Legislature(2001 - 2002)
04/04/2002 08:06 AM House STA
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
ALASKA STATE LEGISLATURE
HOUSE STATE AFFAIRS STANDING COMMITTEE
April 4, 2002
8:06 a.m.
MEMBERS PRESENT
Representative John Coghill, Chair
Representative Jeannette James
Representative Hugh Fate
Representative Harry Crawford
Representative Joe Hayes
MEMBERS ABSENT
Representative Gary Stevens
Representative Peggy Wilson
COMMITTEE CALENDAR
HOUSE BILL NO. 487
"An Act relating to fireworks; and providing for an effective
date."
- HEARD AND HELD
SPONSOR SUBSTITUTE FOR HOUSE JOINT RESOLUTION NO. 14
Proposing amendments to the Constitution of the State of Alaska
relating to the Alaska permanent fund.
- HEARD AND HELD
HOUSE BILL NO. 509
"An Act relating to Alaska children's trust registration plates;
and providing for an effective date."
- MOVED CSHB 509(STA) OUT OF COMMITTEE
PREVIOUS ACTION
BILL: HB 487
SHORT TITLE:FIREWORKS REGULATION
SPONSOR(S): REPRESENTATIVE(S)KOHRING
Jrn-Date Jrn-Page Action
02/19/02 2319 (H) READ THE FIRST TIME -
REFERRALS
02/19/02 2319 (H) STA, FIN
02/19/02 2319 (H) REFERRED TO STATE AFFAIRS
04/02/02 (H) STA AT 8:00 AM CAPITOL 102
04/02/02 (H) Heard & Held
04/02/02 (H) MINUTE(STA)
04/04/02 (H) STA AT 8:00 AM CAPITOL 102
BILL: HJR 14
SHORT TITLE:CONST. AM: PERMANENT FUND
SPONSOR(S): REPRESENTATIVE(S)CRAWFORD
Jrn-Date Jrn-Page Action
02/14/01 0316 (H) READ THE FIRST TIME -
REFERRALS
02/14/01 0316 (H) STA, JUD, FIN
04/17/01 (H) STA AT 8:00 AM CAPITOL 102
04/17/01 (H) Scheduled But Not Heard
04/19/01 (H) STA AT 8:00 AM CAPITOL 102
04/19/01 (H) Heard & Held
04/19/01 (H) MINUTE(STA)
04/28/01 (H) STA AT 9:00 AM CAPITOL 102
04/28/01 (H) <Bill Postponed>
03/22/02 2643 (H) SPONSOR SUBSTITUTE INTRODUCED
03/22/02 2643 (H) READ THE FIRST TIME -
REFERRALS
03/22/02 2643 (H) STA, JUD, FIN
04/04/02 (H) STA AT 8:00 AM CAPITOL 102
BILL: HB 509
SHORT TITLE:ALASKA CHILDREN'S TRUST LICENSE PLATES
SPONSOR(S): LABOR & COMMERCE
Jrn-Date Jrn-Page Action
03/22/02 2644 (H) READ THE FIRST TIME -
REFERRALS
03/22/02 2644 (H) STA, FIN
04/04/02 (H) STA AT 8:00 AM CAPITOL 102
WITNESS REGISTER
BRIDGET BUSHUE, Fire Marshal
Fire Prevention Division
Anchorage Fire Department
100 East Fourth Avenue
Anchorage, Alaska 99501-9510
POSITION STATEMENT: Testified on HB 487.
CHUCK HARRIGAN
Alaska Pyrotechnic Guild
(No address provided)
POSITION STATEMENT: Testified on HB 487.
GRIZ SMITH, President
Alaska Pyrotechnic Guild, Inc. (APGI)
(No address provided)
POSITION STATEMENT: Testified on HB 487.
GARY POWELL, Director/State Fire Marshal
Division of Fire Prevention
Department of Public Safety
5700 East Tudor Road
Anchorage, Alaska 9507-1225
POSITION STATEMENT: Testified on HB 487.
REPRESENTATIVE ERIC CROFT
Alaska State Legislature
Capitol Building, Room 400
Juneau, Alaska 99801
POSITION STATEMENT: Testified as cosponsor of HJR 14.
JIM KELLY, Director of Communications
Alaska Permanent Fund Corporation
Department of Revenue
PO Box 2550
Juneau, Alaska 99802-5500
POSITION STATEMENT: Testified on HJR 14.
AMY ERICKSON, Staff
to Representative Lisa Murkowski
Alaska State Legislature
Capitol Building, Room 408
Juneau, Alaska 99801
POSITION STATEMENT: Presented HB 509 on behalf of the sponsor.
MARY MARSHBURN, Director
Division of Motor Vehicles
Department of Administration
3300B Fairbanks Street
Anchorage, Alaska 99503
POSITION STATEMENT: Testified in support of HB 509.
GLENN GODFREY, Commissioner
Department of Public Safety;
Board Member, Alaska Children's Trust
PO Box 111200
Juneau, Alaska 99811-1200
POSITION STATEMENT: Testified in support of HB 509.
ACTION NARRATIVE
TAPE 02-36, SIDE A
Number 0001
CHAIR JOHN COGHILL called the House State Affairs Standing
Committee meeting to order at 8:06 a.m. Representatives
Coghill, James, Fate, and Crawford were present at the call to
order. Representative Hayes arrived as the meeting was in
progress.
HB 487 - FIREWORKS REGULATION
Number 0056
CHAIR COGHILL announced that the first order of business would
be HOUSE BILL NO. 487, "An Act relating to fireworks; and
providing for an effective date."
Number 0183
BRIDGET BUSHUE, Fire Marshal, Fire Prevention Division,
Anchorage Fire Department, testified via teleconference. She
told the committee that there is a wildlands-urban fire problem
in Anchorage. Although glad to see the efforts made for
requiring some type of fire safety program, fees, and
information, she expressed some concerns. The department would
like to see a permit requirement for fireworks. House Bill 487
states if there is a fire danger, then fireworks will be banned,
but once the fireworks are sold and people have them, there is
no mechanism to contact people that have them, other than by
public service announcements (PSAs). Currently, when fireworks
are advertised on the television, there might be only a two-
second blurb in tiny print that says "fireworks are illegal in
the municipality of wherever."
MS. BUSHUE suggested a permit process would allow the fire
department to contact people with fireworks and let them know
not to use them at certain times. Right now in Anchorage,
people need to get a permit to burn spruce bark beetle [trees]
in their yard; yet fireworks are allowed, which have been proven
to be an extreme fire hazard in wildland urban areas like
Miller's Reach. Other states have adopted legislation whereby
permits are required, and there are areas where fireworks can be
safely discharged. The permit fees pay for the education and
for the maintenance of this program.
Number 0373
MS. BUSHUE suggested that when the firework companies advertise,
there should be obvious mandatory statements - not just in tiny
print - saying they're illegal in the municipality. When the
fire department confiscates fireworks over the Fourth of July in
Anchorage, the most common statement is, "Well, they're
advertised on TV, so I thought it was okay." That has created a
major problem, she stated. Ninety-nine percent of the fireworks
sold in the [Matanuska-Susitna area] and in Anchorage are a
problem. She reiterated that the fire department would like to
see the advertising message and some type of records kept on who
bought the fireworks. She suggested it be done through some
type of permit process.
MS. BUSHUE explained that if there is a burning ban because of
high fire danger, the fire department can contact those with
[burn] permits and tell them not to burn. There are no
provisions in HB 487 for people in Anchorage, where the
fireworks are illegal, who buy them in Houston. Some type of
formalized permit process would be more efficient in controlling
[fireworks].
Number 0561
REPRESENTATIVE JAMES asked Ms. Bushue if the person buying the
fireworks would be given the permit.
MS. BUSHUE answered that was correct. She told the members that
Honolulu requires a permit; adults have to have fire safety
training on how to safely discharge fireworks, and there are
areas to discharge fireworks. The permit fees collected pay for
that education component.
REPRESENTATIVE JAMES asked if the purpose of the record of the
permittees is an opportunity for the department to challenge the
seller if something goes wrong.
MS. BUSHUE replied that the purpose of a permit is to educate
the adults on safe and proper use of fireworks and to contact
them if there is a ban in effect.
Number 0778
REPRESENTATIVE JAMES commented that it seems Ms. Bushue is
talking about a problem in a municipality where fireworks are
not allowed.
MS. BUSHUE agreed.
REPRESENTATIVE JAMES noted there would be no permits allowed for
in the city of Anchorage. It seems to her that problem could be
solved by a local ordinance.
MS. BUSHUE said that fireworks are illegal in the municipality,
but they are sold in the state. It's the selling of fireworks
in Wasilla that is causing a major problem in the municipality.
They are not sold in the municipality, but the problem doesn't
go away.
CHAIR COGHILL pointed out that HB 487 would put together an
advisory committee that would make those kinds of
recommendations. A statewide permitting process had not
anticipated that problem, so it would be something well within
the purview of the advisory committee.
REPRESENTATIVE JAMES asked if fireworks on New Year's Day is as
problematic as on the Fourth of July.
MS. BUSHUE answered no, because of the ground cover, but there
have been structure fires when fireworks have been stored inside
residences. She explained that the risk of a wildfire or forest
fire is greatly decreased because of the snow cover.
Number 0997
CHUCK HARRIGAN, Alaska Pyrotechnic Guild, testified via
teleconference. He told the committee his nonprofit trade
association is interested in the education, training, and safety
of its members and the public at large. He referred to Sec.
18.72.101(a) on reduction of insurance requirements. Millions
of dollars of insurance is required to produce a show; that is
appropriate because if somebody's house is burned down, $50,000
is not an appropriate amount to rebuild the house.
MR. HARRIGAN referred to Sec. 18.72.035, which essentially
restricts what and when people can discharge. There is no
distinction between class B and class C [fireworks] in the
proposed legislation. He explained that class C [fireworks] are
sold over the counter, and class B [fireworks] are what
[professional pyrotechnicians] discharge; however, professional
pyrotechnicians discharge class C also. The proposed
legislation says bottle rockets can't be used; bottle rockets
are used in shows for people who don't have a lot of money but
want a show. These are things that can be used in a show to
flesh them out a bit, that don't cost a whole lot, and that give
the customer the "most bang for the buck."
MR. HARRIGAN explained that a wide variety of products and
shells are used out there. The [professionals] would have to
comply with a lot of regulations just to put on a show. Already
they're under close scrutiny, heavily permitted and licensed
with insurance, and they take all safety precautions. There is
concern that this is going to make someone less accountable by
the insurance requirements and place restrictions on the type of
shows that can be done.
Number 1260
CHAIR COGHILL announced his intention of holding HB 487 over to
discuss this with the sponsor. He told Mr. Harrigan that he'd
brought up some excellent points, and that the bill may need
further work to cover all the concerns expressed.
Number 1310
GRIZ SMITH, President, Alaska Pyrotechnic Guild, Inc. (APGI),
testified via teleconference. He informed the members that the
guild is the state's only manufacturing and display company. It
held an emergency meeting on March 9, 2002, to form a consensus
of the proposed changes with respect to HB 487. He referred to
Sec. 18.72.020(a) and gave the following testimony:
The APGI, the Alaska Pyrotechnic Guild, Inc., feels
very strongly that insurance requirements should in no
way be reduced but rather should be increased. As an
example, ... the Miller's Reach fire was in excess of
$11 million in firefighting costs alone. This does
not include the property damage, temporary housing,
relief agency expenditures, or any of the numerous
costs associated with this disaster. We suggest that
a more appropriate level of insurance would be $5
million in liability coverage, including $2 million in
premise/operation coverage, and increased coverage for
bodily injury damage to $4 million per occurrence. We
feel that as infraction has increased the cost of
living, medical costs, and replacement values, it is
logical to increase the insurance coverage
requirements to reflect this.
Additionally, we feel another point should be raised
with regard to the liabilities of the sale of
fireworks to the general public. Considering the
bartender who serves a customer, then the customer
leaves the server's premises, the server has no
control over the ensuing actions of the customer, yet
can be held accountable in civil and criminal
proceedings for the actions of his customer. Should
it not be the case of the best interest of similar
aggressive parties to be able to pay for the medical
expenses or replacement of a dwelling incurred through
no fault of their own, other than having the
misfortune of being in the proximity of a careless
person?
Number 1510
MR. SMITH referred to Sec. 18.72.035 and gave the following
testimony:
The APGI disagrees with the wording of this section
for several reasons. For a fireworks production
company/wholesaler to deliver a show to a customer,
the product must be sold and transferred to the
sponsor. This section therefore restricts the option
that a wholesaler can sell or that a customer can buy
to produce the legally permitted show, which often
includes both class C and class B pyrotechnic devices
of many types, which are now not necessarily aerial.
No distinction is made of types or classes in this
language. While the APGI recognizes the intent [of]
the language is to address the dry season potential
for fire, we feel the language is too broad in scope
and restrictive to professionally produced shows for
professional pyrotechnics are already required to
comply with the plethora of laws and regulations set
down by the USDOT [United States Department of
Transportation], the BATF [Bureau of Alcohol, Tobacco
and Firearms], NFPA [National Fire Protection
Association], USCG [United State Coast Guard], the
Alaska Department of Public Safety, and local
agencies. We feel restrictions of this nature may
only lead to further restriction of our already highly
regulated trade and the manner in which we are
permitted to display fireworks for the enjoyment of
the people of Alaska.
Number 1600
MR. SMITH referred to Sec. 18.72.045 and gave the following
testimony:
Many different types of violations occur all the time
by unscrupulous display operators - for an example,
using a rented box van without any placards to
transport fireworks. The APGI feels that the
amendment should address more than just a violation of
this chapter. It should include a
provision/regulation authorizing the enforcement of
any and all applicable federal, state, municipal,
borough, and community rules and regulations with
regard to the purchase, sale, manufacture,
transportation, and other activities relating to
fireworks. For an example, if a violation of a DOT
regulation occurred in the North Slope Borough, this
could be difficult in regard to the reporting of
enforcement of it. The APGI believes the state fire
marshal's office should have the authority to
investigate all DOT, NFPA, and ATF, et cetera,
violations. This should not be a problem, as the
agency has already adopted the laws and regulations of
these agencies as policies.
Number 1690
Additionally, the APGI believes a $1,000 fine is
minimal. The fine should be increase to $5,000 per
occurrence. The APGI agrees with this amendment with
clarification and a larger fine. We propose the
amendment read as follows: "a regulation that
includes; subject to any and all state, federal,
borough, city, and community laws, rules and
regulations pertaining to the purchase, sales,
manufacturing, transportation, storage, and display of
fireworks by any and all federal and state regulations
that a person or persons who recklessly violates the
provision in this chapter is liable after notice and
opportunity for a hearing to the State of Alaska for a
civil penalty of $5,000 or more each violation."
MR. SMITH referred to Sec. 18.72.080 and gave the following
testimony:
The APGI agrees with and supports the formation of a
fireworks advisory committee as described in this
amendment. The APGI would like to thank you for the
opportunity to express our opinions and concerns on
this matter. We commend you on the intent of this
legislation to make our industry safer for all
Alaskans. We recognize that the legislators' time in
session is limited and valuable, and believe that an
amended bill which addresses our concerns will enable
the language to withstand potential unconstitutional
challenges with regard to restriction of trade.
Number 1888
GARY POWELL, Director/State Fire Marshal, Division of Fire
Prevention, Department of Public Safety, testified via
teleconference. He pointed out that the insurance requirements
have not changed in the new bill; the existing requirements were
exactly the same. Part of the confusion may be that the scope
of HB 487 is to address retail fireworks sales and not the
pyrotechnic displays; if there is confusion, however, it is
probably a good idea to hold it over and clarify the pyrotechnic
concerns.
REPRESENTATIVE FATE asked how many members are in the APGI, and
how many retailers are in the state.
MR. POWELL replied that there is an average of about 18 retail
licenses per year. So far this year, only eight have
registered, but typically, there will be more the closer it gets
to the Fourth of July.
MR. SMITH told Representative Fate that there are approximately
50 licensed display operators in the state of Alaska.
CHAIR COGHILL announced that HB 487 would be held over.
The committee took an at-ease from 8:34 a.m. to 8:35 a.m.
HJR 14 - CONST. AM: PERMANENT FUND
CHAIR COGHILL announced that the next order of business would be
SPONSOR SUBSTITUTE FOR HOUSE JOINT RESOLUTION NO. 14, Proposing
amendments to the Constitution of the State of Alaska relating
to the Alaska permanent fund.
Number 2099
REPRESENTATIVE CRAWFORD, sponsor, said SSHJR 14 is being brought
forward with a bit of reluctance because of the possible
implications. He and cosponsor Representative Croft feel
compelled to do this mainly because of the direction of the
talks in the long-term fiscal policy [caucus]. When the long-
term fiscal policy caucus was started over a year ago, the talk
was about going to the percent of market value payout (POMV) for
the permanent fund, and using 1 percent of that 5 percent payout
for general fund type spending. As the talks went along, it
quickly went to 50 percent of the payout. A week or two ago, it
was up to 60 percent of the payout: 40 percent for the
operating budget, 20 percent for the capital [budget], and only
40 percent for the dividend.
REPRESENTATIVE CRAWFORD said he feels there needs to be a
protection for the dividend. The dividend is one of the state's
most important programs. Over the last decade, Alaska has been
the only state in the Union in which the bottom 25 percent of
people, based on income, haven't lost ground to the top 25
percent. The dividend and its effect is the reason why. The
dividend serves so many good purposes throughout the state. It
provides a cash economy throughout rural Alaska that wouldn't
necessarily be there without it. He said he has been told if
the permanent fund is curtailed or taken away, it will damage
the economy. He wants to get this discussion out there, he
said, and Representative Croft has suggested a way to mitigate
the tax consequences.
Number 2306
REPRESENTATIVE ERIC CROFT, Alaska State Legislature, cosponsor
of HJR 14, agreed there are people in the state and many
legislators who would like to provide reassurance that the
dividend program will stay. The most consistent criticism of
the 1999 fiscal plan was that there were no sideboards on
government's growth or government's access to funds; no limits
were defined. He and Representative Crawford had discussed
defining limits, which led them to introduce a tax cap, and HJR
14 came out of the discussion. He said, "If you provide a tax
cap and you provide a limit on the amount that government can go
into the dividend fund, you have effectively constrained the
growth by limiting the places they can go." The combination
might be a way to give confidence to the public that there are
certain limits and to provide a general limitation on how much
government could grow in the "out" years. He said, "It seems to
me, it's an important consideration whether you want a fiscal
plan or not, or want a specific fiscal plan or not. You can be
for something like this solely on protecting the dividend."
REPRESENTATIVE CROFT said he believes a majority of Alaskans and
many legislators would like to protect the dividend. The
problem is the danger of federal taxation of the dividend.
REPRESENTATIVE CROFT stated that there would probably be two
levels of discussion: "Do we want to do this as a policy
matter?" and "Even if we want to do it, can we do it in such a
way that we can minimize the risk ... or assure ourselves that
the risk is small that that taxation would happen?" He told the
members that he was asked by Representative Crawford for legal
advice to put together ways that would protect it from that
taxation issue. He explained that there are sort of three ways
to justify the non-tax status [of the corporation], and those
ways are encompassed in HJR 14.
Number 2485
REPRESENTATIVE CROFT noted that the permanent fund board pointed
out that all of these cases can go on for a long time. If the
Internal Revenue Service (IRS) initially ruled that it [the
permanent fund] was taxable, then there would be a three- or
four-year litigation. To be prudent money managers, they would
have to escrow the potential tax liability for those years. He
said, "We don't want them to do that, so we've presented an
amendment that takes that section [out]."
REPRESENTATIVE CROFT indicated that he had asked Tamara Cook
[Director, Legislative Legal and Research Services] to present
an amendment that essentially adds two protections. He
explained:
The amendment says if the IRS rules that you might be
taxable, we're going to suspend this for a while,
while that litigation occurs. So, at the most, you
have to escrow one year. If it actually determines
against us, then it drops out. It's sort of two
levels of protection within the constitution. The
third protection, if you will, is an attempt to put
legislative findings and intent on the record to
buttress our potential case if it comes to that.
REPRESENTATIVE CROFT noted that a legislative letter of findings
to accompanying [HJR 14; copy in packets] has been submitted
that hopefully would help that case by having the legislature
declare, "We are an instrumentality of the state, that we should
be considered in that way."
REPRESENTATIVE CROFT referred to a 1998 legal opinion to Jim
Baldwin [of the Department of Law] that talks about the
development of cases in the last ten years. He said he was
heartened by a Michigan educational trust case out of the 6th
Circuit [Court of Appeals] that deals with states' setting up
educational trusts so people can invest in them and use the
money for tuition. The advantage is that it is tax-free. It is
set up as a separate corporation in Michigan. The funds came
from the individual people putting money in; it was managed by a
board. There were a number of similarities to Alaska's
[permanent fund] and number of ways Michigan had a more
difficult case because it started with separate funds, not state
funds like Alaska's. Nevertheless, the 6th Circuit [Court of
Appeals] agreed that it was exempt from taxation.
Number 2663
REPRESENTATIVE CROFT said that case should give some solace to
Alaska in that it is in the right direction and positive. The
IRS didn't like that ruling and fought it, and eventually
Congress was compelled to agree that the Michigan case was
exempt. He commented that the IRS was so troublesome in this
that eventually Congress just authorized educational trusts
explicitly to get the IRS off this issue. He told the members
that there is a window here, if it's done carefully, to protect
the dividend. This doesn't enshrine the current dividend
structure. It allows the dividend structure, but it sets a
floor of no less than 50 percent. [HJR 14] would enshrine some
protection for the dividend, put some general limitations on the
growth of state government, and do it in a way, if written
right, that will not result in the taxation of the fund, which
no one wants.
Number 2715
CHAIR COGHILL asked Representative Croft to explain Amendment 1
before it was offered. Amendment 1, 22-LS0526\O.1, Cook,
3/26/02, read:
Page 2, lines 5 - 8:
Delete all material and insert:
"Section 30. Suspension and Repeal of
Subsection. (a) Notwithstanding Section 1 of Article
XIII, Section 15(c) of Article IX is suspended on the
date of an initial determination by the Internal
Revenue Service that all or a portion of the permanent
fund is subject to federal taxation. The suspension
is terminated on the date Section 15(c) of Article IX
is repealed under (b) of this section or 180 days
after the date of a final, nonappealable judgment or
order by a federal court deciding that no portion of
the permanent fund would be subject to federal
taxation as a result of the application of Section
15(c) of Article IX.
(b) Notwithstanding Section 1 of Article XIII,
Section 15(c) of Article IX is repealed 180 days after
the date of a final, nonappealable judgment or order
by a federal court deciding that all or a portion of
the permanent fund is subject to federal taxation.
(c) In this section, "final, nonappealable
judgment or""
Number 2824
REPRESENTATIVE CROFT told the members that Ms. Cook and the
permanent fund board had explained that the more the court cases
drag on, no one wants to be escrowing money for every year the
case goes on. So, the effect of adopting Amendment 1 is to have
two levels of protection, and Ms. Cook had separated it into
sections (a), (b), and (c) of the amendment. He said he thought
the amendment was a good idea to further protect this issue.
Number 2872
JIM KELLY, Director of Communications, Alaska Permanent Fund
Corporation (APFC), Department of Revenue, told the committee
that the Board [of Trustees of the Alaska Permanent Fund
Corporation] looked at the proposals still pending in the
legislature relating to the permanent fund, which resulted in
the letter signed by Jim Sampson [in the members' packet]. The
letter synthesizes where the board stands in terms of all the
legislation pending on that subject. Regarding [HJR 14], the
board is very supportive of the first 15 lines of the first
page; it encourages the passage of that legislation. Regarding
the additional language at the end of the bill, he quoted from
page 2 the letter, which read in part:
In simple words, the Board is concerned that putting
the dividend program into the constitution would put
the Fund at risk by jeopardizing its current tax-
exempt status. We understand that some legislative
members may believe it is possible to draft
constitutional language which would mitigate the risk.
In our view, the risk/reward benefits are not there.
MR. KELLY noted that this is a very conservative board.
Although it deals in the business of risk and return, this is a
significant risk. If the desire is to protect the dividend, the
board would argue that the best way to protect the dividend is
to pass the legislation as originally proposed. The "do
nothing" approach to the legislation proposed by the trustees is
what puts the dividend at risk, not the concern about whether
the dividend program is going to end. It is the most popular
program in the state of Alaska and probably in the country, he
commented.
TAPE 02-36, SIDE B
Number 2989
MR. KELLY said "In terms of the first part of the bill, the
constitutional amendment that would place the new language into
the constitution that would limit the payout of the permanent
fund income each year to 5 percent of the fund's market value
averaged over the last five years. That is the board's best
perspective on how to protect the fund; how to completely
inflation-proof the fund for future generations." There are
several good points about passing that portion of the bill [the
first 15 lines], he commented. It allows the people to vote on
what should be done to the permanent fund, and it does provide
sideboards to future spending.
MR. KELLY stated that the spending limit makes sure that the
fund is going to be completely protected for the future, and
that the income it will be able to produce for every year in the
future will grow in real dollar terms, but it also ensures that
there will be a significant amount of money to debate about how
to use in future years, which maybe won't happen if this kind of
a limit isn't established.
MR. KELLY explained that in the last 25 years, the permanent
fund has produced about $25 billion worth of income. A large
portion of that has been put back into the fund to grow and
protect against inflation. About $10 billion to $11 billion has
been paid out. Over the next 25 years, if the fund is protected
in the way that the trustees are proposing, the amount of money
that would be available for distribution is probably four times
that amount - $40 billion, which is a large number all by
itself. It's also twice as much as can be expected from oil
according to the projections from the Department of Revenue.
So, it is the single largest source of money that the state has,
and this is the way to protect and ensure it.
Number 2863
CHAIR COGHILL asked Mr. Kelly to comment on enshrining the 50
percent payout constitutionally.
MR. KELLY said the board has never varied on that point. It's
the board's job to protect the money and to grow the income;
it's the legislature's job to decide how to use the income.
CHAIR COGHILL referred to Section 2 of SSHJR 14, Section 30 of
Amendment 1, and asked if the board had studied that issue.
MR. KELLY answered that the amendment hasn't been looked at, but
the board did look at the sponsor substitute for HJR 14 at its
meeting. It didn't have the benefit of its legal counsel, so
the resolution wasn't reviewed as thoroughly. He noted that the
board's position hasn't changed much over the years. This issue
has been before it for a long time, and the risk is such that it
advises going forward without it.
Number 2790
MR. KELLY said one of the concerns that legislators have
expressed to the board this year is that they were afraid that
the citizens wouldn't be very supportive of this proposal; they
would consider it to be tinkering with the permanent fund. He
called attention to a vote taken in Anchorage two days ago.
Proposition No. 4 was before the voters to amend the municipal
charter to basically do the same thing to their trust fund that
is being proposed to be done to the state's permanent fund. The
voters supported it by a 70-percent margin. He noted that the
board believes that if this were placed before the voters, there
would be a lot of support for it.
Number 2685
REPRESENTATIVE FATE asked if there is a spreadsheet that
projects into the future what the permanent fund corpus would be
provided it went to the 5 percent of the last five years on
percent of market value.
MR. KELLY answered that there is such a spreadsheet, but he
didn't have it with him.
REPRESENTATIVE FATE asked if the spreadsheet reflects the
possible legislation of reducing it back to 25 percent instead
of 50 percent.
MR. KELLY replied that the one they have does not. He asked
Representative Fate if he was asking about just the principal or
total funds.
REPRESENTATIVE FATE said the principal.
MR. KELLY said there is a spreadsheet that relates to that.
REPRESENTATIVE FATE requested that a copy be sent to his office.
Number 2598
REPRESENTATIVE CRAWFORD moved to adopt Amendment 1 [text
provided previously].
REPRESENTATIVE FATE objected. He said he has a problem with the
whole concept. Even though this may mitigate the problem of IRS
taxation, there has been no testimony to assure that. He said
he isn't sure voting on the amendment is the way to go if the
legislation isn't either going to get out of committee or pass
at all. He said it seems to him that "they're putting the cart
before the horse."
REPRESENTATIVE CROFT reiterated that Amendment 1 adds another
level of protection. If this committee chooses not to pass the
resolution out, he encouraged the committee to clean it up and
get it in the best form. This goes some way toward meeting
those concerns, although whether it goes all the way is a
legitimate disagreement.
REPRESENTATIVE JAMES said she doesn't have a problem amending
the resolution. She agreed with Representative Fate on the
conclusion of this piece of legislation. She said it seems to
her that the dividend is the first thing to talk about in even
getting a fiscal plan. She acknowledged that there are lots of
solutions and concerns about the dividend, and this bill is one
suggestion. She said she would like to see every suggestion in
a row, and talk about them all. She agrees there won't be a
conclusion to this issue in this legislative session, but she
said the public needs to be fully informed.
Number 2450
A roll call vote was taken. Representatives Crawford, Hayes,
James, and Coghill voted for Amendment 1. Representative Fate
voted against it. Therefore, Amendment 1 was adopted by a vote
of 4-1.
CHAIR COGHILL said the broader question is how to proceed as a
policy matter, not only with the 5 percent issue, which has had
some discussion in this committee, but on enshrining it in the
constitution - at least 50 percent of the amount appropriated
under this 5 percent payout during the fiscal year. He is
reluctant to do that, he said. The only advantage that he can
see is the fact that then it would go before the voters, and
they would be faced with what to do with the dividend, rather
than having the "dirty rascals down in Juneau" do it. He said
he thinks that the tax question begs so strongly, and there are
other avenues to getting that question out; he would speak
against it.
Number 2381
REPRESENTATIVE CRAWFORD agreed the question has been there for a
number of years. He said he believes in putting the language
in. If it's wrong, the question will be decided, and then he'll
rest the case. He said he doesn't believe that it puts the fund
at risk if the constitutional amendment the people vote on
states that if the IRS rules this is taxable and the courts
agree, then it'll be dropped from the constitution. He would
like to have this question answered not only for his children
but his grandchildren. Due to the dividend, his children are
going to be able to go to college and start life out without
being in debt. He would like that for his grandchildren as
well.
REPRESENTATIVE CRAWFORD said Alaskans hold the subsurface
mineral rights in common, not individually, and the dividend
goes out to people in common, without respect to income or
anything else. Being a citizen of Alaska gives one the right to
that income. He would like that renewable dividend to benefit
many generations to come.
Number 2259
REPRESENTATIVE JAMES acknowledge that she, too, wants to
maintain a healthy dividend over the long term. If there is
agreement how to do it, it can be done statutorily. She agreed
with Representative Crawford that it has been a big boon to the
low-income people in the state. But the demographics show that
there are more low-income people now than there were before.
There is some anecdotal information and some real cases where it
shows that people have come to Alaska for that very reason, she
noted.
REPRESENTATIVE JAMES commented that she didn't have any problem
with helping "our" disabled and poor; there is an obligation to
do that. She said she doesn't want to take care of those from
other states. She said she doesn't believe that Alaska should
become a magnet state for that reason. People should come to
Alaska because it is a great place to live.
REPRESENTATIVE JAMES said she believes that a dividend can be
maintained over the long term. It is the very first thing that
needs to be addressed before dealing with a fiscal plan. The
dividend is the issue that has kept the legislature in the
direction it's going, which is a very hurting position.
Number 2170
REPRESENTATIVE JAMES commented that there are nearly tears in
the eyes of people who are trying to provide K-12 education in
Alaska without sufficient funding. To hold this issue hostage,
which is what's being done, is painful to her, she commented.
She said she believes that the permanent fund was set up so that
the money wouldn't be blown; it would be saved for some future
time when there wouldn't be enough money for things the state
needs.
REPRESENTATIVE JAMES explained that when Alaska was made a
state, the federal government disagreed that Alaska would ever
be able to support itself; that is the reason the federal
government gave the subsurface rights to the state, and the
state can't give them away. The state needs them to support not
only the poor and disabled people, but also those who are able
and working and expanding their abilities to get some place in
their lives. There needs to be a way of balance and support
over the long term.
Number 2105
REPRESENTATIVE JAMES acknowledged that one of the reasons it is
so difficult to get a fiscal plan is because "which comes first,
the chicken or the egg?" If something isn't done soon to
increase the economic activity and create wealth in Alaska, she
said, "We'll just funnel ourselves down into a little pit, and
we'll never be able to see out over the top of the hole." The
big picture has to be looked at. The state needs to spend time,
money, and effort to create new opportunities for people, and
the state needs to wean itself off dependency on the federal
government.
REPRESENTATIVE JAMES declared that Alaska is a great state.
There are huge resources, the environment can be protected, and
the old and young can be taken care of, if people can work
together on this issue. She stated that the permanent fund
dividend is what is holding them back. She has heard for ten
years that same fear in every single legislator this year that
"we have to keep giving this money away to them; otherwise, we
cannot make a decision on how we should go forward. She
commented, "If we don't figure out how to do that soon - and I
don't have an answer, I have lots of ideas - ... but if we don't
get that idea solved first, we'll never get to the next part."
Number 2016
REPRESENTATIVE JAMES said she is not willing to put a
constitutional amendment before the public [for a vote]. She
commented, "Of course it's popular when you're giving a check in
October! Who wouldn't like that? The only people we're hearing
that don't like it are the people who want to have money in the
education and other important issues. Those are the people that
[say], 'I'll give up my dividend in a heartbeat if we can just
get some money,' and we can't get some money until we deal with
the dividend issue." Something that seems compatible to the
public must be done, she indicated. These issues need to be
discussed with the public this summer before the election so
people know what the consequences will be of these decisions.
REPRESENTATIVE JAMES assured the members that they will be able
to get there. They are all trying to do the right thing; they
just may not all be on the same page. She added that she
doesn't want to discount the makers of this legislation or
anyone else who comes to testify. It is a tough issue that has
to be faced.
Number 1915
REPRESENTATIVE HAYES stated that he supports moving this bill
from committee because there are not any attorneys on the House
State Affairs Standing Committee. There are a few more
safeguards in going to the House Judiciary Standing Committee
and House Finance Committee. He would like to see more
discussion on this bill in the other committees, he commented.
REPRESENTATIVE FATE indicated that wasn't sure whether he was
willing to go forward as a policy issue, not whether or not it
should go to another committee. He wondered whether 5 percent
of the last five years' average of the POMV would be enough for
the state to grow or keep up with growth if it should occur.
Alaska has been subsisting under a low-growth economy. He sees
[HJR 14] as holding back the kind of economic expansion that is
needed, he noted. This is his fear as a policy matter. Alaska
can't stay stagnant. The economy needs to be increased. He
said he's afraid that this bill, with these strictures, will
just maintain it.
MR. KELLY responded to Representative Fate that 1 percent of the
fund's market value of $25 billion is $250 million, so 5 percent
is $1 billion, 250 million. Last year a little over a billion
dollars was paid out for dividends. At the very least, it is an
increase that allows for an increased payment compared to what
is done now, he said. The 5 percent was chosen because it is on
the high end of achievable for what the fund can accomplish with
the asset allocation that it already has in the statutes.
Number 1688
MR. KELLY explained that there could be a 6, 7, or 8 percent
payout, but the question would be, "Would that give you more
money over time?" The answer is, "It would not." If there were
even a 6 percent payout over the next 25 years, less money would
be paid out than with a 5 percent payout. He said 5 percent is
a balance. It is a number that balances the distribution of the
benefits of the permanent fund between the current generation
and the future generations. If a higher percentage is paid out
over the next 10 or 15 years, more money will be put in the
economy, but then future generations will get quite a bit less.
He said 5 percent is the way to pay out the most amount of
money; it is the way for individuals to get the most benefit out
of the permanent fund and to add the most money to the economy.
Every dollar of permanent fund income paid out is new money into
the state. It is like an industry, so those dollars need to be
maximized. This proposal maximizes those dollars, he noted, and
there is no doubt about that over the long term.
REPRESENTATIVE FATE asked if there would be a reduction of the
dividend under [this legislation] compared with the present
time.
MR. KELLY said yes.
REPRESENTATIVE FATE commented that his point is that this money,
combined with a broad-based tax, will fill the gap but really
won't do a great deal to increase the infrastructure so needed
to expand the economy. "We'll just stay the same way we are now
as we proceed into the future," he said.
MR. KELLY said how the money is divvied up is the legislature's
business. But even if it were to be 50-50 between the dividends
and the government, $40 billion dollars could be expected over
the next 25 years. Half of that, if it were paid out for
government, would be $20 billion, which is equal to the amount
to be expected from oil over 25 years. The permanent fund is
big, he commented, but it is not able to do all things. It is
not going to be able to solve all the state's problems, but it
can, through taking this step [HJR 14], ensure that its future
income stream will be there. It can give $20 billion over 25
years to use for government to promote economic development.
Number 1405
CHAIR COGHILL announced that HJR 14 would be held over.
HB 509 - ALASKA CHILDREN'S TRUST LICENSE PLATES
Number 1363
CHAIR COGHILL announced that the final order of business would
be HOUSE BILL NO. 509, "An Act relating to Alaska children's
trust registration plates; and providing for an effective date."
Number 1302
AMY ERICKSON, Staff to Representative Lisa Murkowski, Alaska
State Legislature, presented HB 509 on behalf of Representative
Murkowski, sponsor. She explained that HB 509 makes Alaska
children's trust license plates available to any commercial or
non-commercial passenger vehicle, truck, bus, van, or motor
home. The original version included motorcycles, which was not
the intent of the sponsor. The motorcycle plates are too small
to accommodate the standard-sized plate, so the proposed
committee substitute excludes motorcycles and includes
commercial and non-commercial vehicles.
CHAIR COGHILL moved to adopt CSHB 509, version 22-LS1641\C,
Ford, 4/1/02, as the working document. There being no
objection, Version C was before the committee.
Number 1244
MS. ERICKSON told the committee that the bill makes one minor
change to Alaska Statute to allow the Alaska children's trust to
market trust plates to commercial motor vehicle owners. Current
statutes only allow owners of non-commercial vehicles to apply
for the plates. This mirrors the structure of the University of
Alaska plates program. The small change in statute will allow
the trust to respond positively to requests by industry and
private business to purchase the plates for their fleet vehicles
and to market sales to an additional 56,000 vehicle owners who
support the mission and activities of the Alaska children's
trust. This could boost the trust by $5,650,000 for prevention
of neglect and child abuse. There is a one-time-only $100 fee
for the plates.
MS. ERICKSON explained that the trust was established by the
legislature in 1988, and it is a savings account dedicated to
funding community-based projects to eliminate child abuse and
neglect. The trust fund grows through gifts, bequests,
corporate and individual contributions, legislative
appropriations, federal funds, sales of heirloom marriage and
birth certificates, and the children's trust plates. Passage of
HB 509 will greatly expand the children's trust savings account
and the ability to fund projects through grants. She encouraged
the committee's support.
Number 1115
MARY MARSHBURN, Director, Division of Motor Vehicles, Department
of Administration, testified via teleconference. She informed
the committee that there are no costs associated with HB 509
because the plates are already on hand. She expressed support
for the proposed committee substitute.
Number 1068
GLENN GODFREY, Commissioner, Department of Public Safety; Board
Member, Alaska Children's Trust, testified via teleconference.
He added his support to this bill. Any support for additional
funding to help protect Alaska's children is appreciated, he
said.
Number 1031
REPRESENTATIVE JAMES moved to report CSHB 509 [version 22-
LS1641\C, Ford, 4/1/02] out of committee with individual
recommendations and the attached fiscal note. There being no
objection, CSHB 509(STA) was reported out of the House State
Affairs Standing Committee.
ADJOURNMENT
There being no further business before the committee, the House
State Affairs Standing Committee meeting was adjourned at
9:30 a.m.
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