERS: I agree with you and that's why I supported the
majority being able to do that into the permanent fund was so that
we wouldn't have to put it in the Constitution.
UNIDENTIFIED SPEAKER (male): Me, too.
CHAIRMAN ROGERS: So -- so I'm going to vote against setting the
1.5 in the Constitution.
MS. NORDALE: The problem that I have with that is that because the
revenues to the CBR restrict it to (indisc.) special appropriations
earnings is that I see that over time, of course, it's going to
dwindle and -- and perhaps that's quite appropriate. The thing is
that if that is happening and we're seeing a decline in receipts to
the CBR but we still see the benefit of it, if you get this
automatic dump by the majority, you may find yourself shortening
the life of the CBR and the protection that it gives. I think that
you need to consider that when you're rushing to bulk up the
permanent fund.
CHAIRMAN ROGERS: Lee, do you want to restate your motion on....
MR. GORSUCH: I would propose language that would say the purpose
of the budget reserve fund is to maintain a cash balance equivalent
to one-half of the prior year's spending.
CHAIRMAN ROGERS: Spending including federal....
UNIDENTIFIED SPEAKER (male): The court had a lot of fun with that
language.
MR. GORSUCH: What (indisc.) state appropriates -- state general
fund....
UNIDENTIFIED SPEAKER (female): I liked your earlier version of
tying to the previous year's general fund oil and gas revenues. I
think there's -- I suspect there's more -- more certainty to that
than the other approach.
MR. GORSUCH: It's amazing we can't even define (indisc.).
UNIDENTIFIED SPEAKER (female): I know.
CHAIRMAN ROGERS: Okay, a motion's been made to....
UNIDENTIFIED SPEAKER (male): What's the motion?
CHAIRMAN ROGERS: ...to put -- to put into the Constitution a
purpose and then a (indisc.) -- and that was the purpose language,
then how are you going to have the -- were you not going to set the
formula in the Constitution, but just say that's the purpose and
leave the three-quarter vote to do it?
MR. GORSUCH: No, I wanted to have a required balance.
CHAIRMAN ROGERS: How?
MR. GORSUCH: Well, the easiest way is to say 1.5 billion.
Note: Tape is indiscernible -- everyone talking at the same time.
UNIDENTIFIED SPEAKER (female): ....then it's no problem, they can
put as put as much in as they want.
CHAIRMAN ROGERS: I'm with Mary on that, we don't need it in the
Constitution. Are we ready to vote on -- on this as to whether to
put....
MS. BRADY: We could just say (indisc.)....
CHAIRMAN ROGERS: ...a base of 1.5 in the....
MS. BRADY: We could have some money -- in the Constitution we
could say we should put some money.
MR. POURCHOT: Would that little, medium, or big?
SENATOR LINCOLN: The language (indisc.) was the amount in excess
of 1.5, so.
CHAIRMAN ROGERS: Well, actually she was -- I think Annalee was
using that as a place holder for....
MS. MCCONNELL: Well, and I -- it shouldn't say up to 1, because
then you could have a dollar in the reserve which doesn't make any
sense.
UNIDENTIFIED SPEAKER (male): Minimum amount.
MS. MCCONNELL: Ya.
MR. LUDWIG: I wouldn't want to get in a situation where they spent
half -- half a billion and the next year have the court say that
the first half billion we spend next year has to go to the CBR or
something either. I mean that's sort of what we got now, that....
CHAIRMAN ROGERS: Mike.
TAPE 4, SIDE A
NOTE: Tape 4 is blank.
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