Legislature(1999 - 2000)
05/13/1999 09:13 AM Senate FIN
| Audio | Topic |
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
MINUTES
SENATE FINANCE COMMITTEE
May 13, 1999
9:13 AM
TAPES
SFC-99 # 136, Side A and Side B
CALL TO ORDER
Co-Chair Torgerson convened the meeting at approximately
9:13 AM.
PRESENT Senator John Torgerson, Senator Sean Parnell,
Senator Loren Leman, Senator Pete Kelly, Senator Randy
Phillips, Senator Dave Donley, Senator Gary Wilken, Senator
Lyda Green and Senator Al Adams.
Also Attending:
SENATOR ROBIN TAYLOR; DAVID TEAL, Director, Division of
Legislative Finance; PHIL OKESON, Fiscal Analyst, Division
of Legislative Finance; PAM LABOLLE, President, Alaska
State Chamber of Commerce; KAREN BRAND, Vice President,
Alaska State Chamber of Commerce.
SUMMARY INFORMATION
SB 76-PERMANENT FUND INCOME ADVISORY VOTE
The committee heard a presentation from Co-Chair John
Torgerson and the Division of Legislative Finance. A
committee substitute was adopted. The bill was held in
committee.
Co-Chair John Torgerson announced that the House Finance
Committee would take up reappropriations at 1:30pm. He had
a copy of the amendment available for Senate Finance
Committee member's review that included all the
reappropriation items.
SENATE BILL NO. 76
"An Act authorizing an advisory vote on whether
appropriations of income from the permanent fund
should be restricted; and providing for an effective
date."
This was the first hearing for this bill in the Senate
Finance Committee.
Co-Chair John Torgerson referred to a handout titled,
Senate Finance Committee, before members and noted the same
information would be shown on an overhead projector. [Copy
on file.]
Page 1, Cover sheet.
Page 2, Senate Majority's Guiding Principles. Co-Chair John
Torgerson stated that these were the principles any plan
that comes before the Committee will be measured against.
The guidelines state that an approved plan "preserves,
protects, and grows the Alaska Permanent Fund" plus
guarantees a healthy dividend. The guidelines also require
that a plan "produces a balanced budget" by limiting
government spending and prioritizing essential services.
The guidelines call for "no income tax" and stipulate that
"Alaskans decide" by a "vote of the people" any plan before
it is implemented.
Page 3, Today's Presentation. Co-Chair John Torgerson told
members that they would hear both the "Do Nothing" plan and
the "Balanced Budget" plan using assumptions and graphs. A
summary was also scheduled to review and compare the two
plans.
Page 4, "Do Nothing" - Assumptions. Co-Chair John Torgerson
said assumptions for this plan used figures from the
Department of Revenue Spring 1999 forecast. The plan also
used the Department of Revenue and the Department of
Natural Resources May 12, 1999 Oil Revenue Forecast, which
Co-Chair John Torgerson explained is future oil and gas
production expected from wells not included in the Spring
forecast, such as the National Petroleum Reserve-Alaska
(NPRA), Foothills, Sourdough and others. Finally, the plan
used information supplied from the Permanent Fund Division
showing earnings of 7.75 percent total returns on
investment
Co-Chair John Torgerson continued explaining that the "do
nothing" plan shows no government spending reductions
beyond the Senate Majority adopted reductions for fiscal
year 2000 (FY00). The plan assumes a 1.45 percent spending
growth for education only. The plan also assumes an
eligible population growth of 1.1 percent for permanent
fund dividend recipients.
PHIL OKESON, Fiscal Analyst, Division of Legislative
Finance, told the Committee the intent to use graphs to
show how any plan might hold all generations equal by
protecting the purchasing power of the State's fiscal
assets.
Page 5, Do Nothing Plan - Projected Savings Account Balance
vs. Inflation Adjusted Balance. This graph showed that
currently fiscal assets representing the entire permanent
fund and the Constitutional Budget Reserve (CBR) are about
$28 billion. Adjusted for inflation using a three-percent
inflation rate for capital market assumptions, as advised
by Callan and Associates, the State would need about $52
billion by the year 2020 to stay even. Phil Okeson
summarized that $28 billion today has the same purchasing
power as $52 billion in twenty years.
Phil Okeson pointed out the "inflation adjusted savings"
and the "actual projected savings" lines on the chart. He
emphasized that when the actual projected savings falls
below the inflation adjusted savings, this practice is
essentially stealing from your children and grandchildren.
If the actual projected savings are above the inflation
adjusted savings, there will be more for future
generations. If the two amounts are the same, future
generations will have the same as the current generation
and neither generation fares better than the other.
Phil Okeson then explained that under the "do nothing"
plan, certain assumptions are made as to what happens to
the savings account that show the actual projected savings
diverging below the inflation adjusted savings almost
immediately. As a result, he said assets are spent down,
purchasing power is lost and future generations will not
have the same benefits. By the year 2020 there will be a
significant gap of approximately $9-10 billion. Phil Okeson
surmised that gap will be difficult, if not impossible to
make up at that time.
Page 6, Do Nothing Plan - Alaska's Savings Account. This
graph shows what happens with the State's individual
savings accounts under the "do nothing" approach. Phil
Okeson explained that after the CBR runs out, the
legislature must decide whether to draw next from the
Earnings Reserve, then from the Unrealized Gains. When
those accounts are drained, there is no other fund source
available, according to Phil Okeson, because the state
constitution protects the corpus of the permanent fund.
When asked if the state would really empty all its savings
accounts, Phil Okeson suggested that is the traditional
action taken by the state.
Phil Okeson detailed the items on the graph.
In the early years of oil production in the state, about
$150 million in oil revenues was deposited into the
permanent fund account each year. In addition, statutory
inflation proofing is done to the account as required under
the state constitution. Phil Okeson explained that is what
caused the growth in the fund and that this amount never
diminishes because it is constitutionally protected.
Phil Okeson stated that under the "do nothing" plan, the
state will spend the CBR down and by the year 2002 or 2003,
the account will be gone.
Phil Okeson then addressed the affect of the "do nothing"
plan on the Earnings Reserve account. He said that
initially, this fund actually grows because nothing is
withdrawn from it until after the CBR is depleted. Once the
withdrawals begin however, the balance will drop
immediately and by the years 2007 or 2008, this fund will
also be gone, according to Phil Okeson. At that point, he
warned, the Legislature will need to consider using the
permanent fund corpus to operate state government. Phil
Okeson anticipated that, not only will the earnings reserve
be affected but also the unrealized gains because the
unrealized gains will need to be "realized." Once the state
begins to realize and utilize those gains, the gains will
be gone, he warned. By the years 2011 or 2012, there will
be no more accounts that can be tapped.
Phil Okeson stated that by that point, "things start to
fall apart relatively quickly."
Page 7, Do Nothing Plan - Permanent Fund Dividend per
Capita. What does the above information mean for the
dividend itself? Phil Okeson answered that for a couple
years, the dividend amount will grow due to good years in
the past and because of a bigger moving average. The plan
assumes a 7.75 percent return until it levels off and then
starts to dip, according to Phil Okeson. He reminded the
Committee that during these years, in the "do nothing"
plan, funds will be withdrawn from the CBR and then the
Earnings Reserve. He then explained that by approximately
2008, the dividend begins to make an uphill climb, because
more unrealized gains are realized, which in turn affects
the dividend calculation.
Phil Okeson explained the current permanent fund dividend
is calculated on realized income instead of total income
(realized and unrealized income.) When gains are realized
with the sale of stocks or other investments, the dividend
amount increases. He pointed out that just as the State is
trying to save money because the savings accounts are
dwindling, it is actually forced to spend more money on the
dividend under the current calculation.
Phil Okeson continued, saying that by the year 2011 when
all the realized income is gone, the dividend crashes. This
is because the model assumes that while the corpus of the
permanent fund is still earning a couple billion dollars a
year in interest, those earnings will be used entirely for
inflation proofing and to address the deficit. All that
would be left over to pay the dividend is a very small
amount, about $100 per person, according to Phil Okeson. He
questioned if at that time, a dividend would even be wanted
due to the high percentage of administrative costs that
might outweigh the actual dividend itself.
Phil Okeson noted the other assumption of this plan is a
very limited growth in government, only allowing education
formula spending to grow. Any increases to government
spending could cause the dividend to completely go away, he
warned. Also, the dividend could go away in the case of a
bad investment market during this timeframe. In addition,
the state could be forced to carry a deficit even with the
permanent fund still issuing dividends, according to Phil
Okeson.
Senator Randy Phillips asked what percentage of the public
was aware of the permanent fund situation. He felt it was
important to educate the public before a plan could be
implemented.
Co-Chair John Torgerson responded that this is the reason
for today's meeting and the intent to have an advisory vote
on the subject.
Page 8, "Balanced Budget" Plan. (Cover sheet)
Page 9, "Balanced Budget" Plan Assumptions. As with the "do
nothing" plan, assumptions for this plan uses the
Department of Revenue Spring 1999 Forecast, the Department
of Revenue and Department of Natural Resources May 12, 1999
Oil Revenue Forecast and assumes a dividend qualifying
population growth of 1.1 percent. The "balanced budget"
plan differs from the "do nothing" plan in that it
pressumes the Permanent Fund will earn 8.25 percent total
return. Co-Chair John Torgerson explained the higher
earning is based on changes proposed in HB 156, currently
in the Senate Finance Committee. The "balanced budget" plan
also assumes to protect the permanent fund by inflation
proofing at three-percent.
Page 10, "Balanced Budget" Plan Assumptions [part 2]. The
plan calls for general fund sustainable spending reductions
of $40 million in FY00, $30 million in FY01, and $10
million each year for FY02 through FY10. Co-Chair John
Torgerson pointed out that in FY01 the Senate Majority
Five-year plan to reduce the budget by $250 million will be
complete. He explained the $10 million reductions for the
years 2002 through 2010 will be primarily the result of
savings from formula driven programs such as Longevity
Bonus, Welfare Reform and others. He said that in some
years, there will be a greater than $10 million saving.
Page 11, "Balanced Budget" Plan Assumptions [part 3]. The
plan limits government spending but still allows for a 1.45
percent growth for education, the university, public
safety, transportation and maintenance. The plan assumes
$35 million in new revenue in FY00, $100 million in FY01
and $100 million in FY10. An additional $50 million is
added for capital projects beginning in FY02.
Page 12, "Balanced Budget" Plan Assumptions [part 4 -
assumptions on the dividend]. Co-Chair John Torgerson
commented that it was important to review the historical
dividend amounts over the past four years. In 1995, the
dividend payment was $990 per person. In 1996 it was
$1,131; 1997 was $1,296 and in 1998 the dividend payment
was $1,541 per person.
Co-Chair John Torgerson stated the intent is that the
"balanced budget" plan will not change the formula on which
the dividend is calculated for the 1999 and 2000 dividends.
On approval of the advisory vote, after the year 2000 the
dividend will be calculated at 2.75 percent of the market
value of the fund. According to this model, the dividend
for the year 2001 will be $1,258 per recipient.
Page 13, Balanced Budget Plan - Projected Savings Account
Balance vs. Inflation Adjusted Balance. Phil Okeson
explained that this graph, like page 5 that addressed the
"do nothing" plan, shows an intergenerational affect of the
"balanced budget" plan. In this case, the actual projected
savings are above the inflation adjusted savings. This plan
will not take money from future generations and will
actually be giving some to future generations, according to
Phil Okeson. While this graph showed "a nice upwardly
sloping climb", he cautioned that in reality, there would
be fluctuation. However, over the long term, he expected
the figures to follow the same upward trend. He termed this
graph as the reflection of a healthy plan.
Page 14, Balanced Budget Plan - Alaska's Savings Accounts.
Under this plan, "the savings accounts work in an
interesting fashion," according to Phil Okeson. The CBR
immediately transfers into the Alaska Income Account. He
stated that the earnings reserve account and the CBR will
grow substantially and the unrealized gains will be
maintained at approximately the same level, with a certain
amount of turnover as with any portfolio. Phil Okeson
emphasized that a particular benefit of this plan is that
it follows Callan's advice to reduce the overall risk of
market volatility by providing a cushion in bad years. In
fact, after several years, the "balanced budget" plan
builds a large cushion. (Note: Callan and Associates is the
general financial consultant used by the Permanent Fund
Corporation and the Department of Revenue's Treasury
Division.)
Page 15, Balanced Budget Plan - Permanent Fund Dividend per
Capita. Phil Okeson explained that this plan maintains the
dividend at the current level for two years. The dividend
then declines for the next two years and then begins to
grow again. Phil Okeson noted that the actual amounts will
vary depending on financial markets, but provisions are
provided to allow for stabilization. Therefore, over the
long term, he expects the dividend amounts to grow fairly
healthily.
Senator Al Adams pointed out the models of the "balanced
budget" plan show the growth of the permanent fund of at
least 8.25 percent and the dividend calculation of 2.75 of
the market value of the fund. He stated that, "the
assumption is that the market is going to crash in the year
2006 or 2007" and he wanted to know what protection this
plan had against a crash to buffer the dividend payments.
Phil Okeson responded that a provision in the "balanced
budget" plan calls a "five year smoothing average", allowed
for a crash in the stock market. He also stated that
switching the dividend calculation to "market value of
assets" is a key way of taking the risk of volatility out
of the dividend itself. He said that the current situation
is based on realized earnings, which is an artificial
number. He pointed out in 1994, the permanent fund earned
approximately 1.94 percent, and the following year it
earned double digits. That is a large amount of volatility,
according to Phil Okeson. However, he stressed that by
making the dividend a percent of market value of assets for
the whole fund, the result is that even after a large
market downturn, the percentage of the total assets would
not change substantially. He detailed how a low rate of
return in one year following a year of high return would
still cause the market value of assets to grow even though
the earnings went down.
Phil Okeson qualified that market value would affect the
dividend in the case of a severe market downturn, over a
period of time, that amount would climb above the model
average. He continued by saying that if the financial
market behaved as it always did, the average would follow
the model shown on the graph.
Senator Pete Kelly referred to the 1.94 percent downturn
and the presenter's anticipation that the assets of the
permanent fund account would not be greatly affected.
Senator Pete Kelly asked if the reason was because deposits
were continuing to be made into the permanent fund or
because of the financial market itself. Phil Okeson
answered back to the same example, that when the previous
year's earnings were ten percent, the average was not
substantially affected even with the low 1.94 percent
earnings. Therefore, even with that bad year, the fund
still grew, according to Phil Okeson. There would have to
be a fairly bad market for the fund to go down. He
speculated that the worst return in any year would be a six
percent loss on the total value of the fund which would
reflect a significant market meltdown. He also stressed
the importance of remembering that the permanent fund
itself is a diversified portfolio; the return on stocks
could go down but the bond portion of the portfolio would
likely go up and offset the loss in stocks, according to
Phil Okeson.
Senator Al Adams asked if the balance didn't depend on the
percentage of stocks versus bonds in the financial
portfolio. Phil Okeson agreed that when portfolio has a
greater investment in equalities, there is also greater
volatility in the return. However, that risk increases by
only one or two percentage points. He re-stated that six
percent is the most the fund would lose. In his opinion,
the fund has professional managers overseeing and advising
the permanent fund trustees.
Senator Sean Parnell thought Phil Okeson's point was well
taken that under the current system there is more
volatility because it is based on realized earnings as
opposed to the market value of the total fund. Phil Okeson
reiterated that the dividend calculation would benefit from
switching to a market value of assets approach. He noted
that many charitable trusts and 70-80 percent of
universities already do this, because they had learned the
hard way.
Page 16, Balanced Budget Plan - Total GF and Dividend
Spending. Phil Okeson explained that this graph shows what
the total overall spending under the plan would be. He
detailed the areas on the graph. Education, the university
and other identified essential services is separated from a
general government expenditure category and allowed to grow
over time. General government expenditures are held flat.
The dividend on average will grow in the "balanced budget"
plan.
Senator Al Adams asked if the future operating budget is
reflected in the education, university and essential
services line and the general government expenditures line.
Phil Okeson affirmed that it is.
Page 17, Balanced Budget Plan. Co-Chair John Torgerson
explained that the plan preserves, protects and grows the
permanent fund. It guarantees the dividend for all
Alaskans, imposes no dividend cap and is a market driven
dividend.
Page 18, Balanced Budget Plan [part 2]. Co-Chair John
Torgerson continued saying the plan produces a balanced
budget by reducing spending and by imposing limits on
government, includes no personal income tax and ensures
economic stability and certainty for Alaskan businesses. He
added that the plan also prioritizes education, public
safety and transportation needs.
Page 19, Balanced Budget Plan [part 3]. Co-Chair John
Torgerson concluded by explaining that the bill before the
Committee, SB 76 provides an opportunity for the public to
vote on the plan in the Fall of 1999 and involves Alaskans
in the process of implementing the plan.
Page 20, Senate Majority's Guiding Principles. Co-Chair
John Torgerson overviewed the principles to preserve,
protect and grow the permanent fund and to guarantee a
healthy dividend, produce a balanced budget by limiting
government spending and by prioritizing essential services,
impose no income tax and be decided by a vote of the
people.
Senator Loren Leman referred to the model that accounts for
the state's assets, and asked about other assets such as
the Alaska Housing Finance Corporation (AHFC), Alaska
Industrial Development and Export Authority (AIDEA), etc.
Are they accounted for in the model or are they an implied
reserve for the future? Phil Okeson replied that in the
model, these other assets are not included except for the
annual dividends they provide and are considered an implied
reserve.
Senator Sean Parnell felt that by excluding AHFC, AIDEA and
other assets from the model is one of the benefits of the
"balanced budget" plan because "many tools were left on the
table for future use."
Senator Loren Leman did not notice any assumptions given
for major projects in the next twenty years that could
generate substantial revenue, such as a North Slope gas cap
project or the development of the Arctic National Wildlife
Reserve. Were those taken into account in the Department of
Revenue and the Department of Natural Resources'
projections? Co-Chair John Torgerson referred to another
graph that was not in the distributed packet - but shown on
the overhead projection that showed oil revenue projections
not accounted for in the Spring 1999 forecast. He stated
that the Department of Revenue, in a report titled
Incremental Revenue High Case Scenario, released the
numbers shown on the chart in a recent House Finance
Committee meeting. The Department of Revenue predicted a
high probability for the situations listed in the report.
Co-Chair John Torgerson read the oil projects listed on the
graph. He said the reason the projects are not included in
the model is because of the desire to base the "balanced
budget" plan on "defendable assumptions" and that the
future projects not listed are not guaranteed to happen. He
pointed out that to add the projected 700,000 barrels per
day ANWAR project makes the "balanced budget" plan look
very healthy. He added that if it were known that ANWAR
would come on line, many of the other proposed steps would
not be necessary.
Co-Chair John Torgerson continued detailing the anticipated
revenues the future oil projects would generate if they
were realized. He said that the total revenue over twenty
years would be $3.1 billion with a high of $316 million in
the year 2019.
Senator Al Adams commented that one of the things needed to
make the "balanced budget" plan work is the new revenue in
2000-2001. He pointed out that the Committee heard about
the projected $35 million in the year 2000, but had not
heard details on the $100 million new revenue for the year
2001. Co-Chair John Torgerson replied that a large portion
of those revenues will come from the provisions in SB 156
that has a fiscal note of $99 million. He said the plan
assumes this bill will pass and become incorporated into
the plan for future years.
Senator Sean Parnell commented that Senator Randy Phillips
brought up a valid point that many Alaskans don't
understand that the general direction the financial
situation is going if the status quo continues. Senator
Sean Parnell's constituents tell him to just cut the budget
to reduce spending. He noted the Legislature has been doing
that more than ever. However, he asked Phil Okeson to draft
a scenario showing a $500 million budget cut to see how the
most drastic reductions would affect the state's financial
situation. He stated that this cut would eliminate almost
all state general funded personnel and personnel services,
which amounts to approximately $700 million this year. He
asked Phil Okeson share the results.
Phil Okeson showed an another graph (not included in the
packet) and explained how a $500 million cut would affect
the overall status quo if no other changes were made to the
budget process this year. Senator Randy Phillips
interrupted wanting to make the scenario "real." He
surmised that to simply state "$500 million" did not have
the same meaning as "the elimination of every state job."
Senator Sean Parnell restated that the cut would come from
the elimination of virtually every state employee position.
Phil Okeson gave another analysis comparing this scenario
to budget reductions made in 1986 by Governor Bill
Sheffield. A $500 million cut would be approximately two
and one-half times the earlier cuts.
Phil Okeson continued explaining the scenario. He said that
after the $500 million cut, the financial situation is OK
for awhile. However, he warned that other revenues would
drop off over the years still resulting in a fairly sizable
decrease. It would still be necessary to spend down state
assets that would reduce purchasing power. He detailed this
point using the graph.
Senator Sean Parnell reiterated that even with a $500
million decrease, the permanent fund is still taken from
future generations. That's not to say that the "balanced
budget" plan does not have reductions because it does, he
stressed. He commented that given the magnitude of the
fiscal gap, the question before Legislators is what to do
to protect the permanent fund and preserve the state's
savings accounts for today and for future generations.
Senator Gary Wilken requested a return to page 14 of the
handout. He referred to the Alaska Income Account showing
that the fund continues to grow under the "balanced budget"
plan. He wondered if it would be wise to insert a provision
into the plan stipulating that when the account reached a
certain number, a deposit would be made from it into
permanent fund account. Phil Okeson replied it was possible
and suggested asking experts for advice. He pointed out
that the question was how much of a cushion is needed.
Further analysis would have to be done to establish the
trigger amount for a transfer.
Senator Gary Wilken asked how the plan would be affected if
the dividends were calculated using a higher percentage
than 2.75 percent. Phil Okeson reconfigured the spreadsheet
on page 13, displaying the results as he spoke. He
explained that he was inserting the percentage of assets
going to the dividend, changing the amount from 2.75
percent to three percent. He showed that instead of
reducing the dividend payment to $1100 per recipient, the
three-percent calculation only reduced the dividend to
$1300 and that the out-year payments would be slightly
higher. He warned that the cost of this change is seen in
that the space between the intergenerational line would be
less. However, as long as the actual projected savings
amount stays above the inflation adjusted savings amount,
the plan still gives more to the future.
Senator Gary Wilken wanted to know if the chart depicted on
page 13 is the validity test and is agreed upon by others.
Phil Okeson responded that it is a formula that he and many
other groups look to for affirmation.
Phil Okeson advised that the common belief is that the
permanent fund was established to help future generations.
This graph measures whether that goal is accomplished with
any proposed plan. He stressed that the easiest approach
would be to simply spend down the assets, but it would
leave nothing for the future. He warned that approach
"wastes a tremendous opportunity to take a nonrenewable
resource - oil - and make it renewable for all future
generations." However, he noted that not everyone believed
that should be the goal.
Co-Chair John Torgerson asked if there was a comparison to
the Governor's plan showing the intergeneration line
available for review. Phil Okeson said there was not
because of recent changes made by the Administration to
their budget proposal.
Senator Lyda Green asked if there is a point in the model
where the information becomes less accurate.
Tape: SFC - 99 #136, Side B 10:00 AM
Phil Okeson responded that for the first few years the data
is very accurate and becomes less so in future years. He
stressed the key is to look at the structure of the plan
for any faults to determine if it is going to crash after
several years.
BREAK 10:02AM / 10:04AM
Senator Sean Parnell understood it was the chair's intent
to hold the bill since the committee substitute was just
released this meeting.
In drafting the advisory vote question Senator Sean Parnell
came up with two major issues, format and wording. "How
should the questions be posed to the voters? What provides
them with the most meaningful choice?" he asked.
Senator Sean Parnell said there are multiple options to
address the format issue and he described four. One is to
give the voters one option of yes or no on whether or not
they like the plan. The second format suggestion is to give
the voters the option of choosing either Plan A or Plan B.
The third format was before the members in committee
substitute 1-LS0490/M, and allows the voters to chose yes
or no on both Plan A and Plan B. Senator Sean Parnell
thought this would give voters the opportunity to vote in
favor of both plans if they liked them both or to vote
against both plans. The final format suggestion is to
provide even more choices than the two plans, but was not
recommended by Senator Sean Parnell.
Senator Sean Parnell referred to page 1 line 4 of the
committee substitute dictating the date of the election as
September 14, 1999. He noted that the reason he chose that
date is because it is the earliest possible date a special
election could be held, according to the Division of
Elections. Senator Sean Parnell suggested the election
could be held instead on the first Tuesday in October when
other statewide elections will be conducted.
Senator Sean Parnell explained that the committee
substitute contains a preamble to the ballot question that
describes the current budget situation. Each of the two
plans has a brief summary to describe that plan and more
detail following each summary.
Senator Sean Parnell stated that Plan A reflects the
"balanced budget" plan. He read the summary into the
record, "This plan assumes further spending reductions and
assumes dividends will be guaranteed at a particular rate.
This plan also assumes no income tax."
Senator Sean Parnell then read the summary of Plan B into
the record, "Plan B assumes no further state spending
reductions, implementation of a personal income tax, and
calculation of permanent fund dividends under the current
statutory method."
The ballot question in this committee substitute had yes or
no options for both plans.
Senator Loren Leman wanted to consider holding the election
on October 5 rather than September to save money. He also
wanted to insert "personal" before "income tax" where it
appears in the committee substitute to clearly identify the
tax. He noted the state already has a corporate income tax
and he wanted to avoid a later challenge of the validity of
the corporate tax based on the wording of this ballot
question.
Senator Randy Phillips wanted the Committee to first decide
whether or not to have the election. After that decision is
made, the time of the election and the format of the ballot
question should be decided upon. He didn't like the format
proposed in the committee substitute. He wanted the ballot
to list Plan A and Plan B and language stating, "please
check only one" giving the voters the option of choosing
one plan or the other. He surmised if voters say no to both
plans, the Legislature would be left with no plan. If both
plans pass with yes votes, he anticipated chaos in the
Legislature.
Senator Randy Phillips wanted to shorten the preamble. He
suggested the language read, "Alaska's declining oil
production and erratic world oil prices constitutes an
unsustainable state budget system. The legislature and the
governor seek the public's input choosing a long-term
budget plan. Please mark yes or no beside the one plan,
which you believe the legislature and the governor should
proceed."
Senator Randy Phillips continued, suggesting the
replacement of the word, "assumes" in the summary of Plan
A, page two lines two through four of the committee
substitute. The language would then state, "This plan will
have further spending reductions and dividends will be
guaranteed at a particular rate. This plan also has no
income tax."
In the first paragraph detailing Plan A, page two lines
five through seven of the committee substitute, Senator
Randy Phillips recommended the language read, "Spending
Reductions/Spending Limit: Make state general fund spending
reductions of at least $100,000,000 state GF over the next
three fiscal years at $33.3 million each in FY01, FY02 and
FY03."
Senator Randy Phillips suggested deleting "Ensure" and
inserting "Guarantee" on page two line eight of the
committee substitute, changing the second paragraph
describing Plan A to read, "Guarantee the Alaska permanent
fund is inflation proofed to protect the value of the
corpus for all Alaskans.." He also suggested replacing
"corpus" with "principle", which he thought voters might
understand better.
Senator Randy Phillips knew voters would ask for the
meaning of 2.7 percent of the market value of the Alaska
permanent fund as the dividend rate, shown in the third
descriptive paragraph of Plan A, page two line 13 of the
committee substitute. He did not have any suggestions for
clarifying the language at this time.
In the fourth paragraph that described Plan A, page two
line 16 of the committee substitute, Senator Randy Phillips
recommended inserting "guaranteeing" before "inflation
proofing the Alaska permanent fund and paying permanent
fund dividends.".
Senator Randy Phillips then had a philosophical question on
the provision in paragraph four that stated excess funds
would be used for education, public safety and
transportation. He asked if other government functions
should also be guaranteed or should at least have access to
any excess funds.
Senator Randy Phillips suggested the fifth and final
paragraph describing Plan A, page two lines 22 and 23 of
the committee substitute, should simply state, "No new
taxes."
Senator Randy Phillips assessed that the language
describing Plan B needed work but noted that he had not had
time to draft solutions.
Senator Randy Phillips suggested clarification on page
three line four of the committee substitute, the third
paragraph that described Plan B, which dictated the
transfer of $400,000,000 from the permanent fund earnings
to the CBR. He surmised that, while the public understood
the permanent fund, it did not fully understand the
earnings account and the CBR.
In the fourth paragraph that described Plan B, page three
lines eight and nine of the committee substitute, Senator
Randy Phillips suggested the language read, "The dividend
will not be changed from the current formula and method of
calculation."
Senator Randy Phillips requested more time to work on
changes to the committee substitute.
Senator Al Adams appreciated the work of the co-chairs and
the Division of Legislative Finance. He did not oppose the
adoption of the working draft since it was an advisory
vote. He asked that amendments be accepted this afternoon.
He warned that under the current structure of the ballot
question, two no votes would result in a "do nothing" plan
and that warranted consideration from the Committee.
Co-Chair John Torgerson noted there would be no cost
savings in combining this special election with the
scheduled October municipal elections. The state does not
pay the costs of the municipal elections.
Senator Randy Phillips commented that if it was decided to
do an advisory vote, election pamphlets should be sent out
at least 30 days before the election. He stressed that this
would allow a public debate of all the facts. Co-Chair John
Torgerson's understood there were statutory deadlines that
had to be met and the September date was the earliest
possible day the election could be held. He agreed that the
advisory vote is an educational process that needed to be
addressed.
Senator Sean Parnell moved for adoption of CS SB 76 (FIN),
1-LS0490/M (no date listed), as a Workdraft. There was no
objection and it was so ordered.
Co-Chair John Torgerson said he would announce the upcoming
Committee schedule during the Senate Floor Session.
Co-Chair John Torgerson announced Senate Finance Committee
photographs would be taken later in the day.
ADJOURNED
Senator Torgerson recessed the meeting to the call of the
chair at 10:21 AM.
SFC-99 (1) 5/13/99
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