Legislature(2021 - 2022)DAVIS 106
08/30/2021 09:00 AM House WAYS & MEANS
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| Audio | Topic |
|---|---|
| Start | |
| Presentation(s): Fiscal Policy Working Group Report | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| + | TELECONFERENCED | ||
ALASKA STATE LEGISLATURE
HOUSE SPECIAL COMMITTEE ON WAYS AND MEANS
August 30, 2021
9:03 a.m.
MEMBERS PRESENT
Representative Ivy Spohnholz, Chair
Representative Adam Wool, Vice Chair
Representative Andy Josephson
Representative Calvin Schrage
Representative Andi Story
Representative Mike Prax
Representative David Eastman
MEMBERS ABSENT
All members present
OTHER LEGISLATORS PRESENT
Senator Shirley Hughes
Senator Click Bishop
COMMITTEE CALENDAR
PRESENTATION(S): FISCAL POLICY WORKING GROUP REPORT
- HEARD
PREVIOUS COMMITTEE ACTION
No previous action to record
WITNESS REGISTER
REPRESENTATIVE JONATHAN KREISS-TOMKINS
Alaska State Legislature
Juneau, Alaska
POSITION STATEMENT: Co-presented the 2021 Fiscal Policy Working
Group Final Report.
SENATOR MIKE SHOWER
Alaska State Legislature
Juneau, Alaska
POSITION STATEMENT: Co-presented the 2021 Fiscal Policy Working
Group Final Report.
ACTION NARRATIVE
9:03:10 AM
CHAIR IVY SPOHNHOLZ called the House Special Committee on Ways
and Means meeting to order at 9:03 a.m. Representatives Story,
Josephson, Wool, Schrage, Prax, and Spohnholz were present at
the call to order. Representative Eastman arrived as the
meeting was in progress. Also present were Senators Bishop and
Hughes.
^PRESENTATION(S): Fiscal Policy Working Group Report
PRESENTATION(S): Fiscal Policy Working Group Report
9:03:51 AM
CHAIR SPOHNHOLZ announced that the only order of business would
be a presentation of the fiscal policy working group report by
Representative Kreiss-Tomkins and Senator Shower.
9:05:20 AM
REPRESENTATIVE JONATHAN KREISS-TOMKINS, Alaska State
Legislature, introduced the 2021 Fiscal Policy Working Group
Final Report [hard copy included in the committee packet]. He
began with the graphic at the bottom of page 2, which he said
describes the process of the working group: "1. Agree on what
the problem is. 2. Agree on what the parts of a solution are.
3. Get more specific: define the solution strike zone." He
said internal discussions included the importance of agreeing
on, and defining, the problem, but that it wasn't specified in
the final report. He acknowledged Representatives Schrage and
Prax as other members of the working group. He discussed
political and governance issues, and he expressed that Alaska is
experiencing "chronic governance failure" in terms of the
budget, evidenced by the fact the committee was meeting now, in
August. He advised that the risk of governance and political
failure is manifest, and that that risk is projected to
increase.
9:08:50 AM
SENATOR MIKE SHOWER, Alaska State Legislature, expressed
surprise regarding the ability of the political parties to agree
and compromise on the permanent fund dividend (PFD) and spending
cap, and to suggest solutions. He noted that everyone in the
working group was asked to "step off of their positions and move
to the middle," and he expressed appreciation for the efforts of
Representative Kreiss-Tomkins and the other members of the
working group.
9:12:43 AM
REPRESENTATIVE KREISS-TOMKINS described the effort to determine
the conceptual components of a possible solution. He said
constitutional budget reserve (CBR) reform was discussed,
expressing that it would serve the state if other pieces could
be put into place. He highlighted a bullet point on page 3,
which read, "Process: a comprehensive solution must be
negotiated and agreed to as whole, not be taken up one part at a
time," and he said that all members of the working group viewed
the point as "absolutely necessary." He noted categories of
ideological differences within the members of the working group.
9:17:10 AM
SENATOR SHOWER emphasized that a comprehensive package, instead
of one or two individual solutions, is absolutely necessary;
taken individually, he said, any one of the solutions wouldn't
solve the problem and wouldn't have support.
9:19:52 AM
CHAIR SPOHNHOLZ asked whether the working group had discussed
the mechanics of the process.
9:20:21 AM
REPRESENTATIVE KREISS-TOMKINS answered that the working group
didn't have such a discussion, but that there may have been
informative conversations.
CHAIR SPOHNHOLZ opined that agreeing on the scope of the problem
and fiscal policy assumptions, as well as identifying elements
for a comprehensive solution, showed remarkable progress.
9:23:21 AM
REPRESENTATIVE PRAX expressed agreement with the importance of
the process, and he said it took a while to establish the "rules
of engagement."
9:24:49 AM
SENATOR SHOWER expressed appreciation for Representative Kreiss-
Tomkins' effort in the working group, and he detailed the
comprehensive aspect of the mechanics and the process. He
discussed the need to solve problems that are important to other
legislators; for instance, he and Representative Kreiss-Tomkins
spoke with lawyers regarding how to guarantee a PFD in the
constitution without including a specific formula.
CHAIR SPOHNHOLZ acknowledged that while she supports the largest
affordable PFD, she does not support constitutionalizing the
formula.
9:29:21 AM
REPRESENTATIVE WOOL pointed out the semantics of "revenue" and
"taxes," and he asked whether taxes, rather than revenue, were
an informal tradeoff for the 50/50 split.
SENATOR SHOWER expressed agreement with Representative Wool's
assessment, and he reiterated that each member of the working
group had to let go of his/her political ideologies to arrive at
a solution. He said by the end of the six weeks, everyone had
begun compromising in order to solve the problem.
REPRESENTATIVE WOOL noted the polar preferences held by
legislators regarding PFD amount, and he said the middle
position of $1,600 would mathematically represent a 33 percent
draw of percent of market value (POMV). He referred to the
bottom of page 3 of the report, which read as follows [original
punctuation provided]:
The FPWG did not endeavor to produce a prescriptive,
dollar-specific, "comprehensive solution on a silver
platter," but rather to identify ranges and bounds
that represented what the FPWG thought was a
reasonable "solution strike zone" from which the full
legislature could work.
REPRESENTATIVE WOOL asked whether the working group discussed a
$1,600 PFD or a range of 33 to 66 percent POMV.
9:36:04 AM
REPRESENTATIVE WOOL inquired about the comprehensive goal and
asked how the goal was attained.
REPRESENTATIVE KREISS-TOMKINS answered coordination and trust,
and he said coordination between leadership and the two caucuses
is required. He added that without a constitutional amendment,
there would not be a fix to the legislative dysfunction.
CHAIR SPOHNHOLZ noted that elements of a fiscal plan must be
agreed upon before attempting to navigate procedural
implementation.
9:39:26 AM
REPRESENTATIVE JOSEPHSON pointed out that the legislature was
two weeks into the third special session, and the only "revenue-
side" legislation he's seen proposed is from Representative
Tarr. He wondered how the legislature would move forward, and
he asked whether detailed discussions are possible.
CHAIR SPOHNHOLZ opined that such a suggestion is premature, as
the objective of the meeting was to review the report from the
working group.
REPRESENTATIVE JOSEPHSON expressed understanding that the
proposal was to constitutionalize the PFD but codify revenue.
He said a legislature, presently or in the future, could repeal
the revenue aspect.
REPRESENTATIVE KREISS-TOMKINS interjected that the Legislative
Finance Division was involved in every step of the process to
make sure work would occur within a "balanced budget box." He
acknowledged Legislative Finance Division Director Alexei
Painter's contribution to the process.
9:42:52 AM
SENATOR SHOWER pointed out that discussions in the working group
weren't held in the context of what a future legislature might
do, because the "what ifs" were endless. He noted that
Representative Josephson's question was "somewhat irrelevant" to
the process.
REPRESENTATIVE JOSEPHSON stated his disagreement, and he pointed
out that the administration wanted to cut $1 billion from the
operating budget, including $250 million from education.
REPRESENTATIVE KREISS-TOMKINS expressed that he shared
Representative Josephson's concern, and he mentioned that
"extreme risk aversion" has contributed to the inability to
solve the problem thus far. He discussed the PFD's possible
constitutional certainty, and he pointed out the bullet point
under "Constitutional Certainty for the PFD," which read as
follows [original punctuation provided]:
? A constitutional amendment that requires the PFD be
paid "as provided by law," leaving the formula in
statute, and effectively constitutionally guaranteeing
the statutory formula.
9:46:02 AM
REPRESENTATIVE PRAX commented on the importance of the agreed-
upon model.
9:46:52 AM
REPRESENTATIVE JOSEPHSON asked whether a lawyer was consulted
regarding whether the use of a model with no formula, but a
constitutional guarantee, would reverse the decision of
Wielechowski v. Alaska, 406 P.3d 1141 (Alaska 2017).
9:47:26 AM
REPRESENTATIVE KREISS-TOMKINS referenced a memorandum ("memo")
from Legislative Legal Services regarding constitutional
certainty, which said the statutory formula for the PFD would
have to be appropriated, thereby superseding the Wielechowski
decision. If the formula called for a $1,600 PFD every year, it
would be constitutionally certain; likewise if the formula
called for a PFD based on 50 POMV.
CHAIR SPOHNHOLZ interjected to note that the formula could
change based on fiscal needs.
REPRESENTATIVE KREISS-TOMKINS concurred.
9:49:25 AM
SENATOR SHOWER said the plan needs to be passable, not only by
the legislature but in accordance with the law. He said if
there's no certainty in what the PFD will be, the amount will
still be according to the whim of the legislature.
CHAIR SPOHNHOLZ acknowledged the importance of committee
members' questions. She expressed her desire to recess the
meeting.
9:53:29 AM
REPRESENTATIVE KREISS-TOMKINS said the working group aspired to
create numeric certainty wherever possible. Future legislatures
can consider other combinations, but this working group's focus
was to "solve the problem and balance the budget" in a realistic
manner. He called this the "strike zone," and acknowledged that
the entire legislative body would make the final decision.
CHAIR SPOHNHOLZ, regarding the strike zone, noted that there was
consensus around the single account permanent fund structure in
the constitution, with draws limited by the POMV. She further
noted there were two different approaches in terms of
"constitutional certainty for the PFD." She inquired whether
there had been discussion about a compromise between the
approaches.
9:57:43 AM
SENATOR SHOWER noted that without constitutional certainty,
changes can continue to be made. He talked about the need for
flexibility but also to have a plan with "enough certainty" that
will be approved by a vote of Alaskans. He commented on the
lack of trust the public has for its legislature.
9:59:52 AM
REPRESENTATIVE PRAX commented that there had been considerable
discussion around constitutionalizing the formula; the
alternative would be to include language in the constitution
that "addressed the Wielechowski decision" and allow the formula
to be set in statute, but to require the statute to be followed.
Regarding the lack of public trust, he opined, "The fact that it
is now arbitrary and unpredictable is as much a problem as
whatever amount anybody comes up with." He shared his
preference for the terms being set in statute and the statute
being "followed."
10:00:55 AM
ADJOURNMENT
The House Special Committee on Ways and Means was recessed to a
call of the chair at 10:01 a.m.
11:32:52 AM
CHAIR SPOHNHOLZ called the House Special Committee on Ways and
Means back to order at [11:32] a.m. Representatives Story,
Josephson, Wool, Schrage, Prax, Eastman, and Spohnholz were
present at the call back to order. Also present was
Representative Ortiz.
11:33:13 AM
REPRESENTATIVE KREISS-TOMKINS resumed his explanation of the
working group's report and the "strike zone." He indicated that
the heading in bold font on the report indicates [the compromise
reached] between members with varying ideologies. He pointed
out two paths to establish constitutional certainty: income tax
versus sales tax. He named two paths to the transitional
approach: PFD versus an earnings reserve account (ERA) overdraw
bridge. He reiterated that these decisions ultimately will be
made by "the full 60" [members of the House and Senate.
11:36:45 AM
REPRESENTATIVE WOOL, regarding the strike zone and its range,
asked whether a range was discussed in terms of the PFD.
11:38:14 AM
REPRESENTATIVE KREISS-TOMKINS noted that there was broad support
for the 5 percent draw. He expressed his own belief that a
lower (4.75 to 4.9 percent) draw would be healthier. He shared
that he could support a 50 percent POMV draw. He added that
it's up to all 60 members to identify the numbers; this was an
attempt to "put out a framework."
CHAIR SPOHNHOLZ underscored that these recommendations were from
the working group and do not represent the full legislature.
11:41:23 AM
REPRESENTATIVE PRAX addressed "risk" and asking people to
justify their positions on the matter of "taking realistic
risks."
11:42:26 AM
REPRESENTATIVE STORY, regarding the two choices given by the
working group in terms of constitutional certainty of the PFD,
noted another solution given by the working group related to
"resilience to fiscal stress." She asked about the two choices
and whether the working group had considered redoing the formula
in statute.
REPRESENTATIVE KREISS-TOMKINS answered yes, there was a
recommendation for a new formula. Regarding resilience to
fiscal stress, he said there were different opinions. He said
the new formula should be able to work for years to come; the
plan should be able to sustain sufficient CBR reserve to absorb
fiscal stress, such as market crashes and drops in oil prices.
11:45:51 AM
REPRESENTATIVE PRAX proffered that the group had discussed
constitutionalizing the PFD or adding language in the
constitution to clarify that "it is a statutory formula." He
observed that many people were upset with the legislature's
disregard of the formula, and he opined that the biggest thing
the legislature can do moving forward is to restore the public's
trust.
11:47:19 AM
REPRESENTATIVE JOSEPHSON named two issues: one was regarding
views on the retirement obligation; the other was what
traditional revenue will be. He noted that in FY 11, the Office
of Management & Budget (OMB) had projected that two years ago
the state's CBR balance would be $23 billion, and the general
fund (GF) unrestricted revenue would be $6 billion. Those
numbers were wrong; therefore, he questioned why he should
"think this is right."
11:48:59 AM
REPRESENTATIVE KREISS-TOMKINS recommended asking instead what
the "least wrong or most reasonable assumption" is. He
explained why the group focused on actuarial assumptions,
landing on one that he felt was reasonable, given the analysis
provided by the Division of Legislative Finance. He encouraged
criticism of recommendations to ensure their viability.
11:52:38 AM
REPRESENTATIVE JOSEPHSON noted his own conservative view on the
subject of the PFD, but commented that given the legal opinion
and that the statutory formula must be changed, he would rather
have the formula constitutionalized.
11:53:37 AM
CHAIR SPOHNHOLZ brought attention to the group's baseline
simulation assumptions [hardcopy included in the committee
packet]. She noted that one of the assumptions is a community
assistance program, and she asked whether that one was
controversial or one "with fair unanimity."
11:54:34 AM
REPRESENTATIVE KREISS-TOMKINS offered to follow up with an
answer.
11:55:42 AM
REPRESENTATIVE STORY asked how $210 million was decided upon for
the capitol budget.
REPRESENTATIVE KREISS-TOMKINS answered that $210 million was a
compromise baseline amount.
11:57:59 AM
REPRESENTATIVE STORY asked if it was "the will to stay at this
lower 1 percent" even considering all the state's deferred
maintenance.
REPRESENTATIVE KREISS-TOMKINS replied that the capital budget is
a central item and a discretionary call to be decided upon by
future legislatures; therefore, the group decided on the 1
percent amount commended by the Division of Legislative Finance,
with full recognition that as with all assumptions, it will be
wrong. He added, "That's kind of like a good thing, because
that's the democratic process."
11:59:53 AM
REPRESENTATIVE JOSEPHSON, referring to the baseline budget
simulation assumption, asked what with the assumption
overlayed with the working group's white paper the balance in
the general fund would be each year.
REPRESENTATIVE KREISS-TOMKINS suggested Alexei Painter from the
Division of Legislative Finance would be able to run the numbers
and possibly answer the question.
REPRESENTATIVE JOSEPHSON expressed his desire that his eventual
successor would have the necessary revenue to solve problems so
that the legislature isn't living "paycheck to paycheck."
12:01:53 PM
REPRESENTATIVE PRAX said that in terms of forward thinking,
there is only so much control over risk. He opined that as in
business, there is such a thing as being too conservative. He
concluded that "we can't be too certain."
12:03:12 PM
REPRESENTATIVE STORY expressed that she is hopeful after seeing
the report, which she said offers a realistic blueprint for the
challenges faced. She thanked the working group.
12:04:11 PM
CHAIR SPOHNHOLZ thanked members. She said while no one member
may approve of every aspect of the working group's report, it
does provide a plan for moving forward.
12:05:31 PM
ADJOURNMENT
There being no further business before the committee, the House
Special Committee on Ways and Means meeting was adjourned at
[12:05] p.m.
| Document Name | Date/Time | Subjects |
|---|---|---|
| 2021 Fiscal Policy Working Group Final Report.pdf |
HW&M 8/30/2021 9:00:00 AM |
|
| Fiscal Plan Working Group Baseline Budget Simulation Assumptions.pdf |
HW&M 8/30/2021 9:00:00 AM |
|
| Leg Legal Memo 8.16.21.pdf |
HW&M 8/30/2021 9:00:00 AM |
Legal Memo |