Legislature(1995 - 1996)
12/08/1995 09:03 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
December 8, 1995
9:03 a.m.
Anchorage, Alaska
TAPE 1, SIDE A
CHAIRMAN BRIAN ROGERS: I'll call the work session to order. It
will be a work session until we get a quorum. We're expecting a
bare quorum of eight members of the commission. And to assist in
the transcribing of this, I'd like each person to a state their
name and say a few words so that the people doing the transcribing
will hear enough of your voice that later when they hear the voice
they know who's going to be speaking. So, maybe, I can start. I'm
Brian Rogers and chairing the commission and this is my voice.
MARY NORDALE: I'm Mary Nordale, a member of the commission and
when we get to the resolution on the permanent fund amendments to
the constitution I'd like to address some of the issues that are
raised there.
CHAIRMAN ROGERS: O.K., Judy.
JUDY BRADY: I'm Judy Brady. I'm a member of the commission and
this is my voice.
CHAIRMAN ROGERS: Annalee. Do you want to say a few....
ANNALEE MCCONNELL: Annalee McConnell, I'm, I'm Annalee McConnell
in Juneau representing the Administration on the commission and
trying to keep awake after all the work we've been doing on the
budget lately.
BRAD PIERCE: I'm Brad Pierce. Staff.
MELISSA FOUSE: Melissa Fouse. Staff.
UNIDENTIFIED SPEAKERS (Male and Female): (Entire conversation
indisc.--neglected to speak directly into mike.
TAMARA COOK: Tamara Cook. I'm an observer.
MS. FOUSE: Good morning Tam.
MS. COOK: Hello Melissa.
UNIDENTIFIED SPEAKERS (Male and Female): (Entire conversation
indisc.--neglected to speak directly into mike).
CHAIRMAN ROGERS: Couple of items on the agenda. We had originally
scheduled the permanent fund presentation for 9:00 a.m.. Due to
air plane schedules, that's going to be at 11:30 and where I had
hoped to do the permanent fund constitutional amendment first, I'm
going to wait, I want to wait until we've had the opportunity to
hear from Michael O'Leary, the permanent fund's Asset Allocation
Advisor and the person who we had on the line during our work. Pat
do you want to say a few words so that the people doing the
transcription understand who's talking when you talk?
PAT POURCHOT: This is Pat Pourchot. Can you, can you hear us
here?
CHAIRMAN ROGERS: Yes. The a, what we'll do then is begin working
through the legislation and come back around to do the permanent
fund issues. We may have some information concerning state
revenues as well. Annalee is, do you know what time that might be
available for discussion?
MS. MCCONNELL: How about maybe right after lunch?
CHAIRMAN ROGERS: O.K.
MS. MCCONNELL: Or right after permanent fund?
CHAIRMAN ROGERS: O.K., that sounds good. Let's start then looking
through the bill packet and I'd like to take them sort of in the
order that we've always discussed them beginning with the Tobacco
Tax. We have a bill draft, with a bill analysis and a Department
of Revenue commentary. The bill draft is, "an act relating to
taxes on cigarette and tobacco products." The first section of the
bill increases the excise tax per cigarette from 12 mills to 62
mills. The second section increases the excise tax on wholesale
price of tobacco products from 25 to 100 percent and the third
section provides for the indexing of this amount, every two years,
based on the CPI (Consumer Price Index.) The memo from Legislative
Counsel indi..., just shows the, describes how they've gone about
this. The current version puts a portion into the school tax fund
and the rest into the general fund. This bill keeps the same
amount in the school tax fund and the additional dollar a pack all
goes into the general fund. Does anyone have any comments on this,
whether this one meets what our intent was? Questions?
MS. NORDALE: Mr. Chairman.
CHAIRMAN ROGERS: Mary.
MS. NORDALE: The attachment, Bartholomew's memo to Brad suggests
that we look at the comments regarding the CPI adjustment that are
attached to the motor fuel tax. It appears that both the
Department of Labor and the Department of Public Safety want to be
out of the firing line with respect to raises in the taxes and they
also call some attention to some complications with respect to
references to whatever CPI it is, that is to be used. One of the
things that I found of interest also was that the Department of
Public Safety says they need six months in order to do whatever it
is that they need to do administratively to incorporate the raises
in the, in the lic... in the fees. So, I think that what we need to
do is make sure that if we're going to do this CPI adjustment, that
we conform all of the bills to a particular standard so that nobody
- - and we clarify how the procedure is to work so that all of the
adjustment is based on the same set of parameters.
MR ROGERS: I would, I would agree with that and, and would, would
propose that we consider that the CPI adjustments take effect on
July first of each year based on the CPI as of the previous October
first, which gives nine months after the CPI comes out to make the
adjustments with the exception of when we get to the motor vehicle
license fees, which are done on an annual calendar year basis
rather than on a fiscal year basis, but that the taxes be done on
a fiscal year July one increase each year.
MS. NORDALE: Well if I understand it correctly Mr. Chairman, the,
apparently the Department of Public Safety is saying that they need
six months, they need lead time to make adjustments for fee
increases which would be the same lead, I am assuming would be the
same lead time every time the CPI adjustment was made. So, if they
need six months and we're to make that adjustment, if the
adjustment is made as of October first when the CPI comes out then
they would need six months, which would take it into the middle of
a calendar year. So I'm wondering if it shouldn't be the following
January one if they want a calendar year and I think that's
appropriate under the circumstances, if they want a calendar year.
CHAIRMAN ROGERS: Well, I think that doesn't apply to the cigarette
and tobacco, but when we, I think when we get to the motor vehicle
license we're going to have to have a separate discussion on how it
will work for those, but for those that are tax increases, if they
know on October first there should no impleme... no problem
implementing on July first.
MS. NORDALE: Right.
CHAIRMAN ROGERS: Pat, did you have your hand up?
MR. POURCHOT: No, I'm just chewing on my pen Mr. Chairman.
CHAIRMAN ROGERS: Oh, O.K.
MS. MCCONNELL: He's trying not to get addicted to tobacco.
CHAIRMAN ROGERS: Good.
MS. MCCONNELL: Somehow I missed the public safety memo. Mary,
where's the public safety memo?
MS. NORDALE: It's a memo that's attached to....
CHAIRMAN ROGERS: Motor vehicle license.
MS. NORDALE: ...motor vehicle registration fees and it's a memo
from Ann Carpeneti to Debra Behr.
MS. MCCONNELL: Oh, I'm sorry.
MS. NORDALE: It's on the second page under, well first and
second....
MS. MCCONNELL: I see it.
MS. NORDALE: O.K.
MS. MCCONNELL: Number eight.
MS. NORDALE: Right.
MS. MCCONNELL: Yeah, I'm sorry, I missed that.
CHAIRMAN ROGERS: Judy.
MS. BRADY: I'm assuming, maybe I'm assuming wrongly so I'm
assuming that what we, that kind of our job is to see that the bill
is, does what we intend it to do in terms of taxes and things, but
like Mary, I'm concerned about, you know, timing and all those
issues. Mary just knows a whole lot more about it than I do. I
just know enough to be concerned. But, I, I was kind of assuming
that the legislature, in their hearing process would fine tune that
kind of thing and that the information from the bill attachments
that we have would also go to the legislature so they could see and
in those instances where we know what we've been told, you know, we
make the adjustments that we can here. But because we only have
three of four hours to do this, that we essentially pay attention
to, is this something that fits - that does what we - is a piece of
the plan that we had voted for.
MS. NORDALE: Mr. Chair, Yeah, but, Judy I think we need to ensure
that when we're doing, doing CPI adjustments that we use the same
standards...
MS. BRADY: ...yes I will agree with that....
MS. NORDALE: ...because I think that as a bill goes through the
legislature we could get tweaks that are going to be a mess.
MS. BRADY: Yes, absolutely.
MS. NORDALE: O.K.
CHAIRMAN ROGERS: I suggest based on the implementation time that
we consider an effective date on the tobacco tax bill. I don't
know how quickly a tobacco tax can go into effect and there didn't
seem to be any discussion from Revenue. As the bill stands here,
the tax would go up 90 days after it was signed by the Governor and
it may be that a fixed date would be more useful and I don't know
perhaps someone from the Administration would know how much time we
want to have a lapse prior to this coming into effect.
MR. POURCHOT: Mr. Chairman, this is Pat. I don't know what the
exact time is, but I had a conversation just in general with
Revenue several months back. They reminded me that I'd forgotten
that we do currently of course have a cigarette tax, we have an
alcohol tax, we have motor fuel tax. They, they didn't act like it
was, you know, a very hard chore to change the rate of that tax.
The mechanisms for charging it and collecting it of course are
already in place.
MS. NORDALE: Mr. Chairman.
CHAIRMAN ROGERS: Mary.
MS. NORDALE: One of the things we have to take into account is
that private industry really is our tax collector on this and there
are an awful lot of vending machines and that kind of thing that
are going to have to be adjusted. So I think that it would be
extremely helpful to private industry to give them a fixed date on
which the tax would go into effect. So they would know what their
deadline is and give them perhaps a little more than the 90 days
that would normally be available without another effective date.
CHAIRMAN ROGERS: Does anyone want to propose a date on the tobacco
tax?
MS. NORDALE: I would propose January one. It doesn't really
matter if it goes into effect at a mid-year....
MS. MCCONNELL: For ease of a, just, we're trying as much as
possible to get things in sync of where, where it doesn't disrupt
the public to get things in sync with the fiscal year. It just
makes our projections and so on cleaner and our budget stuff
cleaner. I don't have so much a problem with, with an effective
date that doesn't start on July first for this year if we need lead
time, but one thing that would be helpful is if we say, even if it
takes some initial lead time for the first go-around, by that time
the public is on notice that the increases in succeeding years
would happen on July first. That would help from our end.
CHAIRMAN ROGERS: Yeah, I think, I think I heard no objection to
July first for all of the CPI adjustments. Is there objection to
January first, '97 as the effective date? On this one....
MR. POURCHOT: Mr. Chairman.
CHAIRMAN ROGERS: Pat.
MR. POURCHOT: Just in terms of, just in terms of the commission's
calculations on our spreadsheets knowing that, you know, there's
lots of problems with the numbers as far as, you know, plus and
minus there. I'm not, I don't think that the commission's
spreadsheet calculated only a half a year of revenue, did they?
CHAIRMAN ROGERS: We calculated a full year revenue on the tobacco
tax and I think that for us to put a later effective date because
we think it makes more sense administratively, while it would have
a minor change on the revenues I think that would be acceptable.
I wonder if maybe October first might work better for this just
because we already have a tax in place.
MS. MCCONNELL: I would go for that.
CHAIRMAN ROGERS: Other thoughts.
MS. BRADY: That's fine.
MS. NORDALE: I just think January one is a better deal because
there are going to be so many problems that industry is going to
encounter with this.
CHAIRMAN ROGERS: Mike, do you have preference?
MR. O'CONNER: No.
CHAIRMAN ROGERS: O.K., we have in Anchorage, we have two October
first, one January first and one no preference. What about in
Juneau?
MS. MCCONNELL: Two for October first. Pat had to leave the room
for just a moment.
CHAIRMAN ROGERS: O.K., so, where we are on this one will be adding
an effective date of October first, '96 and....
MS. MCCONNELL: '97 or '96?
CHAIRMAN ROGERS: '96 for the first one and then the future, the
future changes would be effective on July first of every odd
numbered year based on the percentage change in the CPI.
MR. POURCHOT: (Indisc.) are we going to change even numbered year
to odd numbered then?
CHAIRMAN ROGERS: Let's see, if we're coming in '96, no it should
be even numbered year, that's right. The amounts would change on
July first of each even numbered year.
MR. POURCHOT: O.K.
MS. NORDALE: So instead of October one, it would be July one.
CHAIRMAN ROGERS: Yes.
MS. NORDALE: So the next change then would be 10/98.
CHAIRMAN ROGERS: Correct. Now did we also on the cigarette tax
have an inc... have a tri-annual increase of 25 cents?
MS. NORDALE: I thought we did.
B. PIERCE: Yes we did.
CHAIRMAN ROGERS: Do we want to put that tri-annual increase into
this bill or leave that to the future legislatures? My preference
would be to leave it to future legislatures so that we don't have
in section one here a section that says it's 62 mills that's
effective on October first, '96 and then a repealer of that and a
reenactment to say, 75 mills that's effective on another date,
etcetera. I guess I, my preference would be not to try to do all
of the step-ups in this bill, but I'd be open to other thoughts on
that.
MR. O'CONNER: (Indisc.) if you don't do it now, it won't get done.
MS. NORDALE: Well isn't that taken into account in section two of
the bill where it steps up the excise tax from 25 to 100?
CHAIRMAN ROGERS: That works on the to, the non-cigarette tobacco
products.
MS. NORDALE: Oh, O.K.
CHAIRMAN ROGERS: So the non-cigarette products will go up with
wholesale price increases, but they don't go up further, nor does
the cigarette tax go up further and according to our - we had '99,
2002 and 2005, if I remember right, 25 cent increases.
MS. NORDALE: O.K.
CHAIRMAN ROGERS: Judy.
MS. BRADY: I guess, I guess I agree with Mike on this that the
Legislature can always take it out, but if we don't put it in, it
will not happen again. It's too hard, it's too hard to do
incremental increases like that and so I think we should put it in
as part of our budget plan and...
MR. O'CONNER: (Indisc.--spoke too softly.)
MS. NORDALE: Well it's going to be a bad scramble with a lot of
lobbying on this bill anyway and they might just as well get it all
over with in one session instead of postponing the agony.
MS. BRADY: Yeah, right, I agree.
MS. NORDALE: I'd like to see it all done at once.
MR. O'CONNER: We heard that from other people right?
CHAIRMAN ROGERS: O.K. so that the, the proposals I'm hearing
majority on is that we would say that it's 62 mills from October
one, '96, it goes to 75 mills on July one '99, it goes to 87 mills
on July one 2002 and it goes to 100 mills on July one 2005, plus
CPI adjustors. Is that....?
MS. NORDALE: That's what everyone voted on. I think it's dumb.
MS. BRADY: Why don't we do a, why don't we just do a, up to three
dollars and cap it at that? (Indisc.--spoke too softly.)
CHAIRMAN ROGERS: Well one, one...
MS. MCCONNELL: It seems to me...
CHAIRMAN ROGERS: Annalee.
MS. MCCONNELL: Sorry. It seems to me that this case is a little
bit different than some of the other fee things that we've talked
about where we thought indexing was important because in the case
of the motor fuel we were talking about trying to keep pace with
inflation and what we've suggested in our plan of going from a
dollar, dollar fifty, etcetera is something that is not related to
inflation. So it seems to me that it could be appropriate in this
case, and we weren't, we didn't bank on it - I don't - in our
calculations to substitute a specific dollar increase for the CPI
increase. I think that if we load the two we begin to sound
preposterous.
CHAIRMAN ROGERS: So should we then just take out the indexing, the
CPI indexing and go with an increase of 12 mills every three years?
MS. NORDALE: Well Mr. Chairman I, my recollection is that the
commission was very favorable to Kay Brown's bill which included
indexing. And when I asked the question about it's creating some
administrative problems, everyone just dismissed it. So my
understanding is that it was both indexing and these incremental
increases that the commission endorsed.
CHAIRMAN ROGERS: Judy.
MS. BRADY: Well, I think, I think essentially what the commission
endorsed was, you know, this added money that we were to get from
cigarette tax and we were moving pretty fast then. So, I think, I
think the essential thing is whatever we want to do (indisc.--
background noise) or (indisc.--background noise) bill or something
and just go. I mean it's going to get worked over, you know, the
legislature is....
MS. NORDALE: I'd rather see just the incremental increases than
those CPI adjustments because I think ultimately you wind up with
more money.
MS. BRADY: Let's just vote for that then.
CHAIRMAN ROGERS: O.K., the proposal from Mary is that we just go
with the 12 mills every three years increase in the cigarette tax.
Is there opposition? So this is more than inflation, more than CPI
on the cigarette tax.
MR. POURCHOT: So are we dumping section three?
UNIDENTIFIED SPEAKER (Female): Right.
CHAIRMAN ROGERS: We're dumping section three and replacing it with
an artfully drafted increase of 12 mills every three years.
MS. MCCONNELL: You know what we might want to consider, is saying
that once we get to that final stage that from then on it should be
indexed, so that if a point is to get it to a certain level for
policy reasons then for that level to remain an effective level
over, over time you would want to index it.
CHAIRMAN ROGERS: I guess Annalee, I would prefer to just let it
keep increasing at 12 mills every three years, which, which gets it
-- I mean we get from, from '96 at, at the dollar up to 2005 a
dollar seventy five, I think there was a lot of sentiment on the
commission that we could keep going after that and, you know, so
we're effectively every 12 years adding a dollar.
MS. MCCONNELL: Yeah that's good.
MS. NORDALE: Let the future take care of itself. I mean ours is
suppose to be a ten year plan. For god sake.
MS. BRADY: I refuse to worry past 2050.
CHAIRMAN ROGERS: O.K., so, so what's, what's the, the - are we
doing three, three increases over nine years or are we doing
increases every three years until the legislature changes it?
MS. NORDALE: Why don't we just do, you know, every three years.
MS. BRADY: Yeah.
MS. NORDALE: You know, if....
CHAIRMAN ROGERS: When it gets too high they can stop.
MS. NORDALE: That's right and also it may very well be a revenue
loser instead of a revenue gainer at that point (indisc.--
background noise.)
CHAIRMAN ROGERS: O.K. so the amendments to this bill will be an
effective date of October first, '96 and then on July first, '99
and every three years thereafter a 12 mill increase in the excise
tax on cigarettes.
MS. NORDALE: Right.
CHAIRMAN ROGERS: Are there any objections? If not, we'll, that
completes the work on the tobacco tax. Let's go to alcohol taxes.
UNIDENTIFIED SPEAKERS (Both female): (Indisc. conversation--spoke
too softly.)
CHAIRMAN ROGERS: Oh, yeah, let me just interrupt for a second and
ask Tam Cook. Tam, if you have any questions as we go along feel
free to raise them, since you and your staff get the wonderful job
of taking our broad concepts and putting them into real words.
MS. COOK: Well, with that invitation, can I go back to this excise
tax portion of the bill that we just completed...
CHAIRMAN ROGERS: Yes.
MS. COOK: ...and ask you to point out that they haven't gotten rid
of the tax adjustment in section three, you no longer are adjusting
the excise tax at all.
CHAIRMAN ROGERS: And, and that would mean that for other tobacco
products other than cigarettes it would remain at a 100 percent of
the wholesale price, is that correct?
MS. COOK: Well, it, the motion as I understood it was to eliminate
section three. Perhaps the motion should have been to eliminate
only the reference to 43.51.98 out of section 3, in which case
you're keeping your tax adjustment for the excise portion. I don't
know, it's just a question I raise.
CHAIRMAN ROGERS: I think that's our intent. I think you're right.
Thank you. One down. Alcoholic beverages. I have a question on
this one. One of the issues we discussed on the excise taxes on
alcoholic beverages was trying to get rough equivalency on a per
drink basis between beer, wine and hard liquor and I'm not sure
exactly how you, how you get that except to maybe look at what the
effect of the per drink price is here. If we take a, beer is 12 --
we've got 128 ounces in a gallon is that correct? Does anybody
know that off -- that's the number I remember. So that would say
that there are ten cans of beer in a gallon so, under this proposal
we're looking at about ten cents per drink on malt beverages. The
average wine is a five ounce and so there are 25 drinks per gallon
on wine, so if we take two dollars and 15 cents divided by 25 we're
at eight point six cents per drink on wine and how many ounces in
the average mixed drink?
MS. NORDALE: Well, some are a 150 milliliters is -- what the
average...
UNIDENTIFIED SPEAKERS (Male and female): (Indisc. comments--too
many people speaking at once).
CHAIRMAN ROGERS: One and half ounces? So if we say 128 ounces in
a gallon divided by 1.5, there are 85 drinks per -- and we're at 15
cents per drink on hard liquor as this bill stands. And I had
hoped we'd try to, we'd get the three, three...
UNIDENTIFIED SPEAKER (Female): Yeah, let's do that.
CHAIRMAN ROGERS: ...three into line roughly. If we were aiming
for about....
MS. NORDALE: Run through your numbers again for beer, it was what?
CHAIRMAN ROGERS: O.K., well what, what, what I was using was that
a beer is, there are 12 ounces in a can of beer, five ounces in a
glass of wine and one and a half ounces in a mixed drink.
MS. NORDALE: Right, but what did your, what did your little
numbers come up with?
CHAIRMAN ROGERS: So that came out, that if there are, so in a
gallon there are ten bottles of beer, there are 26 glasses of wine,
and there are 85 mixed drinks, so we come up with ten cents a can,
eight and a half cents for a glass of wine and 15 cents for a mixed
drink.
MS. BRADY: So drop the mixed drink then?
CHAIRMAN ROGERS: Or raise, raise them all to be, to come out at
about 11 cents perhaps?
MS. NORDALE: Why not ten cents, it's easier.
CHAIRMAN ROGERS: O.K., if we did ten cents then, then we stay with
a dollar five for beer, we go with two dollars and 50 cents for a
gallon of wine and eight dollars and 50 cents for a, a gallon for
other beverages.
MS. BRADY: I think that meets what we set out to do.
CHAIRMAN ROGERS: I think so.
MS. NORDALE: I think that's equity among drinkers. Consumers I
fancy.
MS. BRADY: Drinking consumers.
CHAIRMAN ROGERS: O.K., so at a dollar five, two fifty and eight
fifty, then we have a tax adjustment and again we're, we'd be
looking at every even numbered year indexing the tax effective July
first of each even numbered year.
MS. MCCONNELL: (Indisc.) we need to change the date of
notification maybe from June thirtieth to March first.
CHAIRMAN ROGERS: Yes. And we change the effective date here
again, also to October first '96. Now if I remember right, on the
alcohol tax we also had increases above the inflation rate.
MS. NORDALE: Oh, I don't think so.
CHAIRMAN ROGERS: Look at our spreadsheets here. The alcohol tax
increased tri-annually, so we have them indexed and then they went
up every three years, by about three -- looking at the report in
today's dollars it was steady for three years at 19 million and
then it jumped to 22 million for three years and then it jumped to
25 million. Since inflation is taken out, we had indexing plus an
additional boost. Tam is there - if, if we wanted to do another
increase of about - if we wanted to do another increase every three
years in addition to the indexing is there an easy way to write
that?
MS. COOK: Yeah, it would look like a stair-stepping sort of a
situation, you just have to, you just have to build it into the
statute what year's increase occurs. I don't know if there's an
easy way to calculate the tax adjustment with the increase also, I
mean there might be administrative work, but....
MS. NORDALE: Couldn't you start with, say the numbers we have
here, let's say a dollar five for beer and assign a fixed number of
the increment so that the CPI does not affect that raise, in other
words, in three years it goes up to a dollar ten for beer and a
comparable adjustment for the other types of alcohol.
CHAIRMAN ROGERS: What we'd be looking for is that in addition to
the indexing on July first '99 and every three years thereafter,
the alcohol -- the beer tax would go up by 25 cents, the wine tax
by 65 cents and the other beverages taxed by two dollars and ten
cents per gallon. If I've calculated this correctly. That would,
that would, that 25 cents, 65 cents and two dollars and ten cents
keeps the relative per drink price would go up by two and a half
cents every three years on top of inflation.
MR. NORDALE: Mr. Chairman
CHAIRMAN ROGERS: Mary.
MS. NORDALE: Tam, while you're thinking about that let me ask you
another question. The sub (d) as in Denver, of section two of the
bill talks about promulgation of regulations and it talks about
every June 30 a change in regulation which would take effect then
on July one, which is a day. Is there a way of crafting the
legislation in such a way that we don't have to go through
regulation, but, the, there could be some kind of an announcement.
If we can schedule enough in the bill so that we can avoid
regulation, can we just do a notice provision so that the
wholesalers and retailers are noticed of the rise in the tax?
MS. COOK: There's no reason why that couldn't be done that I'm
aware of.
MS. NORDALE: Well I would like to see us give it, that an
experiment because the regulatory process itself is expensive and
there's no reason to eat into potential revenues by screwing around
with regulations.
CHAIRMAN ROGERS: What, what you really need then is...
MS. MCCONNELL: ...I...
CHAIRMAN ROGERS: ... a single, a single regulation which provides
for that notice process.
MS. NORDALE: Well, I think the statute needs to provide for the
notice process...
CHAIRMAN ROGERS: O.K.
MS. NORDALE: ...and then you don't even have to do the regulation.
MS. MCCONNELL: Mary I think that's an excellent suggestion.
MR. POURCHOT: (Indisc.) consistent between the two bills.
CHAIRMAN ROGERS: Yes.
MS. NORDALE: All of them that has this CPI thing.
MS. MCCONNELL: You know from a practical stand point, since the
CPI is announced on October first, it would be our intention - I
think it only makes sense - to include these, the new numbers as
part of both the fall forecast each year and also as part of the
budget document, so in a practically speaking, we would be
including these things in the budget that's presented on December
15, you could maybe have an, you know, an announcement at the same
that the budget is put out.
MS. NORDALE: Yeah, do you need any changes to 37, title 37 or
anything like this that would make that a statutory component? Do
you need it? Because if you do...
MS. MCCONNELL: I don't know that - yeah - I don't know that we
would need it, but maybe if - put it in the overall indexing
provision we specify that the method by which all the fees that are
indexed would be published in a list or you know, whatever -
published as part of the budget document and then - could that work
Tam? And then it could be, you know, just one of the charts within
the budget document that would say, here are the fees that would be
commencing on the, on the fiscal year.
MS. NORDALE: You might want to a...
MS. COOK: (Indisc.--spoke too softly.)
MS. NORDALE: What did you say Tam?
MS. COOK: I was going to say, I don't think you need to address
that all, in the statute, all you need to do in the statute is to
direct the department to give an adequate notice (indisc.) amounts
and let them figure out, what's, how to (indisc.). If they want to
put it in budget documents, if they want to put on the front page
of the paper, if they want to write letters to every citizen in the
state, leave it up to them. As long as we've given them a
directive to make this information available to the public that's
really all we need to do as far as a statute goes I should say.
MS. NORDALE: And to avoid writing regulations.
MS. COOK: Right.
MS. NORDALE: Yeah, O.K.
CHAIRMAN ROGERS: Anything else on the alcohol tax? Let's go to
motor fuel. And we have a new draft that has both marine and....
MS. NORDALE: Yes we do....(indisc.--spoke too softly.)
MS. MCCONNELL: Tam, a question of clarification (indisc.) before
we move on...
CHAIRMAN ROGERS: Go ahead.
MS. MCCONNELL: ...on the, how long we want to have this tri-annual
increase go on, perpetuity by three times...
CHAIRMAN ROGERS: I think this one also is until the legislature
changes it, that tri-annual increase goes in, stays in effect.
There will be a point at which tax revenues will begin to decline
and we don't know what that point is and I think the legislature
will want at that point to repeal the change.
CHAIRMAN ROGERS: O.K. the next one is a bill relating to the tax
on transfers or consumption of motor fuel. This one increases from
eight to 21.9 cents, motor fuel, and from five to eight cents, the
water craft. It provides that the off-road goes from six to 15.9
cents and it provides for the indexing. Again, we'll want to
change the indexing date to July first of each even numbered year.
We'll want an effective date for the bill of October first, '96.
I have a question on this one that was raised in the discussion
from the Department of Revenue, from Bob Bartholomew. He notes
that we have a gasohol exemption which costs us $13 million dollars
in lost revenue. Is there any -- the national legislation
exempting gasohol was done to encourage production of non-petroleum
based fuels. Can anybody think of a policy reason why Alaska would
want to exempt gasohol?
MS. MCCONNELL: I can't, but since I know so little about it, I
don't think the fact that I don't know of what counts for anything.
If you'd like, we could make a quick call over to DOT (Department
of Transportation) and see if there's any information they could
provide on that.
MS. NORDALE: Do we have any idea how much gasohol is sold in
Alaska? My guess is very little.
CHAIRMAN ROGERS: Well, according to this 60 million gallons.
MS. NORDALE: Well that's not very much. How much is the total
sold?
CHAIRMAN ROGERS: I don't know, but that's 13, 60 million gallons
at 21 cents a gallon is 13 million dollars.
MS. BRADY: Yeah, but isn't there something that they talk to
companies, you know, they have to talk to companies about what
they're doing?
CHAIRMAN ROGERS: We've got Sam Kito...
MS. NORDALE: ...that was...
CHAIRMAN ROGERS: ...here from the Department of Transportation.
Maybe you can help us on this.
MR. KITO: O.K. The total gallonage sold for gasohol or (indisc.)
gasohol is approximately 60 million. We sell in the neighborhood
of....
MS. MCCONNELL: Can you come a little closer to the mike? I got
everything but the dollar amount that you said Sam.
MR. KITO: It was 60 million gallons. At present, last year the
exemption cost the state approximately 2.4 million dollars. The
exemption was only -- actually the sales of gasohol in the large
market, Anchorage area, only took place over two months. This year
it will be the whole season, so we're expecting that amount to
double to 4.8 million. A potential loss of 13 million if we
increase the tax to 21.9 cents.
CHAIRMAN ROGERS: Is there any policy reason to exempt gasohol from
the Department's stand point?
MR. KITO: Not a full exemption. If you look at pretty much
nationwide, in the western states there is no exemption for
gasohol. Some of the mid-west states, they have smaller exemptions
of between one and three cents per gallon for gasohol.
CHAIRMAN ROGERS: Judy.
MS. BRADY: Is this the one - I'm fuzzy on this - is this the one
though that like Anchorage voted that they had - because of air
quality - is this the kind of thing that they had to have and the
companies - I mean nobody wanted to do it and they said you have to
do it? Here it is...
MR. KITO: Right, the...
MS. BRADY: ...and so that's why that the, that's why they exempted
the tax because they already hit them with, you know, you have to
have to have different tanks, you have to do all this other stuff.
And so they went ahead - because they told them they had to - and
they went ahead and made the investment and part of the deal was
that they would say, O.K. if you do this we'll let - you know,
(indisc.) we'll do this much...
MR. KITO: (Indisc.) the exemption...
MS. BRADY: ...they hated that...
MR. KITO: ... was already in place prior to that.
MS. BRADY: O.K., but that was part of the deal, but nobody wanted
to do this. This was the kind of thing where they said, O.K. for
clean air you have to do it, even though they argued no one else in
the country has to do it, but us. So.
MS. NORDALE: Mr. Chairman, we talk about 60 million gallons of
gasohol, but what are we talking about regular gasoline?
MR. KITO: Total sales of gasoline including the gasohol gallons is
in the neighborhood of 419 million gallons, which includes gasoline
and diesel.
MS. NORDALE: So we're talking roughly ten percent of the market.
Ten to 15 percent of the market...
MR. KITO: Yeah.
MS. NORDALE: ...is gasohol and....
UNIDENTIFIED SPEAKER (Female): (Indisc.--spoke too softly.)
MR. KITO: Mr. Chairman.
CHAIRMAN ROGERS: Go ahead (indisc.)
MR. KITO: You only have to sell the gasohol in the winter...(end
of tape.)
TAPE 1, SIDE B
MR. KITO: ...the comments that was made by Department of Revenue
was they feel that they might actually extend the gasohol selling
season because they're already producing the product.
MS. BRADY: Well on this one I'd rather wait until - let the leg -
make a note to have the legislature look at it because we don't
know enough, but, but I know that they didn't want to do it to
begin with and were told, you have to. And you have to do it for
this season, and so, you know, that's a little different than
coming in and....
CHAIRMAN ROGERS: I guess my concern in not, not having a tax on
gasohol is that to the extent that we've already put in production
facilities for gasohol. To the extent that what we have is a lower
tax on gasohol - no tax on gasohol versus 22 cents on gasoline, we
maybe tending to push consumers towards the tax-free product and
that that, we end up promoting gasohol to an even greater extent
and accelerate our revenue losses. Recognizing we don't know a lot
about this, I guess I'd rather remove the gasohol exemption and
then in the letter say, we removed it because we think taxes, that
people who drive vehicles with gas, with gasohol still tear up our
roads and we need that money for the road maintenance and if that -
- we think the legislature ought to look at it further and if some
exemption similar say the off-road exemption or something like that
is required that the legislature could back off. But, I'd rather,
I think it's going to be hard for the legislature to add a tax. It
may be easier for them to delete the tax.
MS. BRADY: The only thing I think, that if you tell somebody you
want them to do it, you know, we're doing the cigarettes and the
alcohol for social reasons, if we said socially we want to, we have
to do this because it's good for the air even though every study
has, you know, you have to do it anyway and then to say, O.K. we're
going to add - you only have to do it in the winter because that's
when you get the most pollution. I mean the thing that's screwed
up to begin with in terms of...
MR. KITO: That's true. Mr. Chairman, kind of as a side note and
I'm not a hundred percent clear on this, but my impression was that
the gasohol requirement in Anchorage was similar to the oxy-fuel
requirement because of a non-compliance of an EPA requirement that
urban areas meet certain air quality standards.
MS. BRADY: But, still the only place in the country where the...
MR. KITO: Yes.
MS. BRADY: ...the assembly actually said you have to - I'm mean
it's done differently every place else. So, I just think...
MS. NORDALE: Yeah, but Mr. Chairman that's the Anchorage assembly
and I think that, you know, we need to, the whole impetus behind
this dramatic rise in the gas tax was because of the recognition
that our roads are in critical condition and we're not allocating
a sufficient sum of money to maintenance and I agree with Brian
that a car driven by gasohol is just as likely to tear up the roads
as one that's driven by gasoline or any other petroleum product.
I'd like to see it all uniformly taxed and if the legislature wants
to get an incentive then let them.
CHAIRMAN ROGERS: Mike, any thoughts on this?
MR. O'CONNER: Same as Mary's.
CHAIRMAN ROGERS: Pat, gasohol exempted or not exempted?
MR. POURCHOT: Not exempted, I think that the original committee -
this was mentioned earlier - but, I think that the original purpose
was as, you know, obviously alternative fuel incentive. Now we
know that it doesn't cost anything more to make it and it's readily
available.
CHAIRMAN ROGERS: I sense that there's a majority to remove the
gasohol exemption -- taxing gasohol at the same rate as other motor
fuels. If we want to do something for social engineering on this,
I'd like to propose a ten dollar a gallon tax on fuel containing
MBTE. (??)
MS. BRADY: Go ahead.
MS. NORDALE: Go ahead. Double dare you.
MR. POURCHOT: I don't believe that there's been any scientific
evidence on that whole thing. I think you guys in Fairbanks just
suffer from more psychological and physical problems.
MS. BRADY: (Female) I think - how about mental?
CHAIRMAN ROGERS: I think we need a tax on people who make negative
comments about Fairbanks.
UNIDENTIFIED SPEAKERS (Both female): (Indisc.--cross talking.)
MR. MALLOTT: It would be a big revenue generator here in
Anchorage, I know that.
MS. FOUSE: Apparently in Juneau too.
CHAIRMAN ROGERS: O.K., so on the motor fuel, our changes are to
add a section that deletes the oxy...the gasohol exemption and to
change the date to July one for the indexing, to have the effective
date October one of '96. Any other changes?
MR. POURCHOT: Brian, Annalee asked me to bring up one idea here
whether we needed this to be 21.9 cents and 15.9, whether it
couldn't be just 22 and 16?
CHAIRMAN ROGERS: We've been using 22 in all of our public
presentations. 22 and 15.
MS. FOUSE: 15 or...
CHAIRMAN ROGERS: ...16.
MS. FOUSE: 16.
CHAIRMAN ROGERS: O.K. that takes care of motor fuel tax. Motor
vehicle registration fees, I believe, is our next one. And on this
one we had some questions raised by the Department of Law. We've
got the bill, as it's currently drafted, has Department of Labor
adjusting the fees. They don't want to do it. They want Public
Safety to. Public Safety thinks that Labor should publicize the
fees. My sense, I believe that Public Safety as a department
responsible for collecting the fees is the one that ought to be
responsible for publicizing it and that Pubic Safety is the
appropriate, is the appropriate agency. I agree with the Public
Safety position that they, the fees should go up January one, '97.
The other suggestions from the Department of Law - maybe we ought
to go through them one by one - and go through and see where the
sense of the commission is. The, the section one of the bill which
amends 108 (b) says that we should repeal this rather than amend
it, since the original staggering of registration follows 28.10.108
(c). Does anyone understand what this means?
MS. NORDALE: Yeah the, I think that what they, they used to have
all of the licenses expire at one time and now they rotate them on
a monthly basis. So, I think that what Mike did on, on this draft
is look at one section and not realizing it...
CHAIRMAN ROGERS: O.K.
MS. NORDALE: ...practiced and moved on.
CHAIRMAN ROGERS: Tam, do have any problem with the suggestion in
section one? I mean in num... comment number one in Ann
Carpeneti's memo?
MS. COOK: I don't think I understand it, but someone will.
CHAIRMAN ROGERS: O.K., the intent of the commission is that
whoever's right on this is the way it goes, it that about it?
UNIDENTIFIED SPEAKERS (All female): (Indisc.--cross talking.)
CHAIRMAN ROGERS: O.K., sec... section, number two, section four of
the bill repeals the exemption for disabled vets, other handicapped
persons conforming amendments required in 181 (d). I assume that's
O.K. with everyone? And the same in section three. We need a
conforming amendment in 181 (e). Section four repeals the
registration fee exemption. They still have distinctive plates and
it doesn't refer to the charges for the plates. I guess my
assumption on this one, or my proposal on this one would be that we
use the same ten dollar, one time fee that's used on a historic
vehicle. Does anyone have a proposal for a different number on
that?
MR. POURCHOT: Yeah, Mr. Chairman. Why did you choose that as
opposed to National Guard or vet's licenses' fees?
CHAIRMAN ROGERS: The reason for that is if you look at the bottom
of page three, the existing language on the amateur mobile radio
station vehicle - excuse me on the top of page four, basically what
they're - the existing law recognizes that amateur radio provides
a service to the public in a time of emergency and so I picked the
lowest level recognizing that on-going service to the public
provided by the vehicle that carries the mobile amateur radio
station, but I could go with any, I mean I just picked the number
to get the discussion started.
MR. POURCHOT: O.K.
UNIDENTIFIED SPEAKER (Male): How many are there?
UNIDENTIFIED SPEAKER (Female): Lots.
CHAIRMAN ROGERS: Now these people would pay, under this they'd pay
a one time ten dollar fee, plus they'd pay whatever the
registration fee is for the vehicle. We're not saying -- it's only
that one time fee for the license plate of ten dollars.
MS. BRADY: Well, you know, everybody in an emergency who can help,
helps.
MS. NORDALE: Well these people do perform some services, especially
in, in the non-urban areas Judy, that you wouldn't get otherwise.
There aren't a lot of cops on the road. There's no Triple A's.
MS. BRADY: Yeah but, everybody's got now, everybody's got C.B.'s
and they...
MS. NORDALE: I refuse to have one in my car.
MS. BRADY: I know, everybody but you has one. (Indisc.)...they
help each other and call for help and, you know, people help each
other.
CHAIRMAN ROGERS: Judy raises a good point. There's been a
technological change here that, many of the vehicles I see driving
around Anchorage and Fairbanks have cellular telephones and people
are calling in accidents on their cell phones. When this was
originally enacted we didn't have cellular phone service. Is this
an out-moded section of the statute?
MS. MCCONNELL: Sounds like it to me.
MS. NORDALE: Well then why don't we...
MS. MCCONNELL (Female): Do they get special plates?
CHAIRMAN ROGERS: Yes, they get special plates that have their call
letters.
MR. POURCHOT: Mr. Chairman I would, I would put them in the same
fee schedule as, on page three, section four (d)(2).
CHAIRMAN ROGERS: Is there any objection?
MS. NORDALE: No, but Mr. Chairman all of (d)(1) and (2) it seems
to me ought to have the same fees. The historic vehicles are toys,
there's no reason to give them a preferred...
MS. BRADY: I agree.
MS. NORDALE: ...rate as opposed to people who are, who have
handicapped plates or anything, you know, why (indisc.). So I'd
just say we set them all at 30 bucks and let them get them.
CHAIRMAN ROGERS: The proposal is that all...
MR. POURCHOT: Mr. Chairman.
CHAIRMAN ROGERS: Yes Pat.
MR. POURCHOT: Yeah, I don't, I think there's a different rationale
there. I don't think it was any kind of special recognition for
car, those car owners. I think it's a recognition that they don't
use the roads. You know, they rarely use the roads.
MS. MCCONNELL: You mean they're only out for parades basically?
MR. POURCHOT: Yeah.
MS. NORDALE: They're in Fairbanks all the time, all summer long.
People drive their old cars because it's fun and they're using the
roads. I think that...
UNIDENTIFIED SPEAKER (Male): One time. Once.
MS. NORDALE: ...it's a pleasure craft. You know, you have to pay
the same license fee for boats. You only use them in the
summertime.
CHAIRMAN ROGERS: What this says, now, I'm re-reading this under
section four. The special registration fees are imposed annually -
- the historic vehicle is a one time only ten dollars. Under two,
Alaska National Guard personnel pay 30 dollars annually and I guess
that's in lieu of the regular vehicle fee on all of these. Is that
right?
UNIDENTIFIED SPEAKER (Female): No.
CHAIRMAN ROGERS: That's in addition to the, so, oh that's right
because they were all exempted from the regular fees.
MS. BRADY: Why don't we just not exempt anybody and just go for
it.
MS. NORDALE: And offer them special plates if they want them.
MS. BRADY: If they want to pay for them.
UNIDENTIFIED SPEAKER (Female): Extra.
MS. BRADY: Extra.
CHAIRMAN ROGERS: Well there are a couple of these that, that are,
like the dealer plates. So we have annual fees on all the vehicles
under sections two and three and then section four, some of these
are annual, some of these are one time only, some of these are
never and some of these, are these fees, plus the regular fees.
That would be the special request, university plates.
MS. BRADY: You know I just think this whole thing has turned into
a junkyard of, of a, stuff, and you know, you go to the State of
Washington and pay three hundred eighty-five dollars for a
(indisc.) every year and here we pay thirty-five. I mean, I just
think we should just say everybody pays the same. Everybody uses
the roads. Everybody pays for the roads. And let's not turn this
into a, anything other than everyone pays and that's the end of it.
CHAIRMAN ROGERS: So, one way of drafting that would be to take the
schedule we have in section two. We would need to add snow
machines, move snow machines and farm machines into that section
with their annual fees doubling from the current five dollars for
snow machines to ten and 35 for, to 70 and then say, that any, that
that's it for all vehicles is that annual schedule and that at the
time of registration for any special license plate you pay another,
an additional 30 dollars one time only to get the special plate.
If you take the plate, the next plate in line you don't pay the
extra 30 dollars. If you have a special request plate regardless
of what it's for, it's 30 dollars. One time only, in addition to
the...
MS. NORDALE: O.K. what happens to...
MS. MCCONNELL: And I assume that by...
CHAIRMAN ROGERS: Annalee.
MS. MCCONNELL: Sorry Mary, go ahead.
MS. NORDALE: (Indisc.--cross talking).
MS. MCCONNELL: Well, I assume that by one time only means that if
we change over all of our plates and they have an opportunity to
get a new fancy plate, then they pay again. But, as long as it's
just the annual sticker going on the license plate they're not
paying again, right?
CHAIRMAN ROGERS: Correct. They're just paying the annual fee
based on the size, regular registration fee based on the size of
the vehicle. And...
MS. MCCONNELL: You would just specify, you know, if there's a
(indisc.) over the plates altogether then they would pay again to
get a special one?
CHAIRMAN ROGERS: Correct. And Mary, you were asking about the
special request university plates.
MS. NORDALE: Right. Right.
CHAIRMAN ROGERS: That's a one, currently a one time fee of 50
dollars that theoretically was collected and given to the
university. It was collected, but never given to the university.
Most of those are out, so, this section that was suppose to help
the university never did.
MR. POURCHOT: Mr. Chairman. Mr. Chairman.
CHAIRMAN ROGERS: Pat.
MR. POURCHOT: I would just note that, I would note that some of
these that came later like the veteran's plates. Those special
plate fees actually make money - that they were - those are not
subsidized if you will. Those are actually, they, we get more
money than we actually pay in the cost of the plates.
CHAIRMAN ROGERS: And that's my assumption that it's setting this
30 dollar fee, one time only. It makes us that money.
MR. POURCHOT: Yeah.
CHAIRMAN ROGERS: Tam, does that give you enough direction to give
to Mike Ford on re-drafting this.
MS. COOK: I'm not sure it does, but I, but Melissa can probably
clear it up. I'm confused about what the relationship between (d)
and (indisc.) I guess.
CHAIRMAN ROGERS: O.K.
MS. COOK: Are they going to be paying - - are these registration
fees in lieu of the normal ones that are going to be on top of
them, or what?
CHAIRMAN ROGERS: What, what we're suggesting is that, is that
under section (d) we would have one time special registration fees
upon initial registration for each special request plate for a
historical vehicle, for National Guard veterans, purple heart,
custom collectors, special requests, university, etcetera, of 30
dollars to get the special request plate and everyone pays the same
amount for all of their vehicles. We would, we would move the snow
machine section out of (d) into (c), we'd move the farmer section
out of (d) and into (c), we'd move the dealer registration plates
out of (d) and into (c).
MS. NORDALE: Mr. Chairman.
CHAIRMAN ROGERS: Yes.
MS. NORDALE: If I could state this a little differently. Tam,
what we're talking about is having annual registration fees set in
the statute and then a separate section which allows people to buy
vanity plates and special types of plates which are an add on and
they can buy them at any time. And every time they buy a new plate
they pay 30 bucks for it, in addition to their annual registration
fee. So, that's really all we're talking about is the schedule of
annual fees, plus special plates.
MS. MCCONNELL: I have a question on passenger vehicles versus
pickup trucks or vans. We have a distinction in the statute now.
Does that really, does that really make sense? Would it, would we
both simplify things, but also maybe make people feel a little
better if we've got a same fee for a pickup truck, a van, a
passenger vehicle. It's especially odd because, I mean, a motor
home is certainly a whole lot bigger and heavier than a pickup
truck or a van and yet it's a cheaper rate and the pickup truck and
van, which many people own as their regular, personal vehicles.
Should we just make them all the same?
MS. BRADY: I'd go for that.
MS. NORDALE: Well, one of the reasons why the distinction is there
is because it was thought that commercial vehicles imposed a
greater burden on the highway system, or street system than
passenger vehicles, even if they are pickups. So, you may want to
make...
MS. MCCONNELL: These are - it says non-commercial.
CHAIRMAN ROGERS: These are only the non-commercial.
MS. NORDALE: Right, but, but the, but the weight of pickups and of
course there are a lot of little ones now, but in any event the
weight and utility of the vehicles was determined to be enough for
an additional charge. I don't know that it is, all I'm saying is
that when we do make the change we ought to know a bit about the
rationale for what it was.
MS. MCCONNELL: But it seems like the commercial stuff is covered
by weight, which I agree makes a lot of sense because that affects
the road usage. That's covered in section three - different
weights - the heavier you are the more you pay for commercial. It
seems like for personal vehicles...
MS. NORDALE: Yeah, but...
MS. MCCONNELL: ...you might as well make motor homes the same.
MS. NORDALE: Right, but what about...
UNIDENTIFIED SPEAKER (Male): I disagree.
MS. NORDALE: Domino's pizza that runs around with a little tiny
pickup...
CHAIRMAN ROGERS: They're paying based...
MS. NORDALE: ...oh, that's a commercial...
CHAIRMAN ROGERS: They're paying based on weight on the lower part
of the page for commercial.
MS. NORDALE: O.K., alright, O.K., alright.
CHAIRMAN ROGERS: So, the proposal...
MS. NORDALE: I'll shut my mouth.
CHAIRMAN ROGERS: Annalee, what you'd do is combined one and two at
75 dollars?
MS. MCCONNELL: Yeah, I probably would. I mean I don't care that
much between 70 - from a fiscal standpoint obviously - 75 would be
better, but if people think that, that just gets more flak, I
wouldn't mind doing them all at 70.
CHAIRMAN ROGERS: I figure half of them are at 70 and half at 80
and combine the two.
MS. MCCONNELL: Probably (indisc.). Sounds O.K. to me.
CHAIRMAN ROGERS: O.K. one more change. We're combining one and
two, simplifying so that you don't have to decide whether a
vehicle's a light truck, whether a mini-van is a van or a passenger
vehicle.
O.K., anything else on motor vehicle license plates? Now by moving
- we've removed the exemption for a vehicle owned by the state.
UNIDENTIFIED SPEAKER (Female): (Indisc.--spoke too softly.)
CHAIRMAN ROGERS: Yeah, but we're removing all sec... section (d) -
we're saying one time.... It's not worth collecting from one
pocket to put into another pocket. Do we want to keep the state
exemption?
UNIDENTIFIED SPEAKERS (Male and female): (Indisc.--spoke too
softly.)
CHAIRMAN ROGERS: ...collecting from one agency to give to another
agency....
MR. POURCHOT: Annalee had to step out of the room. Normally we
don't find that particularly helpful. It just sets up more
accounting system - all our agencies charge, you know, we go
through this big highway working capital fund and the state
equipment fleet. It just, it typically creates more problems than
solves them. I, I think we would argue to keep the exemption for
state vehicles.
CHAIRMAN ROGERS: Any objections? O.K., that takes care of motor
vehicle license plates. Now on this one, we're not it July first,
we're doing it January first at the request of the Department. Is
that correct?
MS. NORDALE: Right.
CHAIRMAN ROGERS: O.K., let's go to automatic adjustments in fees
and charges. This one does not apply to taxes which are set by
statute, but for fees and charges collected by state agencies. And
in the analysis by Sarah Felix, Assistant Attorney General, she had
a concern about Northern Lights Motel vs. Sweeny. And, I'd like to
highlight at the bottom of page two - she says, "Another way to
achieve the goal would be to leave the statute as it is and adopt
an administrative order directing agencies to adopt regulations
amending their fees to reflect increases in CPI."
MS. BRADY: What were we trying to accomplish here? What, what
does this have to do with our index?
CHAIRMAN ROGERS: This was just, this was the, trying to get the
three million dollars a year more in revenues from other fees that
were out there and....
MS. BRADY: But, I thought that was more like....
CHAIRMAN ROGERS: ...indexing of all of those other fees that are
out there.
MS. BRADY: But, I thought that, I thought maybe we were aimed at
was adding fees where there wasn't any.
CHAIRMAN ROGERS: Oh, O.K., I had interpreted that to be adding
fees that existed.
MS. BRADY: Because lots of, lots of - the problem is that some
agencies, some groups of users are paying no fees and other groups
of users are paying like, big time fees. And the state needs to
take a look at that and so just increasing the fees of those people
that are already paying (indisc.) fees may not be the entire
answer. So, so I guess I would, you know, kind of look at the
administrative order rather than the bill because I really
don't....
CHAIRMAN ROGERS: I, I person...
MR. POURCHOT: Ah, Mr. Chairman?
CHAIRMAN ROGERS: ...go Pat.
MR. POURCHOT: Yeah, I, I may have forgotten some of our
discussions last summer, but I thought that three million dollars
didn't necessarily require legislation and I agree with Judy that
we - in fact, we're preparing legislation now - we'll probably have
some kind of omnibus fee bill and it's, I mean it's a real hodge
podge - there. Some state services are being very rigorously
charged for, some are not so rigorously charged for relative to
cost and some are not charged at all and an across the board
attempt - I'm not sure we'd get it - additionally, some fees
typically are, you know, they catch up at periodic intervals and
they're not just based on CPI considerations, so I'm not sure it
lends itself to a, a fairly arbitrary CPI based standard. I
thought when we were talking that we were really geared towards the
tax side of it, which is really a revenue. When you get to the
fees, the theory is at least, you're doing a relationship between
costs of a service to, to, to the reimbursement for those services
so that it's, it's not just a pure revenue source if you will. And
I think that the direction - the commission - in terms of it's
plan, would be, I mean the charge to the administration at least
and to the legislature relative to new fee authority would be that
we would continue to look for new authorities for fees that should
be charged that are not for services, that where the authority
exists, agencies would be continuing to re-evaluate periodically
whether or not there was sufficient return for the cost of
services, but there's a whole - as everybody knows - a whole
regulatory scheme to analyze, seek public input and make decisions
for each of those fee increases and, you know, it has lots of
wrinkles to it, but it does afford periodic, you know, public input
and some base, some rational approach to fee increases as opposed
to just annual or bi-annual arbitrary increases.
CHAIRMAN ROGERS: Does anyone on the commission object to pulling
this bill from the package and instead requesting the
administration to, by administrative order where possible, to deal
with our fee increase?
MS. NORDALE: I don't, except that the recommendation that, for the
administrative order says to the agencies adopt regulations and I
have some concerns that every time we turn around, we're directing
agencies to adopt regulations. It's a slow, torturous, expensive
process and I think that what we need to do is, more in line with
what Pat was saying, set a goal and see what we can do about
minimizing the requirement for regulations.
CHAIRMAN ROGERS: Any objection to that thought? Hearing none...
MR. LOESCHER: Mr. Chairman I object.
CHAIRMAN ROGERS: Oh, O.K.
MR. LOESCHER: Mr. Chairman.
CHAIRMAN ROGERS: Hey Bob, how are you?
MR. LOESCHER: Mr. Chairman. Yeah, I was sitting here keeping
track of Mary. There is a problem in this. There is a need for
regulatory oversight of some of this stuff that Pat is talking
about, for instance, this year we were doing business with solid
waste regulations and they were trying to develop a fee schedule
for that and we had to comment a couple of times to the
Commissioner of DEC (Department of Environmental Conservation) and
it's nothing that you can unilaterally set a fee on. In a forum
like this or in the legislature there's, there's much more
technicalities involved, whether you're dealing with a
municipality, controlled solid waste deal or private, private
property thing. And, you know, I really would urge you to be
careful in this area. I think, I agree, I'm not a fan of the
regulatory process, especially the way the Attorney General's
office does it. You've got one person there who keeps track of
regulations and we need get them cranked loose, but the point of it
is, is that this is nothing that you can unilaterally just wave a
wand at and put a fee on and I would urge you to be a little
cautious in this area because there are many, many, many more
examples of where the state really needs to charge a fee, but it's
going to have to be done through a thoughtful process, otherwise
industry and the public is going to react negatively to this idea
of paying for the service of the state, which we vitally need to
get fees charged for, but I urge you to be careful in this area in,
in, in and hopefully Mary you'll understand a little bit more, you
know, that we really do want to see a fee schedule developed, but
we need more time.
MS. NORDALE: Mr. Chairman, I agree with you Bob, but what I was
objecting to was just this rather blithe direction of the Attorney
General's office is to just tell the agencies to go forth and start
adopting regulations. I agree, I, I think that when you're talking
about a regulatory scheme like DEC has in place you obviously have
to have a very comprehensive regulatory process in order to arrive
at fairness, let alone adequacy, but when we're talking about, you
know, modest little fees for documents, that kind of thing, I just
don't see this elaborate regulatory process having to be engaged in
every time the CPI changes.
CHAIRMAN ROGERS: If I could try to, to, Pat I guess this is really
instructions to you and the administration in terms of dealing with
this fee issue and I guess the sense of the commission is that the
administration should look for opportunities to increase fees,
should try to keep the process for adopting as simple as possible
while preserving the public right of input on the process and that,
that maybe done by regulation in certain areas or by administrative
action in other areas depending on the nature and I, I guess with
the target out there the administration can determine which things
are done by regulation, which things you have to come in with
statutory changes such as your omnibus bill, which ones can be done
through a simplified process. You comfortable with that?
MR. POURCHOT: Yeah.
CHAIRMAN ROGERS: O.K., so that's not part of our package. Let's
move on to senior citizen property tax exemption. The concern
raised by the Assistant Attorney General has to do - Margie VanDor
- has to do with the financial need and whether we allow
municipalities to each adopt their own determination of qualifying
standards for financial need, whether this presents an equal
protection problem and otherwise, I would say that, that this
received enthusiastic support of the Alaska Municipal League when
I spoke there. Judy.
MS. BRADY: I think that, I think that's something legislature
could decide in the hearings. I know some communities do things
that right now, that if this is a problem, then we've got a
problem. And so, you know, this is, you know, I think let, let the
legislature worry...
CHAIRMAN ROGERS: Mary.
MS. NORDALE: I think that, I don't agree with this, the thrust of
this VanDor memorandum. I've never heard of the states' being able
to establish a needs base for property tax for god's sake and...
MS. BRADY: Yeah, I agree with that.
MS. NORDALE: I think that, the fact that varying municipalities
can have different rates of sales tax suggests that within a
particular area tax rates can be adjusted and that's really all
we're talking about is tax rates, so I agree, I think we ought to
eliminate the mandatory, allow them to do whatever they want to do
on a voluntary basis and if we want to have, to make a recommen...
I'm not even pleased with the recommendation....
MS. BRADY: I'm not either.
MS. NORDALE: ...in terms of what the values should be. I think we
ought to just eliminate the mandatory.
MS. BRADY: I agree and don't say anything else.
MS. NORDALE: Right.
MS. BRADY: Let, let the communities do what they want to do.
MS. NORDALE: Right, right, exactly.
CHAIRMAN ROGERS: So, in order to eliminate the mandatory...
MR. NORDALE: We still have to give the municipalities....
CHAIRMAN ROGERS: ...we have to give them the authority to do it
though.
MS. BRADY: Why?
MS. NORDALE: We can repeal the mandatory.
CHAIRMAN ROGERS: Yes.
MS. NORDALE: There is an, I think there, there is language in the
optional that is O.K., but in any event, if we ask for legislation
that repeals the mandatory and simply grants boroughs and
municipalities the option of accepting certain values, you know,
depending on what they want.
CHAIRMAN ROGERS: It looks to me that section two keeps a mandatory
of 75 thousand, doesn't it?
MS. NORDALE: Well yeah. That's the thing, that's one of the
things I object to on this.
CHAIRMAN ROGERS: We didn't, we didn't intend that so....
MS. NORDALE: No.
CHAIRMAN ROGERS: ...it's, its, I think one thing, what we have
here is a mark up based on, on an existing bill and we need to get
a new, a new bill....
MS. NORDALE: Right.
CHAIRMAN ROGERS: ...by rules, by request of the commission and the
intent of this is to remove completely any mandatory state, any
state mandated exemption from local property taxation and to allow
local option for....
MS. NORDALE: Certain class, defined classes of people...
CHAIRMAN ROGERS: For the....
MS. NORDALE: ...like veterans....
CHAIRMAN ROGERS: ...for the....
MS. NORDALE: ...(indisc.--cross talking.)
CHAIRMAN ROGERS: ....for the same, same three classes - 65
permanent - real property owned by an individual and occupied by
that individual who is 65 years of age or older, a disabled
veteran, or at least 60 years old and a widow or a widower, or a
person who qualified for the exemption under one or two. We didn't
intend to make any changes in who was eligible, but just that they,
a municipality may exempt up to 150 thousand dollars worth of
property from those individuals.
MS. BRADY: But, why do we have to do, why do we even have to say
which class because the whole point is that (indisc.--background
noise) if the municipality does it, they pick up, they take the
loss.
CHAIRMAN ROGERS: Because unless we allow them - under the uniform
taxation - unless we specifically allow them to do that exemption
they can't.
MS. NORDALE: Right.
MS. BRADY: But, they may exempt any class of people if they're
going to take....
CHAIRMAN ROGERS: No....
MS. NORDALE: No, no, no, no, no....
CHAIRMAN ROGERS: ...no, they can't....
MS. NORDALE: ...no, not - no.
MS. BRADY: I mean we give them, we give them the ability to do
anything they want as long as they take the hit. What do we care
who they, what does the state care who people exempt?
CHAIRMAN ROGERS: The, I 'll tell you what the state cares is that
you could have a circumstance where there, the local government
could accept, exempt all property owners except of housing and
leave only, say the oil properties in a borough paying a tax so
that no owner of property -- they could exempt every personal,
every individual from paying a tax on his or her home then collect
all the revenues from one industry. That, I think that's the
reason that the state has tried to say limit, specifically limit
the exemptions. There's a homestead exemption of what 10,000
dollars or something like that, that they knock off any residence
and then these are the only two currently allowed.
MS. BRADY: Well, I'm sold.
MS. NORDALE: It's a, it really is a constitutional....
MR. POURCHOT: Mr. Chairman.
MS. NORDALE: ...issue.
CHAIRMAN ROGERS: Pat.
MR. POURCHOT: My, I have a question first that, I assume that the
attorney's comments here only relate to this page two, line 20 in
case of hardship. That's the current existing law right? She's
not commenting on anything that we've done or recommended is that
right?
MS. NORDALE: Right.
CHAIRMAN ROGERS: Right. And I....
MR. POURCHOT: So....
CHAIRMAN ROGERS: ...and I think...
MR. POURCHOT: ...it seems.
CHAIRMAN ROGERS: Go ahead.
MR. POURCHOT: Go ahead. Well, I was going to say and I know this
is what you were getting at Brian. It seems like the simplest,
cleanest way to do this, is you delete entire (e) (indisc.), you
just delete all, everything there, you pick up back up on section
three (i) and you, you leave in that language, but you, but it, so
it reads a municipality by ordinance may, or may by ordinance
exempt from taxation the assessed value of real property and then
delete, delete all that, that it exceeds the limits, blah, blah,
blah, property and then scratch all that and then you leave in the
current stuff that's deleted here. All you're saying is, the state
is saying, municipalities, it is permissible to grant some kind of
real property taxation exemption if you're 65, if you're a disabled
vet or a widower.
CHAIRMAN ROGERS: O.K., so, this, I would read, I would read
something like, a municipality may by ordinance exempt from
taxation the assessed value of real property if the real property
is owned by an individual and occupied by the, as a permanent place
of abode by that individual who is 65 years of age or older,
disabled veteran at least 60 years old.
MS. NORDALE: I think we ought to....
MS. COOK: May I (indisc.)
CHAIRMAN ROGERS: Tam.
MS. COOK: May I, may I point out one thing, that if you, if you
write it that way unless you say that the municipality may by
ordinance exempt all or part of the value, you've given them a
choice of either accepting the entire value of that, you don't give
them a chance to say we're only going to exempt the first 150
thousand.
CHAIRMAN ROGERS: O.K., so I think we want to say all or part.
UNIDENTIFIED SPEAKERS (Male and female): (Indisc.--spoke too
softly.)
MS. COOK: And the other, the other thing I want to point out is
that I believe that the renter's rebate program is still on the
books. I don't know if you guys want to address it in this bill,
but this would be a vehicle to consider it. I'm not sure that it's
been funded in the last few years. The renter's rebate program
went, it kind of went along with this one in theory and that it was
going to provide some aid to people in these same categories who
were renters and not property owners and it's currently funded, or
it's supposedly funded by the state so that the renters who fit in
the same category, being elderly or disabled or so forth have the
ability to go forward and actually get a check from the state, or
the state money used for it. If we're going to eliminate the
mandatory, the mandatory nature of the tax provision that, that
helps this category, perhaps some thought ought to be given to
eliminating or maybe eliminating the renter's rebate portion. It
seems like an anomaly to have the renter's rebate there as a
mandatory thing and the, if you're going to eliminate the optional
tax benefit.
CHAIRMAN ROGERS: Would there be any objection to the commission,
on the commission if we also allowed a municipality separately by
ordinance, to provide a renter's rebate program that provides
equivalent benefits?
MS. NORDALE: Well as long as....
CHAIRMAN ROGERS: And to remove the mandate.
MR. NORDALE: As long as it's the municipality's money and not the
state's money that would be fine with me.
CHAIRMAN ROGERS: Yeah.
MR. POURCHOT: That, that is an important distinction because the
programs are run differently now. There continues to be, up until
last year at least about 3 or 4, 350 thousand, I believe, dollars
appropriated separately for the renter's rebate program. That
program I believe is actually paid through the state, through DCRA
that people apply, you know, the difference is the municipality
looses money, it doesn't collect money from tax, but they do not
have a line item in the municipality budget to pay renter's rebate,
that's, that's been a state program, so....
MS. COOK: The municipalities have never paid them this rebate.
It's always come out of the state's pocket.
MR. POURCHOT: ...the little different budgetary dynamic there.
MS. COOK: It was intended to benefit the same class of people.
MS. NORDALE: Yeah, but I don't think it's the state's
responsibility to deal with local tax exemptions. You know, if we
say it's permissible to grant tax relief, then if they want to
strike a bargain inequity with another class, let them, but as long
as it's not the state's money.
(END OF TAPE)
TAPE 2, SIDE A
MS. COOK: ...the municipalities to establish such a program. I'm
inclined to think that if you're going to make it optional on part
of the municipalities then the terms of uses of the existing
renters rebate program don't make a lot of sense because they're
rigid. They're a set amount and it's based on -- maybe you should
just think about repealing the renters rebate program since it's a
state funded program. If you would like we can certainly put
authority from municipality to adopt a renters rebate program to
benefit whatever class of citizens they want or to benefit a narrow
class and -- and open the program up. I guess myself I think that
it muddles the waters and I don't see a lot of municipalities doing
this. Because the renters rebate program requires a positive
giving away of municipal revenues in this case it would be
municipal rather than foregoing collective something and there
aren't many municipalities who would be in a position to do that
so. I guess I kind of wonder whether it wouldn't be clear to
repeal the program and see if we at least want it. They can come
and ask for it. But to put something on the books that's never
utilized, that gives people the impression that there might be
something in the future coming to them I -- I question just as a
public policy point of view.
CHAIRMAN ROGERS: Mary.
MS. NORDALE: I'd like to ask a question, Tam. If the renters
rebate program were repealed, does Title 29 give municipalities the
authority to adopt such a program if they want one? In other words
when the powers in the municipal code are set out, are they broad
enough to deal with that issue without a specific legislative
authorization? And, I'd like to have that question answered before
we --- I mean I'd like to see the renters rebate program repealed.
But to address the second segment of that thing before endorsing
legislation that would incorporate it. You know grant new
authority to local government if we just eliminate it. Do they
have the authority to do it if they want to?
MS. COOK: Commissioner, my guess is that most municipalities
probably do because Title 29 -- the limitations on powers of
municipalities have been so eroded over time now that most of them
have kind of general authority to do just about anything we can
figure out to be in the public interest, except there are
restrictions on municipalities as to the area that they can
operate. For example, it may be that a borough could implement a
renters rebate program but it wouldn't be able to do so within the
area of cities in the borough. Because some boroughs only have
(endows.) powers outside of cities. Other boroughs depending on
their class have powers that include cities and so forth. So
there's some variations in there. Some municipalities their powers
are restricted by the terms of their incorporation. That they can
only exercise the powers that the people have approved upon
incorporation and they have to go through a process of acquiring
additional powers. Can they go through the process? Yes. There's
a system there for all the munis that currently lack that authority
to go through a process together. The voters would have to approve
the grant of such a power if they wanted it. For that reason you
see Title 29 occasionally include with specific provisions granting
all municipalities regardless of class powers such as the Port
Authority Act which fairly recent that was included because of
questions about which municipalities might have to go through what
to acquire that type of power. But, I suppose the short answer is,
yes. Probably every muni that we can think of either has the power
or could acquire it, although they might have to go through some
procedural loops to get there.
CHAIRMAN ROGERS: Judy.
MS. BRADY: Well, with that question answered. I think we just --
you know -- suggest they repeal it on the same basis to make things
clear.
CHAIRMAN ROGERS: Is there objection to repealing renter
equivalency? Hearing none, then we'd want the repealer of renter -
- renter equivalency in this bill. Certainly the effective date of
this act will need to be changed to January 1, 97 in commission
draft. Does anyone have further issues on this draft?
MS. COOK: I would point out just for the benefit of anyone who
might not be aware of it that the legislation that is now going to
be proposed by this commission has been proposed in exactly this
form off-and-on during the past ten years.
CHAIRMAN ROGERS: That's the case with several of our issues, I
think.
MS. COOK: Right.
UNIDENTIFIED SPEAKER (Male): Yeah. Yes.
CHAIRMAN ROGERS: ....O.K. that that finishes this....
MS. MCCONNELL: (Indisc.)
CHAIRMAN ROGERS: Annalee.
MS. MCCONNELL: Just a question about the effective date. If we
make -- if the legislature does not fund the program this year, the
effective date of that in a sense would be July 1.
CHAIRMAN ROGERS: Municipal taxation is on a calendar year basis.
MS. MCCONNELL: Brian, (indisc.) I am thinking aloud though about
how we want to handle -- I just want to be sure that we've got it
clear in terms of the if the legislature doesn't fund it July 1
that that's that that's O.K..
CHAIRMAN ROGERS: I think that's O.K., but....
MS. COOK: (Indisc.) portion....
MS. MCCONNELL: I meant through the whole thing.
MS. COOK: It's only the renters rebate portion that would be
affected I think because that's funded with state money, currently.
And the level of appropriations has always been subject to the
power of the legislature there. I don't think they've ever fully
funded it, I may be wrong.
MS. NORDALE: Well, they are funding a little bit aren't they on
the on the tax exemptions?
CHAIRMAN ROGERS: Yeah, there is a part -- a million -- 1.5 million
on (indisc.)
MS. NORDALE: But, I don't think....
MS. MCCONNELL: That's six cents on the dollar.
MS. NORDALE: I don't think any -- that's going to bust anybody's
budget and generally by the time they set the mill rate and fix
their budgets even though the tax goes back to January 1, they know
what their anticipated revenues are so I don't think it's going to
make a gap in there, Annalee.
CHAIRMAN ROGERS: I don't think it will be a problem either and I
think the municipalities so want this repealer that if they got
zero funded for half a year for the fiscal year that would be a
reasonable price to pay to get this bill.
MS. MCCONNELL: O.K.
CHAIRMAN ROGERS: The next bill isn't in our packets due to a -- it
fell through the cracks and we talked to Tam yesterday. I just
want to report to the commission there is one additional bill
relating to taxation. This has to do with the oil and gas
properties, tax, and the draft we've requested would provide that
the maximum that a municipality may levy on oil and gas property
which is first placed into service after July 1, 1996 would be 10
mills. If you remember the discussion -- just a second let me
finish -- the discussion of the commission was that was really the
intent of the original law, but there was a an exemption made for
debt service. And, our intent was to, the intent of the commission
is that of the 20 mill tax no more than 10 mills can be taken by a
local government and there are going to be some drafting problems
with this so let me turn to Tam and have her ask the questions that
from the commission and maybe we can help make this a little bit
simpler from a drafting and a enforcement standpoint.
MS. COOK: Yeah, I've looked at the statutes I took some time
yesterday Mr. Chairman to take a look at this and there's a couple
of things that occur to me. One, that the approach of which I
suspected, I think that limiting 10 mills only to what you call new
property, property that's just brought on line, is probably going
to have no real (indisc.) effect because what really controls
municipal taxing level is the formulas set out. The 225, whatever.
What will happen is that if they have new property they'll be under
the 10 mill cap and they just raised the tax level on the old
property. The main property that we are talking about right now is
probably that pipe line and they'll just push it up there until
they hit the limit that exists right now so, one I question whether
you've done anything....
CHAIRMAN ROGERS: Good point.
MS. COOK: ....And, I think you might be better off going into the
formula and changing that 225 to 220 or 200 or something like that
and having it apply to all oil and gas property. Or, else take
your 10 mill run it and apply it to all oil and gas property. I
don't know what that will do as far as particular dollar impact on
certain boroughs but, that will remain nameless, but. What I
suspected just in taking a 10 mill limit and putting it and placing
it as an additional restraint as to a very small oil and gas
property isn't going to change anything for most boroughs. They
are not going to be effected by it. They will just absorb it at
the other end of their formula. So you might not see any decrease
at all in amount of municipal taxes that they acquire. The other
question that I have is -- is -- the very question of what to do
with that bonding provision? Melissa Fouse when she finally called
in and confirmed that we have a drafting request. Request did not
specifically include any change to the exception for taxes imposed
to pay bonds. I can give you one suggestion on that. If you're
afraid to mess with that provision too much we can at least clarify
to say that it applies only as an exemption to taxes imposed to
payout general obligation bonds. Right now it is drafted so that
it looks like it even might possibly apply to revenue bonds. I
have no (indisc.) we can crack it down to that extent.
CHAIRMAN ROGERS: Our concern really is -- is with that bonding
exemption. That's been used to drive the effective tax rate up and
so....
MS. COOK: Right.
CHAIRMAN ROGERS: ....and so what we really want is a is a limit of
10 mills including bonding for new property and no increases in the
mill in the effective rate for the old property. And I don't know
what the best way is of saying that in a way the doesn't -- won't
create problems in the bond community. But, that's what we want to
do.
MS. COOK: (Indisc.) Right now municipalities aren't limited in the
number of mills they can pose on old properties. What limits them
is are the two formulas based on the population and the total
taxable property that's in their jurisdiction. And unless you go
in there and tighten down those requirements, I don't think that
you possibly have changed anything. And, with respect to just
changing the bonding provision and saying "yes" but we're only
going to let you touch 10 mills and get a bonding exemption for
that first 10 mills of new property I think will have an affect of
simply causing them to raise taxes on old property.
CHAIRMAN ROGERS: Well, perhaps another way....
MS. COOK: (Indisc.)....
CHAIRMAN ROGERS: ....perhaps another way of doing it would be to
say that add a new cap that says "notwithstanding the provisions
under the formula or under the bond limit that the aggregate tax
rate may not exceed the greater of 10 mills for new property or the
rate in effect for calendar 95 for old property."
MS. COOK: So you basically freeze munis at a point in time that
they might happen to have their tax --- well no what you're doing
is telling them all to run out and raise their taxes quick before
the bill takes effect.
CHAIRMAN ROGERS: No, I said calendar 95's. Because they've
already set their taxes for calendar 95.
MS. COOK: What you're doing -- what you're doing is punishing
those communities that happen to have a lower tax on that date.
CHAIRMAN ROGERS: No, you're allowing them to go up....
MS. COOK: (Indisc.)....
CHAIRMAN ROGERS: ....you're allowing them to go up to 10 mills.
I said, "the cap is the greater of 10 mills, or the existing rate."
And, I believe there are only two municipalities that exceed the 10
mills that being the city of Valdez and the Fairbanks --- the --the
North Slope Borough. The Fairbanks North Star Borough is below 10
mills.
MS. COOK: O.K., so that the cap the 10 mills then would apply to
"all" oil and gas property not just "new" property.
CHAIRMAN ROGERS: Correct. Judy.
MS. BRADY: I was just... For the information of the commission, I
received a call from the North Slope Borough and they are having a
meeting with Fairbanks Borough and Valdez on the 12th and would
like somebody from the commission to come and talk to them about
this issue.
UNIDENTIFIED SPEAKER (Female): Where are they meeting?
MS. BRADY: In Anchorage. I think "talk" was probably not the
operative word.
MS. MCCONNELL: Brian?
CHAIRMAN ROGERS: Yes, Annalee.
MS. MCCONNELL: I'm not sure I'm -- I've tracked here why it is we
couldn't -- we can't make the distinction with any property that
comes on to the tax any oil and gas property that comes onto the
tax rolls after July 1 or whatever date we pick. And, I don't know
how the current statutes are written that allows debt service to be
subtracted before the splits but -- but can't we just say that oil
and gas property coming after July 1 that initial deduction for
bond debt doesn't count? I am somehow I am not grasping what the
problem is here.
MS. COOK: Yeah, I'm sorry. I might not have been very articulate.
The problem is that if you do any limit that you oppose on only new
property unless you make somehow rather solidly what they have to
do with respect to old property will only have the result of
allowing them to increase the taxes on the older property in-order-
to make up the differences they choose to.
MS. MCCONNELL: But, I thought that tax rate had to be the same for
all property. An old house and a new house cannot have different
tax rate. The mill rate has to be the same for both. That's where
I am confused.
MS. COOK: Well, then what good does a statue do that says that
also the 10 mill limit applies only to new property. You've
already created two kinds ......
UNIDENTIFIED SPEAKER (Male): That's not a tax rate. That that's
just the allowance in terms of the state cut of that. That's not
the tax rate itself.
MS. MCCONNELL: Well, maybe another way to approach it would be --
I think our general objective was to grandfather in the bond debt
the bonds that were sold on the premise that state aid would come
at a certain rate. The (indisc.) share would be a certain rate.
So, we didn't want to throw all of those bonds that those
communities currently have outstanding that was based on this old
system into jeopardy. So, what we were trying to say was well let
those go ahead as planned but as new things come on when
communities figure out what their debt capacity is and so on. They
can't assume that they get all the money for the debt service on
anything they want to sell and then they give the state the left-
overs. So, maybe we could draft it from a different direction.
Maybe we just need to say -- to say something about --- it will be
a 10 mill/10 mill split from now on. Except that any bonds could
have already --- maybe there some way to do it for any bonds that
have already been issued. And, I don't know how the mechanics
would work on that, but......
MS. NORDALE: Mr. Chairman.
CHAIRMAN ROGERS: Mary.
MS. NORDALE: I think that what's happening here is were seeing a
confusion between revenue requirement and tax rate. The tax rate
for oil and gas properties is set at 20 mills and what we're
talking about is splitting the revenue derived 50/50. But what Tam
is saying is that when you're talking about a revenue requirement
that is based on the existing formulas, if you require more revenue
to meet the obligation of your debts and you're only able to get 10
mills of the revenue then you've got to crank up the rates on the
non-exempt properties or the old properties in-order-to generate
the revenue to meet your debt service requirements. So, while it
wouldn't affect the rates -- I mean the rates would be uniform just
the ability to collect on the new property would be limited. So,
you could see an escalation of rate even though you wouldn't notice
the escalation of rate on the new property because the state would
be guaranteed 50 percent of the revenue.
MS. BRADY: But what Annalee is saying is that we say O.K. what is
-- is -- And -- but in the future the split you're not going to be
able to use bonded indebtedness as a reason for hike for taking a
percentage of the state's share. Go ahead finish off your bond
payments based on what you're doing now on your old property. But
on new property -- in-other-words it's like phasing something --
it's phasing a practice out.
MS. NORDALE: Well, you're not necessarily phasing it out. You may
very well have a significant escalation of rates to finance bonds
it's just that it's coming out of the old bond rate.
MS. MCCONNELL: No. No.
MR. POURCHOT: New bonds go with new...
MS. NORDALE: Up to....
MS. MCCONNELL: It will make a decision about new bonds.
MS. BRADY: That's right.
MS. MCCONNELL: It might well affect our decision of what they can
afford to bond in the future. But it will not in any way harm
their ability to pay off the existing bonds. Because what we're
going to say is...You're deriving your bond payment your debt
service for the bonds you've already sold. You're taking that
directly from the oil property tax. You're going to continue to do
that for the life of the bond. But in issuing any new bonds,
you're not going to be allowed to do that so the new bonds have to
come through your own local government budget process that does not
give you free money for debt service. So, it should not affect --
it will affect the decisions they make in the future about what
bonds to sell but it won't require them to jack-up the rates to
pay-off existing debt service.
CHAIRMAN ROGERS: Another way of....
MS. MCCONNELL: That already will be taken care of.
CHAIRMAN ROGERS: One way to address that is -- is looking at the
language in the bond exemption right now which is in AS 29.45.100
which reads, "no limitations on taxes to pay bonds. The
limitations provided for under the formula don't apply to taxes
levied or pledged to pay or secure payment of principal interest on
bonds. Taxes to pay or secure payment of principal and interest on
bonds may be levied without limitation as to rate or amount." And
perhaps what we want to do is have that on bonds issued prior to
January 1, 1996.
MS. COOK: (Indisc.) that would be a very easy bill to draft if
that's if that's all that's needed.
CHAIRMAN ROGERS: I think we have two pieces there. One that
having that limitation only apply to existing bonds and second to
say that regardless of the tax levied by municipality the tax level
no more than 10 mills can be gained from oil and gas properties
first placed into service after July 1, 96. And, what that means
is that a municipality that levies 8-1/2 mills as their property
tax would get 8-1/2 mills on oil and gas properties. A
municipality that has a 12 mill levy would get 12 mills on old oil
and gas properties and 10 mills on new oil and gas properties.
That was what I understood our real intent to be.
MS. COOK: What date do you want to use on the drop dead date on
the issuance of bonds? January 1, 1996?
MS. BRADY: Yes.
CHAIRMAN ROGERS: Yes. So there isn't a rush to new bonds.
MS. MCCONNELL: I think because this one is pretty convoluted I
think this is one where we should probably do one of those 24 hours
sleep on it test and maybe run it by some other folks to think
about whether we've got the implications of this the way we had
hoped we did.
CHAIRMAN ROGERS: What I'd like to do is... I agree with that.
Let's get it drafted, circulate it to the members of the commission
and the three affected municipalities and the Department of Revenue
and then we can -- if we need a further meeting on it we can have
a follow up on that issue.
MS. BRADY: It might also be a good idea as part of that to talk
about the kinds of what this means in revenue to the state that
would be shared with all those municipalities who don't have oil
and gas -- the pipeline running through their backyard.
MS. FOUSE: Or those that do and don't tax it.
CHAIRMAN ROGERS: O.K., I believe that completes the revenue
measures. Lets take a ten minute break and then before we deal
with the permanent fund issues, I'd like us to talk briefly about
the whether we want to do anything on the spending side in terms of
endorsing legislation that's already in or pulling together some
bills. So we'll take a break for ten minutes.
CHAIRMAN ROGERS: Are we ready -- are we ready to start up again
now? Juneau, are you ready to start up?
MS. COOK: (Indisc.)
CHAIRMAN ROGERS: Juneau, are you ready to start up?
MS. COOK: (Indisc.)
CHAIRMAN ROGERS: Hello Juneau. We're ready to start as soon as
you are. O.K.? Can you hear us?
BRAD PIERCE: Yeah, we're here.
CHAIRMAN ROGERS: O.K., on the spending side we had a series of
recommendations and the question is whether we want to do anything
with legislation on those recommendations. The first one on the
salaries dealt with salaries and benefits, the adoption of a
retirement incentive program and a tier three retirement system.
There is legislation already in to that effect. That was also the
case on some of our revenue measures. We have not drafted bills on
any of our other issues. The question is whether we should. And,
I'd be interested in the views of the members of the commission on
these issues. Judy.
MS. BRADY: On the RIP program. If there's already bill in.
There's been a lot of discussion on RIP programs over the years and
we've tried a couple and sometimes it ends up saving you money and
sometimes it ends up costing you money. Historically, the city and
state did a big study a couple of years ago. Because that was you
know.... And what normally happens is it saves you money depending
on how you put it together but then they back filled all the
positions again so it ends up not saving money. So, you know we've
made that recommendation and I hope the legislature takes a look at
it but I don't know enough myself actually to have any idea what a
bill would say. How you'd do it.
CHAIRMAN ROGERS: I know legislative auditing went through and
audited the last retirement incentive program and found that it
saved money in some areas and it didn't save money in others.
SENATOR RIEGER: Yeah, that's true. If I may add... My
understanding is that the auditor was instructed to only look at
the short term saving in benefits and I think a longer term life
cycle analysis of a position that has been subjected to the RIP
program. It's almost impossible to have savings unless it's
coupled with a tier three that which is lower in cost. The
Senate's position was to only allow a RIP if it was linked to a
tier three.
CHAIRMAN ROGERS: And I believe our the commissions was adopt both
of them and ideally that would be in a single bill because that's
the way you guarantee you get them both.
SENATOR RIEGER: But you know we did pass a tier three with RIP and
it's kind of bogged down in the House. The -- so it the committee
wants to recommend another tier three. I don't think. I wouldn't
object. I think it would be great. As you know we kind of
compromised with the administration and allowed a modified defined
benefit plan, but there's a number of us who would still much
prefer a defined contribution plan.
CHAIRMAN ROGERS: Are there any pieces any other pieces of
programmatic legislation people would like to see laid out? Judy.
MS. BRADY: Well, let's follow this suit for a minute. On those
recommendations if there's already legislation there on those
recommendations that we agreed on and made, as part of our package
can we recommend that the bill, legislation doing those two things
be passed?
CHAIRMAN ROGERS: I think our report already does that. But we're
not --- I am a little concerned we're being very specific on all of
our tax bills but we don't have a comparable series of programmatic
bills.
MR. O'CONNER: But, I think there is a reason we did because the 15
of us couldn't agree and the 60 of them are going to have to figure
it out. Isn't that where we ended up?
MS. BRADY: Well, we agreed on outcome we just we don't have time
to work through the bills is one of the problems.
MR. O'CONNER: Well, we agreed on outcome from a dollar standpoint.
We didn't agree on an outcome from where the money comes from. I
mean if we had two decisions we stopped. Right?
MS. MCCONNELL: Brian, I think....
CHAIRMAN ROGERS: Annalee.
MS. MCCONNELL: Brian, I think there is -- there is one distinction
between the revenue and the expenditure side that does make it
defensible but we have more detail on the revenue then the other
which is that, taxes and revenues of that sort all require a
statute whereas many -- many expenditure reductions do not require
statute. They're actions that can be taken administratively
through the regular budget process. Now granted there are some
that would require changes, changes to entitlement programs for
instance but it is not quite parallel in the sense that you know
all of these other sorts of revenues can only be done through
legislation.
MR. LOESCHER: Mr. Chairman?
CHAIRMAN ROGERS: Yes, Bob.
MR. LOESCHER: Yes, I was wondering if we're going to have a
general resolution that advances the plan and thereby by having the
general resolution we set the goals and objectives and the
reporting and all that as we have laid out in our plan as the
approach that we're going to use. Is that idea gone by the way, or
how is this plan going to be introduced in the legislature?
CHAIRMAN ROGERS: There's been some discussion on how to do such a
resolution and I'm not sure anyone is quite figured out what the
resolution ought to say.
MS. MCCONNELL: Maybe what we could do today would be to outline
how we think that might look and then take an assignment of
drafting it for all of us to review. But if we could at least
agree on a general approach I think that would be helpful. I agree
with Bob, I would really like to see something like that -- that we
could submit.
CHAIRMAN ROGERS: O.K. I'll schedule.
MS. MCCONNELL: In fact, I think....
CHAIRMAN ROGERS: Go ahead.
MS. MCCONNELL: Pat had hoped to try to take a cut at a draft for
discussion and he just did not get a chance to do that before today
for which he apologized and then left the room. I have to deliver
the message.
CHAIRMAN ROGERS: Why don't we come back to that issue then after
we discuss the permanent fund issues and see if we can get an
outline of the major features we want in such a resolution. O.K.,
with that let's move on then. We've got from the permanent fund,
we've got Byron Mallott here. We've got Michael O'Leary from
Callan Associates, advisors to the permanent fund. We have
Permanent Fund Trustee, Clark Gruening. And I'd like to ask all of
you to come forward and join us at the table, and Jim Baldwin from
the Department of Law. Jim, I know this is an issue you've been
following for the administration as well if you'd like to join us
at the table for the discussion and we can walk through the issues
that had been raised. Let me see if I can get the -- get us out
where you can see everybody here. Our draft legislation has a
constitutional amendment with actually two really -- two sections
of the constitution rolled into a single bill at this point. The
deal with the 4 percent and the increased deposit and I think
perhaps if we can begin with the issue of the issues that have been
raised by the Permanent Fund Corporation Board of Trustees and
Byron, I'll turn it over to you. I'd ask that each person identify
yourself so that the people transcribing this will be able to
figure out which voice is which.
MR. MALLOTT: Mr. Chairman I'm Byron Mallott, the Executive
Director of the Fund. First, a quick disclaimer. We aren't here
with anything that we're doing making recommendations as
consistently has been our relationship with Long Range Financial
Planning Commission as to hopefully offer views and analysis and
data that allows you to make the kind of judgements or helps you
make the kind of judgements that you have made with the Permanent
Fund hopefully being of assistance in that process. Subsequent to
your last meetings and Mr. O'Leary has joined us at my immediate
left. You know him as a disembodied voice of a long weekend
meeting during the course of the summer that we chatted with him.
But basically two issues. One is, I think it came particularly
from Annalee but I think it was generalized through the Long-Range
Financial Planning Commission, is does the 4 percent work? Does it
really work? We had a brief discussion with Michael which he
indicated in the course of that single phone conversation that is
made sense, and we subsequently went back and said lets look at
that in more detail and he has done that we provided the
information to you. I'd also like to make clear that I'm certain
and I know it is inadvertent on Brad's part. In his --- in recent
memo analysis of competing fiscal plans it's suggested in there
that the 4 percent was recommended by the permanent fund. That we
were reacting to a payout rule that the -- that you I think Mr.
Chairman had proposed and I just want to make that clarification.
But we have done that analysis Mr. O'Leary is prepared to summarize
it briefly and to be responsive to questions from you. And,
secondly because a constitutional change is obviously a very major
public policy act, the whole question of whether changes to the
Permanent Fund language in the constitution might be absolutely
necessary was raised by several members of our board particularly
Trustee Gruening who was in the legislature at the time that all of
this evolved and was raised such that we asked both the A.G.'s
office. Jim Baldwin had been asked to comment on the draft
constitutional language he -- he as a courtesy asked the APFC to
comment as he conducted his review subsequent to conversations with
Trustee Gruening I asked our external legal counsel, Ron Lorensen
and Juneau's former Deputy A.G. to just give us the benefit of his
thinking on that subject and we've given you a copy of that
memorandum too and I want to make it clear that none of that is by
way of recommendation it's by way of offering other views. With
that Mr. Chairman unless there are questions based upon these brief
comments, I'd like to ask that Michael if he could summarize the
material that he prepared and what we call the endowment primer.
CHAIRMAN ROGERS: Please.
MR. O'LEARY: Thank you. It's a... I am delighted to be here and
I hope that the work that we did is of some use to you and your
deliberations.
MR. MALLOTT: Mr. Chairman I would just mention that this is
Michael O'Leary. He's with Callan and -- and -- and Associates,
the firm that is the investment policy consultant to the Alaska
Permanent Fund Corporation.
MR. O'LEARY: In the study that -- that the first part of the study
that we conducted, we went back to 1926 and we looked at three
different policies investment policies. A very conservative
investment policy - 30 percent bonds/70 percent -- 30 percent
stocks / 70 percent bonds. A middle of the road policy of 50/50
stocks to bonds. And a very heavy equity policy - 70/30 - 70
percent in equities - 30 percent in bonds. And, we looked at two
different distribution policies. One distribution policy was to
distribute half of the -- of the total return experienced over the
preceding five years. And the other distribution policy was to
distribute 4 percent of the average five year market value. And,
we contrasted each of those. And basically what we found was that
there was a great deal of similarity between the 50 percent of the
average five year earnings and the 4 percent of average five year
market value. And that is detailed in the study that you have.
The most remarkable difference to me was that the 4 percent of
average five year average market value distribution policy resulted
in a much more consistent and stable flow of distributions that the
50 percent of earnings. So that was looking back and both with at
a 50/50 asset mix both distribution policies resulted in
preservation of the purchasing power of the fund corpus. If you
couple a very conservative investment policy - the 30 percent
stock/70 percent bonds- with the 4 percent distribution the results
were more period specific. So, from a long term investment
perspective, were the fund to distribute 4 percent of its average
market value and attempt to preserve purchasing power it would be
very important to have an investment policy that was consistent
with that. Such as a 50/50. Obviously the current statutory
limitations preclude the more aggressive investment policy of 70
percent stocks that was modelled. That was stage one. Stage two
which you haven't received and was just distributed to the
Permanent Fund Trustees at their meeting yesterday was a
simulation, prospectively. Now what we did here is we took the
spreadsheet which I believe you all prepared and augmented that
with some data on historic earnings and market values which we got
from Jim Kelly at the permanent fund. And we rather than in your
spreadsheet you have a single number for endowment earnings. What
we did was to simulate a range of possible earnings to try to take
into account the risk inherent in financial markets. And so rather
than a single number we have a whole range of numbers. We ran 200
simulations and we looked at three different investment policies
again: A conservative policy, the Permanent Fund's actual current
investment policy and a very heavy equity investment policy. What
we found was that the median expected return actually exceeded the
spreadsheet forecast that you all have used. But that there that
is one possibility out of this range of great range. We extended
the spreadsheet and looked at what might be the range in fiscal gap
holding everything else constant that was in your spreadsheet and
what might the consequences be on the constitutional budget reserve
late in the forecast period. And, I will leave a copy of that
study with you and will have additional ones sent to the permanent
fund to forward to you. The bottom line of it was that there were
no significant differences from the work that you had done but I
think that this added step of looking at the range of possibilities
gives you some new information. I'd be happy to address any
questions that you might have before I part with my last remaining
copies.
CHAIRMAN ROGERS: (Indisc.) Steve.
SENATOR RIEGER: Yeah, a couple. First well you made the statement
that at the conservative mix the results were very period specific.
Are you saying that in fact you weren't able to preserve capital at
a 4 percent payout rule?
MR. O'LEARY: With a conservative investment mix the periods that
we looked at were from 1926 forward then we looked at 40 years
ended 12-31-94, 30 years ended 12-31-94, 20 years ended then and
the 10 years ended then. And, there were clearly five and ten year
periods where one could say if you just focused on that period,
yeah, you haven't preserved purchasing power.
CHAIRMAN ROGERS: But over longer terms?
MR. O'LEARY: Over the longest terms absolutely it had been
preserved.
MS. BRADY: Is that with a 70/30 mix?
MR. O'LEARY: That's with a 50/50, the 70 percent stock mix and
also with the 30 percent stock mix but there it gets to be very
narrow. There -- there it depends on the periods.
MS. BRADY: I was trying to follow up on....
MR. O'LEARY: So the more conservative the investment policy, the
more conservative the investment policy the greater the probability
that you don't preserve purchasing power when you distribute 4
percent of market value.
MS. BRADY: What kind of inflation figures were you using?
MR. O'LEARY: The actual inflation the actual infl.. historic
inflation.
MS. BRADY: Oh you went back?
MR.O'LEARY: When we went back.
MS. BRADY: O.K.
CHAIRMAN ROGERS: Steve.
SENATOR RIEGER: If -- did you or have you -- do you work with
funds where there is a constituency which has a call (indisc.) on
the payout, but also a call on the investment policy of the fund
itself?
MR. O'LEARY: Yes.
SENATOR RIEGER: In those kind of cases, have you found pressures
for financially inferior investments that would affect the
viability of a fixed payout rule?
MR. O'LEARY: Yes, let me give you the one specific case that I
that I personally have been involved with so can therefore give you
some accurate information on. One of our clients is the New
Mexico, the state of New Mexico State Investment Advisory Counsel.
In New Mexico there are two funds - a permanent fund and a tax
severance fund. The distribution policy is that income is spent
from the tax severance fund it goes to support state operations and
from the permanent fund it goes to support education. And, in the
short run, investment policy through altering your investment
policy you can affect realized returns.
TAPE 2, SIDE B
MR. O'LEARY: ...additional budget amendment constitutional
amendment to the state to shift toward a market value distribution
type of approach. Because there was understandable concern that --
that might in the short run actually reduce distributions. There
was a transition rule which called for distributions to be at a
minimum 102 percent of the prior years distributions. O.K. And as
a result of that, I think the gain from the sort of shift to the
market value approach was not apparent for sometime into the
forecast period because of the current level of policy. Now, staff
at the --the state of New Mexico felt that there was or proponents
of the change let me characterize associate it with a step.
Proponents of the change, felt that the current status quo resulted
in over emphasis on fixed income securities and indeed when
interest rates were low encouragement to move out to longer term
fixed income securities to try to preserve the level of income. So
that is an illustration of the -- the conflict if you would of
pertaining to control over both investment policy and the
distribution formula.
CHAIRMAN ROGERS: Steve, do you want to follow-up?
SENATOR RIEGER: Well, just I'm thinking a little bit differently
because when I say a constancy for the investments of the funds per
se I am thinking of for example pressure for a fund to invest in a
politically popular infrastructure project for example that would
have if you had a fixed payout rule very little or no near term
affect on the payout. Because you'll payout 4 percent of your
corpus as long as you carry that investment at book value. And
you'll have your current income will be almost immaterial to how
much you payout except to the extend that it gets reinvested.
MR. O'LEARY: I -- I sorry I misconstrued your question I don't
have experience with people in that in that circumstance.
CHAIRMAN ROGERS: Mary.
MS. NORDALE: In the New Mexico experience was the distribution
that was made from either fund or, perhaps I should say, did the
distributions include the what would be termed capital gain?
MR. O'LEARY: Realized return? Yes.
MS. NORDALE: Oh, so it was everything.
MR. O'LEARY: Yes.
MS. NORDALE: Both income ordinary as well as capital.
MR. O'LEARY: Yes.
CHAIRMAN ROGERS: Annalee, did you have a question?
MS. MCCONNELL: Yeah, I'm sorry if I because I was distracted here
by a couple of conversations if you've already answered this
question. Among the funds that are doing this sort of thing now or
have been and have been for some time which is the more commonly
used approach, the fixed payout rate or half of earnings or some
other percentage of earnings? And do they generally use the five
year average?
MR. O'LEARY: Let me qualify my answer. There is it is very common
among educational endowment funds for the distribution policy to be
a function of the market value of assets as opposed to earnings.
In the study that we prepared we referenced a survey which found
and let me get the numbers right in front of me this is a 1992
survey of educational endowments conducted by (indisc.), which is
an association of endowments. They found that 17 percent of the
endowments spent current income. Forty-eight percent spent a
percent of moving average market value, 5.7 percent spent a percent
of the prior years spending, 13.8 percent determined a spending
rate each year, and 14.7 had some other spending rule. So, with
that one under score is in typically university endowments and
foundations. In the public sector I think that it is much more
common to have distribution policies that are similar to what you
have had with the Permanent Fund which is a percent of realized
return. And I think that there is a natural there's a historical
basis for that because initially and even today the preponderance
of those funds are invested in fixed income securities and so
earnings are thought of as income.
CHAIRMAN ROGERS: Of the -- and I guess you have to use the
(indisc.) study probably, but in terms of those that have a percent
of moving average market value what's the range of percents that's
that is out there? Are there are more of them above 4 percent or
below 4 percent?
MR. O'LEARY: I think in the foundation area you get up to 5
percent and there's some tax reasons for that. In the endowment
area Yale who has a very, very aggressive investment policy just
moved to 4-3/4 percent of and it is more typical to see five year
averaging than something that is shorter than that.
CHAIRMAN ROGERS: The -- one of the competing proposals had a the
Cremo plan was recommending a 6 percent annual withdrawal. Under
the simulations you've done would that be sustainable?
MR. O'LEARY: Well, not with the current policy would be my
judgement. Current investment policy. Let me and indeed Yale who
has 80 percent of their assets invested in equity-like investments
felt that the highest that they could go was 4-3/4 percent and
still have an acceptable probability of maintaining the purchasing
power of the corpus of the fund. I -- I think that's more
representative of the typical thinking. In our work with the
permanent fund's current policy which is essentially a 50/50 type
of policy, the expected return using our projections is about 8.8
percent, 8.79 percent to be specific. And so if 6 percent were
distributed you'd be looking at an inflation of less than 6 percent
of what five year market value is actually a lower effective rate
but it would be very close to a and probably on balance would
result in some diminishing of purchasing power.
CHAIRMAN ROGERS: Are there questions for Mr. O'Leary? Judy.
MS. BRADY: You run balance sheets that show and talked about
different funds that you are familiar with that do things different
ways it sounds like when you ran through the percentages of funds
that do things various ways it's kind of spread out over the map.
And obviously when we talk about doing anything with the permanent
fund either leaving at it is or changing any way people worry about
things. They worry about people investment if we do this then that
will encourage investment. It looks for a higher rate of return
that would be it would be good you know we worry about things. One
of the things this is not a number question this is more of a
policy question, what are the things that when you look at a
permanent fund and you look at changing the way it operates like
were talking about like doing a payout rule that's different, what
are the kinds of policy issues that you think a state should be
looking at or a board that are the ones that would make a
difference?
MR. O'LEARY: I believe very strongly that the biggest risk to
oversight of any pool of money is what I'll call policy risk. And
that is the risk that you don't persevere with whatever your policy
is. We've all seen the (indisc.) types of studies that demonstrate
very clearly that a very heavy equity orientation over the long run
is the most productive. However, there the long run is a series of
short runs and there clearly are five and ten year periods where
what is happening appears to be at odds with that long run record,
and it's very difficult to sustain the policy through those interim
periods. So, for example, if one had a policy that had a very
heavy equity orientation and the market in 1973-74 the stock market
declined almost 50 percent in that two year span and so whatever
your distribution is people can see flowing through that sort of
market decline having an impact on distributions and so at that
point there could well be tremendous pressure to alter the policy
at exactly the wrong time. And so I think that that the job of
trustees is very difficult they want to do what's going to maximize
return in the long run but they have to survive to the long run.
MS. BRADY: What other state would just blame it on Jim Kelly?
MR. O'LEARY: And -- and -- and -- and that would be well done.
MR. MALLOT: That's what I like to hear.
UNIDENTIFIED SPEAKER (Female): That's true.
CHAIRMAN ROGERS: Steve.
SENATOR RIEGER: Question, on excluding the idea of a payout based
on principal value but a payout based on earnings and let's assume
that inflation is adequately provided for inflation proofing of
some sort, is five years an adequate period of time to average
performance so that you can probably have a pretty stable cash
flow?
MR. O'LEARY: I think it generally is, however there have been five
and ten year periods where the financial markets have not produced
returns in excess of inflation. And you all have experience with
that you've had to sort of go into the bank for inflation proofing
and over the history of the permanent fund and that has been a
period of extraordinary financial market returns, as well. So....
MR ROGERS: (indisc.) O.K. go ahead.
MR RIEGER: If there were a five year payout rule and if the -- and
still with the present scenario of inflation proofing and so on, is
it better to have an aggressive portfolio or a moderate portfolio?
Which would you recommend?
MR. O'LEARY: Could you define moderate?
SENATOR RIEGER: The two you've outlined here. You know with the
70/30 versus 50/50.
MR. O'LEARY: I think a moderate. Because there each year when we
help the board in its deliberations with regard to asset
allocation, we one of the exhibits we prepare is what is the
probability that your return will exceed some threshold rate of
return over three years, five years, seven years. And, we
encourage the board members to look for the opportunity side toward
the longer ones and for the risk side toward the shorter one
shorter periods. And it's a balancing act but clearly the -- I
think you have to be cognizant of what could happen in five years.
SENATOR RIEGER: One last question. What--what would it--I mean I
look at the higher return on the on their more aggressive
portfolio. What would it take in terms of buffers and smoothing to
make that the choice that you'd feel comfortable that it was the
preferred choice for as an investment (indisc.)?
MR. O'LEARY: I--I--I think to have a heavier equity orientation
the distribution policy really ought to be linked to the average
market value as opposed to the average earning.
UNIDENTIFIED SPEAKER (Male): Confirmed trustee's tenure in the
constitution.
SENATOR RIEGER: That's (indisc.)
MR. O'LEARY: Is that responsive to your...
SENATOR RIEGER: Yup.
MR. O'LEARY: (Indisc.) what I wanted to hear
SENATOR RIEGER: Well, it wasn't what I wanted to know, but in the
absence of that you don't think that any amount of buffer is in
longer periods of averaging could get you there?
MR. O'LEARY: Those would be alternatives but I don't think that
they do as much of a -- as much of a job.
CHAIRMAN ROGERS: Mary.
MS. NORDALE: I want to get you to go back a little bit. In
comparing the scenarios of simulations that you developed using
your the current model, if I understood you to say, if I understood
you correctly, I understood that a distribution based on market
value as proposed 4 percent rolling at five year yielded
approximately the same amount of funds for the general fund as a 50
percent distribution of earnings, is that correct? Or, was I
mis...
MR. O'LEARY: That's correct. That given the current policy given
a 50/50 policy there is very close between 4 percent of market
value and 50 percent of total return. Not realized return.
UNIDENTIFIED SPEAKER (Male): Over what period of time?
MR. O'LEARY: The long term.
MS. NORDALE: Total return?
MR. O'LEARY: Total return.
MS. NORDALE: So that left 50 percent in the fund for
appreciations. Right? Or it met the inflation proofing cost.
MR. O'LEARY: Yes.
CHAIRMAN ROGERS: Would--would that say therefore that the long
term average rate of return is 8 percent? Was 8 percent?
MR. O'LEARY: It--historically had exceeded the real rate of return
(indisc.) with something on the order of 4.6 percent for a 50/50
policy. And, if I could apologize to the folks in Juneau who will
have difficulty seeing this, this is a graph of a spending
comparison for the 70/30 policy going back to 1926. And the dashed
line is 4 percent of market value. The solid line is 50 percent of
five year total return and the explanation for my position was this
span where the general trend in distributions for a prolonged
period was down and obviously was volatile. And that's the period
where of greatest discomfort -- and that was the motive that--
that's the rationalization for my position of the 4 percent being
a more palatable with the heavier equity orientation.
CHAIRMAN ROGERS: Mary.
MS. NORDALE: Bob, you--New Mexico is your client?
MR. O'LEARY: Yes ma'am.
MS. NORDALE: It's my understanding that New Mexico had some
problems -- political problems in basically selling to the general
public that constitutional amendment which would accomplish the
changes that were desirable for their (indisc.). Can you tell us,
one, did they overcome those problems, and if so, how?
MR. O'LEARY: The proposal was defeated so they obviously didn't
overcome. It is my understanding that they have not given up on it
that they are going back to try again. And, I think that the issue
was a very complex issue there because there were a number of other
things that were going on at the same time. They were considering
broadening the investment parameters. So, I think what happened
was that support some support was lost because proponents some
proponents felt that the 102 percent was putting the fund at risk
even though they supported the notion of a market value linked
spending approach. The specific percentage that they had I think
was 4.75 percent if I recall correctly. Some people who supported
the notion of going to that type of distribution felt that that
number was too high. Others were uncomfortable with the loss of
flexibility putting the distributions in effect into the
constitution. So those -- those to me as an outsider were the
issues that were on the table. Part of the amendment was would
have given the state investment board the flexibility to invest in
a broader range of stocks than they currently have to include
international stocks and some people may have supported the general
notion but objected to that so there were maybe too many elements
involved.
MS. NORDALE: Thank you.
CHAIRMAN ROGERS: That issue answers in part for me one of the
questions that's been raised about our draft which is whether we go
from a range of investments specified by law to the prudent
institutional investor rule in the constitutional amendment. While
I favor moving to the prudent institutional investor rule, I don't
know that we should combine it with our approach right now in-
order-to lessen the concerns that might occur from leaving the --
taking the legislature out of the list of approved investments. I
think the right thing to do in the long run would be for the
legislature to repeal its laundry list and go with prudent
institutional investor and, rather than making the constitutional
change because that that might result in some loss of support for
the constitutional amendment for the endowment fund. Jim, you
raised the issue in your discussion I think the trustees are right,
prudent institutional investors the right rule, I'm just not sure
this is the time to do that.
MR. MALLOT: Does that segue us Mr. Chairman into....
CHAIRMAN ROGERS: That's what I was trying to do, yes.
MR. MALLOT: Just very briefly and Clark is here as well as Jim
Baldwin. Jim is also the Assistant Attorney General working with
the permanent fund. I guess again I want to make clear that a
suggestion that the prudent investor rule might be included in the
constitution or even addressed by the legislature, is not a
position of the trustees. We currently are rested with that
motion. There is to some degree comfort in having an investment
list and so we aren't advocating anything like that. We also are
not in our comments addressing whether or not payout rule ought to
be locked into the constitution as a matter of public policy. We
are not addressing whether the change from 25 percent to 50 percent
should be changed by way of an amendment to the constitution. In
our internal analysis certainly on a personal basis trustees and
others may have strong feelings about the issues, but looking at
the permanent fund and the notion of the permanent fund being an
endowment with a payout rule we have done legal analysis that
suggests to do that a constitutional amendment may not be
necessary. And that's -- and that's the essence of it -- it is not
anything that the trustees have signed off on it's purely analysis
that has been done. We wanted to call that to your attention,
particularly Trustee Gruening as discussed that issue with the
trustees and internally to the degree that you might want to
discuss our review of this issue we're here to do that with you.
CHAIRMAN ROGERS: We're distributing an opinion by Ron Lorensen of
Simpson, Tillingast, Sorenson and Lorensen on the issue of whether
there is a need for a constitutional amendment to implement the
endowment concept. Just I guess one note I'll turn it over to
Clark in just a second. I--one concern I have would not having a
constitutional amendment is that the payout if the payout rate is
not set by constitution the legislature can play with that and
that's part of the limitation on spending that I think is a key
part of the plan. There -- without a constitutional amendment that
says the most you can draw is 4 percent, the legislature could
decide well, "Yale is at 4.75 percent lets go to 4.75 this year and
or lets try five lets", and I see a greater risk to the long-term
viability of the fund if the payout rate is subject to legislative
action from year-to-year. Although, certainly the process is
easier if we don't require a constitutional amendment. Clark.
MR. GRUENING: Byron, I -- as a former Legislator is -- your former
Legislator I think we're underestimating the creativity of
legislatures to work the appropriation process to achieve whatever
the goals are and that the only real restraint in the end is the
public constituency for one policy or another. The constitutional
budget reserve is an example of -- of the kind of problems we get
into if we try to nail things down in terms of the appropriation
process. Where I'm coming from and this is really personal because
we have not as a board of trustees come to any conclusion on this
but I recall the discussions that surrounded the original
constitutional amendment and the purpose of that drafting there was
to create maximum flexibility for the legislature to deal with
earnings. For that reason I -- I raise the issue of whether a
constitutional amendment was necessary and -- and the executive
director also asked Ron Lorensen to follow that up. My -- my
opinion for what it was worth with another attorney's opinion and
so I would suggest at this point and I've discussed it with Annalee
she has the copy of my memo is to at least examine the approach --
kind of -- at least look at a statutory scheme. I think you may
have less problems with the amendment or what you want to say if
you -- you look at what the statute the implementing statute may
have to provide. I have spent some time going through the various
drafts and this latest draft still leaves a great deal of
confusion. It -- that would have to be judicially sorted out.
Just for an example, and I haven't seen this in any draft that Mr.
Baldwin has -- has created, but it talks about the amount of
appropriations from the permanent fund that takes effect. Now, I
don't know what takes effect modifies is that the amount of the
appropriation, there's a grammatical problem there but beyond that
is that referred to effective date? If that refers to effective
date you haven't cured the problem of the legislature deciding well
we can have more than the 4 percent payout we'll just make it
effective in a different fiscal year. So, whether you have
calendar year or fiscal year there is a lot of gains that can be
played with effective dates. So, I don't know what "takes effect"
means. If it means effective date that mean or doesn't mean
effective date, does it mean that unobligated appropriations
haven't taken effect? Does it mean that impounded appropriations
haven't taken effect? And I raise that in that my -- my memo but
I think you could struggle with this for a long time and never
really know for sure until you had judicial interpretations
particularly on this. We haven't had any for the permanent fund
for the last 19 years and it's worked pretty well. So, I guess
it's a personal caution -- cautionary note to maybe work more with
the drafts to deal with the endowment concept because I -- my basic
feeling is that you have an endowment amount and the legislature
has chosen to use that to set up a dividend program and inflation
proof the fund through or and re-inject earnings back into the fund
or other appropriations. They have been very protective of the
fund and I think that reflects the public view and I think
ultimately that is the ultimate protection.
CHAIRMAN ROGERS: Judy.
MS. BRADY: The -- what we've found around this table and I'm sure
you found in the legislature and (indisc.--too soft)...
CHAIRMAN ROGERS: Speak up.
MS. BRADY: ...public policy work that you have done is that we
always invoke what the public wants. If the legislature is doing
what we think what we think it should be doing we say "well, it
reflects what the public wants." This is the first time and this
is the first time that we've talked about a number of things going
together in a plan at the same time and using the fund as an
endowment rather than syphoning off money and continuing to build
the gap with one time monies which the legislature has been doing.
And, I think -- I think what -- I think what this commission has
been saying and what individual groups in the public have been
saying it that they believe the legislature is to some degree out
of step with what the concerns of the public are right now about
the fiscal gap itself. And the questions to the public is do they
want to use the fund -- the earnings from the fund in -- in a way
to help close that gap and it is a question to the public. And I
think the only way we're going to know the answer about what the
public really thinks is to put that question to the public. And I
-- but I -- but I share your concern about the language. If it was
not clear enough and we get ourselves in another -- another
question of what are we really talking about like we often do in
constitutional amendments, or make amendments that actually don't
don't do what we intended then we've wasted our time and we're back
to zero.
MR. GRUENING: Mr. Chairman, that's -- that's a good point and I --
I personally think that I've heard the governor say this that he
wants a vote on any change to the permanent fund and I guess the
issue here is whether you can have a bill, advisory vote on a bill
or a contingent effective date on the on the bill. And, I've
talked a little bit with other attorney's about it and I -- I think
you can probably get a a vote of the people whether you do an
amendment or not. I mean in other words I don't think the need for
a vote commands that you do a ......
MS. BRADY: What's the difference between if you can't -- what's
the difference between getting clear language for a constitutional
amendment and getting clear language for a bill?
MR. GRUENING: The difference is that you have at least a two year
turnaround and a two-thirds vote in the legislature to correct any
problem - witness the constitutional budget reserve that may never
be corrected. Your -- you can be locked in because it
becomes....and -- and you heard Michael Leary describe the problem
that New Mexico was having. The (indisc.) in Alaska anyway is a
minimum of two years, and it could be very much longer where a bill
through a special session or otherwise can be very quick.
MS. BRADY: O.K. and my last question I guess is how difficult --
I obviously don't understand the difficulty of saying we're going
to do 4 percent where going -- I mean -- you know four sentences
that say this is what we're going to do. We're going to take 4
percent and -- and or whatever it is you're going to take and it
goes into the general fund every year.
MS. BALDWIN: Mr. Chairman, if I could make a few comments.
CHAIRMAN ROGERS: Yes, please Jim.
MR. BALDWIN: Part -- part of the problem that we have with the
constitutional budget reserve all the litigation that it (indisc.)
was that the drafters there tried to legislate rather than write a
constitutional provision which should be a ...
MS. BRADY: Jim. I agree with that
CHAIRMAN ROGERS: ...broad statement of concept. With in the best
of all possible worlds, the legislature implementing it ...
MS. BRADY: Yes.
CHAIRMAN ROGERS: ... like Clark says and then being able to change
it on an annual basis if needed to meet the needs and part of what
I see here and this amendment and it should be not considered as a
criticism of the draftsman but it seems to me the last part that
talks about the 4 percent is attempting to legislate because it's
getting down to the calendar year versus fiscal year and it's not
stating broad concepts it's trying to get down to the very minute
concepts that are going to cause problems. It's going to trip us
up I think along the way.
MR ROGERS: Jim, I -- I in looking at that last sentence, is there
a way to get across our intent of the no more than 4 percent annual
withdrawal, 4 percent of the average market value preceding five
years, is there a way to say it more simply than what is said
there, but to keep that 4 percent cap that was intended by the
commission? We -- Tam -- Tam asked some questions earlier version
had fiscal year we realized that gee in May when the legislature
adjourns you don't know what it is for that fiscal year so you have
an uncertain amount so in the discussions between the commission
completing work and now we switched to calendar year because we
realized that in May you do know what that amount is. Is there a
way that we can let the legislature implement this and say it with
fewer words because -- because I'm of the school of fewest number
of words in the constitution the best?
MR. BALDWIN: Yeah -- I -- I know that with a lot of our
discussions that we've had, you know at the staff level, there's
always been a lot of question about what this calendar year
business means and how's it to be implemented and I think it would
be better if you just took all reference of it out and just put the
4 percent concept in and then had a provision in that said that the
legislature shall implement this by law.
CHAIRMAN ROGERS: So, how would you -- how would you say that? I
mean (indisc)....
MR. BALDWIN: I'd say, "the total amount of appropriations from the
permanent fund may not exceed an amount equal to 4 percent of the
average mark -- of the average annual market value of the permanent
fund during the immediately preceding five years" and leave those
other complicating factors out and then add another sentence that
said, "the legislature shall implement this by law." And that
would just -- I mean I have more trust and than Trustee Gruening
has for what the legislature would do simply because you know...
MR. GRUENING: Wait a minute, I think I trust them to do they have
done well with the fund so far.
MR. BALDWIN: Yeah, I think there are certain concepts that have to
be left for legislating.
CHAIRMAN ROGERS: Do you share the opinion of Ron Lorensen that we
could deal with both the change from 25 to 50 percent and the 4
percent annual withdrawal by law rather then by constitutional
amendment?
MR. BALDWIN: In general I do. I think there are other concepts
here that you wouldn't that you'd have to forgo that you apparently
adopted. I think you lock in the 50 percent if you do it in the
constitution. Right now you could do it by statute but they can be
amended at any time. So, you lose the ability of locking it in.
You would also lose the automatic inflation proofing which happens
by doing it under this version since all would go to principal and
then you'd take the 4 percent out. Now, inflation proofing is done
by appropriation. There was a time in our history when it was not
done by appropriation but that's a subject of argument, but so,
that could be changed -- so you -- that's something you wouldn't
achieve by doing it this way. So, I think (indisc.) on that basis
-- generally I agree with them except for those minor points.
MS. MCCONNELL: So, excu... Brian.
CHAIRMAN ROGERS: Go ahead.
MS. MCCONNELL: So, the -- the concern you have, Jim, is not
something -- not about the 4 percent and the five year average
stuff in terms of going forward with a constitutional amendment
it's -- it's more related to the effective dates of which types of
appropriations and that sort of thing?
MR. BALDWIN: Yes.
MS. MCCONNELL: I'm I -- I -- am very sympathetic to the concerns
that Clark raised about getting ourselves into another CBR kind of
situation where we recognize that there were are consequences that
were not foreseen and then we have a difficulty correcting them, I
think my reservation about going to a certainly statutory route is
that that I don't think they'll be as Judy put it sufficient public
confidence that that that there will be the protections against
sucking more out of the permanent fund than what was intended when
we put this -- this kind of plan in place. I like the idea of
getting some sort of a hybrid where we can where we can implement -
- implement it in such a way that -- that we have some flexibility
for correcting unintended consequences. And, I also think that I
guess the other piece would be that one lesson we did learn from
the constitutional budget reserve is that not having much in the
way of legislative history and intent creates some real problems
down the road and so I think we can do some things to clarify that
in terms of descriptions of what this endowment would do this
(indisc.) the record a little better.
CHAIRMAN ROGERS: Judy.
MS. BRADY: I have some concerns about the -- probably because I
have still a whole lot of mixed feelings about it. We all give up
some of our mixed feelings about the 25 percent and being in a
statute, the extra 25 percent I mean being in the constitution.
And the reason that I do is that if we got into a huge problem a
short-fall to take 25 percent off the table of your recurring
revenue where you have no access to it where you can't re-access
it. You know without a constitutional without another amendment
gives me heartburn, and I know I understand the people who want to
cut you know don't want more money on the table and all of that but
that's one where I would (indisc.--coughing) You know there's a
number of things we could do we could do two constitutional
amendments but then one of the problems there might be you'd end up
with 25 percent more money off the table and no endowment. So you
would really be in trouble. Or, to direct legis...one thing I
thought was perhaps we could direct the legislature I hate to do
this in the constitution to vote on that extra 25 percent every
year. I don't know. Some way of....
SENATOR RIEGER: That's what an appropriation is.
CHAIRMAN ROGERS: Yeah.
MS. BRADY: Yeah, but -- but
CHAIRMAN ROGERS: We could certainly in lieu of amending the 25 to
50 by constitution I think be consistent with our earlier report
and put in legislation that would increase from 25 to 50 that would
give the legislature were that adopted the ability in an emergency
to revise that legislation back down to 25.
MS. BRADY: I would be more comfortable with that.
CHAIRMAN ROGERS: I don't believe that the 25 to 50 while I don't
believe that's necessarily required to be constitutional. I would
prefer it to be in the constitution because you know I wanted to
see something I mean I -- ideally we should have set (indisc.) that
preserved all of this one time wealth on a long term basis and
moving from 25 to 50 to me is a good way of moving in a direction
of (indisc.) constitutionally, but I could certainly live with
going from 25 to 50 statutorily that does preserve a little bit
more flexibility in a crisis. Annalee.
MS. MCCONNELL: I would feel O.K. about doing it statutorily I
guess either way but the number if you look at the numbers the
amount that we give up of money in that 25 percent is going
directly to the general fund now is in the range of 250 million
dollars each year roughly. We're picking up in a way the endowment
earnings starts at $683 or thereabouts so we do already have some
cushion we're just because of the way our the big deposits work
early on we are in fact picking up additional security so I don't
think we're as vulnerable to the kinds of things that Judy you're
concerned about because we are replacing that with -- with that a
higher amount of -- of total earnings.
CHAIRMAN ROGERS: I'd like to raise another issue on the
constitutional amendments. I would like to split what's now a
single amendment into two and have the -- the permanent fund
amendment go to the voters separately from the CBR amendment and
sort of my feeling on that is that -- that opposition to
constitutional change is additive and so if we add the opponents
anyone who opposes the permanent fund to those who might oppose a
change to the CBR that there's some chance of loosing them and if
the if the voters are presented with both to get...both separately
I think there is a greater chance of at least getting the CBR fixed
which there seems to be relatively non-controversial we ought to be
able to at least get that into place and -- and make that single
improvement so I guess I'd like to see this as two separate
resolutions rather than a single one. Is there anyone on the
commission that has strong feelings about putting them together?
MR. POURCHOT: No. Brian my only comment would be your logic isn't
always true. Sometimes things going to the voters in big packages
also pick-up support sometimes like on bond propositions.
CHAIRMAN ROGERS: Good point.
MS. NORDALE: I don't think that would be the case here though
because of the of the special view of the permanent fund that
(indisc. --too soft).
CHAIRMAN ROGERS: O.K. well, I didn't hear any dissent so we'll in
terms of our legislative package separate this into two. Looking
at the first page, the permanent fund amendment, what's the will of
the commission? We need to figure out what we want to do here.
MS. NORDALE: I would like to address this after lunch. I would
like to have an opportunity to read Ron -- Ron Lorensen's
memorandum and I'd like to look the Callan Associates stuff before
I can see you know there's some easy amendments that could be made
that make me think (indisc.) but I'm not (indisc.--paper shuffling)
sure of the consequences.
MS. BALDWIN: Can....
CHAIRMAN ROGERS: Judy?
MS. BALDWIN: Can a constitutional amendment following along what
Jim said and some and some of Clark's concerns which we which we
all share are real serious concerns. Can you can you write it so
you're actually just directing the legislature to write the
legislation that accomplishes this no more than 4 percent? I mean
can you just....
MR. GRUENING: Well, if you put the 4 percent in there then they're
bound by it. I mean if you look at the way the original amendment
is written it's very simple. You know it...
MS. BALDWIN: Yeah.
MR. GRUENING: ...states the amount that's dedicated, states how it
can be appropriated or used and it states it's to be in ....
TAPE 3, SIDE A
MS. BRADY: What would be persuasive to me would be a
constitutional amendment that talked about (indisc.--paper
shuffling) the endowment, that fixes the constitutional budget
reserve fund and limits it, so it works, although that's going to
be an interesting -- it does not lend itself to a bumper sticker.
I explained this. And then maybe this third thing that we talked
a little bit about, but maybe -- and maybe we can't do it 'cause we
didn't -- is there any way to fix - not that I know of one in the
world that works - but is there any way to fix the budget... the
spending limit thing that -- so the -- so the public would see that
this is not just another way of increasing spending? Is there any
brilliant way - clean way - to fix that?
MR. BALDWIN: Is the old spending limit the one that's ...?
MS. BRADY: The one that's on the books.
MR. BALDWIN: I'm sure there's a way to fix it.
MS. BRADY: I mean, has anybody ever made one work, that -- that
just ...?
MR. BALDWIN: Well, the problem with the one on the books is that
it ...
MS. BRADY: Oh, I know.
MR. BALDWIN: ... it has an inflation factor that has taken us into
hyperspace by now, I'm sure.
CHAIRMAN ROGERS: But we changed the date -- earlier, to the
commission, I proposed changing the date from 1981 to 1995, but
that leaves in all the other garbage that is in that section.
MR. BALDWIN: Yeah, I mean, there's a -- there's a definite
allocation of capital and all that sort of thing that is ....
MS. BRADY: And you don't want that. But see, if the intent was
clearly that in using the permanent fund as -- in beginning to use
the permanent fund as an endowment, yet that you just weren't going
to be increasing spending by that much, and still have to do all
this other stuff, that you clearly intended for us to get our house
in order.
UNIDENTIFIED SPEAKER (Female): To get your house in order?
MS. BRADY: But see, that would be a nice -- that would be a nice
combination of changes, but I don't know if there's any way you can
change it to make it work, that doesn't, you know, just tie
everybody's hands together.
CHAIRMAN ROGERS: It'd take some work.
UNIDENTIFIED SPEAKER (Male): (Indisc.--simultaneous speakers).
MS. BRADY: Has anybody ever looked at that? Has the legis... has
anybody ever looked at that to see if -- I mean, you just sit
around at night with nothing to do, and ....
MR. BALDWIN: I think if you would look at all the proposals that
have been introduced in the legislature in the last five years,
you'd probably find just about every possible alternative has been
proposed.
MS. BRADY: Oh, O.K. O.K.
MR. BALDWIN: I may ....
CHAIRMAN ROGERS: Let's set aside the permanent fund constitutional
amendment until after lunch and look at the budget reserve section.
MR. GRUENING: Mr. Chairman?
CHAIRMAN ROGERS: Oh, yes.
MR. GRUENING: Could I make one more comment?
MR. LOESCHER: Mr. Chairman?
CHAIRMAN ROGERS: Robert, and then Clark.
MR. LOESCHER: Mr. Chairman?
CHAIRMAN ROGERS: Yes, go ahead.
MR. LOESCHER: Yeah, Mr. Chairman, I -- you know, I -- sitting here
pondering, I just received this copy of this legal opinion, and you
know, we spend all summer thinking about this, and we listen to all
kinds of approaches - the (indisc.) plan, the other plans - and you
know, we came to -- we came to a conclusion that -- that we needed
- in order to conquer the problem of declining oil revenues and
find another way to generate revenues on a stable basis for the
state, and then address sustainable spending after that or
simultaneously, we needed - you know, some of us - and I think 10
or 11 of us were persuaded that the higher road was to take a hard
look at all of the state's assets - that being our natural
resources and -- which generate revenues, and then the permanent
fund as a state asset - and -- and, you know, attack the problem
that way. That's the higher road. Our concept was to grow the
fund to -- to -- to -- to make that happen, yet provide enough
money to operate state government and to generate some permanent
fund dividends to -- to the people of our state. And I -- you
know, I see this legal opinion as -- as all lawyers do. They want
to attack the thing to get to the lowest common denominator,
provide the least restrictions possible going forward into the
future, create the most flexibility in -- in decision-making. But
I really wonder if we're going to be able to -- to get this thing
done, whether we do it by constitutional amendment or we rely on
the legislature to -- to advance statutory proposals to -- to
accomplish the same thing. I believe that the -- the work of the
commission was -- was to -- to stimulate an approach. Certainly
there are many things that can be changed within the commission's
recommendations to -- to -- to accomplish much of the same thing -
I realize that - but what we're doing is that we're going to lose
our purpose here if -- if -- if we don't advocate for a
constitutional amendment on -- on utilizing a -- a steady stream of
permanent fund revenues. And I really am worried that we're going
to get copped out of the higher road or -- or that which the public
can understand, and then have confidence going forward into the
future. Now, if it's the truly -- the -- the reaction of the
permanent fund trustees and these lawyers that -- that they want to
have the least restrictions possible and more flexibility, and be
able to change the world 10, 15, 20 years from now, then we ought
to put a sunset clause on -- on this kind of a -- kind of an idea
that we have advanced from the commission. That would be a way to
do it, if -- if -- if we don't want to be tied -- our hands tied
long into the future through the constitutional process. But I
believe that -- I -- I believe we have the chicken-or-the-egg
problem here, that the commission's high objectives and golden
purposes and recommendations are going to be eroded and -- and --
by -- if we don't advance a constitutional amendment, and if we
rely on this -- the legislature to design a statutory approach in
lieu of a constitutional amendment, it may not happen. And so
that's my concern, Mr. Chairman. I hope that we would not, you
know, go back on the -- on the policy concepts that -- that -- that
the commission wanted to advance to the legislature, the governor
and the public.
CHAIRMAN ROGERS: Well, for a response from a lawyer, a trustee,
and the author of the sunset law, let me turn to Clark.
MR. GRUENING: Bob, maybe what you need is a sunset on attorneys.
(Laughter) Actually, the opinion - and I hope Mr. Lorensen in
writing the opinion didn't lead anyone to believe that either the
fund or any particular trustee was taking a position against the
endowment - personally, I think the commission needs to be
commended for it's exploring this idea. They've put flesh on it,
and I think whatever -- however they put the fine details on it, I
think it's a concept that I hope the legislature deals with. But
it has to deal with that whether it deals with it through a
constitutional amendment or a bill. In fact, the legislature would
have to be two-thirds in agreement as opposed to 51 percent in
agreement if they were taking the constitutional approach. But the
one point I wanted to make before -- before we leave - or I leave
here - is that if you do amend the constitution, I notice this
draft takes out the word - you know, the concept of - preservation
of principal. If you're going to set a payout, the argument might
be made in the constitutional debate is that despite what the
experts - and we just heard from the expert - that this may not
preserve purchasing power. There's some reason, I think, to
preserve in the constitution the idea of either preservation of
principal or protection of purchasing power; and the argument will
be posed, if all you do is set how much can be spent out of the
fund, then take away language that seems to protect it, that --
that this is going to go down in flames, if it even makes it
through the legislature.
MR. MALLOT: Mr. Chairman, I'm not going to be able to be back
after lunch, and I don't think that it's necessary, but on that
particular subject, Mr. Lorensen addresses that specifically on the
last page. I also just want to emphasize, as trustee Gruening has,
that we aren't here to advocate anything. I do think that it is
important that in the public policy debate that, as has been
mentioned - somewhat in passing, and that it needs to be emphasized
- is that a very powerful section of the Alaska constitution is the
Alaska permanent fund constitutional piece. And its entire
existence is one of the most politically and public-policy-potent
things that this state has ever done. In both its constitutional
scheme and in its statutory implementation scheme, it has never
been litigated, and the public policy that ha... you know, that
surrounds it is probably the most supported of any single public
policy scheme framed, at least since its first adoption, in the
constitution of the state of Alaska. And it just seems to me that
-- that -- that once again, we didn't mean to bring something new
to the table, but in that con... but in that public policy context
that -- that, you know, I feel as -- as a public servant just an
obligation when these issues are raised to bring them to the
attention of folks who have the obligation to -- to deal with them,
and I just want to echo trustee Gruening's comment that -- that,
you know, I've had the opportunity over the course of the summer to
attend quite a number of your meetings off and on, and I think
you've just given, you know, the whole notion of -- of -- of --
brought the whole notion of -- of volunteer public service to
another level in -- in your work, and as a citizen of this state,
I appreciate that. I'd -- I'd just like to say, finally, that Mr.
O'Leary(Sp.?)'s comments were very summary in nature, and with
almost all the questions that -- that you folks posed, there is a
lot of detail that is further explanatory in the documents that he
prepared. We did give a full set to Annalee; what we faxed to you
folks may have been not the entire documents, but we'll make sure
that you get everything. O.K.?
CHAIRMAN ROGERS: Let me -- the issue that's raised by Ron Lorensen
in the final page - the idea of limiting the payout to the 4
percent or the amount available for -- or an amount that ensures
that you preserve principal, I think we pick... we purposely picked
4 percent instead of 4-3/4 percent to assure that over the long run
there's minimal risk of invading principal. But -- but I think
that there'd be a lot more comfort if there were a way of writing
this to say 4 percent if that much is available without invading
principal. I -- I'm uncertain, though, how we get there in
constitutional language, as opposed to statutory language in the
constitution. And -- and I don't want statutory language in the
constitution, but I think that a lot of people would be much more
comfortable if we were able in some fashion to limit that
withdrawal to be less than 4 percent if it would have the effect.
So maybe we'll -- lunch break, people can think about it; those
that are good at drafting - and I'm looking particularly to Jim and
Tam - might think of how we might say that. Judy?
MS. BRADY: I -- I would -- I guess I would like to make a request
for the permanent fund to think about it, maybe rethink about
making the request formally. The permanent fund trustees are
always very careful to say they don't make policy in regard to the
-- how -- you know, in regar... in -- in broad areas about the
fund. But as a matter of fact, when you're talking about - and
when the public and the legislature are going to be talking about -
the use of the fund as an endowment, there are certain questions
that I would think are going to be obviously asked to the trustees
or the -- or the executive director, either officially or, you
know, as you're walking out the door, "tell me what you really
think" kind of stuff. And it seems to me important to this whole
argument - or whole discussion, not the argument - the question of
whether you -- it's time to use the permanent fund as an endowment,
or we're already spending too much or -- all those questions are
aside from what the -- what the use as an endowment does to the
fund itself -- the payout does to the fund itself. And I think the
impact on the fund itself, and the different scenarios that have
been run today, are the kinds of things, the kinds of roles that
the permanent fund board is going to have to play, to say in public
- to decide among themselves and say in public .... The
permanent fund board, I think, will have to make a decision as to
whether or not this use of the fund endangers the fund itself, or
the percentage, the four -- however it's -- however it's -- however
it's worded, whether or not the use -- that kind of use or that
degree of use will hurt the purchasing power insofar as you're able
to tell.
MR. MALLOTT: Mr. Chairman, just a very brief response - and we'd
be pleased to respond to any specific inquiry: one of the reasons
that we did what we did was to begin to analyze that question,
because you're absolutely right; that is going to be asked of
trustees. And to the degree that additional analysis may be
necessary, we will pursue it. But -- but the work thus far shows
that the 4 percent payout rule, over time, will preserve purchasing
power, based upon the -- the -- the asset allocation policy of the
fund as we responsibly can foresee it. That analysis does indicate
that there could be times when, on a current basis, purchasing
power of the fund will be eroded by the payout rule. But that -
over the long term - that will be made up; and the question becomes
whether it is in terms of Alaska public policy important that at no
time will the principal of -- of -- of the permanent fund be
eroded. And -- and, you know, that is a public policy question.
We could sit back and just take that longer view. We know that --
that probably there is going to be a public policy debate at that -
- you know, relative to that issue, and in terms of analyzing it,
we would be responsive to any queries that you might make. And I
might also just make a final comment that at the trustee level,
they certainly are not - and Mary's a former trustee, knows this as
well, and myself as a former trustee - we tried to avoid the
broader public policy debates and stick to the investment policy
(indisc.), that we're all citizens of the state also, and that, you
know, be... sitting there being see-no-evil, hear-no-evil, do-no-
evil little monkeys from time to time becomes very, very difficult,
and is probably not appropriate that because they are there and
have a unique view and a unique responsibility for the fund, that
their views on the public policy tenets involved ought to be
expressed, and as a matter of fact ought to be sought.
CHAIRMAN ROGERS: Before we break, I'd just like to call attention
on the budget reserve section to the memorandum from Jim Baldwin to
Deborah Behr(Sp.?). Pages 2 and 3 speak to the budget reserve
fund, and there were three -- three points laid out at the bottom
of page 2: first, detailed legislative history - and my assumption
is that that's much better as a legislative history than our
history, and that we should leave that to the legislature; second,
the suggestion that we delete the definition of unrestricted
revenue and leave it up to the legislature - it's my intent to
propose that; and third, to add a provision allowing the
legislature to appropriate money into the budget reserve fund,
which was part of our -- part of our plan - we probably need to add
that, and it's my intent to propose that as well, after we break.
It's 20 to 1:00 by the clock here; can we get back before 1:00 --
at 1:15, or is that going to push things to much? 1:30? I've had
-- a couple of people want to get out of here as early as possible,
including the chair; so let's be back and I'll call the meeting
back to order directly at 1:30, with the i... hope that we can be
completed by 2:30. We'll recess.
[RECESS -- MEETING RESUMED AT 1:35 p.m.]
CHAIRMAN ROGERS: O.K., I'll call ...
LEGISLATION INFIRMATION STAFF: (Indisc.) isn't on the -- I mean,
Juneau isn't on the other end yet; I'm going to call (indisc.) and
find out what the (indisc.) is.
MS. NORDALE: What are we dealing with, is it ...
CHAIRMAN ROGERS: O.K.
MS. NORDALE: ... this one or ...?
CHAIRMAN ROGERS: That's the one that Lee marked up. There's
another one that's not marked up, that will be easier to read.
O.K.? On line 8, the current version deletes the words "the
principal of".
MS. NORDALE: Uh-huh.
CHAIRMAN ROGERS: And I want to leave those in. It also deletes
the word "only", and I want to leave that in. So that sentence --
the only change in that sentence is from 25 to 50. What this does
is to -- that portion of this amendment would then say, is "the
principal can only be used for investment". Now, the second
sentence would then read: "Income from the permanent fund shall be
retained in the permanent fund [comma] except that" - and then
continue - "appropriations may" - delete "only" - "be made from the
income" - delete "permanent fund" - "to the general fund". And
then, the next sentence: "The" - delete "total amount of" and
insert "annual" - "appropriations" - delete "from the permanent
fund that takes effect during a calendar year" - "may not exceed" -
delete "an amount equal to" - "4 percent of the average market
value of the permanent fund during the immediately preceding five"
- delete "calendar" - "years". So let me read it the way it would
...
MS. NORDALE: Where?
CHAIRMAN ROGERS: Let me read the two sentences as they would read
after amending: "Income from the permanent fund shall be retained
in the permanent fund, except that appropriations may be made from
the income to the general fund. The annual appropriations may not
exceed 4 percent of the average market value of the permanent fund
during the immediately preceding five years." And then I would add
one more sentence: "The legislature shall implement this section
by law." The effect of these changes ....
MS. NORDALE: Well, I would strike "The" in front of "annual".
CHAIRMAN ROGERS: O.K. Good.
MS. NORDALE: So it'd be "Annual".
CHAIRMAN ROGERS: Yes. "Annual appropriations". And -- and ....
MS. NORDALE: O.K.
CHAIRMAN ROGERS: So what this does is, the first sentence says the
principal is inviolate. And then the second says income goes into
the fund, but you can appropriate from the income up to 4 percent
annually.
MS. NORDALE: O.K. So that basically does what a statute could do
at the present time.
CHAIRMAN ROGERS: Yes.
MS. NORDALE: So that we don't need a constitutional amendment to
accomplish what you're suggesting be done.
CHAIRMAN ROGERS: We do for one reason, and that is to limit the
take to 4 percent; and -- and effectively the -- the effect of this
is that by statute, you can't limit to 4 percent; the statute ...
MS. NORDALE: That's correct, but ...
CHAIRMAN ROGERS: ... could be changed at any time.
MS. NORDALE: ... by -- under the present structure, you can't
exceed income, and ...
CHAIRMAN ROGERS: And under this, you can't exceed 4 percent.
MS. NORDALE: Right. Of the -- of the ...
CHAIRMAN ROGERS: Market value.
MS. NORDALE: ... market value of the total fund.
CHAIRMAN ROGERS: Right.
MS. NORDALE: Right. So, you know, I -- I think that you could do
this by statute as long as you built in a provision that it didn't
exceed income, you know.
CHAIRMAN ROGERS: The difference - and I think that this goes back
to Bob's point - is that the commission voted on a constitutional
amendment.
MS. NORDALE: Oh, I understand what you're saying; ...
CHAIRMAN ROGERS: (Indisc.).
MS. NORDALE: ... all I'm saying is that ...
CHAIRMAN ROGERS: That there's a ...
MS. NORDALE: ... in terms of analysis, it seems to me that we
ought to know what it is that we're -- we're ...
CHAIRMAN ROGERS: Yes.
MS. NORDALE: ... actually talking about here.
CHAIRMAN ROGERS: There is a way to do this. There is a way to
accomplish the deposit and payout on a temporary basis by statute,
instead of on a permanent basis by constitution.
MS. NORDALE: Uh-huh, uh-huh.
CHAIRMAN ROGERS: But I think this language accomplishes in fewer
words what we want to do, and it protects the principal.
MS. BRADY: O.K., and you're envisioning leaving in the -- the 50
percent ...
CHAIRMAN ROGERS: Yes.
MS. BRADY: ... in the constitution?
CHAIRMAN ROGERS: Since that's what the commission's plan was as of
October 1st, even though, upon reflection, I could accept moving
that to statute. I think we said it was by constitution, yes.
MS. FOUSE: Is there any danger, Mr. Chairman, that it could be
read that "which" modifies the royalty payment, rather than the
principal of the permanent fund?
CHAIRMAN ROGERS: Where's "which"?
MS. FOUSE: "At least 55 -- 50 percent shall be placed in the
permanent fund, comma, which shall be used for those income-
producing investments."
MS. NORDALE: No, with the comma in there, "which" modifies the ...
CHAIRMAN ROGERS: "Comma, the principal of which ...."
CHAIRMAN ROGERS: We're leaving "the principal of" in now.
MS. FOUSE: Oh, you're leaving it in.
CHAIRMAN ROGERS: Yes. So it would say: "At least 50 percent
shall be placed in a permanent fund, the principal of which shall
be used only for those income-producing investments.
MS. FOUSE: O.K.
MS. NORDALE: So the only change in existing law would be from 25
to 50.
CHAIRMAN ROGERS: Yes.
MR. BALDWIN: It also -- they would also affect inflation-proofing.
It would institutionalize inflation-proofing.
CHAIRMAN ROGERS: Yes.
MS. NORDALE: Uh-huh.
MS. BRADY: Yeah.
CHAIRMAN ROGERS: Which is now statutory ...
MS. BRADY: Yeah.
CHAIRMAN ROGERS: ... because of the 4 percent limit.
MS. NORDALE: Uh-huh, uh-huh.
MS. BRADY: What people are going to want to know is, does that
mean they (indisc.) the dividend? Are we -- are we putting it
(indisc.--coughing) -- are we putting it into the general fund? I
mean, how does that ...?
CHAIRMAN ROGERS: Dividends -- dividends would be paid from the
general fund, then.
MS. NORDALE: Which they, in effect, are now.
MS. BRADY: Yes, but they have to be appropriated ...
MS. NORDALE: It's just that it's, you know, it just kind of loops
in and out.
MS. BRADY: Does that mean it'd come out from the -- from the
state, then? I mean, actually, they could do that now, couldn't
they? Rather than come from the Permanent Fund Corporation?
CHAIRMAN ROGERS: Well, they do actually come from the state; it's
...
MS. BRADY: I know, but (indisc.).
CHAIRMAN ROGERS: ... Tony Knowles' signature on the check, not
Byron Mallot's. Let's turn ...
UNIDENTIFIED SPEAKER (Female): We let them pay for mailing.
CHAIRMAN ROGERS: Let's turn to the budget reserve.
MS. BRADY: O.K.
CHAIRMAN ROGERS: We have the issue of -- the question of deleting
the definition of unrestricted revenue, and leaving that up to the
legislature. This definition comes from Senator Rieger's earlier
draft. And Jim Baldwin has raised the issue that there may be
unintended consequences of putting that into the constitution. I'm
very comfortable in just deleting that sentence.
MS. BRADY: Literally, on this issue, for the record, I -- I'm not
going to be any help at all, because I don't really understand
this, and I have talked to myself very slowly, and I still don't
really understand this. So, you know, how this got all -- I mean,
I understand how it got messed up and everything, but I don't
understand how to fix it; so -- I understand what I want fixed, but
I don't have any idea how to fix it.
CHAIRMAN ROGERS: Well, the section 4 repealer is the biggest fix,
and then the second one -- really, what section 3 says is, if
you've got less money coming in this year than you spent -- than
you had coming in last year, you can tap this fund. That's the
layman's way of what we're saying.
MS. BRADY: O.K. I think -- I think as long as we're real clear,
maybe even do a little cover sheet that says ...
CHAIRMAN ROGERS: Uh-huh.
MS. BRADY: ... here's what we're trying to accomplish.
CHAIRMAN ROGERS: Is there any objection to deleting that last
sentence?
MS. NORDALE: No.
CHAIRMAN ROGERS: O.K. Then, we need to add a sentence that says
the legislature may be appropriated to the fund, and that would
probably go in subsection A.
MS. NORDALE: The -- the what?
CHAIRMAN ROGERS: That money may be appropriated to the
constitutional budget reserve.
MS. NORDALE: And that isn't permitted now?
CHAIRMAN ROGERS: It's unclear. Jim, do you want to speak to that?
MR. BALDWIN: It just -- I think it would -- our -- our position
has been that the legislature can appropriate to whatever fund it
wants.
MS. NORDALE: Yeah.
MR. BALDWIN: But I noted that in your report, you had indicated
you wanted to put windfall earnings into the budget reserve, and so
I thought it would be beneficial to have it expressly say that.
The reason I kind of zeroed in on that is that over here it, you
know, the language used to say that appropriations may only be made
from the permanent fund income - it didn't sound like it could go
the other way. It didn't sound like it could go into the permanent
fund.
CHAIRMAN ROGERS: Oh, this is in the permanent fund section, or in
the CBR section?
MR. BALDWIN: No, it's in -- I -- the -- I was saying there's a --
there's a similar provision in (indisc.).
MR. CHAIRMAN: O.K.
MS. NORDALE: Yeah. And it -- wasn't there a lot of talk about
whether or not if appropriations were made, they could actually be
counted as principal to -- in the -- in the permanent fund, 'cause
they were appropriations, they weren't those specified in the ...?
MR. BALDWIN: Yeah, we haven't gotten -- really gotten into that
one because of its potential, so ...
MS. NORDALE: Yeah, but I don't -- I don't want to do that, but I
mean, there were a lot of questions raised about appropriations.
UNIDENTIFIED SPEAKER (Male): (Indisc.).
UNIDENTIFIED SPEAKER (Female): Yeah, I don't have a problem with
saying that (indisc.).
MR. BALDWIN: It's kind of like chicken soup; so you know ....
CHAIRMAN ROGERS: So you think it's -- there's already implied
authority on the CBR; let's not add that, then.
CHAIRMAN ROGERS: It's just more words.
MR. BALDWIN: ... it -- it -- it just makes something certain, but
I don't -- I think we take the position that you can -- the
legislature can appropriate wherever they want to appropriate.
CHAIRMAN ROGERS: O.K. So the only change we're making on page 2
is the deletion of: that for purposes of this subsection.
MR. BALDWIN: Yes.
MS. BRADY: And we (indisc.) consider the sweep -- is that the
sweep (indisc.)?
CHAIRMAN ROGERS: No, the sweep is in section 4.
MS. NORDALE: Yeah.
MS. BRADY: O.K.
MS. NORDALE: And that's repealed.
CHAIRMAN ROGERS: O.K.
MS. NORDALE: Yeah, and that's O.K.
CHAIRMAN ROGERS: With those two changes, we're out of legislation,
unless anybody has something else they want to cover.
MS. NORDALE: Could we -- when all this stuff is in draft again,
can we get copies and ...
CHAIRMAN ROGERS: Yes.
MS. NORDALE: ... and -- O.K.
CHAIRMAN ROGERS: And I may schedule one more follow-up - I think
we're going to have to for the ...
MS. BRADY: On the resolution.
CHAIRMAN ROGERS: ... we've got -- oh, the resolution, yes, thank
you, I'd almost forgotten the resolution. Let me think about that
- I've forgotten it a couple of times now.
MS. BRADY: 'Cause you don't want to write it.
CHAIRMAN ROGERS: That's correct.
MS. NORDALE: Let's -- let's talk (indisc.).
MS. BRADY: (Indisc.).
CHAIRMAN ROGERS: That's why I jumped at Pat Pourchot's
volunteering to draft ...
MS. NORDALE: Yeah, yeah.
CHAIRMAN ROGERS: ... the resolution.
MR. BALDWIN: (Indisc.) to us saying ...
MS. NORDALE: Let's talk conceptual about it, you know, if ...
MS. BRADY: (Indisc. -- several speakers at once). Well, it might
go to a third party.
MS. NORDALE: ... if there's a resolution that adopts the plan,
then ...
MS. NORDALE: ... it's, you know, I mean, it won't pass. And if
the resolution language says approves the plan, it won't pass. I
don't know what we want. It seems to me that the record would be
quite clear, (indisc.) the speaker, the governor and the president
of the Senate transmit it to the legislature - the plan.
MS. BRADY: Oh, that the resolution would simply (indisc.) ...?
MS. NORDALE: I mean, I -- I -- you know, what would be the point
of -- of a resolution that didn't do anything? And it seems to me
that it either accepts or approves the plan, and I don't think that
kind of a resolution is gonna pass.
MR. BALDWIN: What you want is a transmittal letter?
MS. NORDALE: Yeah.
UNIDENTIFIED SPEAKER (Male): (Indisc.) governor's rules?
MS. NORDALE: Yeah. I -- I ...
CHAIRMAN ROGERS: See, I think the legislature wants to be able to
adopt a resolution, since they're not going to adopt any of the
bills. They want us to say we agree with the idea of the plan.
MS. NORDALE: I don't -- I don't see that as being a viable
scenario (indisc.).
CHAIRMAN ROGERS: Has Gail said anything about ...
MS. FOUSE: A resolution?
CHAIRMAN ROGERS: ... a resolution, what she wants?
MS. FOUSE: No.
MS. BRADY: Maybe we should go back to the speaker and the
president and the governor and find out what final document -- how
they want us to close this off, 'cause maybe that's all they want.
And the -- but the other thing is, are they going to have -- we
need to have a discussion with them about are they going to have
some focus on this the first week of session, or the first two
weeks of session?
MS. FOUSE: The finance committees.
UNIDENTIFIED SPEAKER (Female): What?
CHAIRMAN ROGERS: The finance committee's the first two weeks.
MS. BRADY: How about the whole -- how about the whole legislature?
Could they do a couple-of-day thing where they do a whole briefing
where the whole legislature gets to work through this stuff and ask
questions and say "what if" and all this stuff? Or a whole -- or
a whole session where they have -- because for one thing, the other
thing that should happen is that, you know, the Cremo plan should
be looked at, and the SB 51 -- I mean, whatever. We give ours and
then do some planing it, and so people -- man, I've talked to so
many legislators who ....
CHAIRMAN ROGERS: It is inte... when I made the presentation to the
House and Senate here, I saw a number of people change some of
their views about the plan once they had sort of seen it all laid
out, ...
MS. NORDALE: Uh-huh.
CHAIRMAN ROGERS: ... which I expect will happen whenever we
present to the House and Senate finance committees, if they want
another presentation in Juneau.
MS. NORDALE: I wish we could have one of those programs like your
friend did, or a presentation to the legislature.
CHAIRMAN ROGERS: That's what I used with the House and Senate
finance (indisc.).
MS. NORDALE: Yeah, yeah, but I -- you know ...
MS. BRADY: And even add some things, maybe, 'cause we know now
kind of what people are -- where their questions are ...
CHAIRMAN ROGERS: Uh-huh.
MS. BRADY: ... and you could even then do something where you
showed the other, you know, kind of the other approaches that we've
talked about so far, and what kind of general principles are, and
add some things.
UNIDENTIFIED SPEAKER (Male): Uh-huh.
CHAIRMAN ROGERS: If we could get that -- get a machine to run that
software again.
MS. BRADY: Well, you -- do we even have that any more or ...
CHAIRMAN ROGERS: We've lost it for the second time.
MS. BRADY: ... you screwed it up - you screwed it up trying to
shorten it up.
CHAIRMAN ROGERS: No, wait, we've got the presentation ...
MS. BRADY: O.K.
CHAIRMAN ROGERS: ... but it's -- we don't have -- I've got the
disks with the presentation on it ...
MS. BRADY: O.K.
CHAIRMAN ROGERS: ... but I don't have a machine that'll run the
disks.
MS. BRADY: Oh, got to go talk to Don Gilman.
UNIDENTIFIED SPEAKER (Female): 'Cause nobody's been able to open
those disks.
CHAIRMAN ROGERS: Hm?
UNIDENTIFIED SPEAKER (Female): Nobody's been able to open those
disks. They're compressed or something.
MS. BRADY: Somebody screwed them up.
CHAIRMAN ROGERS: Oh, yeah? So we don't have ...
UNIDENTIFIED SPEAKER (Female): (Indisc.) have a copy.
CHAIRMAN ROGERS: You have the copy of the works?
MS. BRADY: You have a copy?
UNIDENTIFIED SPEAKER (Female): Both.
CHAIRMAN ROGERS: O.K.
MS. BRADY: Oh, good. 'Cause the legis... because (indisc.).
UNIDENTIFIED SPEAKER (Female): Well, she has (indisc.).
MS. BRADY: (Indisc.). Oh, you have Ross's.
UNIDENTIFIED SPEAKER (Female): Uh-huh.
MS. BRADY: 'Cause Commonwealth North did -- Lee Gorsuch did one
there that was a university one, and it wasn't nearly as good. I
mean, it was good, but it was -- didn't you think?
MS. FOUSE: Yes, I did.
CHAIRMAN ROGERS: And I've done several from over -- from the
overheads ...
UNIDENTIFIED SPEAKER (Female): I have, too.
CHAIRMAN ROGERS: ... based on that, which is ...
UNIDENTIFIED SPEAKER (Female): (Indisc.).
CHAIRMAN ROGERS: ... almost as good, but you don't get the
advantage of building the graphs.
UNIDENTIFIED SPEAKER (Female): Uh-huh.
MS. BRADY: That's right, that's right.
MS. NORDALE: It's that -- it's that function of movement that ...
UNIDENTIFIED SPEAKER (Female): Yes.
CHAIRMAN ROGERS: Yes.
MS. NORDALE: ... that has a very ...
CHAIRMAN ROGERS: (Indisc.).
MS. NORDALE: ... -- convincing.
CHAIRMAN ROGERS: It also keeps people focused.
MS. NORDALE: Right. Uh-huh.
MS. BRADY: And there's some ways we could shorten it. When we did
that one at Seward, we realized that there's some ways to shorten,
and some things you could put in - like I think putting in
(indisc.) revenues, some of those things that Commissioner Condon
did on why we haven't crashed before, ...
CHAIRMAN ROGERS: Yeah.
MS. BRADY: ... you know, what has saved us, so that people can
begin to see that we haven't just been kind of ....
MS. FOUSE: Think there's any way a video could be done, coming on
the end of session, or to start a session?
MS. BRADY: Might be.
MS. FOUSE: There's a lot of enthusiasm for the video notion.
CHAIRMAN ROGERS: Uh-huh.
UNIDENTIFIED SPEAKER (Female): And there's some ...
MS. BRADY: Plus, you know, when you go out to give a presentation,
it sure would be nice to be able to give it without sitting there
and having to read 15,000 directions on the back of an envelope,
where I wrote mine, about what you plug in to get this whole thing
(indisc.). I tore off a little end of the envelope and I can't
read where I plug that last (indisc.).
CHAIRMAN ROGERS: O.K. Well, maybe on the issue of a resolution,
if somebody thinks that they want to write one, we can look at it,
and if nobody writes one, we probably won't look at.
MS. BRADY: Maybe we just do a formal transmittal ...
CHAIRMAN ROGERS: Yeah.
MS. BRADY: ... 'cause we don't want them to vote it down before
they've had a chance to - I think that's a point.
MS. NORDALE: Well, I think the transmittal ought to come from the
three appointing entities - the governor, and the pres and the
secretary - or speaker - and present it to the legislature as a
joint transmittal. And -- because there's nothing in the -- in the
authorizing resolution that contemplates the requirement that it
be, you know, adopted - that the plan be adopted.
CHAIRMAN ROGERS: Uh-huh.
MS. NORDALE: And I just don't think -- I -- I just cannot believe
(laughter) the legislature would say, "Oh, gee, thanks, honey,
yeah!" (Laughter).
MS. BRADY: Yeah, I think I -- I think -- I think that the chances
that you're right are kind of like in the 99 percentile. But who
knows, I mean ....
CHAIRMAN ROGERS: We may have -- we may have one final meeting the
first week of January to check final things. Just looking at this,
we -- we terminate upon the convening of the second regular
session, which is the 8th of January. So, we might look at the
prior week doing a final review of the draft bills, et cetera.
MS. BRADY: If we could pick a date, that would be good, because my
...
CHAIRMAN ROGERS: Let's pick a date.
UNIDENTIFIED SPEAKER (Female): January (indisc.).
CHAIRMAN ROGERS: We could -- I -- I make -- I bet we could pick a
date that every member who's here can make it.
MS. BRADY: But you know what: I can't even do January yet,
actually, because my calendar stops, and ....
UNIDENTIFIED SPEAKER (Female): In December?
CHAIRMAN ROGERS: Well, the 1st is out.
UNIDENTIFIED SPEAKER (Male): Why?
CHAIRMAN ROGERS: Because some people are up awfully late the night
before.
MS. BRADY: Yeah, that's the young -- that's the (indisc.).
CHAIRMAN ROGERS: So we have the 2nd through the 7th. And the 6th
and the 7th are a weekend.
MS. NORDALE: What's the 5th - is that a Friday?
CHAIRMAN ROGERS: Friday the 5th.
MS. NORDALE: Well, let's get it over with.
CHAIRMAN ROGERS: Friday the 5th.
MS. BRADY: What time?
MS. NORDALE: Is this going to be televideo?
CHAIRMAN ROGERS: Video conference. 9 a.m. to noon.
MS. NORDALE: That's fine.
CHAIRMAN ROGERS: O.K.?
MS. BRADY: O.K.
CHAIRMAN ROGERS: Any further business to come before the
commission?
UNIDENTIFIED SPEAKER (Female): No.
MS. BRADY: Oh, how much money do we have left? Do we have any?
MS. FOUSE: We have some, but we don't know how much, because the
bills are slow.
CHAIRMAN ROGERS: That is something ...
UNIDENTIFIED SPEAKER (Female): (Indisc.).
CHAIRMAN ROGERS: ... -- we've done a lot of distribution of this
report, by the way, in addition to -- has it been in the News Miner
yet?
BOB WALSH (STAFF): No, it hasn't been in the News Miner, and the
reason it hasn't been in the News Miner is we had a little glitch
in the printing (indisc.) - the disks got sent over - we have the
wrong disks from the original. So we got that squared away, and
it'll be going in the paper next weekend.
CHAIRMAN ROGERS: Sunday's paper.
MD. FOUSE: Saturday's.
MR. WALSH: Saturday's.
CHAIRMAN ROGERS: Saturday's paper.
MS. NORDALE: Saturday's. O.K.
CHAIRMAN ROGERS: O.K. And we've -- we've done -- the other
significant pieces were that bush mailer that went to 43,000
households - an abbreviated version of the report ....
MS. BRADY: We should have put a big bow on this and said, "This is
your Christmas present, Alaska." (Indisc.).
CHAIRMAN ROGERS: And then we had The Paper in Juneau, 13,000.
MS. NORDALE: What's The Paper?
CHAIRMAN ROGERS: That's the new weekly paper - Larry Persily's
paper.
MS. BRADY: That's whose?
CHAIRMAN ROGERS: Larry Persily.
UNIDENTIFIED SPEAKER (Female): He did it for free, the only -- the
only body in the whole state who offered to do it for nothing.
UNIDENTIFIED SPEAKER (Female): Right.
CHAIRMAN ROGERS: And have we done anything on the Kenai and Mat-
Su?
MR. WALSH: Kodiak.
CHAIRMAN ROGERS: Kodiak we did? Kenai, Mat-Su.
MS. FOUSE: We're doing Kodiak.
MR WALSH: We're doing Kodiak with the Fairbanks run, the same ....
MS. BRADY: How about the Clarion?
MS. FOUSE: No.
UNIDENTIFIED SPEAKER (Male): Where?
UNIDENTIFIED SPEAKER (Female): No, ...
CHAIRMAN ROGERS: The Clarion?
MS. FOUSE: ... we delivered 300 down there, but we haven't had it
in the paper.
MR WALSH: Haven't had any calls for it, either.
CHAIRMAN ROGERS: What about the Frontiersman?
MS. FOUSE: It's sort of Anchorage. We haven't done Anchorage
'cause it's gotten press, and it's expensive.
MS. BRADY: Yeah, we've gotten press, all right.
UNIDENTIFIED SPEAKER (Female): (Indisc.).
MS. BRADY: One story (indisc.).
CHAIRMAN ROGERS: And Ketchikan: did we do Ketchikan Daily News?
UNIDENTIFIED SPEAKER (Male): It all went with the Southeast, in
The Paper, didn't it?
MS. FOUSE: No, that was just Juneau.
MR. WALSH: Oh.
MS. FOUSE: No, we haven't done Ketchikan.
CHAIRMAN ROGERS: Well, do we want to do more?
MS. NORDALE: Getting to the bills, I had an interesting experience
this morning. The travel agency had booked me on Delta, which
leaves about an hour after Alaska Airlines, and called me last
night, and said the flight's been cancelled; we can book you on
Alaska at such and such a time (indisc.). I picked the 6:25 flight
(laughter). I got there and I had to pay 35 bucks to make that
transfer.
MS. BRADY: Yes.
MS. NORDALE: Now, who gets to bear that burden, Mr. Delta? Or Ms.
Nordale?
CHAIRMAN ROGERS: Don't worry, the commission (indisc.).
MS. FOUSE: The commission will pay for it.
MS. NORDALE: Oh, yeah, but I think that the commission is entitled
to be reimbursed from Mr. Delta.
CHAIRMAN ROGERS: Probably.
MS. BRADY: However, the paperwork involved.
CHAIRMAN ROGERS: It probably costs more than $35 to collect 35.
MS. NORDALE: I know, but it's the principle of the thing - that
really pissed me off. (Laughter) I'm always counseling with my
clients, you know: make the economic decision; don't do it on
principle (laughter).
UNIDENTIFIED SPEAKER (Female): Yes, yes.
CHAIRMAN ROGERS: Is there further business?
MS. NORDALE: No. (Indisc.) adjourn.
MS. BRADY: (Indisc.) we just don't want to go out in the cold.
CHAIRMAN ROGERS: We'll recess until January 5th, 1996.
MS. BRADY: And happy holidays, merry Christmas, and ...
[END OF TAPE -- RECESSED UNTIL 1/5/96]
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