Legislature(1999 - 2000)
05/07/1999 03:15 PM Senate RES
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* first hearing in first committee of referral
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+ teleconferenced
= bill was previously heard/scheduled
SENATE RESOURCES COMMITTEE
May 7, 1999
3:15 p.m.
MEMBERS PRESENT
Senator Rick Halford, Chairman
Senator Robin Taylor, Vice Chairman
Senator Jerry Mackie
Senator Lyda Green
Senator Georgianna Lincoln
MEMBERS ABSENT
Senator Pete Kelly
Senator Sean Parnell
COMMITTEE CALENDAR
SENATE JOINT RESOLUTION NO. 18
Requesting Exxon Corporation to pay claimants for court-ordered
damages resulting from the Exxon Valdez oil spill.
MOVED SJR 18 OUT OF COMMITTEE
CS FOR SPONSOR SUBSTITUTE FOR HOUSE BILL NO. 96(FIN)
"An Act relating to deposits to the Alaska permanent fund from
mineral lease rentals, royalties, royalty sale proceeds, net profit
shares under AS 38.05.180(f) and (g), federal mineral revenue
sharing payments received by the state from mineral leases, and
bonuses received by the state from mineral leases, and limiting
deposits from those sources to the 25 percent required under art.
IX, sec. 15, Constitution of the State of Alaska; and providing for
an effective date."
HEARD AND HELD
PREVIOUS SENATE COMMITTEE ACTION
HB 96 - No previous Senate action.
WITNESS REGISTER
Representative Norm Rokeberg
Alaska State Capitol
Juneau, AK 99801-1182
POSITION STATEMENT: Sponsor of HB 96
Ed Martin, Sr.
Kenai, Alaska
POSITION STATEMENT: Opposed to HB 96 and any legislation that
impacts the Permanent Fund dividend program without a vote of the
people
Senator Jerry Ward
Alaska State Capitol
Juneau, AK 99801-1182
POSITION STATEMENT: Discussed the effect of HB 96 on long range
financial plans
ACTION NARRATIVE
TAPE 99-31, SIDE A
Number 001
CHAIRMAN HALFORD called the Senate Resources Committee meeting to
order at 3:15 p.m. Present were Senators Green, Taylor, Mackie,
Lincoln and Halford. Chairman Halford announced the committee
would first hear SJR 18 and then HB 96.
SJR 18-EXXON VALDEZ DAMAGE CLAIMS
SENATOR LINCOLN moved SJR 18 out of committee with individual
recommendations. There being no objection, CHAIRMAN HALFORD
announced the motion carried.
HB 96-DEPOSITS TO THE PERMANENT FUND
REPRESENTATIVE NORM ROKEBERG, sponsor of HB 96, explained that in
FY 1980 the state received $4.07 billion in unrestricted general
funds. As a result, the legislature enacted legislation to
increase, from 25 to 50 percent, the amount of mineral lease
royalties and bonuses deposited into the corpus of the Permanent
Fund after February 15, 1980. HB 96 changes the statutory language
enacted in 1980, and reestablishes the annual amount deposited into
the Permanent Fund to the constitutionally mandated amount of 25
percent. HB 96 will allow a greater amount of the cash flow from
existing and new oil fields to be deposited into the general fund.
REPRESENTATIVE ROKEBERG referred to spreadsheets of revenue
projections that will result from the enactment of HB 96, prepared
by the Department of Revenue. He noted the smaller deposit to the
Permanent Fund will not impact the 1999 dividend; it will decrease
the 2000 dividend by approximately $1.70 per person.
BRETT HUBER, legislative aide to the Senate Resources Committee,
discussed a memo from the Permanent Fund Corporation that contained
responses to three questions posed by Chairman Halford. Chairman
Halford asked if the increase from 25 from 50 percent had not
happened, how much less money would have been deposited into the
Permanent Fund. The answer is $80,599,795. The second question
asked how much less income would have been earned by those deposits
had they not been at the 50 percent level. The answer to the
second question was $66.6 million at an average return rate of 9.5
percent for nine years. The third question asked what the effect
would have been on Permanent Fund dividends. The answer is that
the impact to the last dividend would have been $60.54 per
dividend. In addition, Chairman Halford asked what the impact
would have been if, over that same time period, 100 percent rather
than 50 percent had been deposited. The Permanent Fund Corporation
has not responded with an exact number yet, however it estimates an
additional $322 million would have been deposited, which would have
earned an additional $264 million and increased the dividend by
$252.
CHAIRMAN HALFORD said the 100 percent scenario would have occurred
if the state had saved 100 percent of its ownership share.
There being no questions of committee members, Chairman Halford
took public testimony.
Number 164
ED MARTIN, SR. informed committee members he traveled to Juneau at
his own expense to present to legislators a petition signed by
8,866 people from the Kenai-Soldotna area.
CHAIRMAN HALFORD surmised that the subject of the petition was
broader than HB 96, which, he explained, is one piece of the puzzle
in the financial dilemma. He noted the legislation proposes to
decrease the amount of money going into the Permanent Fund.
MR. MARTIN said the people who signed the petition do not want the
legislature to use any money from the Permanent Fund or cap the
Permanent Fund dividend without a vote of the people.
CHAIRMAN HALFORD asked how many people signed the petition.
MR. MARTIN replied he had 8,866 signatures with him, however he
guaranteed that over 9,000 people have signed the petition. Most of
the signatures were obtained as the petitions were circulated among
about 150 businesses in the Kenai-Soldotna area. He read a summary
of comments he received from the people he spoke with:
A time for a new approach to our budget problem has come.
The tree has bore so much fruit, it has weakened and
threatened its own survival. Shortfall - a key word to
justify more burden to the people. Shortfall really
means government overspending and its hunger for more
money.
What government needs is to live within the funds it
already has, not spending more. We should concentrate on
government efficiency - how to maintain the services
needed at a reduced cost. Contracting to private
businesses. All services needed - that does not require
permanent employees of government. What savings could be
realized by the citizen that pays the bill? Why hire
someone in government to do 100 days work a year, which
would require training, salary, benefits, including
insurance, hospitalization, pension costs, pension, per
diem, travel, transportation, car or truck whenever
needed, when contracting to one who is already trained
and does the work as a specialist. Bonding insures the
taxpayer gets his money's worth. Government employees do
not give us that efficiency.
We have a very serious problem when we Alaskans are
paying in excess of $10,000 per man, woman, and child for
government and its services while other states in the
Union spend around $3,000 per person per year. With that
in mind, how can we justify any increases in funding?
What is needed is better management in government
spending.
How can lowering the standard of living of all Alaskans
by taking away the permanent fund dividend improve the
betterment of Alaska? It cannot. What it will do is
hurt the least able amongst us: the children, the
elderly, the disabled, and the person who is trying to
raise a family. Why not let the people have this
dividend to spend as they choose? This will help the
economy of Alaska instead of requiring the less fortunate
to look for more public assistance which would, in turn,
cost more. Administrating, maintaining, enforcement of
a greater public assistance program should not be our
goal.
We, as a state, are very fortunate. We have tremendous
resources - land, oil, gas, timber, minerals and the
geographic position as a hub to the Pacific Rim. Why not
use these resources and manage government more
efficiently? The true goal should be for the people to
have every opportunity to prosper in this great state.
I'm sure the government of Alaska has enough trained
people in Juneau to figure this out. If not, when
election time comes, our elected officials will be
replaced by those who will follow the will of the people.
The time has come to say, 'Enough is enough.' It is time
to change attitudes and manage our government to benefit
all Alaskans, the people who pay the bill.
MR. MARTIN indicated that more signatures would be forthcoming as
the petition is being circulated in Fairbanks, Wasilla, Seward,
Homer, and Valdez. He emphasized that he participated in collecting
signatures in Kenai and Soldotna only.
CHAIRMAN HALFORD repeated that HB 96 is a relatively small piece of
a financial puzzle that would reduce dividends by a few dollars.
He asked Mr. Martin if his position is that no effect on the
dividend should occur without a vote of the people.
MR. MARTIN said that is correct and that people want the cost of
government made reasonable before other avenues are explored. He
noted as a former director of the public works department in
Wasilla, he believes privatization is the way to save dollars.
Number 319
SENATOR TAYLOR expressed appreciation to Mr. Martin for coming to
Juneau at his own expense to talk to legislators. He noted that a
recent weekly television station poll asked viewers whether the
Permanent Fund should be used to support state government. Only 20
percent of the respondents were in favor. He recieved a similar
response from a poll he conducted in his district.
MR. MARTIN maintained that the public is very angry about the idea
of spending more money on government programs instead of fixing the
actual problems.
SENATOR LINCOLN thanked Mr. Martin for his efforts and asked Mr.
Martin how he collected the signatures.
MR. MARTIN replied he left copies of the petition at businesses for
employees to sign. He noted the business community is very upset
because limiting the Permanent Fund dividend will take money out of
circulation and bankrupt some businesses. Also, limiting the
Permanent Fund dividend will lower the standard of living of all
Alaskans. Instead, he suggested raising revenues through land
sales and the creation of a new tax base.
CHAIRMAN HALFORD asked Mr. Martin what short term method he would
suggest to cover a $100 million shortfall for essential government
services after the legislature goes through all of the steps of
privatizating and streamlining state government services.
MR. MARTIN said he would first look to resource development and
would consider capping the Permanent Fund dividend as a last
resort. He does not believe the legislature has begun to scratch
the surface of the privatization issue.
CHAIRMAN HALFORD maintained that although he does not like the
idea, he would accept the establishment of a statewide sales tax
before he would support limiting the Permanent Fund dividend.
MR. MARTIN cautioned committee members that any legislator who
supports limiting the Permanent Fund dividend is performing
political suicide.
SENATOR TAYLOR asked Mr. Martin to lend support to his land bill.
MR. MARTIN stated the opportunity to homestead in Alaska was the
thing that helped him most in life. He asked legislators to give
his children and grandchildren such opportunities.
Number 572
SENATOR WARD began to discuss a computer run of the prospective
results of the House Majority long range financial plan.
SENATOR MACKIE objected to Senator Ward's discussion on the basis
that it was not germane to HB 96. He moved HB 96 from committee
with individual recommendations. An unidentified committee member
objected to the motion.
SENATOR MACKIE objected to the fact that testimony is being taken
on the long range fiscal plan which is not the purpose of the
hearing. He noted he could agree with the Chair's decision to hear
the previous speaker because he traveled to Juneau to give his
testimony, however he does not believe the Senate Resources
Committee is the appropriate forum to hear the long range fiscal
plan.
CHAIRMAN HALFORD stated that Mr. Martin's petition deals with
changes to the Permanent Fund, which HB 96 will affect.
SENATOR WARD asked for the committee's permission to speak and
stated his testimony pertains to the Permanent Fund.
SENATOR LINCOLN said that she will vote against the motion to move
HB 96 from committee because she has not had the opportunity to ask
questions of the sponsor.
SENATOR TAYLOR agreed with Senator Lincoln and said he feels ill
prepared to move the bill from committee at this point in time.
SENATOR MACKIE asked if Senator Ward will be addressing HB 96 or
whether he will be presenting his plan to close the fiscal gap.
CHAIRMAN HALFORD told Senator Ward he must tie his testimony to HB
96 from the start.
SENATOR MACKIE withdrew his motion to move HB 96 from committee.
SENATOR WARD distributed a document to members that compares the
projected income from three plans: the House Majority long range
financial plan which would be unveiled the following day; the
Governor's income tax plan; and a resource development plan under
which dividends would increase. Each plan would go into effect on
January 1, 2001. SENATOR WARD said enactment of HB 96 will prevent
the plans from working. He maintained that the Constitutional
Budget Reserve fund (CBR) could be used to fill the gap until the
voters choose a plan at the next election.
SENATOR TAYLOR asked Senator Ward if any computer runs were done to
determine the impact of placing 25 percent rather than 50 percent
into the Permanent Fund under any of the plans.
SENATOR WARD said such computer runs were done and that the results
showed that the decreased deposit to the Permanent Fund would harm
the dividend program.
CHAIRMAN HALFORD repeated that the impact would be less than $10
on future dividends, but that it would have been as high as $60 per
dividend had it been applied over the past 10 years.
SENATOR WARD said he opposes any plan that alters the Permanent
Fund dividend program.
Number 572
SENATOR TAYLOR commented that the impact of $10 per dividend is
relatively small. He maintained that enactment of HB 96 would
impact each of the computer runs presented by Senator Ward.
TAPE 99-31, SIDE B
SENATOR WARD summarized by saying the legislature is going to spend
$50 billion between the present and 2004, when the CBR runs out.
The amount of revenue generated during that time period will be $39
billion, leaving a shortfall of $11 billion. He said he believes
the people of the state want resource development to occur to raise
revenue to fill the gap. He emphasized it is wrong to alter the
Permanent Fund dividend program at all until the people vote on a
plan.
SENATOR LINCOLN expressed concern that HB 96 is not part of either
Majority's plan and that a plan should not be adopted on a
piecemeal approach. Senator Lincoln acknowledged that although the
impact of $60 per dividend does not seem like much, it could mean
a lot to a large family. She remarked that she wants any proposed
change to the Permanent Fund dividend program put before the
voters.
SENATOR WARD stated that he is opposed to HB 96 because it would
alter the approach of putting the plans before the voters. He
remarked that the Governor's tax plan will not work after 14 years.
The resource development plan requires that resource development be
on line by the year 2004, otherwise severe cuts will have to be
made to the state budget.
SENATOR LINCOLN asked Senator Ward if he is implying that a special
election will be held this November. SENATOR WARD clarified that
the vote on the plans would take place during the general election
in November of 2000. He repeated that the CBR will cover expenses
until the year 2004.
SENATOR LINCOLN thanked Senator Ward for informing committee
members that a House Majority plan was forthcoming.
Number 533
REPRESENTATIVE ROKEBERG commented that he has been working on HB 96
for several years and introduced it at this time thinking the
political climate was right for the legislature to consider such a
change in public policy. He expressed concern that people do not
realize that HB 96 was not introduced as part of a master plan but
it has been adopted by the House as such. HB 96 speaks to resource
development revenue and any future leases will have to be reviewed
to determine the percentage of the income that is placed in the
general fund, otherwise the same cash flow bind will occur.
REPRESENTATIVE ROKEBERG said HB 96 can stand on its own merits, and
that in the first year it will generate $11 million to the general
fund which will reduce the need for additional taxation. He
repeated that HB 96 will have no impact on the amount of the
Permanent Fund dividend this year and will reduce it by $1.76 next
year. He thought Chairman Halford's retrospective amount of $66
would depend on the amount of revenues generated and is not a fair
analogy because it would not effect future dividends. He added
that the first area wide lease sale took place on the North Slope
last year and it generated $53 million, the fourth highest lease
revenue in the state's history. The state budget would have
received an extra $12.5 million had HB 96 been in effect.
Number 468
CHAIRMAN HALFORD commented that if HB 96 is enacted, every dollar
that is generated for spending will come directly from the
principal of the Permanent Fund. He believes the state is
currently spending more than its share of the nonrenewable resource
trust for future generations of Alaskans. Today's needs are being
put above the needs of tomorrow, yet tomorrow we will have less oil
revenue and need a lot more in terms of Permanent Fund revenue. He
said his concern can best be characterized by the bumper sticker
that says, "We are spending our children's inheritance."
REPRESENTATIVE ROKEBERG noted he believes his credentials as a
fiscal conservative are impeccable, and although he shares Chairman
Halford's concerns, he believes HB 96 is the right fiscal policy.
SENATOR MACKIE asked Chairman Halford if he is assuming the
Permanent Fund will be used in the future to fund government
services.
Number 443
CHAIRMAN HALFORD said that oil production will decrease at a
consistent rate and then level out for many years. When it levels
out the citizens might decide to use Permanent Fund income for
government services. That generation will only have one-quarter of
the income from Prudhoe Bay and its interest. This political
generation, from 1969 through to the present, has spent $70 billion
on a population of half of a million during that time frame. He
stated he is most concerned that the next generation have the
opportunity to make the decision on how and when to spend the
Permanent Fund.
SENATOR MACKIE noted his concern is that if the legislature does
not make some fiscal policy decisions that provide for a balanced
budget in the future, the legislature will be setting up a scenario
in which today's children will no longer receive a Permanent Fund
dividend.
CHAIRMAN HALFORD said he believes the government will spend
everything that it can at any given point in time.
Number 412
SENATOR TAYLOR asked whether the House Majority's long range fiscal
plan relies on the $11 to $12 million of increased income to the
general fund that HB 96 would divert from the Permanent Fund to
operate government.
REPRESENTATIVE ROKEBERG said his understanding of the House
Majority's plan is that it contains a component of approximately
$100 million of new revenue. The sources of that revenue will be
the tobacco settlement money, HB 96, and additional dividends from
the Alaska Housing Finance Corporation and the Alaska Industrial
Development and Export Authority.
SENATOR TAYLOR said if HB 96 passes it will create $11 million of
new general fund revenue to support the daily operation of state
government but it will take $11 million from the corpus of the
Permanent Fund. He thought people need to understand the
difference between the capital flowing into the Permanent Fund and
the interest generated off of that capital. If the legislature
starts spending both the interest and the capital, future
generations will have a lot less "seed corn" to plant.
REPRESENTATIVE ROKEBERG commented that the policy question rests on
whether that money should be made available for general fund
spending in light of the $1 billion shortfall. If the issue comes
down to taxation or lowering the amount of the dividend, he
believes lowering the dividend will have less of a negative impact.
CHAIRMAN HALFORD repeated that by setting aside 25 percent into the
Permanent Fund rather than 50 percent, the state will be spending
75 percent of the income each year and will be diminishing the size
of the portfolio of future generations. He likened the situation
to a farmer who sells off parts of the farm to sustain a high
lifestyle. He said this political generation is used to receiving
a high level of service but it needs to figure out how to get more
for less.
REPRESENTATIVE ROKEBERG stated regarding the analogy to the farmer
who is forced to sell off parts of his farm to sustain his family's
lifestyle, the legislature needs to consider that if the farmer's
wife continues with her great cooking, more and more people will
want to move in. He said the legislature needs to consider that
Alaska has a high level of social services, the dividend, and
immigration.
SENATOR LINCOLN expressed concern that constituents statewide do
not want the legislature to take any action that will affect the
Permanent Fund dividend and that there is no way to predict how
much the dividend might decrease in future years if HB 96 passes.
She repeated that any plan that will impact the dividend should be
voted on by the people. She noted that although Representative
Rokeberg said HB 96 is a simple bill and a small piece of the
overall plan, she, as a Minority member, has not seen any plan.
She reminded participants that although Alaska's budget is the
largest of any state and its population is the smallest, Alaska is
unlike any other state. She informed Representative Rokeberg that
she will not be voting for HB 96 because it affects the dividend
and will not provide the people with a chance to vote on it.
REPRESENTATIVE ROKEBERG said he agrees with Senator Lincoln and
explained that HB 96 was not originally part of the House Majority
plan but it was adopted as such. He agreed that the people should
vote on a plan and he would prefer a vote this year to provide more
time for implementation. He maintained that the House has been
arduously working on a plan for three months. He noted this
legislation could be enacted this year if it is the will of the
Senate. He asked the committee to move the bill and hold it if
that would satisfy the committee's concerns about the House
Majority plan.
SENATOR TAYLOR asked Representative Rokeberg if HB 96 is a part of
the House Majority's long range fiscal plan. REPRESENTATIVE
ROKEBERG said it is.
SENATOR TAYLOR stated that according to Senators Torgerson and
Ward, the Governor's tax plan "falls off a cliff" in about 12 to 14
years. He asked Representative Rokeberg if he is assuming that the
new income generated for the general fund from resource development
will benefit from the enactment of HB 96 and will do so at the
expense of the corpus of the Permanent Fund.
REPRESENTATIVE ROKEBERG explained that the House plan uses a
Logsdon perspective and a sensitivity matrix as to probabilities of
new fields and production to enhance the probability of resource
income.
CHAIRMAN HALFORD said he understands the plans to take income from
the Permanent Fund instead of the CBR account and that the
Permanent Fund generates higher income so the state will lose more.
He thought that variable would skew people's decisions.
REPRESENTATIVE ROKEBERG said the assets of the House plan would be
managed as part of the Permanent Fund and would therefore get a
higher rate of return.
SENATOR TAYLOR said he would prefer to invest 100 percent of oil
royalties into the Permanent Fund and then use the income from that
Fund in the future when the people need to rely on it. He said the
argument is whether we should be saving more of the seed corn or
eating it today.
REPRESENTATIVE ROKEBERG said it depends on the price of oil.
TAPE 99-32, SIDE A
REPRESENTATIVE ROKEBERG noted the House plan assumes the CBR will
be depleted within two years. Senator Ward's estimate of four
years could be based on higher oil prices.
CHAIRMAN HALFORD noted the question of what government services
people want and how to pay for those services has not been
addressed for 30 years and needs to be. He then adjourned the
meeting.
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