Legislature(1999 - 2000)
03/30/1999 09:15 AM Senate FIN
| Audio | Topic |
|---|
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
GENERAL SUBJECT(S): BALANCED BUDGET PRESENTATIONS:
Senator TIM KELLY, ALASKA MUNICIPAL LEAGUE,
Senator ROBIN TAYLOR, ROGER CREMO
The following overview was taken in log note format. Tapes and
handouts will be on file with the Senate Finance Committee through the
21st Legislative Session, contact 465-2618. After the 21st
Legislative session they will be available through the Legislative
Library at 465-3808.
Time Meeting Convened: 9:15 a.m.
Tape(s): SFC-99 #72, Sides A and B
PRESENT:
X
Senator Parnell
X
Senator Adams
X
Senator Torgerson
X
Senator P. Kelly
X
Senator Donley
X
Senator Green
X
Senator Leman
X
Senator Phillips
X
Senator Wilken
ALSO PRESENT: SENATOR TIM KELLY; SENATOR ROBIN TAYLOR; MAYOR MIKE
NAVARRE, representing the Alaska Municipal League; ROGER CREMO; and
aides to committee members and other members of the legislature.
LOG
SPEAKER
DISCUSSION
000
Co-chair Parnell
Reconvened the committee at approximately
9:12 a.m. Advised that he was taking up
the Balanced Budget portion of the daily
agenda.
Senator Tim Kelly
Was invited to join the committee and
presented his plan for the balanced budget.
Feels the Legislature should work closely
with the Governor to present a balanced
budget. The permanent fund should be
limited for use in education. He referred
to Senate Bill 75. It is simple and
understandable.
Urged that if the Governor and Legislature
not able to settle the fiscal gap by July
that they pass out SB 75.
Limit the use of permanent fund earnings to
education. Public would support this kind
of use of the permanent fund.
His priorities are health, public safety
and education.
Senator Leman
Felt they should reduce scrutiny on
whatever is protected funding. That is his
concern with the education endowment.
Should fight against that. Second, an even
greater concern, that this would take
something from everyone and direct it
solely to education. What about those
children who's parents home school? This
would create an unfairness. Felt that we
are not addressing all the options.
Senator T. Kelly
Would not hurt the endowment but there is
not enough money available and it would
have to be subsidized. Would also have to
continue budget pressure on the education
proponent. Legislation will have to take
care of this matter. Nothing to limit
permanent fund earnings to go to private
education. They could be used in the area
of home school also, for instance.
Senator P. Kelly
Asked to explain the first choice.
Senator T. Kelly
First choice is for the Governor and the
Legislature to get together and solve the
budget plan together. Believes the long-
range plan will have to include using
permanent fund earnings. Upon return from
the Easter break there should be enough
information for everyone to agree and get
together.
Senator Phillips
Reads from SB 75 into the record. Can deal
with this later. Just wanted to get it in
the record.
Co-chair Parnell
No one present from the Alaska Municipal
League.
Senator Taylor
Was invited to join the committee.
Referred to handout being distributed.
Applauded the prioritization that was
indicated as he would also look for
education assistance. He referred to
resource development. Alaska was last in
the nation as far as new jobs and the
economy. Income taxes, direct taxes and a
corpus on the permanent fund have been
indicated by the Administration.
Believes that his program "CPR" a good
plan. Over 4,000 families lost resources
in Southeast. Over 6,000 in oil industry
and related jobs.
Suggested to cut the side of State
government. Cut duplication of services
already in existence.
Provide for resource development; oil is
not our only resource. Our forefathers
selected 103 million acres of land in
Alaska upon which the State's economy was
to be based. However, "once oil was
developed we put all our economic eggs in
one basket."
All paid lip service to diversification but
the bureaucracy put a stop to it. He used
for example AJ Mine in Juneau and Tulsequah
across the Canadian border. Biggest factor
we have turned our backs on was the
Alaskans desire to own property. If land
could be owned by individual Alaskans there
would not be the forests of dead trees.
Those property owners who had bug infested
trees cut them down and reseeded. Their
future generations will have a forested
land as compared to land that has been
controlled by the government.
Not going to advocate stealing people's
money to support the State government.
Time for CPR. People will appreciate it
and be excited. Put some energy back into
our State. Will not be able to support any
plan that does this.
Senator P. Kelly
"What will happen to the average sale price
of the land?"
Senator Taylor
"No one knows at this point."
Senator P. Kelly
"What about the private sector?"
Senator Taylor
There is a very small privately owned land
base. It was only being suggested that
some percentage be put out for sale. "If
we think we don't need the money, sell less
land." Fair market competition will
establish what the values are going to be.
Senator P. Kelly
Fair market value doesn't effect the sale
of the land?
Senator Taylor
Would be surprised at the demand for land.
Everyone purchasing land has a dream; and
their dream is to do something with that
land.
Thousands of jobs would be created by
releasing just a small portion of the land.
That was a very healthy thing to be doing.
Senator P. Kelly
Economic and resource development has been
figured into a way to get money into State
coffers. By increasing jobs are you
assuming an income tax? Without an income
tax resource development is pretty
difficult.
Senator Taylor
Said he opposed an income tax. It was not
included in his plan. Ketchikan, Wrangell
and Sitka tax bases have shrunk
considerably. If one's town is expanding
and land is being improved there is a
substantial tax base increase.
"We can't just insulate state employees and
the legislature. Private citizens must be
taken care of also."
As the tax base of communities expand and
they are taxed at the same level for
education they will not need as much State
money. Indirectly it does come back.
Senator P. Kelly
"How much will we save?"
Senator Taylor
Explained savings as compared to other
states using this program. Some experience
that the savings could be high or low.
Example: The Department of Corrections has
been significantly privatized. It costs
less to house prisoners in private prisons
than our own local state prisons.
Another example: British Columbia has
privatized their road maintenance. He has
suggested the Department of Transportation
here do the same. Nothing working in a
vacuum will solve the problem. However,
working all together will solve them.
Significant duplications going on, for
instance, the Department of Administration
and Community and Regional Affairs. The
Department of Environmental Conservation
and the Department of Fish and Game. There
were definitely portions of government that
could be consolidated.
Senator P. Kelly
Estimate of the savings with this
consolidation?
Senator Taylor
He did not have an estimate, but knows
there are savings there.
Senator P. Kelly
Consolidation may or may not have savings?
Senator Taylor
There will be savings and they will have an
impact.
Senator P. Kelly
But they have not been identified yet.
Senator Leman
Said that even if land sales were cut back
to one-fifth or even 40,000 acres put on
the market each year it would be a step and
get us going. However, not all of the 104
million acres may be useful. Referred to a
constituent who can't get property in Tok
to do his enterprise.
He was also concerned that Alaska not be
opened to land speculators from other
states. "Is there any way we can keep that
from happening?" People in Alaska should
have the opportunity to buy the land rather
than other entrepreneurs.
Senator Taylor
Alaskans have to be given the first
opportunity to purchase the land.
Concerned that most of the land was made
available for logging by our forefathers.
He cited the Province of Alberta; they went
from less than 22,000 jobs to 43,000 jobs
in their timber. For every tree harvested
two are planted. "We all need a little
injection of hope and energy."
Senator Leman
"What do you say to people that this would
create an expectation of an increase in
State services?"
Senator Taylor
Does not believe that anyone would take
advantage of this system. Felt individuals
take pride in doing things themselves
rather than depending on it being done for
them.
He referred to "homestead opportunities".
There will be some demands. However, if
there is money they will be able to put in
their own roads, local school, et cetera.
"Growth is good."
Concluded his presentation.
Co-chair Parnell
Welcomed Mayor Mike Navarre.
Mike Navarre
Mayor, Kenai Peninsula Borough was invited
to join the committee. He spoke on behalf
of the Alaska Municipal League. Recognized
that a plan must be developed and how
difficult the task of developing this plan
is. They are ready to help out as much as
they can. Has gone out and spoken to every
community in the area he represents.
Tried to lay out the situation as it is
today and asked what tools were available
to help out.
He spoke briefly about the permanent fund.
Nearly a billion dollars was injected last
year. The permanent fund has diversified
Alaska's economy. As he explained, there
has been impact on migration into the
State, particularly as the dividend has
grown. Also there has been impact on out
migration during down turns.
He referred to hand held graphs.
1. Permanent Fund Net Income_and State Oil
Revenues;
2. Source of principal. Indicated oil
revenue.
3. North Slope and Prudhoe Bay Oil. He
said this was an old plan put into
effect by the Legislature and Alaskans.
Has been an identified plan for a long
time. "We haven't done it all wrong in
Alaska."
4. Impact of Budget Cuts. Budget cuts
were an important component but not the
primary component to deal with Alaska's
fiscal situation. If so, it would have
been done long before. All sections of
the State have different needs. Alaska
is very diverse.
(Tape #72 switched from side A to side B at
log #591.)
Mayor Navarre
What should be the responsibility of State
government and what should responsibility
of local governments? He said that
shifting to local government may be the
best way to deliver services to the public.
However, it should be kept in mind that
Alaska is not the same as other States.
Our forefathers did things differently.
Alaska is the largest state in the union
and has the smallest population. The
economy in Alaska is much different than in
other states.
Bottom line was that local governments want
to be partners. They want to be linked in
delivering services to the public they
represent. Made sense to put a plan into
effect.
The process must be simplified. It should
be considered how much was spent on the
budget, not how much is being spent.
He noted that any plan put in place would
be tinkered with by the Legislature. Cuts
in the budget were fine, but a number
should be set.
Dollars could be realized in other ways.
Not opposed to timber sales.
AHFC and AIDEA dividends should also have a
number put on them.
In a final analysis, taxes were the same
thing. Motor fuel taxes and marine fuel
taxes would be acceptable but he would like
to see them shared back into the
communities. If the State did not want to
do these taxes, perhaps the local
governments should have the authority.
Want to help develop and sell the plan and
tell the public why tough changes have to
be made. There will be political
consequences at the State level and at the
local level.
Senator Wilken
Asked what the Alaska Municipal League and
conference of mayors was doing to assist in
unorganized areas?
Mayor Navarre
Had left it up to them individually.
Unorganized areas have councils or
assemblies and it is difficult to convince
them to become organized. Felt it was the
duty of the Legislature. Reminded them
that municipal land entitlements allow
areas to set up and pay for themselves.
Hard to advocate to get services when many
are being taken away at this point.
Senator P. Kelly
Some services may be good and some may not.
Some negotiation between municipalities and
the Legislature. Encouraged the Alaska
Municipal League to consider ways to take
on responsibilities and safeguard
themselves from others.
Mayor Navarre
Appreciated the advice. He said he knows
that there are no simple solutions however
he was prepared to engage in meaningful
dialogue. Will try to identify what they
feel does not make sense in their areas.
Co-chair Parnell
Thanked Mayor Navarre. Introduced Roger
Cremo. (The committee took a brief at
ease.)
The committee was reconvened at
approximately 10:19 a.m.
Roger Cremo
Private citizen was invited to join the
committee. He asked, "Why can't we sustain
spending? That is the real heart of it."
He said that money from the sale of oil on
the North Slope is a State asset; the
State's capital. It was unlike monies that
other states have. They have true revenue.
All states have a system for spending and
he explained this system.
Senator Phillips
Asked him to explain more specifically the
reports he referred to from the Department
of Labor.
Mr. Cremo
Spring and summer reports put out by the
Department of Labor regarding petroleum
money. Ten or fifteen percent of that
money goes into the Permanent Fund.
Royalty money contributed about 25 percent.
Mr. Cremo continued referring to his chart,
"Present System of State Spending". Alaska
does not tax things much.
What can be done to make spending
sustainable? He explained "endowment" even
though it is not really an endowment other
than a portion of the Permanent Fund. It
could be formalized, which he suggested.
Then the principles of endowment could be
observed, which would convert the monies
from capital into a sustainable revenue.
He explained that this could be combined
with other sustainable revenue from the
people.
First, all accumulated oil money would go
to the endowment, along with money that was
in the Permanent Fund, Earnings Reserve
Account and the Budget Reserve Fund.
Second, all of the oil money yet to come
would be included.
He noted that there was oil in ANWR and
that it would be opened up by a Republican
President.
The third feature that was very essential
was the take-out arrangement. He
complimented Mr. Okeson and his
presentation of a few days ago before the
committee and noted that the same "take-
out" he referred to was the same also as
Mr. Jim Lynch. This was much more
sophisticated and was being done both by
universities and foundations, i.e. the Ford
Foundation. The last feature of the
endowment was that it must be systemic.
Had no suggestions as to where spending
might be cut or how to increase revenue.
Nor how to move money from one pigeon hole
to another.
Did suggest that the people of Alaska
impose a system of finance and spending on
the Legislature. The people function at
the formative level of government. It is
for the people to make the system and the
Legislature to operate within that system.
People should be allowed to change the
system. He further suggested that the
Legislature put its other hat on, its'
sponsoring one, and sponsor changes within
the system. Even the Governor cannot veto
what they might decide. The Legislature
should present to the people a proposed
system of spending. The system does not
tell the Legislature how to spend the
money, but merely smooths the flow out.
The Legislature elected whether to have a
dividend and how much it should be.
Next he referred to his chart of "Proposed
System of State Spending". The Federal
government would continue to make its
contribution.
He referred to the "Endowment" as the
"Alaska Fund". Now there would be
sustainable spending in the State.
Sustainable amount defined around the
nation at about five percent. What would
come out of this fund would be regular. He
advised the committee that a transition
would be necessary.
He concluded his presentation. Hoped for
questions and criticism and asked for a
chance to respond.
Senator Adams
Proposal he has looked at natural resources
as the main flow of funds. What happened
in the year 2015 when the oil export would
be lower; perhaps fishing and timber, also.
Where else would the funding source come
from other than natural resources?
Mr. Cremo
Responded that when these resources ran out
the fund is still in place. Taking out
five percent and investing at nine percent.
This would provide a continuing source of
money, even though the natural resource
screen would end.
Senator Adams
Questioned sustainable spending. What is
being looked for in a stable economy in the
State of Alaska with less cuts to the
operation of government to get to this
sustainable spending?
Mr. Cremo
Described sustainable spending. This was a
spending that did not change negatively
from year to year. "X" amount of dollars
would be spent each year and cut backs do
not have to be faced.
Senator Leman
Said his reaction to a plan like this that
encouraged savings and investing was
inherently good. The downside that he saw,
however, instead of having a permanent fund
for the people, was that it was a permanent
fund for the government. His plan would
have been better if implemented about six
years ago.
On the withdrawal percentage, was that
selected arbitrarily?
Mr. Cremo
Not selected arbitrarily. The ten percent
just happened. In his opinion it was a
place to start on the transition. The
first year this system could be functional,
approximately the year 2002, the fund would
produce a certain amount of money. That
added to what the system would produce at
ten percent by the year 2001 or 2002; a
reduction of about $120 million would be
preferable and the ten percent figure would
fit.
Senator Phillips
Saw marketing problem. "What would you
recommend in selling this to the
Legislature? Once one starts 'tinkering'
with the Permanent Fund it is like yelling
'fire' in the theatre when there is no
fire."
Mr. Cremo
Said that the Legislature has to have the
respect of the people. People look to the
Legislature to vote for dividends. Nothing
structurally would change.
Senator Phillips
Commented briefly about asking people to
trust their government and Legislature.
Mr. Cremo
Felt that was what we were doing in a
representative form of government.
Senator Phillips
American form of government was based on
mistrust and that was why there were so
many checks and balances.
Co-chair Parnell
The current system required more trust and
a more blind trust, at that. He explained
his understanding that Mr. Cremo was
proposing is this trust and understanding.
(Tape change to #73, Side A at log 000.)
Senator Phillips
May be the best plan, but felt it would be
very difficult to convince and market to
the Alaska people.
Co-chair Parnell
Constitutional amendment portion. That was
a shock absorber.
Was there a way to keep a budget reserve
fund for catastrophes and still have
sustainable revenue?
Mr. Cremo
Had not thought about this. As far as
natural disaster, the State could need
funds. Alaska has a provision whereby the
Legislature can borrow on credit to meet
the needs in case of natural disaster.
Never had to employ this, but do have this
option. He thought it foolish to keep
expendable capital but they could do this
if they wished.
Co-chair Parnell
Thanked Mr. Cremo. Asked how members or
the public could reach him.
Mr. Cremo
Alaskafund.com is his web site. He is also
in the phone book.
Co-chair Parnell
Adjourned the committee at approximately
11:05 a.m.
SENATE FINANCE COMMITTEE
LOG NOTES
03/30/99
SFC-99 Page 1 3/30/99
| Document Name | Date/Time | Subjects |
|---|