Legislature(2017 - 2018)BUTROVICH 205
01/19/2017 01:30 PM Senate LABOR & COMMERCE
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| Audio | Topic |
|---|---|
| Start | |
| Presentations: Moving Alaska's Economy Forward | |
| Northrim Bank | |
| Alaska Housing Finance Corporation | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
ALASKA STATE LEGISLATURE
SENATE LABOR AND COMMERCE STANDING COMMITTEE
January 19, 2017
1:32 p.m.
MEMBERS PRESENT
Senator Mia Costello, Chair
Senator Shelley Hughes, Vice Chair
Senator Kevin Meyer
Senator Gary Stevens
Senator Berta Gardner
MEMBERS ABSENT
All members present
OTHER LEGISLATORS PRESENT
Senator Natasha von Imhof
Representative Chris Birch
COMMITTEE CALENDAR
PRESENTATIONS: MOVING ALASKA'S ECONOMY FORWARD
- HEARD
PREVIOUS COMMITTEE ACTION
No previous action to report.
WITNESS REGISTER
JOE BEEDLE, Chairman
Northrim Bank
Anchorage, Alaska
POSITION STATEMENT: Provided information about moving the Alaska
economy forward.
MARK ROMICK, Deputy Executive Director
Alaska Housing Finance Corporation (AHFC)
Anchorage, Alaska
POSITION STATEMENT: Presented information on Alaska's housing
market and economy.
DAN ROBINSON, Chief
Research and Analysis Section
Division of Administrative Services
Department of Labor & Workforce Alaska
Juneau, Alaska
POSITION STATEMENT: Provided information about Alaska's future
economy.
MARCUS HARTLEY, President
Northern Economics
Anchorage, Alaska
POSITION STATEMENT: Presented information about Alaska's
economic future.
DR. RALPH TOWNSEND, Director and Professor of Economics
University of Alaska Anchorage
Institute of Social & Economic Research (ISER)
Anchorage, Alaska
POSITION STATEMENT: Presented information on moving Alaska's
economy forward.
ACTION NARRATIVE
1:32:19 PM
CHAIR MIA COSTELLO called the Senate Labor and Commerce Standing
Committee meeting to order at 1:32 p.m. Present at the call to
order were Senators Hughes, Gardner and Chair Costello. She
noted that Senator von Imhof and Representative Birch were also
attending the meeting.
^PRESENTATIONS: MOVING ALASKA'S ECONOMY FORWARD
PRESENTATIONS: MOVING ALASKA'S ECONOMY FORWARD
1:33:05 PM
CHAIR COSTELLO announced that the committee has been focusing on
Alaska's economy. She said this hearing is an opportunity for
legislators and the public to better understand Alaska's
economy. The committee will recap information from previous
hearings and examine policy options available to the state. The
goal is to analyze changes in Alaska's economy and learn how to
best move Alaska's economy forward.
1:33:54 PM
CHAIR COSTELLO introduced the panelists and thanked the members
of the public who have participated in hearings. She pointed out
that the Alaska Senate Labor & Commerce Committee has a Facebook
page and the public can ask questions during the discussion
through that venue.
1:35:57 PM
SENATOR GARDNER asked whether someone is monitoring the public's
comments.
CHAIR COSTELLO said her staff is doing so.
^Northrim Bank
1:36:37 PM
JOE BEEDLE, Chairman, Northrim Bank, provided information about
moving Alaska's economy forward. He said his presentation is
about the need for more certainty in Alaska's economy. He
related that Northrim, publicly traded under NRIM, is a highly
regulated bank that is registered with the U.S. Securities and
Exchange Commission (SEC).
He discussed how Northrim attracts institutional capital. He
emphasized that planning does matter. He stressed that the
markets look at Alaska's economy, of which the government makes
up about 15 percent. When the state needs to raise revenue,
taxation becomes an issue. Fiscal leadership matters and the
current lack of certainty in the state is a detractor for
investment in Alaska. Banks today are seeing less investment and
borrowing and finding that customers have less confidence.
1:39:24 PM
He said the state has been a stimulus to Alaska's economy over
the past twenty years and deserves credit. He used a Garfield
cartoon to stress that ignorance is not bliss, and the state
must address the current financial situation.
1:40:33 PM
CHAIR COSTELLO welcomed Senator Stevens.
MR. BEEDLE turned to Alaska's economic outlook. He credited
state agencies and departments for their work on the economy, as
well as ISER's econometric modeling. The state's response to the
current economy is vital, but not yet measured. He praised
Northern Economics' modeling. He stressed that there has been
less investment in the state recently, which has caused a wage
and people recession. Currently, there are no economic movers or
stimulus and he predicted that the recession would last for
three or more years and be the new normal.
He explained that the state's fiscal balance sheet shows net
assets are shrinking due to unfunded liabilities and
accumulating tax credits. He emphasized that it is time to use
the Permanent Fund and moderated taxes as part of the solution.
1:43:40 PM
MR. BEEDLE pointed out that rising interest rates and
nationalism add risk to Alaska, therefore, the state must
recalculate and "take a different turn" in order to move off the
financial cliff.
He stated that Northrim Bank's position encourages, as a budget
solution, additional reduced spending, increased taxes, and use
of the Permanent Fund over three-to-five years to provide long-
run positive impacts through a return of business confidence and
a stabilized climate for private capital investment. He
mentioned several positive trends in possible changes in the
federal administration regarding resource development. Growth in
tourism and healthcare have already provided some opportunities.
He concluded that there are tools the state can use during this
fiscal crisis.
1:46:01 PM
SENATOR STEVENS asked Mr. Beedle for his opinion of the best
approach for keeping jobs in Alaska: budget cuts, use of
Permanent Fund earnings, or income tax. He noted that Northern
Economics suggested that the best approach to keeping both
population and jobs was to use Permanent Fund earnings.
MR. BEEDLE replied that Northrim supports the use of all those
tools. The Permanent Fund would provide immediate revenue,
whereas the others need time for implementation and regulation
writing. He stressed that the implementation of taxes must be
minimal, growing to moderate and less than municipal and state
markets elsewhere. Northrim pays 9.4 percent income tax and high
new taxes would disadvantage the bank.
1:47:54 PM
SENATOR GARDNER asked what the acronym "CEDS" means.
MR. BEEDLE explained that it is a statewide Comprehensive
Economic Development Strategy (CEDS) coined by the U.S. Economic
Development Administration (EDA) [to allow state community
leaders and the private sector to create an environment for
regional economic development.] Alaska does not have a current
CEDS; it is outdated, resulting in the inability for Alaska
Regional Development Organizations (ARDORS) to apply for grants.
He provided an example related to the Port of Anchorage. He
stressed that Alaska's economic engine needs the most attention
when developing its CEDS.
SENATOR GARDNER asked for more information about the words "not
mush - need material meaningful employment/investment" found on
the "Need a Plan" slide.
MR. BEEDLE explained that though cottage industry and small
agriculture are wonderful, there must be meaningful growth from
entrepreneurial investment and meaningful capital and operating
investments - "movers." Today's focus needs to be on getting
jobs back.
1:50:40 PM
SENATOR GARDNER related that the Senate president said he is
comfortable with the state being on the edge of a precipice
because it holds down spending. She inquired if Mr. Beedle
agrees or if uncertainty is a drag on investment decisions.
MR. BEEDLE commented that it is a difficult time and there is so
much uncertainty, that any amount of certainty is going to help.
He cautioned that the state cannot wait for the "cliff" to get
steeper and it needs to act now in moderation over a period of
years. He opined that there needs to be a gradual decline with a
soft landing.
1:52:19 PM
SENATOR HUGHES thanked Mr. Beedle for the presentation. She
addressed the net depreciation of infrastructure assets and the
administration's decision to put several projects on hold. She
asked if that was a good decision.
MR. BEEDLE said he is not qualified to answer. He suggested the
benefits of looking at unrestricted assets and general fund. The
unrestricted ones have shrunk tremendously. The balance sheet is
shrinking, and the income statement is showing a loss, which is
very dangerous on two counts.
^Alaska Housing Finance Corporation
1:54:05 PM
MARK ROMICK, Deputy Executive Director, Alaska Housing Finance
Corporation (AHFC), presented information on Alaska's housing
market and Alaska's economy. He offered to provide statistical
information on the housing market should the committee desire
it. He said AHFC is a reactive industry and has a big impact on
the market. According to the Bureau of Economic Analysis, it's
about 10 percent of the gross state product - between $3 billion
and $5 billion. For every 100 homes that are built, about $30
million in wages, $6 million in taxes, about 400 direct jobs are
produced. Additionally, about $6 million in purchases are made
which equal about 78 additional jobs.
1:57:57 PM
MR. ROMICK agreed with Mr. Robinson's comments at the previous
meeting that there are no major signs of problems in the housing
industry. Alaska is well below the national average for
delinquencies and foreclosures. Today, Alaska is in a different
place regarding housing than in the 1980s because there has been
no housing bubble. Permitting has been anemic and there has not
been a lot of new inventory in the market resulting in
stability.
He said the housing market varies across the state; there are
regional differences. The forecast from the real estate
community is that most markets are in moderate to mild activity
and last year was stable.
2:01:50 PM
CHAIR COSTELLO welcomed Senator Kelly. She stressed the
importance of the committee's role in facing economic challenges
and opportunities.
2:02:09 PM
MR. ROMICK related that there is a strong need for affordable
housing in Alaska, particularly in rural areas. He discussed how
safe and quality housing relates to health care costs.
2:02:50 PM
MR. ROMICK said housing funding at the federal level has been
stable. Several areas may change under the new administration.
He referred to the possibility of deregulation at the federal
level and unknowns about Freddy Mac and Fanny Mae.
He emphasized two points from yesterday's presentation. He
recalled Mr. King's comments on the multiplying effects of
economic change such as the loss of a home, versus a reduction
in income. He described the chain of events in both situations.
He emphasized the interconnectedness of geography.
2:05:54 PM
CHAIR COSTELLO thanked Mr. Romick. She asked Mr. Robinson about
the Department of Labor & Workforce Development's research on
economic trends. She recalled that the industries that were hit
first and hardest were the oil and gas and construction
industries. She said the statement by Mr. Romick that there are
no problems in the housing industry seems to be a contradiction
to that.
2:06:54 PM
DAN ROBINSON, Chief, Research and Analysis Section, Division of
Administrative Services, Department of Labor and Workforce
Development, provided information about Alaska's future economy.
He emphasized that some of the research data is speculative
because there is a lag in data sets. He pointed out that
previous vulnerabilities in the housing market no longer exist
at the state and federal levels. Another part is the "age
structure" and how it relates to job loss. The state has not
seen large scale population loss, only a net loss to migration
of about 15,000 to 20,000 people, compensated for by natural
increases in population. He gave an example of a worker who
retired and stayed in Juneau and an oil worker who retired and
stayed in Alaska. The population is older, and more people are
in the position to stay in Alaska, which wasn't true in the 80s.
"Age structure" job loss does not equal population loss.
2:08:38 PM
CHAIR COSTELLO noted the arrival of Senator Meyer. She opened
the discussion to panel members' questions.
2:09:14 PM
MR. ROBINSON asked Mr. Beedle what affects capital investment in
Alaska and what might revitalize the downward trends.
CHAIR COSTELLO asked if Mr. Hartley would like to answer. She
restated the question.
2:10:14 PM
MARCUS HARTLEY, President, Northern Economics, presented
information about Alaska's economic future. He said investors
want a certain level of certainty before making an investment.
The lack of state decision-making is bad for investors.
CHAIR COSTELLO asked what affects consumer investment.
MR. BEEDLE addressed the question from an enterprise viewpoint.
He brought up the potential for relief of regulations by a new
national administration as an example of a positive effect on
the banking business. He spoke of carpetbaggers in the early
days of Alaska. Resource development in mining is an example of
an opportunity with stability. The opportunity to tax is a
concern depending on the level of taxation. Honoring commitments
is important. Investors are looking to the state to create a
stable fiscal plan.
2:14:58 PM
CHAIR COSTELLO recalled Senator Stevens' comment on the state's
not honoring its oil tax credit commitments. She asked for an
elaboration on that idea.
MR. BEEDLE used the example of the surety of federal government
personal income tax refunds to show stability in the market. He
said AHFC is a conduit for the U.S. Treasury to provide tax
credits for low income housing. Northrim Bank then buys tax
credits that become equity investments for low income housing
developers. Northrim has invested over $20 million in those tax
credits over the last five years and gets to offset tax
liability over fifteen years. Northrim needs certainty that
there will be a deduction on their tax return every year. Those
are bankable and exchanged on the market. In contrast, the
state's tax credits are now not exchangeable on the market,
which is a problem. He said it is both a challenge and an
opportunity for the oil companies and the state to negotiate a
different strategy.
2:17:28 PM
CHAIR COSTELLO asked Dr. Townsend if he had anything to add.
DR. RALPH TOWNSEND, Director and Professor of Economics,
University of Alaska Anchorage, Institute of Social & Economic
Research (ISER), presented information on moving Alaska's
economy forward. He addressed problems related to uncertainty
regarding the oil tax credits. The size of the debt is so large
that it is causing uncertainty for the industry and for state
government. This needs to be solved.
He said the state's budget is a big problem in that it is
recognized as not sustainable by economists. This will have to
change soon because delaying the decision will cause job losses
which will cause a crisis in the housing market. There need to
be adjustments on the revenue side. They could be broad-based
taxes or an adjustment to the Permanent Fund. He provided
examples of the negative impact on businesses if nothing is
done. He said there are consequences with either decision, but
it is important that a decision is made so that businesses can
come up with a plan.
2:21:22 PM
CHAIR COSTELLO recalled that a question was asked about which
option gets the state farther down the road with the least
amount of pain to the economy. The answer was savings - using
the Permanent Fund in some way. She asked the panel members if
they agree with that.
2:22:22 PM
DR. TOWNSEND clarified that the answer was given in the context
of solving the problem during the next year or two. He agreed
that, in the short run, savings is the least painful option. In
the long run, the state needs to look at what is important in
government; decisions that get the state government Alaskans
want. In the medium term, the goal should be to manage the
macroeconomic impacts on the state's economy in a way to
minimize the disruption to the economy. In the long run, all
those solutions need to be considered; the question is the
timing. He suggested using the constitutional budget reserve and
earnings reserve funds to manage a transition from the current
situation to one that has readjusted how to finance government.
He advised closing the fiscal gap this year over time, not all
at once.
2:25:25 PM
MR. BEEDLE agreed. He said the earnings reserve provides a hedge
- use the Permanent Fund at 4.5 to 5 percent today - implement
taxes with effective dates that will make a difference later.
2:26:51 PM
MR. HARTLEY did not agree that using the Permanent Fund is
better than the institution of a broad-based tax. He opined that
the Permanent Fund should be used to get through the current
crisis along with an income tax. He gave an example of out-of-
state workers that receive Alaska's dollar resources. He posited
a state income tax could get some of that money. He used oil
workers as an example.
SENATOR STEVENS agreed that fishing crew members don't pay
taxes. He asked whether they would also pay their own state tax.
MR. HARTLEY said Washington has a sales tax, but not an income
tax. Oregon has an income tax. He suggested an income tax could
be constructed so that out-of-state workers would pay it. He
believed that the sales tax is regressive; an income tax is more
progressive.
2:32:35 PM
SENATOR MEYER recalled from yesterday's Department of Labor and
Workforce Development presentation that 20 percent of Alaska's
workforce is from out of state. He maintained that 80 percent of
workers who live in Alaska would be penalized. He suggested that
a sales tax could be variable to target tourists. He said his
concern with both taxes is the need to hire 50 to 60 state
employees to manage them.
2:34:18 PM
MR. HARTLEY said he sees room for both the Permanent Fund draw
and an income tax. He commented that in rural areas the PFD may
be a large part of a person's income and a cut to it would be
disproportionately felt.
2:36:06 PM
CHAIR COSTELLO noted that a question was posed on the
committee's Facebook page. The question pointed out that local
businesses pay local property and sales tax and hire Alaskans.
These businesses face competition from internet sales. The
question is whether the state should develop a policy to capture
some of those transactions.
2:36:42 PM
MR. ROBINSON responded that any question regarding the impact on
the economy is guided by what the money is doing now. The
internet issue is a policy call. However, if the Permanent Fund
is used in the short term, because it is not being used now but
is being saved, it will have less of an impact on the economy.
Any income or sales tax also results in a small impact on the
economy. He said the specifics are less of an economic concern
than the uncertainty surrounding the budget.
2:39:02 PM
DR. TOWNSEND commented on the internet sales tax question which
he imagined at some point would be resolved. He gave an example
comparing internet tax with a state sales tax. He suggested
making the tax broad based and low. He also recommended having a
broader definition of "income." He said it is not necessary to
have a large tax if it is broad enough.
2:42:07 PM
SENATOR MEYER asked if the panel agrees that oil and gas jobs
have an 8-to-1 effect on the economy or if they believe it's the
3-to-1 ratio that ISER stated yesterday.
2:43:22 PM
MR. HARTLEY thought the multiplier might have been an output
multiplier related to jobs-to-jobs.
DR. TOWNSEND said it was an income multiplier.
MR. HARTLEY thought it was confusing. He explained that economic
output multipliers are the total number of sales or spending
generated from a particular job. In Alaska, a very good economic
multiplier might be 2 or 3. Jobs-to-jobs multipliers are much
higher.
2:45:14 PM
SENATOR MEYER asked what the multiplier effect would be of a
state employee job.
DR. TOWNSEND thought it would be 1.7 to 1.9, however, specific
jobs, such as professional employees, have relatively high
multipliers because they are buying local services. Multipliers
for a retail trade are lower because those employees are earning
lower incomes and spend their money on food and big box stores -
out-of-state businesses.
2:47:29 PM
CHAIR COSTELLO requested a comprehensive list of multipliers
which will be available to legislators and the public.
SENATOR HUGHES referred to previous presentations regarding
funding solutions and the degree of harm to job production. Most
harmful was use of the Permanent Fund, then income tax, followed
by sales tax with exclusions. More regressive solutions are more
harmful than less regressive solutions. She said she is hearing
that the panel members are leaning toward using the Permanent
Fund and income tax, as opposed to enacting a sales tax.
She recalled from Dr. Knapp's presentation yesterday that non-
residents would pay a larger portion of sales tax than they
would an income tax. She said she has heard that reducing
budgets are better for the economy than taxing. She referred to
the Reagan era where lowering taxes stimulated the economy. She
stressed the importance of new capital investment. She asked
whether the panel recognizes the thinking that is opposite of
their presentations and how what happened during the Reagan era
can be explained.
2:52:16 PM
DR. TOWNSEND addressed the issue of residents versus non-
residents paying sales taxes and income taxes. He maintained
that who pays the taxes is determined by how federal income tax
is deducted. Higher income individuals itemize more often, and
an income tax will generate more reductions than a sales tax. He
thought there would be small differences between the amounts
collected from out-of-state residents from sales taxes versus
income taxes, unless the sale tax is narrowly targeted. How a
sales tax is designed will determine who is paying it. He
pointed out that, "How you take $100,000 million out in taxes
doesn't make a big impact, in the short run at least, in terms
of total employment." There are small differences. Sales tax is
typically more regressive. Income tax is typically more
progressive. He concluded that the economic impact is probably a
wash on the economy except for the distributional impact.
2:55:26 PM
DR. TOWNSEND noted that the use of the Permanent Fund is
different. He said ISER assumes that a very large percentage of
the PFD is spent. Dr. King found that only 60 percent of the PFD
is spent in a given year. In that case the distributional
consequences are quite different. He maintained that the
difference between a tax change and a PFD change is largely
distributional; the impact on the economy is less important than
the distributional effect.
He turned to the subject of Reagan-era tax cuts. He pointed out
that the tax cuts were financed primarily by larger federal
deficits. Alaska cannot run permanent deficits the way the
federal government can. He recommended Alaska decide whether to
create a big government to propel the economy forward in the
short run. He maintained, "We want to pay for the government we
want." He emphasized keeping the long view in mind when paying
for services.
2:58:06 PM
SENATOR STEVENS gave an example of a cutback in fisheries
resulting in a reduction in catch due to not having enough
resource data.
DR. TOWNSEND agreed the example makes the point that government
workers provide services. The question is what the appropriate
amount of services is. He used child protection services as
another example.
3:01:15 PM
SENATOR HUGHES restated the question on how to explain the
economic growth during the Reagan administration.
3:02:09 PM
MR. BEEDLE pointed out that individuals in Alaska do not pay a
sales tax or income tax so it is hard to create a stimulus,
which was the case with President Reagan. In the case where oil
tax was reduced, oil was incentivized and there was a return to
the state. That investment slowed the decline and has produced
some new finds. Fiscal policy involves taxes and how the state
spends money. Today, an added tax could take away from Alaska's
economy. Another important aspect of taxes is having a broad tax
base. The greater the tax base, the assessed value, the less
impact. Diversity of income sources is key.
3:05:22 PM
CHAIR COSTELLO thanked the presenters and asked them to offer
final comments.
3:06:14 PM
MR. ROBINSON suggested thinking in conceptually broad strokes.
He said to ask what the money is currently doing. He gave an
example of a small multiplier for someone out of state compared
to someone living in Palmer. He said models are simplifications
and he advised members to think broadly about how the money is
being spent and recirculated.
3:08:05 PM
MR. ROMICK concluded that, from a housing perspective the
scenario that has the least impact on people's investment
decisions in the housing market will create the greatest
stability in the housing market.
3:08:54 PM
MR. HARTLEY summarized that it's important to make decisions and
try to eliminate the uncertainty about how to fix Alaska's
fiscal house. He agreed with Dr. Townsend's comment that the
distributional effects may be more important than the overall
economic effects. He said who must pay the money matters almost
as much as what the money does in the economy. He favored a more
progressive tax versus regressive taxes.
3:10:40 PM
MR. BEEDLE commented that the potential for 2 percent drops for
three years is disheartening, but it may also be a new normal at
a different plateau. He emphasized that it is not debilitating
for the state and the concept of Alaska resetting back to a
stable new plateau is okay. It is time to pay, however.
He suggested that the earnings reserves should be viewed as a
bird in the hand - cash in hand - and it is available to use and
can be used immediately. All the options are difficult, but the
difference between them are marginal. Job losses from each one
did not vary by more than 25 percent.
He said the state can be healthy again. Going back to a citizen-
supported government is critical. Delaying the decisions will
hurt the economy.
3:13:43 PM
DR. TOWNSEND offered three points. Alaska needs to realize that
it faces fiscal challenges but has opportunity because of the
Permanent Fund, unlike other states. It provides opportunities
to manage the transition. That fund is part of Alaska's future,
probably more than all natural resources combined. Now, Alaska
needs to say how the fund will shape the future.
He addressed timeframe to enact a plan. He suggested starting
with a five-year plan, which will need ten years of adjustment.
The plan isn't cast in stone but provides reasonable
expectations of the goal. He stressed that details do matter. He
cited the example of managing Medicaid. He cautioned to take the
time to understand the many connections and consequences.
3:18:40 PM
CHAIR COSTELLO outlined the agenda for next week and thanked the
members, panelists, and other legislators in attendance.
SENATOR HUGHES expressed appreciation for the discussion. She
opined that 2018 is the year the state can "absorb the shock of
something more substantial;" 2017 is not the best year to
resolve the budget crisis.
3:20:26 PM
There being no further business to come before the committee,
Chair Costello adjourned the Senate Labor and Commerce meeting
at 3:20 p.m.
| Document Name | Date/Time | Subjects |
|---|---|---|
| 2017.01.19 - Northrim Slides.pdf |
SL&C 1/19/2017 1:30:00 PM |