Legislature(2021 - 2022)BUTROVICH 205
05/27/2021 01:30 PM Senate COMMUNITY & REGIONAL AFFAIRS
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| Audio | Topic |
|---|---|
| Start | |
| Presentation: Comprehensive Fiscal Plan for Alaska | |
| Comprehensive Fiscal Plan for Alaska: Budget Implications for Communities and Regions in Alaska | |
| Presentation: Part I Economic Impacts of Fiscal Options; Part Ii Economic Impacts of Fiscal Certainty | |
| Presentation: Pfd Certainty and Impacts to Small Business Presentation: Pfd Certainty and Impacts to Small Business | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
ALASKA STATE LEGISLATURE
SENATE COMMUNITY AND REGIONAL AFFAIRS STANDING COMMITTEE
May 27, 2021
1:31 p.m.
MEMBERS PRESENT
Senator Shelley Hughes, Chair
Senator Robert Myers, Vice Chair
Senator David Wilson
Senator Elvi Gray-Jackson (via teleconference)
MEMBERS ABSENT
Senator Lyman Hoffman
COMMITTEE CALENDAR
PRESENTATION: Comprehensive Fiscal Plan for Alaska By Department
of Revenue
- HEARD
PRESENTATION: Comprehensive Fiscal Plan for Alaska: Budget
Implications for Communities and Regions in Alaska by Office of
Management and Budget
- HEARD
PRESENTATION: Part I Economic Impacts of Fiscal Options; Part II
Economic Impacts of Fiscal Certainty by UAA Institute of Social
and Economic Research
- HEARD
PRESENTATION: PFD Certainty and Impacts to Small Business by UAA
Business Enterprise Institute and Kenai Peninsula Economic
Development District
- HEARD
PREVIOUS COMMITTEE ACTION
No previous action to record
WITNESS REGISTER
LUCINDA MAHONEY, Commissioner
Department of Revenue (DOR)
Anchorage, Alaska
POSITION STATEMENT: Presented an overview of the governor's
intent for fiscal sustainability.
MIKE BARNHILL, Deputy Director
Department of Revenue
Juneau, Alaska
POSITION STATEMENT: Answered questions regarding Alaska
Permanent Fund draw calculations.
NEIL STEININGER, Director
Office of Management and Budget
Office of the Governor
Juneau, Alaska
POSITION STATEMENT: Discussed the updated annual 10-year plan of
the governor's budget policies to show the impact on the state's
long term fiscal picture.
MOUHCINE GUETTABI, PhD., Associate Professor of Economics
Institute of Social and Economic Research
University of Alaska Anchorage
Anchorage, Alaska
POSITION STATEMENT: Delivered a presentation on the Economic
Impacts of Fiscal Options and the Economic Impacts of Fiscal
Certainty.
CHRISTI BELL, Associate Vice Chancellor and Executive Director
Business Enterprise Institute
University of Alaska Anchorage
Anchorage, Alaska
POSITION STATEMENT: Co-presented a PowerPoint on PFD Certainty
and Impacts to Small Business.
TIM DILLION, Executive Director
Kenai Peninsula Economic Development District
POSITION STATEMENT: Co-presented a PowerPoint on PFD Certainty
and Impacts to Small Business.
ACTION NARRATIVE
1:31:54 PM
CHAIR SHELLEY HUGHES called the Senate Community and Regional
Affairs Standing Committee meeting to order at 1:31 p.m. Present
at the call to order were Senators Myers, Wilson, Senator Grey-
Jackson (via teleconference), and Chair Hughes.
^PRESENTATION: Comprehensive Fiscal Plan for Alaska
PRESENTATION: COMPREHENSIVE FISCAL PLAN FOR ALASKA
1:32:55 PM
CHAIR HUGHES stated the purpose of the meeting is to explore the
governor's proposal for a 50:50 split of the percent of market
value (POMV) draw as part of an overall fiscal plan. While there
has been considerable discussion about the permanent fund
dividend (PFD) itself, it has not been in the context of an
overall fiscal plan. She said it is important for this committee
to understand that because individual Alaskans and Alaskan
communities are affected.
1:36:50 PM
CHAIR HUGHES listed the targeted topics of the five presenters
and announced the committee would first hear from Commissioner
Lucinda Mahoney.
1:36:58 PM
LUCINDA MAHONEY, Commissioner, Department of Revenue (DOR),
Anchorage, Alaska, stated her goal was to provide details about
the fiscal plan the governor submitted to the legislature in the
form of constitutional amendments. She described the governor's
proposal as a structured, disciplined fiscal plan that provides
a framework for fiscal certainty. She stated the administration
does not believe a broad-based tax is needed. Rather, the
administration believes transferring $3 billion from the
Earnings Reserve Account (ERA) into the Constitutional Budget
Reserve (CBR), supplemented with new revenues and reductions in
FY2023 and FY2024, will achieve a framework for fiscal
sustainability into the future.
COMMISSIONER MAHONEY stated the first component of the fiscal
plan is to protect the permanent fund by creating an endowment.
1:38:56 PM
At ease
1:39:59 PM
CHAIR HUGHES reconvened the meeting.
1:40:22 PM
COMMISSIONER MAHONEY restated that the first goal of the
governor's structured fiscal plan is to constitutionalize a more
modern endowment style permanent fund and enshrine the dividend
into the constitution. The idea is to protect the permanent fund
dividend (PFD) for future generations. The second goal is to
establish a consistent PFD. This will provide certainty for
Alaskans and government can plan on a certain and sustainable
level of government services. The third goal is to establish
strong reserves, starting with $1 billion in the CBR. She noted
she would discuss those details later in the presentation. She
said realizing goals one through three will result in a
sustainable balanced budget going forward, which is the fourth
goal in the governor's comprehensive fiscal plan.
1:42:03 PM
COMMISSIONER MAHONEY discussed the governor's next steps in the
comprehensive fiscal plan. During the First Special Session, the
intent is to start working on the structural fix she just
described. The governor also called a Second Special Session,
the objective of which is to discuss with the legislature ideas
for new revenue measures and reductions in spending to achieve a
balanced budget.
COMMISSIONER MAHONEY advised she next would focus on converting
the Permanent Fund to an endowment structure, which is more
modern and is nationally and internationally recognized as best
practice. The distributions from the Permanent Fund would be
based on a five percent POMV draw and the governor proposes
spending 50 percent of the draw on government services and 50
percent on the PFD. The objective is to constitutionalize both
the draw and split. She opined that draws based on the five-year
rolling average stabilize revenues. Another component of the
plan would be to protect the $1.1 billion Power Cost
Equalization (PCE) endowment by depositing it into the permanent
fund. She said this would protect both the permanent fund and
the PCE for future generations.
1:44:22 PM
SENATOR WILSON asked if the PCE endowment would be kept in a
separate account so the draw would only be based on the PCE
balance or if it would be mingled in the corpus of the Permanent
Fund.
COMMISSIONER MAHONEY answered the PCE would be deposited into
the corpus of the Permanent Fund. There are no plans currently
for separate accounting.
SENATOR WILSON observed the PCE would continue to be subject to
appropriation by the legislature, which may or may not happen.
COMMISSIONER MAHONEY advised the [constitutional] amendment was
written for the $30-40 million annual contribution to
communities to have first call on the 50 percent split for
government services.
1:45:26 PM
SENATOR WILSON pointed out that the five-year rolling average
for the POMV draw provides more predictability, but it does not
guarantee that the draw would be stable.
COMMISSIONER MAHONEY acknowledged the potential for market
corrections and related the administration's belief that the
five-year average provides more consistency and certainty for
the near future.
1:46:27 PM
CHAIR HUGHES said one reason for this meeting is to help
Alaskans understand the governor's proposal. Listening to some
of the testimony in House Judiciary, she said it was clear there
is a need to understand this together. She recalled the
misunderstanding and frustration when Senate Bill 26, the POMV
statute, passed at the same time that the statutory formula for
the PFD was not followed. There was animosity toward the POMV
even though it is just a calculation for the draw.
She observed that if the traditional statutory calculation for
the draw were used now that government is using part of the
draw, it would exceed the amount that would allow the permanent
fund to grow. She asked Commissioner Mahoney if she recalled
what percent was in statute to calculate the draw before Senate
Bill 26 passed. She offered her understanding that some years it
could be 7-8 percent; if the average growth is 6.5 percent, the
draw would be higher than the earnings.
COMMISSIONER MAHONEY deferred the question to Mike Barnhill.
1:49:39 PM
MIKE BARNHILL, Deputy Director, Department of Revenue, Juneau,
Alaska, after the question was clarified, advised the draw based
on the statutory net income formula varies dramatically year
over year. He offered to share a spreadsheet.
He explained the definition of net income includes cash in the
form of dividend from stocks, coupons from fixed income, rents
from real estate, and net realized gains from changes in the
portfolio. When the managers of the Permanent Fund Corporation
change managers or liquidate an investment, it can potentially
generate net realized gains, he said. Those decisions are based
on internal investment considerations and some years there is a
considerable amount of realized gains through management and
portfolio changes and other years not. He said there is of
volatility in those investment decisions so there is not
consistency over time with respect to the percentage of
statutory net income vis a vie the total value of the portfolio.
He reiterated he had a spreadsheet to share.
1:52:52 PM
CHAIR HUGHES posed a hypothetical of a $6 billion draw with 50
percent to each the PFD and government services, which would far
exceed the five percent POMV draw. She said the point is that a
smaller draw is needed now that government is using part of the
draw instead of leaving it in the fund to grow like it did for
about 30 years. The five percent POMV draw will better ensure
growth of the fund than the more variable draws prior to passage
of Senate Bill 26. She asked Mr. Barnhill if he would agree.
MR. BARNHILL answered yes, and stated his preference for the
committee to wait for the data in the forthcoming spreadsheet,
rather than relying on his recollections of the numbers.
1:54:09 PM
CHAIR HUGHES said the public is concerned about fairness, so it
is important they understand why the legislature is trying to
find a different formula for the draw. She pointed out that the
50:50 split between government and the PFD has not changed. The
difference is the size of the draw, and that government is now
using its share. She asked if he agreed that the split between
the PFD program and government had not changed in the 30 years
since the PFD program began.
MR. BARNHILL replied that the statutory net income formula is a
50:50 split of the five-year average of the earnings, and the
governor is proposing a 50:50 split with five-percent draw of
the market average. He said they're both 50:50 but of different
things.
CHAIR HUGHES asked if the PCE endowment would potentially earn
more if it were mingled with the corpus of the permanent fund or
if the current investments were substantially similar.
1:56:09 PM
COMMISSIONER MAHONEY replied the investments in both funds are
similar, except for the private equity investments. The PCE is
invested for moderate risk, so it has a smaller market share of
private equity investments. She said that sector is currently
outperforming the rest of the market and if that continues, it
is fair to say the PCE would generate higher earnings.
CHAIR HUGHES said that is helpful for both the public and
legislators to know. She recalled the PCE was initially funded
with a $300 million appropriation that has grown to $1.1
billion, and that since inception about $12 billion has been
spent on power infrastructure in the Railbelt. She asked if that
sounded right and if DOR could provide documentation.
1:58:11 PM
MR. BARNHILL offered to follow up with the information.
CHAIR HUGHES asked Commissioner Mahoney to continue the
presentation.
1:58:31 PM
COMMISSIONER MAHONEY displayed the line graph on slide 5 that
shows the dividend payments since 1982. The line splits in 2016
with the green line showing what the dividend calculation under
the statutory formula and the orange lines showing the amounts
of the PFD that were paid from 2016 to 2020. The dotted line in
between the green and orange lines represents the dividend with
the 50:50 split. She described it as a half way point between
the PFD payments the last six years and the statutory dividend.
She paraphrased the text on slide 5 that read as follows:
[Current punctuation provided.]
Current Challenge:
• Public Mistrust: Too much spending on Government
• Political Impasse: Results in a PFD Based on
Politics - Not Laws
Solution:
• Restore Public Trust: Consistent PFDs and
Spending Limits
• Establish a Fair Resolution: 50/50 Split
• Constitutionalize PFD
2:00:38 PM
COMMISSIONER MAHONEY displayed the table on slide 6 that uses
Callan's 6.25 percent earnings assumption for FY2022 through
FY2052. She noted Callan is a consultant for both the Permanent
Fund Corporation and the Alaska Retirement Management (ARM)
Board. With a 50:50 split of the POMV draw, the FY2022 dividend
would be $2,354. Using the investment methodology, she said the
dividend would be $4,452 by FY2052.
CHAIR HUGHES asked what the $4,476 would be equivalent to in
today's dollars. She recalled that a $1,000 PFD in 1982 was
equivalent to about $3,000 in today's dollars.
COMMISSIONER MAHONEY replied it is fairly constant. Adjusted for
inflation, it is just under $2,400.
2:02:21 PM
SENATOR WILSON asked what the growth of the permanent fund has
been over the last 30 years, exclusive of inflation proofing.
COMMISSIONER MAHONEY answered the permanent fund has grown an
average of 8.6 percent over the last 45 years, which includes
inflation proofing that was added to the corpus. She
acknowledged they did not run the calculation without inflation
proofing. She offered to follow up with the calculation.
2:03:09 PM
COMMISSIONER MAHONEY explained that slide 7 is intended to
generate discussion about the importance of consistency in the
dividend program. She paraphrased the text that read as follows:
• Alaskans deserve certainty concerning annual PFD
payment.
• State needs PFD consistency to attain budget
stability and sustainability.
• Absent certainty, determining future achievable
revenues/reductions is difficult and may result
in over/under collecting/taxing.
• 50% POMV dividend is an equitable distribution of
Alaska's wealth between its citizens and
government.
• Resolving the PFD allows a discussion of required
revenues/reductions to close the remaining budget
gap (August Special Session)
• Redirects the legislative conversation to growing
Alaska vs. debating PFD.
2:05:07 PM
CHAIR HUGHES added that the time spent debating the PFD has been
at the expense of other important topics. She pointed out that
Alaska has the highest rate of sexual crime in the nation as
well as serious academic achievement gaps. If the dividend were
settled there would be time to devote to some very serious needs
in other policy areas.
2:06:30 PM
COMMISSIONER MAHONEY said the details of the governor's
comprehensive fiscal plan include using [$3] billion from the
ERA as bridge funding for the CBR. The administration believes
the fiscal gap can be managed to zero in FY2025 with a $1
billion reserve balance. Using the $3 billion, provides time for
the governor and legislature to work together to identify new
revenue measures and place them in statute or identify and
implement expenditure reductions.
To the question of whether the $3 billion is appropriate, she
pointed out that other endowments are making one-time increased
draws. She cited the example of the Harvard endowment. That draw
will be increased from 5 percent to 7.5 percent to take
advantage of exceptional market performance.
She said the administration believes the proposed $3 billion
draw would avoid the need for a new broad-based tax. She
continued: "We believe $300 million is an achievable new revenue
number or reduction to the budget that can result in smaller
components of new revenue measures that could fill the gap."
Furthermore, constitutionalizing the five percent POMV prevents
future overdraws.
2:09:33 PM
CHAIR HUGHES asked if the draw would be 7.5 percent per year if
the $3 billion were drawn over two years.
COMMISSIONER MAHONEY replied the $3 billion draw would increase
the 5-percent POMV to 7.8 percent. She pointed out that while
the budget request is for $3 billion effective at the end of
2022, the administration would work with the Permanent Fund
Corporation to structure the transfers based on when the funds
are needed. This would maximize earnings in the permanent fund.
2:10:47 PM
CHAIR HUGHES asked if the administration would support
legislation that adjusts the statutory 5-percent POMV draw to
7.7 percent for two years.
COMMISSIONER MAHONEY answered that would need to be discussed
with the governor.
CHAIR HUGHES said she would like to know the governor's
position, because overdrawing the 5-percent POMV draw would be
contrary to the law.
2:11:59 PM
SENATOR WILSON referenced the fifth bullet on slide 7 and asked
what combination of revenue measures and spending reductions she
was referring to and why the administration did not include
those proposals in the presentation.
COMMISSIONER MAHONEY replied the Department of Revenue will
release two to three new revenue measures in August. The
governor is soliciting input from the legislature, and he would
like new revenue measures and potential reductions to be the
sole focus.
SENATOR WILSON stated his preference to have the governor's
entire comprehensive plan before the legislature now instead of
waiting into the future for something that may or may not be
tangible. He referenced the governor's plan to constitutionalize
the five percent POMV draw and asked how the legislature can
know this is a good standard for a draw and if there might be
scenarios where five percent is too little or too much.
COMMISSIONER MAHONEY deferred the question to Mr. Barnhill.
2:14:46 PM
MR. BARNHILL said the standard draw for endowments over the last
30 years has been five percent of average market value. The idea
is if nominal returns are in excess of five percent plus
inflation...
SENATOR WILSON interjected to ask if the five-percent draw and a
50:50 split between government and the dividend had been stress
tested so the legislature would know that is the right number.
2:16:09 PM
MR. BARNHILL answered five percent could be the right number,
but the legislation says "not more the five percent" in case
five percent is too high. To the question about whether the
50:50 split is the right number, he said the administration is
presenting a scenario based on what is happening today, but
nobody knows if 50 percent will be enough to cover state
expenses in 10 or 20 years. The governor's proposal settles the
issue of the permanent fund and the dividend today so the
legislature can focus on revenues and spending.
2:17:34 PM
SENATOR WILSON asked why he keeps mentioning taxes in the future
when the governor's proposal is supposedly to avoid taxes in the
future.
MR. BARNHILL replied this is a scenario based on what is
happening today, but circumstances could be better or worse in
20 years. He added that if the governor's proposal passes it
narrows the question of how much to draw from the permanent fund
and how much to allocate for the dividend.
2:18:18 PM
SENATOR WILSON stated the public should understand that the
legislature has the ability to focus on multiple policy
questions at the same time. This is a very important issue that
all legislators care deeply about, but it does not consume the
attention of all 60 legislators at all times.
2:18:57 PM
CHAIR HUGHES suggested Mr. Steininger with the Office of
Management and Budget also address the question when it is his
turn to present.
She referenced the statement that the PCE might earn more if it
is mingled with the corpus of the permanent fund. She noted that
the concept of the [constitutional] amendment is that funding
for the PCE program would receive the first draw on the
government half. However, nothing in the amendment prevents a
legislature from deciding to use some of that draw to innovate
the power infrastructure in rural areas to eliminate the use of
diesel. She asked if that was correct.
2:21:08 PM
MR. BARNHILL answered yes, that is correct.
CHAIR HUGHES clarified that the amendment does not
constitutionalize the subsidy; it constitutionalizes the fund.
She asked if he agreed that using a certain amount of the
funding for something related to PCE would not necessarily be a
subsidy.
2:21:43 PM
MR. BARNHILL answered the anti-dedication clause in the
constitution prohibits statutory dedications for a particular
purpose. This proposal dedicates a revenue stream for the
purpose of power cost equalization. He did not opine on whether
or not that would be characterized as a subsidy.
CHAIR HUGHES offered her interpretation that this does not tie
the legislature's hands to make changes to help equalize power
costs in rural areas throughout the state.
SENATOR WILSON suggested that since this is a constitutional
question that will go before the people, the legislature could
make this a dedicated fund in the constitution.
MR. BARNHILL responded this is drafted as a dedication of funds
to a purpose.
2:23:25 PM
COMMISSIONER MAHONEY continued the presentation. She explained
the graph on slide 9 reflects the $1.4 billion deficit in FY2022
and the glide path for reducing that deficit with the $3 billion
deposit to the CBR. A sustainable and balanced budget is
achieved beginning in about 2027. She said this can happen
because the POMV is forecast to grow from [$3,069.3 billion in
2022 to $4,171.8 billion in 2030].
COMMISSIONER MAHONEY advised the bar graph represented on slide
10 identifies 2024 to 2025 as the point when new revenue
measures or budget reductions need to be in place to achieve a
$1 billion CBR balance. The red dotted line reflects DOR's
recommended $1 billion minimum balance needed to provide
liquidity for near-term needs.
2:25:43 PM
COMMISSIONER MAHONEY said the next graphic builds on the last by
incorporating $150 million in new revenue measures or reductions
in 2024 and 2025. It shows the reserve balance is flat in 2026
but still above $1 billion then gradually increases thereafter.
She said that is largely due to the increasing POMV draws but
things like the tax certificate payoff in 2027 are also a
factor. She noted Mr. Steininger would talk later about the
budget impact to the plan
COMMISSIONER MAHONEY advised the graph on slide 12 provides a
visual of the proposed budget versus revenues. The solid green
line represents the budget from 2021 to 2030 and each multi-
colored bar reflects the different types of revenues expected
each year. Blue represents traditional UGF revenue, primarily
oil and gas taxes; orange represents expected POMV revenue;
yellow represents how the $3 billion addition to the CBR would
be used from 2022 through 2026; gray represents the expected new
revenues/reductions starting in 2024.
2:28:05 PM
CHAIR HUGHES mentioned the news yesterday about a new oil find
off the haul road. She asked how and when that might affect
traditional UGF revenues in the blue bars.
COMMISSIONER MAHONEY answered DNR Commissioner Feige said she
does not have information she can share about that find right
now, but the industry standard to bring a prospect to production
is 5-7 years. She opined it would be seven years before the blue
UGF revenue bars would show an increase based on the find.
COMMISSIONER MAHONEY directed attention to the chart on slide 13
of the details of the 10-year outlook for the governor's
proposed fiscal plan. The third line down reflects new
revenues/reductions that start in FY2024 with $150 million and
increase to $300 million per year in subsequent years. She noted
the first budget surplus is projected in FY2027 and that posited
the CBR ending balance was more important. It is expected to
reach its lowest point in FY2026 and then is projected to grow
to over $2 billion in FY2030. The chart also reflects the PFD
amounts and the 50-percent POMV needed to fund those. Finally,
the chart identifies the projected fiscal year end balances of
the permanent fund.
2:31:09 PM
SENATOR WILSON directed attention to the total general fund
appropriations line and asked how it accounts for inflation and
the value of the dollar.
COMMISSIONER MAHONEY deferred the question to Mr. Steininger who
later would provide updated details. [Senator Wilson indicated
that was acceptable.]
She articulated the caveat that DOR was making a lot of
assumptions in its forecast and could not guarantee the
projections. She noted slide 14 outlines the upside fiscal
benefits of the proposal that are not incorporated into the
numbers. The first of these relate to the PERS and TRS
retirement accounts, which have also enjoyed exceptional returns
this year. If the market holds, the return will be approximately
$5 billion, which may reduce the $6.5 billion unfunded liability
and thus decrease the state's assistance contributions in the
forecast. She highlighted things that were not included in the
forecast numbers but that would improve the fiscal outlook if
they were. She listed: the American Rescue Plan (ARP) stimulus
funds that if included would increase the annual CBR balances;
lapsing fund balances; potential reductions to programmatic
formulas for K-12 and DHSS due to population changes; and
projected market returns in excess of 6.25 percent.
2:34:27 PM
COMMISSIONER MAHONEY listed the downside risk considerations
that could affect the governor's plan. The first area of concern
is inflation. She noted the four percent increase in April and
related that Federal Reserve Chair Jerome Powell characterized
the current rise as transitory due to the pandemic-related
supply/demand disruption. She said there is also risk of a
downward market correction, but the POMV smooths the effect over
five years. If the market were to continue to drop, the
legislature and governor would have time to initiate different
revenue measures. She said another downside risk is failure to
realize downward pressure on budgets. The governor is
encouraging departments to continue to look for efficiencies and
cost reductions, some of which is incorporated in the outlook,
but there is risk that these may not be implemented. The final
downside risk that has been identified is oil price and volume
volatility, although the $1 billion reserve should help manage
liquidity through a downturn. If the oil price environment were
to continue downward, the legislature and governor would have
time to initiate additional revenue measures.
2:37:14 PM
SENATOR WILSON referenced the third and fourth bullets of upside
fiscal benefits on slide 14. He asked if the $231 million state
lapse in 2020 was related to COVID-19 or an issue with the
budgeting process over the last decade. He described the lapsed
$67 million in 2019 as within a good margin for a $10-13 billion
budget. He also expressed concern that no changes could be made
to the DHSS program at least until December 2021 and potentially
for the next several years until the federal delegation is
successful in initiating change.
2:38:47 PM
COMMISSIONER MAHONEY displayed slide 15 and explained that the
graph on the left compares the base POMV to the governor's
proposal for the 50:50 split and $3.0 billion draw. She said the
administration recognizes that the POMV will be smaller in the
future because of the draw, but the governor is committed to the
short-term benefit.
2:39:48 PM
CHAIR HUGHES asked what the monetary difference will be in 2025
between the blue bar representing POMV (Base) and the orange bar
representing POMV (Scenario).
COMMISSIONER MAHONEY replied the difference is $50 million.
CHAIR HUGHES asked if that difference is steady through 2030.
COMMISSIONER MAHONEY replied the maximum difference is expected
to be $113 million in 2030.
She stated the graph on the right reflects the estimated
permanent fund year-end balances, both for the baseline and with
bridge funding.
CHAIR HUGHES asked what the difference is in 2030.
COMMISSIONER MAHONEY answered the difference is $2.4 billion.
2:40:46 PM
SENATOR WILSON asked about the possibility of getting these
graphs with a lookback from 2009 to 2017 and 2002 to 2009 to
provide a more stress-tested look rather than a glide path.
COMMISSIONER MAHONEY asked him to provide the assumptions and
DOR would model the scenarios.
2:41:40 PM
COMMISSIONER MAHONEY displayed a summary of the governor's plan
for fiscal and political stability. She paraphrased the text
that read as follows: [Original punctuation provided.]
• Constitutionally protect Permanent Fund and PFD
• Limit annual draw to 5% POMV
• Dedicate 50% of POMV to PFDs
• Combine Principal and Earnings Reserve Account
into one endowment
• Constitutionally protect Power Cost Equalization
• Deposit PCE endowment ($1.1B) into Permanent
Fund
• Dedicate revenue to equalize power costs in
Alaska
• Provide bridge to balance budgets through FY2025
• Transfer $3B from ERA to CBR
• Discuss achievable revenues/reductions in August
2021 Special Session
2:42:28 PM
CHAIR HUGHES expressed hope that DOR would release what it
planned to propose in August sooner rather than later and asked
when that might be.
2:43:04 PM
COMMISSIONER MAHONEY replied she would find out when the package
would be available and let the committee know.
^Comprehensive Fiscal Plan for Alaska: Budget Implications for
Communities and Regions in Alaska
COMPREHENSIVE FISCAL PLAN FOR ALASKA: BUDGET IMPLICATIONS FOR
COMMUNITIES AND REGIONS IN ALASKA
CHAIR HUGHES welcomed Mr. Steininger.
2:43:56 PM
NEIL STEININGER, Director, Office of Management and Budget,
Office of the Governor, Juneau, Alaska, stated he would be
speaking to the updated annual 10-year plan of the governor's
budget policies to show the impact of the plan on the state's
long term fiscal picture. He advised that the near term is more
important in the 10-year plan to show how the budget objectives
affect the state's fiscal picture, and that more assumptions are
made in the out years. The updated data includes the most recent
oil price forecast from the Spring Revenue Source Book, the
updated outlook on the POMV draws, and updates to the amendments
that were introduced through the governor's budget. He continued
to say:
You can really see that first several years where that
bridge fund concept in our SJR 6 proposal really
starts to make sense and lets us get to that longer
term period where you can see that both choices made
and spending decisions as well a better outlook in
the POMV starts to close that gap over time. So in
that short term period as we're getting there, we both
have that bridge fund to bridge that gap as well as
some spending assumptions that we're making about
policy decisions we have to make in the next several
years.
2:46:26 PM
MR. STEININGER highlighted some of the assumptions in the OMB
document of assumptions in the 10-year outlook for SJR 6. He
pointed to FY2023 and FY2024 and advised the main assumptions to
consider are the $150 million baseline capital budget plus
inflation and the $100 per year in budget reductions for two
years for a total $200 million. He related the reductions are a
result of some of the upside items Commissioner Mahoney
mentioned and things like anticipated cost increases from
bargaining unit negotiations and the governor's budget policy
decisions made for FY2023 and FY2024.
He relayed OMB's belief that the $100 million per year in
reductions is achievable through budget policy decisions
regarding agency programs as well as decreases due to better
projections on PERS payments and other policy items that will be
phased in over time.
MR. STEININGER stated another assumption related to implementing
SJR 6 in FY2024 is the addition of the $32.3 million Power Cost
Equalization (PCE) program to UGF expenditures. "With
constitutionalization of the Power Cost Equalization fund
rolling into the permanent fund, we need to make room in the
budget for that program that previously was funded through
designated general funds." He noted the projections also account
for changing community assistance funding from DGF to UGF
spending.
2:48:19 PM
MR. STEININGER stated the assumptions for FY2025 to FY2030 apply
1.5 percent inflation to agency budgets and assume that agencies
will not allow growth beyond that rate. Assuming a relatively
low rate of inflation is justified by an analysis of budgets in
previous years that show growth more often is related to
availability of revenue, not inflation.
2:49:09 PM
CHAIR HUGHES mentioned the reduction of $100 million per year
for two years and the $300 million Commissioner Mahoney
discussed. She asked if the governor intends to have $200
million of the $300 million be reductions.
MR. STEININGER answered the model assumes the $200 million in
reductions occur the two years before the $150 million and $300
million in new revenues/reductions Commissioner Mahoney
discussed. The baseline assumption is the governor will make
$100 million per year policy decisions and proposals to the
operating budget in FY2023 and FY2024. Policy discussions and
decisions related to the $150 million and $300 million in new
revenues/reductions would happen in FY2024 and beyond.
2:50:11 PM
CHAIR HUGHES advised he was invited to speak to the committee in
part so the public and people in various communities might gain
some understanding of what the proposed reductions might look
like on the ground. "When you're talking about $100 million in
each of the next two years, how might an Alaskan recognize and
see that difference?"
2:50:36 PM
MR. STEININGER answered it is hard to be specific. The
administration works with agencies throughout the year on ways
to reduce operating costs within agencies without reducing
services. For example, the administration currently is looking
at how the state occupies facilities since COVID-19 showed that
some state work does not require as much physical footprint as
has been allocated. Overlapping schedules and sharing work
stations over time will save money. The hope is that these
modernizing measures that change the way services are performed
will not be visible to end users or constituents. He said
Medicaid and things that would impact communities are wider
policy discussions not necessarily addressed through a line-item
reduction in the budget. However, those discussions, which would
involve both stakeholders and the legislature, should be
expected.
2:53:21 PM
SENATOR WILSON observed that the baseline capital budget is just
for the match; it does not address deferred maintenance or the
school deferred maintenance list.
MR. STEININGER confirmed the $150 million baseline capital
budget primarily it is for the match, but it allows for a small
amount of discretionary capital spending such as for school
maintenance. However, he said "not necessarily at high amounts
or in every year."
2:54:15 PM
SENATOR WILSON asked for a guestimate of the percentage of the
$150 million that would be for discretionary capital spending.
MR. STEININGER replied that the baseline match is in the range
of $110 to $115 million with the remainder going to
discretionary annual recurring projects. He described the
capital budget as very constrained and said some proposals such
as those related to general obligation bonds or the use of
Alaska Housing Finance Corporation bonding that were put forward
this year could be discussed in the future if interest rates
continue to be low. He said the use of these funds would allow
some capital spending that is of interest to policymakers.
2:55:49 PM
SENATOR MYERS asked why the assumption is for 1.5 percent
inflation when Callan is telling the Permanent Fund Corporation
to assume 2 percent inflation in the next few years.
MR. STEININGER answered the governor's 10-year plan reflects the
current policy of the executive branch for downward pressure on
operating budgets and the assumption is that future governors
and legislatures will continue to place downward pressure on
operating budgets. An assumption of 2 percent inflation assumes
no downward pressure on budgets in those out years so budgets
would grow with inflation. He described the assumption of 2
percent inflation as policy-neutral and advised the governor's
document was not necessarily intended to be policy neutral. It
has inherent policy in many areas, one of which is continued
restraint on operating budgets. The administration believes no
constraint on budgets is not a good policy decision for the
state.
2:58:34 PM
SENATOR WILSON asked which departments had lapse carryforward
funding because he would like to fix it in the next operating
cycle. Adding to Senator Myers' question, he asked which
departments the administration has identified that can sustain
more budget cuts. He recounted the cuts to DOTPF maintenance
stations and power on the Parks Highway that were rejected due
to core safety issues. He observed the administration's current
budget was flat, so it did not reflect any of the downward
pressure the governor was proposing. He asked where cuts could
be made without triggering additional supplemental budgets.
3:00:09 PM
MR. STEININGER described state spending in FY2020 as
particularly odd. About $140 million lapsed from agency
operating budgets, primarily from enhanced federal medical
assistance percentages (FMAP) participation in the Medicaid
program. Some of the lapsed funds resulted from the decision to
use the coronavirus relief fund to offset costs within public
safety agencies. The conscience decision to generate some of the
lapse was to preserve money in the Constitutional Budget Reserve
and thus buy time to make these big policy decisions. Some of
the lapse also is natural such as when budgets are higher than
need be. He noted OMB has started to compare actual rather than
budgeted spending from the previous year when developing next
year's budget. This gives a better idea of what was spent and
whether unspent dollars were the result of unexpected federal
revenue that came in or that the dollar was not needed. He said
the budget proposal for FY2022 shows instances where that
happened, but the easy reductions are largely gone. Thus, the
larger policy questions and discussions are needed to address
bigger cost-drivers and continue the downward pressure on
budgets.
Responding to the question specifically, he said he could not
point to a particular area, but the reductions in the FY2022
budget identified such reductions for FY2023.
3:03:27 PM
SENATOR WILSON asked what reductions or revenues the
administration intended to put forward in August 2021 and when
the legislature could expect to see those. He remarked that
waiting until August would not allow time for the legislature to
adequately review the policies.
MR. STEININGER replied, the information will be shared as it is
developed, but there was nothing to share at this time.
^PRESENTATION: Part I Economic Impacts of Fiscal Options; Part
II Economic Impacts of Fiscal Certainty
PRESENTATION: Part I Economic Impacts of Fiscal Options; Part II
Economic Impacts of Fiscal Certainty
3:05:29 PM
CHAIR HUGHES welcomed Dr. Guettabi.
3:05:58 PM
MOUHCINE GUETTABI, PhD., Associate Professor of Economics,
Institute of Social and Economic Research, University of Alaska
Anchorage, Anchorage, Alaska, stated he would first talk about
the economic effects of policy uncertainty. He said this has
been discussed for the last several years and he wanted to
quantify the effects. He advised he would not evaluate the
merits of the 50:50 proposal because he was unaware of the
details until recently and because none of the assumptions about
revenues and reductions have been implemented. That makes
modeling any sort of macro-economic consequences very
challenging, he said.
3:07:52 PM
DR. GUETTABI advised that in 2015-2016 there was an impression
that waiting to solve the fiscal crisis was not costly because
the state had ample savings. He said this was a concern and he
decided to look at what the economic literature had to say about
how uncertainty affects economic activity. He reviewed the study
and findings summarized on slide 4:
-Baker, Bloom, and Davis (2013) construct a novel
index of economic policy based on a diverse array of
metrics, performing tests of the index's validity
through a human audit of 3,500 newspaper sources and
other commonsense measures.
-They find that the increase in policy uncertainty
that followed the onset of the Great Recession had
significant negative effects on aggregate investment
and on employment as well as on consumption
expenditures.
-Matching firm-level data with the data series of this
index, Gulen and Ion (2013) find that economic policy
uncertainty can explain up to 32% of the drop in
corporate investment over the 2007-2009 time period.
DR. GUETTABI said this does not apply directly to Alaska, but it
does make the point that private investments and expenditures by
private households are not immune to uncertainty at the federal
or state level. He noted that uncertainty and budget stability
is mentioned on a regular basis in local newspapers.
3:09:48 PM
DR. GUETTABI said slide 5 provides alternative examples. The Gao
and Qi paper looked at whether states borrow at a higher rate
before gubernatorial elections because of the uncertainty around
who will win and what the policies will be. The researchers
found that borrowing rates jumped around that time. He noted
that since the elections, Alaska has been dealing with higher
uncertainty because people do not know if taxes or government
cuts will be implemented, and they do not know what will happen
to the dividend.
3:11:40 PM
DR. GUETTABI said the last example, Jens 2013, is a convincing
analysis of private investment's response to uncertainty. It
looked at the effect of an election on state-level corporate
investment, which makes it the most similar to how Alaska thinks
about uncertainty. That study found that investment dropped
between 5 and 15 percent in the quarter the election was held.
[Audio interference]
DR. GUETTABI said he looked to see if this information could be
used to look at what Alaska has missed out on and if there is a
way to use the estimates to understand the cost of uncertainty.
3:12:29 PM
DR. GUETTABI directed attention to the bar graph on slide 6 that
reflects construction spending in Alaska between 2014 and 2019.
He highlighted that private construction spending in 2019 was
about $4.4 billion and said that raises the question about how
much more spending might have occurred if the issues related to
taxes, the permanent fund dividend, and spending cuts had been
resolved. He discussed the points on slide 7 that reflect the
application of the 5-15 percent reduction in state-level
investment spending. The slide read as follows:
-Private Construction spending in 2019 is supposed to
be around 4.41 billion dollars. Using the 5 to 15%
estimated by Jens (2013), we would conclude that the
direct effects of policy uncertainty is costing the
state somewhere between $220 and $660 million in
private capital spending.
-The decline in spending due to policy uncertainty
would indicate that waiting is not a costless option.
In fact, the losses due to uncertainty are important
and similar in magnitude to the ones the economy would
experience due to a tax or further government cuts.
DR. GUETTABI asked if there were any questions or comments on
his analysis of the effects of uncertainty.
3:15:24 PM
CHAIR HUGHES asked if the missed opportunity of $220-600 million
in private capital spending was exclusive of construction
related to the oil industry.
DR. GUETTABI answered it is inclusive; petroleum spending is a
subset of private construction spending.
3:16:02 PM
SENATOR MYERS asked if the loss was the same each year or
getting worse.
DR. GUETTABI offered his belief that it is the loss each year
that will continue as long as the crisis of uncertainty
continues. However, he said it could be worse because of
reputational and credit rating issues. The point is that the
cost of waiting should be part of the conversation.
CHAIR HUGHES agreed.
3:18:29 PM
DR. GUETTABI stated that the balance of the presentation would
be devoted to a summary of what he, Gunnar Knapp, and Matthew
Berman learned when they assessed the short-term economic
effects of the fiscal options being debated in 2016. He
emphasized he and his colleagues modeled generic options of the
potential economic losses. Because the analysis focused on the
short-term effects, it does not translate to long-term effects
of any budgetary decisions. He also pointed out that he
purposefully did not update the results from 2016 because the
state's fiscal situation is very different now. Most savings
have been exhausted and the state's economic picture has changed
quite a bit. Furthermore, the state was just coming out of a
multi-year recession in 2019 and it fell back into recession as
a result of COVID-19.
3:21:46 PM
DR. GUETTABI discussed the conclusions from the original study
which was that anything that is done to reduce the deficit will
take money from some group of people. The decision about which
group to raise money from has implications and questions of what
is progressive and regressive, which options will affect what
communities, how taxes interact with existing taxes, and how
cuts affect individuals and communities. He said the question
about the permanent fund is important because overdraws clearly
have consequences in terms of the ability to grow and continue
to pay dividends and government services.
3:22:58 PM
DR. GUETTABI turned to the results of the study starting on
slide 14. The graph shows the estimated job losses if $100
million were raised from each of the 11 options for reducing the
deficit.
DR. GUETTABI pointed to the top bars that show the high and low
estimates for cutting the state workforce. The numbers reflect
the loss of the original government jobs and the loss of
spending associated with that individual. The job losses
associated with initiating a tax result from individuals having
less money to spend after paying taxes, and less spending
translates to job losses. He explained the low and high scenario
for the number of jobs lost depends on how people spend their
money. He said the differences between some of the revenue
options depend on whether high income or low-income people are
being taxed. Low-income people tend to spend more of their
disposable income and thus they have greater influence on
economic activity. He noted that cutting the PFD results in more
job losses because a majority of Alaskans get the dividend. He
said the variation in short-term effects come from the number of
non-residents that are affected by the tax and whether the tax
is progressive or regressive. He said the slide does not
indicate one option is better or worse; it tells the short-term
effects of removing money by imposing an income tax. He noted
that short term is typically defined as within a year so before
people and businesses start changing habits.
3:25:48 PM
DR. GUETTABI turned to the graph on slide 15 that shows the high
and low estimated income losses per $100 million of deficit
reduction for each of the 11 revenue options. He pointed to the
income losses that are largely driven by the progressive or
regressive nature of the tax and by how much non-residents are
participating or paying for the tax. He highlighted the
difficulty of getting good numbers to model due to variation by
industry in terms of residency and participation by
nonresidents. Nonetheless, he said it is an informative exercise
to show short-term effects of the fiscal options. He warned it
does not talk about what to do five or ten years from now and
what is more prudent and what gives the best quality of life.
3:27:22 PM
DR. GUETTABI summarized slide 16 that read as follows:
? While our analysis does not investigate the regional
implications of cuts and taxes, we know the state's
boroughs are very different from one another.
? They have varied economic bases, and their
government dependence is also very heterogeneous.
? Anything the state does to reduce the deficit will
cost the economy jobs and money. But spending some of
the Permanent Fund earnings the state currently saves
would not have short-run economic effects. Excessive
withdrawals, however, have long term implications that
are important to consider.
3:28:21 PM
DR. GUETTABI stated he spent the past five years empirically
studying the socioeconomic effects of the PFD and if time
allowed he would summarize the findings.
CHAIR HUGHES said the committee would like to hear the
information.
DR. GUETTABI mentioned Matt Berman's paper that looks at the
effects of the PFD on poverty. He found there have been
substantial declines in poverty as a result of the PFD and the
effects are substantial for the elderly. He said Mr. Berman's
paper delves into the question of how much higher would poverty
have been in the absence of the PFD.
DR. GUETTABI advised that slide 19 summarizes some of his own
work with colleagues Brett Watson and Matt Reimer that looked at
the effect of the PFD on childhood obesity. They found that
receiving an additional PFD by the mere fact that the birth
occurred in December as opposed to January was helpful in
maintaining an adequate weight.
3:30:22 PM
DR. GUETTABI directed attention to slide 20 related to
employment effects. The slide read as follows:
Knapp, Berman, and Guettabi (2016) find that a 100
million increase in the aggregate size of the PFD is
associated with the creation 725 jobs in the short
run.
Bibler, Guettabi, and Reimer (2019) find that for
every 100 million dollars in the total PFD
distribution, there are approximately 475 jobs
created. On the other hand, they find that women who
are already employed tend to decrease the number of
hours worked in the three months following the
distribution.
3:31:28 PM
DR. GUETTABI summarized the findings of the Kueng study. The
slide read as follows:
Kueng (2018) finds that consumption increases by 11
cents for each dollar of PFD received in October, 5
cents in November, and another 7 cents in December.
Overall, this points to an increase of between 22 and
24 cents for every PFD dollar in the three months post
distribution
3:32:21 PM
CHAIR HUGHES commented on the election year and the cost of
delaying a policy decision regarding the PFD.
3:33:24 PM
DR. GUETTABI agreed that uncertainty belongs in the
conversation. He said considerations about price, production,
returns of the funds, if cuts where, and if taxes where is all
important. He said he looks forward to looking more closely at
the proposal and developing a better understanding of its
consequences in the short run and the long run.
CHAIR HUGHES said the committee would like to hear from him
again if he looks at the proposal.
^PRESENTATION: PFD Certainty and Impacts to Small Business
PRESENTATION: PFD CERTAINTY AND IMPACTS TO SMALL BUSINESS
CHAIR HUGHES welcomed Christi Bell.
3:34:36 PM
CHRISTI BELL, Associate Vice Chancellor and Executive Director,
University of Alaska Anchorage Business Enterprise Institute
(BEI), Anchorage, Alaska, stated the mission of BEI is to
diversify the economy of Alaska and better position the
university to engage with businesses and communities. Programs
like the Small Business Development Center (SMDC), Center for
Economic Development (CED), Manufacturing Extension Partnership
(MEP), Procurement Technical Assistance Center (PTAC), and the
Cooperative Development Center (Coop) all operate through the
Business Enterprise Institute. Collectively, the programs serves
about 2,500 small businesses and microenterprises each year.
MS. BELL relayed that she was asked to talk about how a
consistent and reliable PFD adds certainty to the behavior of
small businesses. She agreed with Dr. Guettabi that the jobs
that result from the PFD are part time and temporary, generally
in the first quarter following the distribution of the PFD.
Local businesses benefit from this spending, but buying patterns
do not change significantly.
3:36:19 PM
MS. BELL discussed the effects of the COVID stimulus payments in
conjunction with the PFD on individuals and businesses. She said
anecdotal information from BEI's client base shows that consumer
spending has increased which has helped boost labor
expenditures. National data shows a result of the pandemic is
that savings have increased from 13.9 percent to 30 percent.
People are also paying off debt from credit cards, past rent,
and overdue mortgage payments.
She said the antidotal information indicates that as new money
comes in individuals may pay down debt, put the money towards
business investments, or put it in savings. How the money is
spent depends on the individual's tolerance for risk or a
business owner's view of what they may be able to do with the
new capital.
3:38:57 PM
MS. BELL reviewed the definitions for "small businesses," "micro
enterprises," and "solo entrepreneurs." She said it is important
to understand that the U.S. Small Business Administration
definition of "small business" is one that has 500 or fewer
employees and annual receipts under $7.5 million, although it
does vary by industry sector. She said she has not found a state
definition of "micro enterprise," but they tend to have fewer
than five employees and a capital need of less than $35,000.
Solo entrepreneurs also fit in the small business definitions.
She said those individuals run their own operations.
3:40:41 PM
MS. BELL paraphrased the Alaska Small Business Stats on slide 6:
Total number of businesses in Alaska 73,354
• Small Businesses 4,986 firms
• Micro Enterprises 16,413, 1 to 10 employees
• Solo Enterprises 51,955 sole proprietors, no
employees
o Specialists: freelancers; real estate agent;
consultant; handy man; house cleaner; taxi and
Uber drivers; commercial fishing crew members;
etc. ?Employed with a "side gig" business
license
o Less than one percent may be early-stage
entrepreneurs
3:41:55 PM
MS. BELL reviewed the Small Business Administration data that
compared the number of small businesses in Alaska to all other
states:
• 99.9 Percent of all businesses across the US are
small businesses
o 47.3 percent of the workforce
o 100 employees or less, the majority of these
firms
• Alaska
o Total small businesses: 73,354 (99.1% of
businesses)
o Small business rate: 13,289 per 100k residents
18+ (#11 highest among all states)
o Total small business employees: 137,271 (#50
highest among all states)
o Small business share of total employment: 52.4%
(#12 highest among all states)
o Self-employed minorities: 10,413 (#41 among all
states)
MS. BELL stated these figures speaks to the entrepreneurial
spirit of Alaskans and that this is a business-friendly state.
She attributed that to the fact that Alaska typically does not
have a sales or income tax.
3:43:37 PM
SENATOR MYERS observed that Alaska is 11th highest among states
for its small business rate but 50th highest for small business
employees. He asked if that means that Alaska has among the
highest rate of sole entrepreneurs.
MS. BELL answered that is correct; of the nearly 75,000 small
businesses, 52,000 are solo enterprises. She described that as a
critical point for the committee to consider.
3:44:34 PM
CHAIR HUGHES calculated that a solo business owner with a spouse
and two children could expect close to $10,000 from the PFD in a
year under the 50:50 split. She noted that during the pandemic
Gabe Layman with Cook Inlet Housing was managing increments of
about $10,000 for small business owners many of whom were solo
and low and middle income. She highlighted the certainty that
$10,000 would provide for these small business owners. She
mentioned the research Dr. Guettabi referenced about people
making more prudent decisions when they have a larger sum of
money as opposed to a smaller amount. She extrapolated that a
family of four that received a total of $2,000 in dividends in a
year might buy a big screen television but if they received
$10,000 they might make a decision to invest the money. Knowing
how some people spent those $10,000 increments during the
pandemic factored into the decision to invite Ms. Bell and Mr.
Dillon to speak about what they have seen and the effect it can
have on small businesses.
3:47:08 PM
MS. BELL stated agreement and noted the UAA Center for Economic
Development conducted research titled "The State of
Entrepreneurship." She offered to provide the paper, some of
which was summarized on the next slide. She explained the
research looked at startups and private sector job growth in
Alaska. These new firms had an average of 4.8 employees
initially and those that survive, represent 89 percent of job
growth in five years. She pointed out that [64 percent] of
startup capital comes from personal or family savings. Other
sources are 16 percent from business or commercial loans; 12
percent from personal credit cards; 11 percent from personal
family assets; 7 percent from personal or family home equity
loans; and 6 percent from family or friend investments.
MS. BELL said this data supports what Chair Hughes was saying,
which was that large tranches of capital typically are not
needed initially. She directed attention to the data on the next
slide and highlighted that 35 percent of all farms needed less
than $25,000 whereas just 10 percent of all farms required from
$250,000 to $3 million. She said those farms that receive the
larger tranches of money more often than not are proven
businesses that have moved beyond the first stage of business.
She said she had not talked with Gabe Layman but the experience
in her organization is that firms do not need millions of
dollars to launch a business. Rather, she said it is often a
matter of bootstrapping and hard work. She shared the example of
an individual who used their PFD to purchase construction
equipment and incrementally built that up over the decades.
3:51:09 PM
MS. BELL paraphrased her closing thoughts on the final slide:
• Near impossible to predict the behavior of
individuals or businesses
• ASSUME, consistently known PFD amount, may see
more solo businesses or micro-enterprise plan for
a launch or expansion again, while an
assumption, many entrepreneurs bootstrap?.
o 23 percent of entrepreneurs required less
than $9,999 to launch in 2016
o 12 percent of entrepreneurs required between
$10,000 and $24,999 in 2016
She said this data demonstrates that entrepreneurs in the state
potentially can benefit from some certainty. At the least they
can plan to launch their business or business investments.
• Entrepreneurial activity correlated to increased
economic growth.
• Supporting small businesses stimulates the
economy.
3:52:53 PM
CHAIR HUGHES commented that the take away from Dr. Guettabi is
there is a cost to uncertainty and the takeaway from this
presentation is the state will likely see some growth in small
business activity which will strengthen the state's economy.
She welcomed Tim Dillon.
3:53:49 PM
TIM DILLION, Executive Director, Kenai Peninsula Economic
Development District (KPEDD), stated KPEDD is a private non-
government resource that is focused on responsible and
sustainable economic development for the region. The four staff
work closely with the other three economic development
districts. KPEDD is one of the nine statewide ARDORS (Alaska
regional development organizations). He reported that the Kenai
Peninsula has one of the most diverse economies in the state and
quality of life is the overarching concern. He maintained that
businesses and families are not able to prepare financially for
the future without a larger picture statewide fiscal plan.
MR. DILLION pointed to the things listed on slide 3 that a state
fiscal plan would provide:
• Down payments and deposits for individuals and businesses
• Collateral for new and emerging businesses
• Financial stability
• Increased private investment
• Help to retain and reopen businesses
MR. DILLION stated agreement with the following quote from
Senate President Peter Micciche:
We need to come together as Alaskans because until we
solve a fiscal plan beginning with a Permanent Fund
dividend solution, we are stuck in neutral.
He reported hearing from countless people since yesterday who
are concerned about both the budget and the permanent fund
dividend. But their calls were primarily a reminder about the
importance of the PFD. He highlighted that because the state
does not have a fiscal plan and because the legislature has not
resolved the question of the PFD, it has not had time to focus
on other important needs. These include fighting crime,
improving Alaska's workforce, bettering Alaska's education
system, and addressing community infrastructure needs.
3:56:42 PM
MR. DILLION directed attention to the charts on the next slide.
He explained that with help from the Alaska District Office of
the U.S. Small Business Administration, KPEDD looked statewide
at how individuals and businesses would use additional capital.
The top five uses of additional capital are reflected in the bar
graph on the left and they confirm statements from both Ms. Bell
and Dr. Guettabi. These are: 1) replace lost revenue, 2) paying
employees/making payroll, 3) paying bills/accounts payable, 4)
rent/mortgage, and 5) infrastructure investments and
maintenance.
He pointed to the pie chart on the right side of the slide that
shows current employee numbers on the Kenai Peninsula. He noted
it confirms what Ms. Bell discussed. This resent survey found
that 73 percent of businesses on the Kenai Peninsula have 5 or
fewer employees.
3:57:56 PM
MR. DILLION reported that the nine ARDORS recently conducted
surveys of Alaska businesses and then met with statewide
financial institutions to find out about funding sources for
businesses and microloans. The key takeaway was that businesses
primarily need help with down payments and collateral. He said
there is no guarantee that individuals will spend their
dividends in a certain way but there is no doubt that the PFD
will improve the financial picture and quality of living for all
Alaskans. Further, many businesses will see a revenue boost as
Alaskans spend their dividends to increase food security,
prepare for the winter, and pay their utilities. He shared that
he heard from ARDOR directors yesterday who reported a number of
families pool their PFDs to get through the winter.
3:59:34 PM
MR. DILLION directed attention to the images on the next two
slides that depict examples of Alaskans supporting Alaskans. He
pointed out that this kind of support takes money. The first
slide had snapshots of the most recent Soldotna Wednesday Market
when 3,500 people turned out to support 47 vendors and small
businesses. The next slide had images of the Homer Winter King
Salmon Tournament when 1,562 anglers in 545 boars competed for
$238,000 in prize money. He emphasized the need for the
legislature to work to ensure that Alaskans can afford to
support Alaskans.
4:00:44 PM
MR. DILLION urged the legislature to work with the ARDORS, who
are the boots on the ground, to create a sustainable and
responsible statewide plan for all Alaskans. ARDORS work
throughout the state to help people and they handle outreach and
technical assistance for Alaska CARES and other programs. He
referenced the help the ARDORS provided last summer to implement
the distribution of pandemic relief funds and emphasized the
importance of involving ARDORS on the front end.
MR. DILLION concluded the presentation pointing out that 677
Alaska businesses did everything that was required to qualify
for the Alaska CARES program, but the money ran out and they
received nothing. On behalf of all the ARDORS, he asked the
legislature to make sure those 677 businesses that missed out on
approximately $32 million receive the help they deserve.
4:02:47 PM
CHAIR HUGHES asked Ms. Bell and Mr. Dillon to pass along
examples of what businesses statewide were able to achieve with
the smaller increments of supplemental funding that was
available last year.
4:04:31 PM
There being no further business to come before the committee,
Chair Hughes adjourned the Senate Community and Regional Affairs
Standing Committee meeting at 4:04 p.m.
| Document Name | Date/Time | Subjects |
|---|---|---|
| ISER Presentation Economic Impacts of Fiscal Options and Uncertainty - Dr Guettabi.pdf |
SCRA 5/27/2021 1:30:00 PM |
|
| UAA Business Enterprise Institute Presentation - Christi Bell.pdf |
SCRA 5/27/2021 1:30:00 PM |
|
| OMB 10 Year Plan 5.27.21.pdf |
SCRA 5/27/2021 1:30:00 PM |
|
| Assumptions in OMB 10 Year Plan.pdf |
SCRA 5/27/2021 1:30:00 PM |
|
| FINAL Comprehensive Fiscal Plan 300M 5.25.2021v1.pdf |
SCRA 5/27/2021 1:30:00 PM |
|
| Kenai Peninsula Economic Development District Presentation.pdf |
SCRA 5/27/2021 1:30:00 PM |