Legislature(2001 - 2002)
05/06/2002 01:54 PM Senate JUD
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* first hearing in first committee of referral
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= bill was previously heard/scheduled
ALASKA STATE LEGISLATURE
SENATE JUDICIARY COMMITTEE
May 6, 2002
1:54 p.m.
MEMBERS PRESENT
Senator Robin Taylor, Chair
Senator Dave Donley, Vice Chair
Senator Gene Therriault
Senator Johnny Ellis
MEMBERS ABSENT
Senator John Cowdery
COMMITTEE CALENDAR
CS FOR HOUSE BILL NO. 330(FIN) am
"An Act relating to providing alcoholic beverages to a person
under 21 years of age."
MOVED SCS CSHB 330(JUD) OUT OF COMMITTEE
CS FOR HOUSE BILL NO. 304(2d RLS) am
"An Act relating to the education fund and the infrastructure and
economic development fund, to the market value of the permanent
fund, to distribution of the income of the permanent fund, and to
the determination of net income of the mental health trust fund."
HEARD AND HELD
PREVIOUS SENATE COMMITTEE ACTION
HB 330 - No previous action to record.
HB 304 - No previous action to record.
WITNESS REGISTER
Representative Norm Rokeberg
Alaska State Capitol
Juneau, AK 99801-1182
POSITION STATEMENT: Explained the contents of HB 330
Ms. Anne Carpeneti
Assistant Attorney General
Department of Law
PO Box 110300
Juneau, AK 99811-0300
POSITION STATEMENT: Answered questions about HB 330 and
suggested an amendment
Marti Greason
MADD
No address provided
POSITION STATEMENT: Supports HB 330
Representative Bill Hudson
Alaska State Capitol
Juneau, AK 99801-1182
POSITION STATEMENT: Explained the contents of HB 304
Ms. Linda Reynolds
No address provided
POSITION STATEMENT: Opposed to HB 304
ACTION NARRATIVE
TAPE 02-26, SIDE A
Number 001
CHAIRMAN ROBIN TAYLOR called the Senate Judiciary Committee
meeting to order at 1:54 p.m. Senators Donley, Therriault and
Chair Taylor were present. The first matter to come before the
committee was HB 330.
HB 330-PROVIDING ALCOHOL TO MINORS/ BREWPUB LIC.
REPRESENTATIVE NORM ROKEBERG, sponsor of HB 330, told members
that on July 9, 2001, police officer Justin Wollam and three
others were killed when Robert Esper crossed the median of the
Glenn Highway and collided with Officer Wollam's patrol car.
Esper was suspected of driving while intoxicated with a blood
alcohol level of .091. Representative Rokeberg stated:
While investigating the events leading up to the tragic
and deadly accident, police discovered that Esper and
his underage friends had been drinking at a party where
alcohol was furnished by two adults. Both men pleaded
guilty to furnishing alcohol to minors and were
th
sentenced on February 20 of this year. Currently
furnishing alcohol to a minor is a class A misdemeanor,
subject to no more than one year in prison and a fine
of not more than $5,000.
What HB 330 does, quite simply, is increase the penalty
for an adult who furnishes the alcohol to a class C
felony, but only in those cases where the minor goes on
to negligently cause the death and or serious physical
injury of another while acting under the influence of
alcohol.
Mr. Chairman, on the House floor one of my colleagues
added on lines 12 and 13 the words 'operating motorized
equipment, firearms, or watercraft' to further tighten
the implementation of this particular bill. In your
deliberations today I ask that you look at the words
'motorized equipment' and perhaps substitute 'motorized
vehicle' because conceptually - because there is no
definition for 'motorized equipment' in state statute.
That concludes my testimony, Mr. Chairman. I'd be happy
to answer any questions.
CHAIRMAN TAYLOR took public testimony.
MS. ANNE CARPENETI, Assistant Attorney General, Department of Law
(DOL), said that DOL has supported HB 330 all along but the term
"motorized equipment" is not defined in statute. Alaska statute
does contain a definition of "motor vehicle" that could be cross
referenced to AS 28.40.100; and definitions of "firearm" and
"watercraft" that could be cross referenced to Title 11. She
thought the cross references would make the bill clearer.
CHAIRMAN TAYLOR asked if the cross-references should also be
noted within the body of the language.
MS. CARPENETI said that adding to the definitions in Section (2)
(A) and (B) would work better.
CHAIRMAN TAYLOR asked Ms. Carpeneti to draft an amendment with
the changes she suggested.
MS. CARPENETI agreed to do so.
MS. MARTI GREASON, representing Mothers Against Drunk Driving
(MADD), thanked Representative Rokeberg for introducing HB 330
and said that national research, as well as anecdotal self-
reporting at an Anchorage middle school, show that when young
people choose to drink, they frequently start around the age of
12. All have had the assistance of an adult to obtain alcohol.
Alcohol is involved in too many deaths and injuries of young
people. MADD believes that adults who provide alcohol to underage
persons who, while under the influence, cause injury or death
must be held to a higher standard of responsibility and
culpability. MADD supports HB 330 to accomplish that objective.
MS. CATHIE MAURO told members that she lost her 14 year-old
daughter in the July 9 accident. She first started getting
support for making this action a felony in August by contacting
her legislators and MADD. With their support, HB 330 has gotten
this far. She expressed concern about some of the language
changes made during the committee process. She originally wanted
adults who furnish alcohol to children to not only be accountable
for the children's actions while impaired by the alcohol, but
also accountable for the lives of the children they provide the
alcohol to. She said if one removes the car from the July 9
scenario, the children could have died from alcohol poisoning or
hypothermia. She noted that many things can happen when children
are impaired by alcohol. She suggested that fine-tuning HB 330
could save many lives. She asked that committee members not wait
until they experience a similar tragedy before doing more to
deter adults from furnishing alcohol to children.
CHAIRMAN TAYLOR noted the arrival of Senator Ellis.
REPRESENTATIVE ROKEBERG repeated that the House floor amendment
added the words "operating motorized equipment, firearms, or
watercraft" on lines 12 and 13. He noted the intent of the floor
amendment was to narrow the scope of the bill.
SENATOR DONLEY asked for a synopsis of the floor debate on the
amendment.
REPRESENTATIVE ROKEBERG said, in his opinion, the only reason for
the debate was that his colleagues were feeling guilty about
their own experiences in life. He believes they didn't wish to
raise culpability to the level of a felony if an assault occurred
that resulted in an injury and death. He said he personally
disagreed but lost the debate.
SENATOR DONLEY asked if this bill will hold the adult who
provides the alcohol responsible and charges the adult with a
class C felony.
REPRESENTATIVE ROKEBERG said that is correct. He added one part
of the issue is furnishing alcohol within a family. Under
existing statute, a parent can give a child alcohol and a
majority spouse can give a minority spouse alcohol. The issue
becomes one of hosting and discussions on the House floor and in
House committees centered around presumed liabilities if a minor
secretly took alcohol. He said that is not what this bill covers
and, because the standard is criminal negligence, there is no
mens rea for intent if a minor steals alcohol at one's home.
SENATOR DONLEY asked what the interrelationship is between this
felony and the existing statutes that allow a parent to furnish a
child with alcohol. He asked, "Are we only criminalizing the
activity when it's - are we accelerating the criminal fine for
only the activity that is currently a criminal activity or are we
also creating some sort of criminal penalty when the providing of
the alcohol is actually legal under existing statute but then
there's a subsequent serious physical injury or death?"
REPRESENTATIVE ROKEBERG replied, "No. All we're doing here under
the original bill before they put the motorized craft and stuff
in was to create an aggravator if there was serious injury or
death. That is all we're doing, basically creating an
aggravator." He repeated the House floor amendment narrowed the
scope.
CHAIRMAN TAYLOR suggested that the choices being offered are
either to delete the House floor amendment or clarify it by
deleting "motor equipment" and inserting the words "motor
vehicles," which is defined in statute, and then providing for
additional clean-up language, including statutory references to
"firearms" and "watercraft."
SENATOR THERRIAULT asked Representative Rokeberg to recount the
discussion on "motorized equipment" versus "motorized vehicle."
REPRESENTATIVE ROKEBERG said some wordsmithing was done to make
sure that ATVs and snowmobiles were included.
SENATOR THERRIAULT noted that those vehicles will not be included
in the definition of "motor vehicle."
MS. CARPENETI told members if the bill cross references AS
28.40.100, snow machines will be included.
SENATOR DONLEY said that he tends to agree that the original
language is better because he can think of some scenarios
involving activities other than operating motorized equipment,
firearms or watercraft that this bill should apply to.
CHAIRMAN TAYLOR agreed. He suggested amending CSHB 330(FIN)am by
deleting the words "operating motorized equipment, firearms or
watercraft" on page 1, lines 12 and 13.
SENATOR DONLEY asked Chairman Taylor his opinion of retaining the
word "acting" throughout the bill as that word was added by the
House Finance Committee.
CHAIRMAN TAYLOR questioned whether anything substantive was added
to the bill by inserting the word "acting."
REPRESENTATIVE ROKEBERG explained that the word "acting" was
included by the legal drafter to make the provisions symmetrical.
MS. CARPENETI said it was actually included by the House Finance
Committee at her suggestion. The committee wanted to clarify that
the person was acting under the influence of the alcohol that was
illegally furnished. She was not sure its addition actually
clarifies the causal relationship.
CHAIRMAN TAYLOR maintained that it does clarify that the adult
can only be involved if the minor was under the influence of the
alcoholic beverage received in violation of this section.
SENATOR DONLEY asked Ms. Carpeneti if she could recommend other
language.
MS. CARPENETI said she would recommend using the House Judiciary
Committee language.
CHAIRMAN TAYLOR maintained that Amendment 1 would return the bill
to the House Judiciary Committee version. He then noted that
without further discussion or objection, Amendment 1 was adopted.
There being no further discussion, SENATOR DONLEY moved SCS CSHB
330(JUD) from committee with individual recommendations and its
accompanying fiscal notes.
CHAIRMAN TAYLOR announced that without objection, SCS CSHB 330
(JUD) moved from committee.
2:15 p.m.
The committee took up HB 304.
HB 304-PERM. FUND INCOME/ DIVIDENDS/ FUNDS
REPRESENTATIVE BILL HUDSON, sponsor of HB 304, informed members
that HB 304 is one of several bills that the House has been
working on over the last year to try to create revenue on a
recurring basis to fill the fiscal gap. HB 304 adopts the
recommendation from the Permanent Fund Corporation's board of
trustees. The board suggested the distribution of the earnings of
the permanent fund change from an average of annual income to a
percent of market value (POMV). The legislation creates the
market value concept in the distribution scheme and identifies,
in statute, the distribution on a 50-50 split with 50 percent
deposited into the dividend fund and 50 percent deposited into a
new education fund in the general fund. The House Finance
Committee amended the bill to create a second fund, termed the
infrastructure and economic development fund, with 20 percent
deposited in it and 30 percent deposited in the education fund.
The bill was amended on the House floor so that the full 50
percent will go directly into the education fund. He explained
that the distribution of funds will not begin until FY 2004 so to
begin to fill the fiscal gap in 2003, the bill calls for a
transfer at the end of FY 2002 of $300 million or the balance of
the earnings reserve account, whichever is less, to the general
fund.
REPRESENTATIVE HUDSON said if one looks at these changes long
term, the first significant draw from the earnings of the
permanent fund would occur in 2003: $300 million to offset a $798
million deficit. The House has gone further and introduced other
legislation; HB 304 is just one piece of a larger plan. He noted
that concern was expressed among House members about using a
straight 5 percent. The possibility of using 7, 6, and then 5
percent was discussed but those two scaled down models were
dropped in favor of the Permanent Fund Corporation board's
proposal of 5 percent. He noted the adoption of the 5 percent
automatically inflation proofs the market value of the fund
predicated on annual earnings of 7.95 percent. The board
recommended that the 5 percent payout would allow the fund to
continue to grow and provide for dividends.
REPRESENTATIVE HUDSON referred to a chart in members' packets and
said it was put together to present all elements discussed by the
House to address the fiscal gap. The third line from the bottom
shows the effective inflation proofing rate, which amounts to a
little less than 3 percent. He said HB 304:
· protects the corpus of the permanent fund;
· grows the earnings reserve account from $2.7 billion this
year to $9.4 billion in 2010;
· increases the market value from $24.6 to $32.9 billion; and
· provides for a dividend that is not capped but subject to
grow according to the annual earnings of the permanent fund.
REPRESENTATIVE HUDSON added that models indicate that by 2010,
the dividend will be alive and healthy and the contribution by
FY04 will be about $633 million to offset the deficit and $633
million to distribute to dividends. According to the models,
dividends will not drop below $1,000.
REPRESENTATIVE HUDSON said HB 304 is revolutionary and
controversial. The proponents of this bill believe that
continuing to fill the fiscal gap by drawing from the
constitutional budget reserve fund will exhaust it by 2005,
leaving the next legislature and governor with no place to go
except the earnings reserve of the permanent fund. That will
predicate the beginning of the end of the dividend program. He
offered to answer questions.
CHAIRMAN TAYLOR asked how much the permanent fund earned last
year.
REPRESENTATIVE HUDSON said the permanent fund actually lost money
over the last couple of years. He deferred to Mr. Kelly for a
detailed answer.
CHAIRMAN TAYLOR asked if HB 304 is predicated on a draw of 5
percent of the market value so that 15 percent would be drawn out
over a three-year period even though the earnings during that
same time period could be negative.
REPRESENTATIVE HUDSON said it would be averaged over five years,
as it is now, but that Chairman Taylor is correct.
CHAIRMAN TAYLOR said it would be even worse if the income was
averaged instead of basing it on actual income. He stated:
If you've had two or three good years - or four good
years as we've had just recently - we had four very
good years, then we had a bad year, two bad ones I
guess. If you average that over five, you're going to
indicate a market value of the fund that's inflated
above what [the] actual value of the fund is and when
you take your 5 percent back as against the fund,
you're actually taking more than 5 percent out of the
corpus - aren't you - because it has to come from some
place?
REPRESENTATIVE HUDSON said, according to law, money cannot be
taken out of the corpus except to invest. All of the draws would
come out of the earnings reserve account.
CHAIRMAN TAYLOR said that in using the average, the earnings
reserve account would be exhausted within a couple of years. He
asked if it contains about $3 billion now.
REPRESENTATIVE HUDSON said it has $3 billion plus and is
anticipated to grow. The 5 percent pay-out was the recommended
pattern given to House Finance Committee members by the Permanent
Fund trustees. They said all of the major trusts are better off
to set up a fixed draw on an annual basis, subject to automatic
inflation proofing. He said he doesn't think it matters much
whether the annual net earned interest or the 5 percent of market
value (POMV) pay-out method is used. According to the experts,
using the POMV is the best way to provide for the most stable
draw. The bill requires the payment to be prorated down if less
money is in the earnings reserve account so that no draw can be
made from the principle of the permanent fund.
CHAIRMAN TAYLOR argued that the proration would result in a
lessening of income back to the state for general fund purposes.
REPRESENTATIVE HUDSON said that is true.
CHAIRMAN TAYLOR asserted that would mean there would not be
enough money to run government.
REPRESENTATIVE HUDSON said the bill is not designed to run the
government; it is designed to draw a portion of what is necessary
to run the government. He said an income tax would bring in
another $250 million. He stated:
We're simply trying to have a balanced draw across from
a number of different sources - payroll and everybody
who has a dividend will pay something into government
with this whole instance here...." He said he knows
this approach is controversial because it will, if it
passes, distribute half of the 5 percent payout into
dividends and half into government to offset the
deficit.
CHAIRMAN TAYLOR asked about inflation proofing.
REPRESENTATIVE HUDSON said inflation proofing is automatically
retained within the fund by virtue of limiting the payout to no
more than 5 percent.
CHAIRMAN TAYLOR said that assumes a 7.9 percent return. He noted
there is no inflation proofing this year.
REPRESENTATIVE HUDSON disagreed and said, "We would not
distribute it, we retain it. We only distribute 5 percent."
CHAIRMAN TAYLOR said it would be retained in the earnings reserve
account where it would be available for appropriation. He pointed
out that the inflation-proofing amount has been deposited into
the corpus of the fund.
REPRESENTATIVE HUDSON explained:
Well it's inflation-proofed the entire fund because
we've set it up now on a market value concept. We now
consider - I think we always have anyway - that the
corpus of the fund, the realized gains and the
unrealized gains, are all a part of the permanent fund.
By setting up the POMV - you're right in this respect
Robin, we are, according to this draft, essentially
maintaining the inflation-proofing in the earnings
reserve account and, in years past, we have by
statutory action on an annual basis, transferred the
money directly into the corpus of the permanent fund
and that's why we've seen the - you know we've got
about $5.5 billion into the corpus of the permanent
fund that is there on the basis of legislative action
over the last 20 years. We have transferred that
inflation money into the corpus, in addition I might
add, to other money that has stacked up after dividends
were paid according to the formula that we have in
existing law and periodically over the years - and I
think we've got another $4.5 billion that is into the
corpus of the fund by virtue of those actions. So we've
had the automatic distributions according to the
constitutional formula and the action by those of us
who have been around here for the last 20 some odd
years of putting in the inflation proofing in the
corpus of the fund and additional contributions
periodically when the earnings reserve account got up
to as much as $8 or $9 billion.
Now what we'll have if we adopt this measure is that
we'll have the, by virtue of the 5 percent payout,
we'll have the balance of - let's say they make 8
percent or 7.9 percent - the balance of that annual
earnings will be maintained in the earnings reserve
account. That is a difference and you hit upon it right
off the bat. In my original HB 335, I had those monies
automatically being transferred over to the corpus of
the fund, as we do at the present time. Over the
hearing of this bill, and this has come through the
Finance Committee and other areas there obviously,
other people felt that it should just simply be stacked
into the earnings reserve of the permanent fund. So
that's where you see the earnings reserve rising from
$2.7 to $9 billion, but you also see the corpus of the
fund rising from $21 billion to about $23.5 billion,
roughly speaking. So, you have a lesser growth but
there's nothing in here that precludes, you know, us
from here on out, as that account gets, say, well above
where we need to have [indisc.] assurance for stability
of transferring $1 billion as we always have. Because
we're doing this statutorily instead of
constitutionally, everything we have been doing in the
past we can continue to do in this legislation so...
CHAIRMAN TAYLOR said the sad part is that the legislature has not
always made the transfers. He put the last amendment on to the
budget bill to convey the excess earnings that were retained in
the undistributed income account of the permanent fund about
three or four years ago and the House refused. He stated:
As a consequence, we've not shipped another one over to
you guys 'cause we figured you'd just turn it down
again. That's the only reason you've got the amount of
money to play with sitting in the undistributed income
account that you've got right now. Rick Halford did it
for many years. I put the last two on myself. The first
one succeeded and the second one was failed by the
House so that people could retain what they hoped would
be a larger amount of money within the undistributed
income account that they could then access with 21
votes because people wanted to spend it on government
and I felt it ought to go back into the fund. Because
that had been the previous attitude and policy around
here that we put money back into the corpus of the
fund, where it wasn't available on a simple majority
vote, and by so doing, you're correct. We've grown the
fund by over $8 billion. I'm very proud that we did
that. Had we left it in an undistributed income account
where you're proposing to keep all of it now, including
the 'inflation proofing' of the fund - you never have a
time when inflation proofing goes back to the fund, do
you?
REPRESENTATIVE HUDSON said it is a simple matter of leaving it
the way it is, which was the will of the House. His interest was
to put it all back in the corpus of the permanent fund.
CHAIRMAN TAYLOR said what was to be used to inflation proof the
fund will now sit in an account that's available for
appropriation by the legislature. He then asked if a shorter-term
investment regime is required for those funds.
REPRESENTATIVE HUDSON said not necessarily. He believed the
return would be more stable if it is maintained in the corpus of
the permanent fund. He deferred to Mr. Kelly for a detailed
explanation.
CHAIRMAN TAYLOR said that by placing the five year averaged
earnings into a constitutional budget reserve account, it would
be invested on a much shorter term basis and it is not available
for long term equity investment because it is available for
appropriation at any time by the legislature and easy access is
necessary. He stated that further diminishes the earning capacity
of those monies, especially when there is a down cycle in both
bonds and long term interest issues.
SENATOR THERRIAULT said he is glad the 6 and 7 percent provision
was removed from the bill because he feels very protective of
inflation proofing the fund. He then asked why Representative
Hudson why he chose to go with this mechanism instead of the
mechanism suggested by the trustees. He said it is his
understanding that when the legislature proposes a constitutional
amendment, the public is suspicious of complex issues with regard
to the Constitution.
REPRESENTATIVE HUDSON said as the bill worked its way through the
House, members preferred making the statutory changes that are a
mirror image of what the Permanent Fund board suggested doing
constitutionally. House members were a little nervous about
moving forward with a constitutional amendment this year.
SENATOR THERRIAULT asked if Section 11 repeals the existing
statutory inflation proofing mechanism.
REPRESENTATIVE HUDSON said it does.
SENATOR THERRIAULT expressed concern that if the legislature
adopts the methodology in HB 304, inflation proofing will be
repealed. If a future legislature makes some other statutory
change, there is no guarantee that inflation proofing will be put
back into the statutes.
REPRESENTATIVE HUDSON said the limitation of the distribution of
income to the 5 percent payout is the mechanism that most large
trust funds use in order to guarantee that inflation proofing is
maintained. He said:
If you feel uncomfortable with having the inflation
proof accrue to the earnings reserve account, which I
[indisc.] is far more accessible - it's not accessible
at all if it goes into the corpus of the fund. So
that's the question and on my side I was not able to
essentially get this amendment in by bill. My original
bill had all of the inflation proofing essentially
distributed to the corpus of the permanent fund so
that's the choice of the deliberative process.
SENATOR THERRIAULT asked if the education and infrastructure
funds will be sub-funds of the general fund.
REPRESENTATIVE HUDSON said they are indicated funds, not
dedicated funds.
TAPE 02-26, SIDE B
2:41 p.m.
REPRESENTATIVE HUDSON said in regard to Chairman Taylor's concern
about inflation proofing, the current situation, as he
understands it, is that in the earnings reserve account, the
unrealized gains are the inflated value of the stock that is
maintained in the corpus of the permanent fund. Therefore, if a
stock increases by $10 million in value over a year, that $10
million is maintained in the unrealized gains of the permanent
fund. He said if one looks at the earnings reserve account, the
realized gains were funds that were invested so that they could
be accessed easily and deposited in the general fund. So, other
than the fact that inflation proofing is not deposited into the
corpus of the permanent fund automatically, the bill contains the
suggestions by the Permanent Fund trustees. He believes it will
sustain, maintain and actually grow the permanent fund dividends
over time and its purpose is to split the income.
CHAIRMAN TAYLOR expressed concern that Representative Hudson has
estimated a growth rate of 7.5 percent and that all schedules
into the future are based on that. The hard money of 5 percent is
taken based on whatever the market value of the fund is at a
given moment in time. Market value means unrealized gains, which
does not become money in one's pocket until the stock is actually
sold. He said he can imagine that a real disaster would have
occurred if this system was in place two years ago because the
market value of the permanent fund's stock was much higher than
it is now and the high number would have been used as an
estimate.
REPRESENTATIVE HUDSON replied the average of the four previous
years and the current year would be used for the estimate.
CHAIRMAN TAYLOR said he is suggesting that HB 304 uses an
automatic take of 5 percent and, if calculated today, would be
based upon an average that had $28 billion in value several years
ago and $22 billion in value today. He noted the $6 billion loss
is not reflected because it has been averaged in. He noted the 5
percent will be drawn on an average of $24 billion. And, the
income left over after 5 percent will be used to inflation proof
the fund, but that amount will be zero because the fund had zero
income. He stated:
Then we're going to say that we're going to inflation
proof the fund based on the extra income left over
after 5 percent. This year there was zero income. So,
as there was zero income, there's zero that goes into
inflation proofing because the only inflation proofing,
it appears from your formula, is that money left over
that is income after the 5 percent draw has been made.
That is then inflation proofing - that inflation
proofing not going back into the fund but instead goes
into the same bucket that you're going to draw the next
five years - or the next year's 5 percent out of no
matter what the market does. This thing doesn't have
anything to do with market anymore. It doesn't have
anything to do with income anymore. All it has to do
with is an annual draw of 5 percent out of a bucket
over here that we've now - we used to call it
undistributed income account and constitutional budget
reserve and now you're going to move that fund into the
constitutional budget reserve account which requires
three-quarter vote to access. That's why your friends
were so willing to vote for it.
REPRESENTATIVE HUDSON clarified that nothing from HB 304 will be
going into the CBR.
CHAIRMAN TAYLOR said it will then be accessible by 21 votes in
the House.
REPRESENTATIVE HUDSON replied, "Absolutely." He then clarified
that 50 percent of the 5 percent payout will be distributed to
the permanent fund dividend account, and 50 percent to the other
account, or the amount that is in the earnings reserve account,
whichever is less. He responded:
Robin, it's really, I think at any rate, the same as we
have at the present time except we're using a percent
of market value for even distribution of the income as
opposed to an average of the annual earnings over the
last five years so - that's what they're doing now,
they're taking 21 percent of the five-year average and
they're distributing that to - by law. You can look
back and see the statutes. We distribute 50 percent of
that to the permanent fund and then we use the CPI and
all that type of stuff and we distribute the inflation
proofing into the corpus of the permanent fund. As I
said, that's your argument with my legislation as you
have it before you now. And then we take the balance of
it and it just simply is invested into the earnings
reserve account. That's why the earnings reserve
account got all the way up to $8 billion at one point
in time and then we had boom-boom, she dropped down
with those terrible two years there. This will
establish it on a prorated basis. If it falls below it
will never get below whatever's in the earnings reserve
of the permanent fund. I really urge you to take a good
hard look at this and call some of these financial
experts in here because what we've tried to do is to
listen to the experts and figure out how can we best
protect the fund and, at the same time, fairly and
equitably distribute the income.
CHAIRMAN TAYLOR repeated his concern about using an automatic 5
percent that is not dependent upon any income coming into the
fund. He said that he realizes that over time that might work for
major trust funds, but he is very frightened of an inflationary
situation during the Carter presidency with 18 percent inflation
coupled with a 5 percent draw whether or not the market performed
well. He then noted the committee would have to recess to attend
a majority caucus and that he would continue the hearing on
Wednesday. He then asked Ms. Reynolds to testify before the
committee recessed.
MS. LINDA REYNOLDS said she shares Chairman Taylor's concern and
that HB 304 is a way to use the permanent fund for government
expenses. She asked what is to stop the legislature from using 5
percent this year but a higher percent over the years. She noted
that Alaska state government spends $48,000 for a family of four
now. The public has asked that government spending be controlled
and that private sector growth of natural resources be opened up
to generate revenues. She said the legislature does not seem to
be addressing private sector jobs in the state. Instead, the
state is going toward a socialistic system in which it will take
the wealth of Alaska to fund government. She said that history
shows that socialism is not the answer. She emphasized the need
for responsible economic development of renewable resources. She
noted that using the permanent fund dividend to fund government
services will be taking money from the poor.
CHAIRMAN TAYLOR thanked Ms. Reynolds. He announced that HB 304
would be heard again on Wednesday, at which time Mr. Kelly would
testify.
SENATOR DONLEY asked for information from the Permanent Fund
Board of Trustees on the true national average for the foundation
payouts.
There being no further business to come before the committee,
CHAIRMAN TAYLOR adjourned the meeting at 2:58 p.m.
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